On Tuesday, the Dow Jones Industrial Average failed to set a 13th consecutive session high. But its decline was slight, falling just 0.1%, buoyed by the president’s proposal to increase defense spending by $20 billion.
The S&P 500 fell slightly by 0.3%, but the Nasdaq lost 0.6% and the small-cap Russell 2000 dropped 1.4%. For the month, the DJIA gained 4.8%, the S&P 500 rose 3.7% and the Nasdaq gained 3.8%.
A fall in retail stocks was the chief reason for a negative day. And that was due to a downbeat forecast for earnings by Target Corporation (NYSE:TGT) whose management said that sales and profits declined in the fourth quarter. TGT’s stock fell 12%, dragging the sector down 0.7%. Even Wal-Mart Stores Inc (NYSE:WMT) fell 1.1%, leading the decliners of the Dow Jones industrials.
At the close, the Dow Jones Industrial Average fell 25 points to close at 20,812, the S&P 500 fell 6 to 2,364, the Nasdaq lost 36, closing at 5,825 and the Russell 2000 closed at 1,387 for a loss of 21. The NYSE’s primary exchange traded 826 million shares with total volume of 1.2 billion shares. The Nasdaq crossed 2.3 billion shares. On the Big Board, decliners outpaced advancers by 1.8-to-1, and on the Nasdaq, decliners led by 3.5-to-1. Blocks on the NYSE increased to 6,896 from 6,411 on Monday.
Yesterday’s close marked a milestone despite the failure of the Dow Jones to sustain enough gains to set a record. Our, thus far, reliable 17-month moving average for the S&P 500 set its own record. According to my research, it has never closed a month at a percent premium of over 11% above its 17-month moving average. It has, however, closed below the average by more. At the bottom of the 2008-2009 bear market, the spread between the closing price and the moving average was almost 40%.
Conclusion: The enormous spread between the low closing price in February 2009 and the 17-month moving average signaled the bottom of the 2008-2009 bear market. I believe that of the two prime motivators, fear has a much higher emotional response than greed. If you are like me, you probably have a bookcase full of volumes devoted to crashes that never occurred.
Thus, when our 17-month moving average shows a record spread, this may have a significant meaning. Though not predicting a crash, it is merely telling us that stocks are overbought and that it is time to take profits.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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