On Monday, the second quarter ended with mild selling. A late-afternoon rally failed to overcome early profit taking, which followed the biggest quarterly gain since 2015. The Dow Jones Industrial Average fell 0.1% and the S&P 500 dropped 0.2%. Small- and mid-caps, as represented by the Russell 2000 and the Nasdaq, fell 1.2% and 0.3% respectively.
Tesla Inc (NASDAQ:TSLA) reported a Q1 jump in sales of 69% vs. last year, vaulting the company to second place among auto manufacturers, by market capitalization, dropping Ford Motor Company (NYSE:F) to third place. TSLA’s stock jumped 7.3% following the report. All other auto makers reported losses ranging from -0.1% for Toyota Motor Corp (ADR) (NYSE:TM) to -4.8% for Fiat Chrysler Automobiles NV (NYSE:FCAU).
U.S. factory-sector health, as measured by data from the Institute for Supply Management’s PMI, was down fractionally compared to February.
Crude oil (WTI) fell 36 cents or 0.7% but managed to close above $50 per barrel despite a resumption of production from Libya. WTI had advanced four straight sessions last week due to a cut of 1/3 of Libya output.
At the close, the Dow Jones Industrial Average fell 13 points at 20,650, the S&P 500 shed 4, ending at 2,359, the Nasdaq lost 17 to close at 5,895, and the Russell 2000 closed at 1,370 for a loss of 16 points (-1.17%). The NYSE’s primary exchange traded 924 million shares with total volume of 3.4 billion shares. The Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.3-to-1. On the Nasdaq, decliners led by 2.6-to-1. Blocks on the NYSE declined to 6,304 from 7,038 on Friday.
It’s usually a challenge to find a visual illustration of what really happened on a given day. That was not the case today. Yesterday’s mid-cap chart of the SPDR S&P Midcap 400 ETF (NYSEARCA:MDY) shows a nasty failure to follow through on Friday’s fractional advance, which held the ETF above its 50-day moving average. Yesterday’s failure not only closed below the blue line but failed on higher-than-normal volume. The next support line is at the several closes at about $307 and then the major support line at $302.
Conclusion: It is clearly time to raise some cash. However, as pointed out by Jeff Saut, Raymond James’ Chief Investment Strategist, “But given the widespread wariness, the huge cash pile on the sideline and improving fundamentals, the correction will prove to be more of a rotational/time correction rather than magnitude. Accordingly, emphasis should be on stock selection.”
The stock market rarely does exactly what we expect it to do, thus spacing the commitment of that cash to buying at the several support lines is probably a better tactic than going back in all at once. I believe, however, that now is the time to raise cash on all high-P/E stocks that a trader owns. The near-term trend is now down.
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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