U.S. equities mostly finished lower on Thursday while the Dow Jones Industrial Average inched higher — by four tenths of a point — to a new record high. For the average investor, all the focus will be on the Dow’s seventh consecutive gain. Below the surface, however, ominous signs continue to grow with the market flashing another “Hindenburg Omen” signal in the latest in a cluster of signals warning that breadth is fading away as buying interest grows increasingly narrow.
Headlines were preoccupied with palace intrigue out of Washington on reports Special Council Robert Mueller has impaneled a grand jury in the Russia probe. This was widely viewed as an intensification of the investigation.
In the end, the Dow Jones gained a fraction, the S&P 500 lost 0.2%, the Nasdaq Composite lost 0.4% and the Russell 2000 lost 0.5%. Treasury bonds strengthened, the dollar was mixed, gold lost 0.3% and crude oil fell 1.1% to reverse early session strength. That boosted the ProShares UltraShort Crude Oil (NYSEARCA:SCO) recommended to Edge subscribers to a gain of nearly 3%.
Click to Enlarge Breadth was negative with 1.4 decliners for every advancer with NYSE volume at 104% of the 30-day average. Industrial stocks were the leaders, up 0.5%, while energy was the laggard, down 1.3%.
Game maker Take Two Interactive Software Inc (NASDAQ:TTWO) gained 12.2% as earnings beat thanks to the ongoing success of the Grand Theft Auto franchise.
Tesla Inc (NASDAQ:TSLA) gained 6.5% after reporting better-than-expected earnings despite a deepening cash burn rate. Execution risk remains, however, as Model 3 production ramps up. And cereal maker Kellogg Company (NYSE:K) gained 4.3% after earnings beat by 5% on margin upside from cost reductions.
On the downside, 3D Systems Corporation (NYSE:DDD) fell 21.3% on weaker-than-expected earnings on a 14% decline in printer sales from the year ago period. Cheesecake Factory Inc (NASDAQ:CAKE) fell 6.3% on an earnings beat eclipsed by weak guidance. And payments processor Square Inc (NYSE:SQ) fell 4.7% on a sell-the-news dynamic amid better-than-expected earnings and raised revenue.
On the economic front, there was more bad news as the ISM non-manufacturing activity index fell for its largest single-month decline since November 2008. You know, right smack in the middle of the financial crisis. June factory orders were a bright spot, albeit boosted by a contribution by the volatile transportation sector.
Conclusion
Click to Enlarge It’s a tale of two markets right now, as the Dow records its eighth consecutive gain while the Russell 2000 small-cap index moves below its 50-day moving average for the first time since late May. The Dow Jones Transportation Average is in even worse shape, testing its 200-day moving average and risking a breakdown from its nine-month consolidation range.
Something is “off” right now. Large-caps are massively overbought. Divergences are multiplying. Sentient and investor positioning is white hot. And yet the S&P 500 has barely budged over the last 11 sessions, with a range of just 0.3% representing the quietest trading conditions in the 90-year history of Bloomberg’s index data.
All of this is the set up heading into Friday’s non-farm payroll report. Watch for a volatility breakout. We’re long overdue.
Check out Serge Berger’s Trade of the Day for Aug. 4.
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.
Tell us what you think about this article! Drop us an email at editor@investorplace.com, chat with us on Twitter at @InvestorPlace or comment on the post on Facebook. Read more about our comments policy here.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
