Given the lack of news, it would be difficult to point to a reason for yesterday’s triple-digit fall by the Dow Jones Industrial Average (DJI). Stocks opened lower, and then gyrated above and below the breakeven line until mid-afternoon when they plunged.
The euro remained under pressure, closing at 1.192 versus the U.S. dollar, following a dip overnight to 1.188.
Investors again headed for the stability of gold, and the metal surged in late afternoon trading as rumors of a big buyer swept the trading pits. At the close, gold for June delivery had risen 1.9% in dollar terms, but was higher by 4.1% in euros.
Perhaps investors were again worried about Europe’s debt problems. Or maybe the negative momentum from Friday’s sell-off carried into Monday. Whatever the reason, the Dow was down 115 points, closing at 9,816, the S&P 500 (SPX) fell 14 points to 1,050, and the Nasdaq (NASD) lost 45 points to close at 2,174.
The NYSE traded 1.4 billion shares with decliners over advancers by 2.6-to-1. The Nasdaq traded 654 million shares, and decliners there were ahead by almost 5-to-1.
Crude oil for July delivery was down 13 cents to $71.38 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell 45 cents to $51.10.
August gold rose $21 to $1,236.40 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 3.19 points, closing at 172.25.
What the Markets Are Saying
Yesterday’s negative tape action is enough to drive the bulls off a cliff. On Thursday, June 3, with the Dow at 10,255, it looked like they had an opportunity to finally push through the 200-day moving average and form a new base. But instead they are now confronted with two nasty days of selling and the distinct possibility that the low close of Nov. 2 at 9,787 will be taken out along with the February and May lows.
But along with the fear that hangs over the market is the tenacity of the markets to still hold at the crucial support line that connects the November, February, and now the May lows. The key number is the November low of 9,787 since a close under that changes the market from bull to bear with implications of a much more serious decline.
Yesterday, I advised that investors wait in the wings until this struggle is resolved since there is too much at stake to take major positions at the current level. If the Dow can hold at around yesterday’s low, then it is still possible to form a solid base at the current level and even work its way back to the 10,500 area. But a breakdown could easily result in a mad rush for the exits that could take stocks back to the July 2009 range of 8,900 to 9,380.
Tomorrow we’ll consider some of the important longer-term moving averages and what they are telling us.
Today’s Trading Landscape
Earnings to be reported before the opening include: Dollar General and Talbots.
Earnings to be reported after the close include: Bob Evans, Mitcham Industries, Navistar, Oxford Industries, Pall Corp. and Take-Two Interactive Software.
Economic reports due: NFIB Small Business Optimism Index, ICSC-Goldman Sachs store sales and Redbook.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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