On Wednesday, the Dow Jones Industrial Average registered triple-digit losses for the second straight day. The impact of crude oil hitting $100 a barrel, continued rioting in Libya and the Middle East, and a sharp drop in revenues by Hewlett-Packard Company (NYSE: HPQ) sent stocks reeling.
Daily Stock Market News
Dow: -106 points at 12,106
S&P 500: -8 points at 1,307
Nasdaq: -33 points at 2,723
Volume and Breadth
NYSE: 1.3 billion shares traded; decliners ahead 1.7-to-1
Nasdaq: 688 million shares traded; decliners ahead 3.2-to-1
Futures and Related ETFs
April Crude Oil: +$2.68 at $98.10 per barrel; Energy Select Sector SPDR (NYSE: XLE) +$1.55 at $77.82
April Gold: +$12.90 at $1,414 an ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU) +4.05 points at 213.3
What the Markets Are Saying
On Tuesday, the major indices, with the exception of the Nasdaq, held at their first lines of support, while their internal indicators — Moving Average Convergence/Divergence (MACD), stochastic, momentum — failed to issue sell signals. Only the Nasdaq raised the yellow flag as it tumbled through its 20-day moving average but fell short of penetrating its 50-day moving average. The Nasdaq’s down volume was 20-to-1 — a nasty omen.
We closed out the day warning that “the alarm has been sounded,” since the Nasdaq led the way up, it is likely that it would be the first index to break down. The Nasdaq’s MACD indicator flashed a bearish signal and momentum fell to “negative.”
Yesterday, the Nasdaq, along with the other indices, fell again. This time the decline was not so severe with the downside volume on the Nasdaq at 7-to-1 versus 2-to-1 on the Dow. But the two-day combined percentage drop was almost 1.7-to-1 against Nasdaq at 3.94% versus the Dow’s decline of 2.33%. The Nasdaq’s MACD bearish signal on Tuesday was followed on Wednesday by a sharp decline in Relative Strength Index (RSI) and a bearish signal from the slow stochastic.
In addition, the Nasdaq has turned away from major resistance at a 10-year range top, as pointed out by Michael Ashbaugh, has broken its near-term support line, and is now sitting on its 50-day moving average at 2,721.
And yesterday, as if on cue, the Dow and the S&P 500 broke their immediate support lines — the Dow at 12,150 and the S&P at 1,213. Additionally, they both have closed below their 20-day moving averages. MACD and slow stochastic issued bearish signals and momentum fell to “negative.”
Conclusion: The red flag is flying with all indices having broken their near-term support. Bearish signals have been triggered from their internal indicators. In just three days, the market fell from new highs and racked up a series of technical signals that have even seriously damaged its intermediate-term outlook. The next support for the Dow is at 12,000, and for the S&P 500, it is 1,300. The Nasdaq’s next major support is at 2,676.
The reason for the decline is the fear of a reduction in the flow of oil from the Middle East. And so the market will no doubt be focused on news from that area. The immediate trend is down, but after two days of heavy selling, bargain hunters may jump to grab quick trades.
Traders and intermediate holders of stock should sell into the first bounce since it is almost bound to fail, even if the bounce is the result of QE2 buying by the Fed. We’ll be focusing on the next zones of support since a failure there could result in a very long spring and summer on Wall Street.
For one stock to sell or short now, see the Trade of the Day.
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.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
