Yesterday marked the first time in seven months that the first day of the month closed lower. From the very start of Fed Chairman Ben Bernanke’s testimony, coupled with an intraday high for oil selling at over $100 per barrel, it was clear that it would be a rough day on Wall Street. But the real focus was on the Middle East as the Saudi Arabia stock market plunged 7% amid rumors of Saudi tanks being sent to Bahrain.

Daily Stock Market News

Dow: -168 points at 12,058
S&P 500: -21 points at 1,324
Nasdaq: -45 points at 2,737

Volume and Breadth

NYSE: 1.3 billion shares traded; decliners ahead 3.1-to-1
Nasdaq: 638 million shares traded; decliners ahead 3.3-to-1

Futures and Related ETFs

April Crude Oil: -$2.66 at $99.63 per barrel; Energy Select Sector SPDR (NYSE: XLE) -$1.47 at $77.07
April Gold: +$23.70 at $1,433.60 per ounce; PHLX Gold/Silver Sector Index (NADAQ: XAU) +1.94 points at 217.26

What the Markets Are Saying

It’s beginning to feel like last fall when investors were glued to the news since every nuance seemed to have an impact on stock prices. Yesterday, with the Fed Chairman’s testimony beamed around the globe and the Middle East providing fodder for the bears, the market didn’t have a chance of following through on the neutral stance established in the last three days. 

But even with all of the bad news and a resulting triple-digit dip in the Dow, the major indices did not make a clean break to the downside. However, there is just no way to interpret yesterday’s selling as anything but a threat to the bulls. The major indices closed very near the lows of the day, and breadth was more than 3-to-1 negative with selling volume at 8-to-1 on the NYSE. 

For a picture of the current situation, refer to the S&P 500’s chart below:

The small band of highs in mid-February form the resistance at 1,325. Last week’s plunge from the high at 1,334 to under 1,300 penetrated that line, as well as the intermediate trendline and the 20-day moving average. This placed the S&P 500 in a short-term downtrend with resistance at 1,325. But the resistance was penetrated by Monday’s rally and the close at 1,327, briefly neutralizing the downtrend.  

Yesterday’s selling drove the S&P under the 20-day average again, but did stop short of penetrating the intermediate trendline. But the triple-digit down day reinforced the sell signal given by Moving Average Convergence/Divergence (MACD) last week, and by falling through the 20-day average, puts pressure on the 50-day moving average at 1,293 and Thursday’s low of 1,294.

Conclusion: Although it is still possible for prices to reverse back up again, the pressure is clearly against the bulls. In order to negate yesterday’s selling, they must move against the resistance at 1,325. However, if further selling cracks 1,293-1,294, then the next support is at 1,275 with major support at November’s high of 1,225. 

It’s not over ’til it’s over. But until the bulls can attract some buyers, I’d either stand aside or take to the defensive side with bearish trading strategies.

For a defensive gold stock to buy 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.