The Dow Jones Industrial Average suffered its first weekly loss of the year when the index was hit with a late round of profit-taking that dropped the Dow over 40 points in the last hour. The total decline for the week was 60 points, -0.5%, but the index is still ahead by 3.6% for the first month of the year. A minor shortfall in reported GDP, the value of all goods and services produced, to an annual rate of 2.8% versus an expected 3% was blamed for the late selling.
At Friday’s closing bell, the Dow was off 74 points to 12,660, the S&P 500 fell 2 points to 1,316, and the Nasdaq gained 11 points at 2,817. The NYSE traded 850 million shares and the Nasdaq crossed 464 million. Despite the small losses on the Dow and the S&P 500, advancers were ahead of decliners on both major exchanges by almost 2-to-1.
Until Thursday, it appeared that the Dow could lead the broad market to an early breakout. But Thursday’s reversal coupled with Friday’s selling resulted in a pullback from clearly defined resistance lines for both the Dow at 12,800, and the S&P 500 at 1,320.
But, as noted last week, the first attempt at a breakout is usually unsuccessful. And breaks that are caused by the Fed’s actions have a high degree of failure. Plus, the reversals were accompanied by lower volume than the advancing days, and so their significance is likely to be short-lived.
The CBOE Volatility Index (VIX) is in what is commonly referred to as a “complacent” area. But note the reversal on the VIX that also occurred on Thursday. This is a warning that the index could head higher and raises a caution flag.
Conclusion: Thursday’s reversals have raised some concerns for the bulls. But we anticipated that the first thrust at new highs would likely run into some resistance. It is normal for major resistance lines to withstand several attacks before giving way.
Thus, long-term buyers should hold their current positions, and traders should patiently wait for the next buying opportunity. This week, we will focus on levels of support for that opportunity.
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.
