Yesterday’s major development occurred early when China announced a target of 7.5% growth, down from 8%, and its lowest target since 2004. Within minutes, the Dow industrials fell 94 points, but that turned out to be the day’s low.
There was negative data from Europe, as well, but investors focused instead on ISM services and factory orders, both above expectations, and by the final bell, the Dow and the S&P 500 had made up most of the losses.
However, the Nasdaq underperformed the other indices due to unusual weakness in Apple (NASDAQ:AAPL), but with no apparent reason. Other techs also showed weakness with Intel (NASDAQ:INTC), Google (NASDAQ:GOOG) and Qualcomm (NASDAQ:QCOM) all down.
At the close, the Dow Jones Industrial Average was off 15 points at 12,963, the S&P 500 fell 5 points to 1,364, and the Nasdaq lost 26 points at 2,950. Decliners exceeded advancers by 1.5-to-1, and on the Nasdaq, decliners were ahead by 1.2-to-1. Volume on the Big Board totaled 702 million shares, and 434 million shares traded on the Nasdaq.
All of the talk yesterday was about how the technology stocks caused a drop in the Nasdaq. And several techs, mostly the high flyers noted above, did succumb to profit-taking. But the danger of a correction in the Nasdaq has been high since the index has been running hard with few days down for almost two months.
Note the overbought level of the RSI indicator, a clear danger signal, just prior to the Nasdaq’s break of its unusually steep trendline.
On Wednesday, I warned that the index was being driven by the “high octane” of Apple, and that the pace just couldn’t be maintained by other high techs. Yesterday, we saw that even Apple can’t continue at such a torrid pace, and the stock fell $12.02. Once the few overbought techs have a normal correction, the Nasdaq should resume its path north.
Note that IBM (NYSE:IBM) made a new high yesterday at $200.66, up $1.85, despite the “technology correction.” But IBM’s path higher has been more normal than the flyers with highs and lows firmly fluctuating within a very confined bull channel. Thus IBM’s trading risk is lower and its pattern is easier to trade.
Stocks that create steep angles of advance are often subject to violent corrections. This can be an advantage to the savvy trader who waits for deep corrections to buy. But the investor is better off buying stocks with more normal patterns that provide good returns and less hyperactivity.
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.
