On Wednesday, the Dow industrials opened strong, and within the first hour, were up 60 points. However, that turned out to be the high of the day as a slowdown in European manufacturing and a warning from FedEx (NYSE:FDX) dampened the earlier enthusiasm and sellers dominated for the remainder of the day.
Any announcement from the European Central Bank (ECB) on how they plan to address the euro zone crisis may be on hold since Germany reported to be balking at certain proposals by the ECB.
This and other economic worries resulted in a flat day of trading with the Dow Jones Industrial Average closing at 13,047, up 12 points, the S&P 500 falling 2 points to 1,403, and the Nasdaq losing 6 points at 3,069. The NYSE traded 675 million shares and the Nasdaq crossed 371 million. On the Big Board, decliners were slightly ahead of advancers, and on the Nasdaq, decliners were ahead by 1.3-to-1.
The S&P 500 has drifted down from a near-high close several weeks ago. Since then, lethargic trading has limited daily volatility and kept prices in a narrow zone.
The first support for the S&P 500 rests at last week’s low of 1,398. This line may appear insignificant at first, but piercing it would confirm that the break through the 20-day moving average had resulted in a series of lower highs and lows.
In other words, a near-term downtrend had been formed with the next support at the 50-day moving average at 1,374, a 2%-plus decline from Wednesday’s close. Momentum has been negative for four days and is telling us that the absence of buyers is beginning to take a serious toll on the near-term direction of the index.
Conclusion: Both the Dow and Nasdaq charts have formed similarly negative momentum patterns. The Dow’s initial support is at 12,979 and the Nasdaq’s is at 3,040. A further break of these support lines would tell us to move to more aggressive negative trading strategies. But it is time to study and observe. A signal is about to be given — wait and then act.
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.