by Sam Collins | February 3, 2014 2:50 am
The Dow Jones Industrial Average fell again on Friday, closing at its lowest point since Nov.7. January turned in the worst performance since May 2012.
Emerging markets were hammered for almost the entire month. The iShares MSCI Emerging Markets (EEM) lost 8.6% in January. And last week, declines in the Turkish lira and the South African rand resulted in a big hike in interest rates in those countries.
The Federal Reserve’s decision to continue cutting back on bond purchases contributed to the Friday’s broad decline.
At the close, the Dow Jones Industrial Average was off 150 points at 15,699, the S&P 500 fell 12 points to 1,783, and the Nasdaq was down 19 points at 4,104. The primary market of the NYSE traded 3.6 million shares with total volume of 4 billion shares. Nasdaq total volume was 2.3 billion shares. On the Big Board, advancers outpaced decliners by 1.7-to-1, and on the Nasdaq, decliners led by 2.3-to-1.
For the month, the Dow fell 5.3%, the S&P 500 lost 3.6%, and the Nasdaq was off 1.7%.
January’s decline erased all of December’s gains. But it also left the S&P 500 with less of a premium over its 17-month moving average, which was at an astounding 16.7% at the end of December. This was a clear message that the market was overbought and due for a correction. Due to January’s poor performance, the price premium over the 17-month moving average is now down to 11%.
The drive down to the support line at 1,775 was accompanied by high volume, while the bounces have been weak with low volume. A close under 1,775 would trigger a breakdown with a target of 1,700 (see Jan. 30 Daily Market Outlook). But bearish momentum is weakening (see slight turn up in MACD), so perhaps the bulls will manage to stay within the current trading range of 1,775 to 1,813, where they can recover.
Conclusion: As noted on Jan. 3, “Corrections of 10%-20% are common, and yet we haven’t had a significant correction in over three years. [This] marked the first negative opening day since January 2008. In the past 39 years, if the first five days of January gained, the market advanced in 33 of those years (85% of the time). And the ‘January Barometer,’ i.e., so goes January so goes the year, has been accurate 88% of the time since 1950, according to CNBC.”
The AAII Sentiment Survey shows investors are now less bullish, dropping to 32.2% from 55% on Dec. 26, while bearish sentiment has increased to 32.8% from 18.5%. Since the Sentiment Survey is a contrary indicator the bulls may take some encouragement from this. But I wouldn’t count on it.
The S&P 500’s overall pattern is a double top, which is a negative, and so is the pounding on the support line at 1,775. The intraday low was below the support line three times last week. The near and intermediate trends are bearish.
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.
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