Stocks fell slightly Wednesday, but on a broad front, following the Federal Reserve’s positive assessment of economic conditions, which allowed it to terminate its bond-buying program. The Fed assured investors that interest rates would remain low for a “considerable time.”
Along with the modest decline in stocks, the 10-year Treasury note rose to 2.32% from 2.28% on Tuesday.
The change in Fed policy puts more emphasis on corporations’ “real growth,” i.e., increasing revenues versus cost cutting. This has investors nervous despite the positive revenue and earnings data thus far for the third quarter.
Facebook Inc (FB) fell 6.1% after beating estimates but saying costs rose 41% in Q3 and warning investors to expect slower revenue growth in Q4. WellPoint Inc (WLP) rose 1.8% after reporting better-than-expected earnings. Hershey Co (HSY) announced a 5.8% sales increase but lowered guidance for the year, and shares fell 1.5%. The Goodyear Tire & Rubber Company (GT) gained 5.4% after posting higher-than-expected profits.
At Wednesday’s close, the Dow Jones Industrial Average fell 31 points to 16,974, the S&P 500 lost 3 points at 1,982, the Nasdaq fell 15 points to 4,549, and the Russell 2000 dropped 3 points to 1,146.
The NYSE’s primary market traded 822 million shares with total volume of 3.7 billion. On the Big Board, decliners outpaced advancers by 1.3-to-1, and on the Nasdaq, decliners were ahead by 1.2-to-1. Block trades fell slightly on the NYSE compared with Tuesday, but increased by over 10% on the Nasdaq.
The S&P 500 has plowed through some massive resistance since its “V” bottom in mid-October. It reclaimed its 200-day moving average at 1,911, and resistance (now support) at 1,926. And on Tuesday, it managed to close above its 50-day moving average at 1,967.
However, with MACD in an extreme overbought zone and Wednesday’s announcement by the Fed clearly not in line with many bulls’ expectations, can the index continue its march to new highs?
The great October “V” reversal marked the most important feature of the Dow’s chart for the entire year. The reversal from the apex under 16,000 vaulted the index through its 200- and 50-day moving averages in just nine sessions, rising over 7%.
Its next goal is to penetrate the final resistance line at 17,150 before attacking its September high of 17,257.
The “V” formation has been criticized by some analysts as unreliable. But it is one of the most reliable bullish tools in the technician’s basket, as demonstrated in the past two weeks.
On Tuesday, I reviewed the Russell 2000 and Nasdaq (the “soldiers”), and today, I reviewed the S&P 500 and Dow industrials (the “generals”). All of our key indices look tired.
In a short time, the stock market has achieved the nearly impossible. As noted, the big stocks have jumped more than 7% in nine sessions against a mountain of worry. They need a well-deserved rest.
All of our internal indicators are very overbought, and the big news of the week — the Fed’s policy statement — is behind us. The only remaining news of note is the midterm elections, and the only surprise there would be a loss by Republicans. As said many times, “It is theirs to lose.”
So now it is finally time to cash in our trading profits, waiting for the next buying opportunity. Thank you, Mr. October.
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.