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Major Indices Execute Bearish Key Reversal

A minor correction appears to be in the cards

Stocks fell Thursday following a failure by the European Central Bank (ECB) to ease monetary policy. ECB president Mario Draghi tabled any easing until “early next year,” but a mild bond-buying program is reported to be proposed in January, according to Bloomberg. The Stoxx Europe 600 fell 1.3%.

The Dow and S&P 500 were both off 0.1%, while the Russell 2000 fell 0.5%. Seven of the S&P’s 10 sectors ended in the red, with technology flat and financials up 0.1% and materials gaining 0.3%.

Today, investors will be focusing on the November employment report. Economists expect it to show that 230,000 jobs were created. U.S. jobless claims in the week ending Nov. 29 fell 17,000 to 297,000 versus expectations of 295,000.

At Thursday’s close, the Dow Jones Industrial Average fell 13 points to 17,900, the S&P 500 was off 2 points at 2,072, the Nasdaq fell 5 points to 4,769, and the Russell 2000 was down 6 points at 1,173.

The NYSE traded a total of 3.4 billion shares, and the Nasdaq crossed 1.7 billion. On both major exchanges, decliners outpaced advancers by about 1.6-to-1.

I have spent much time examining the Russell 2000 and Nasdaq and their companion ETFs, concluding that it was likely they would have difficulty moving to new highs before late December. And on Thursday, these indices led the market lower.

Dow Chart
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Chart Key

The most interesting technical development of the day occurred not with the smaller stocks, but with the Dow industrials and S&P 500. Both indices executed bearish key reversals off of a 9-bar new high. This occurrence is not one that is normally significant, but when it happens after a long run up, it often precedes a minor correction.


Thursday’s chart action failed to produce good news. As noted, the major indices exacted a minor reversal. But the mid and small caps’ response was less than supportive for the bulls.

Stocks have had a big bounce from one of the most reliable of chart formations — the deep “V.” But with momentum declining and MACD down, it is clearly time for a rest.

My guess is that before Dec. 31, we will see both the Dow and S&P 500 at their respective 50-day moving averages at 17,182 and 1,991 before they make significant new highs.

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.

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