Investors found there was nowhere to hide on Friday as stocks, bonds and gold were hit by a broad round of selling.
The Dow Jones Industrial Average fell 1.5%, and the S&P 500 registered a 1.4% loss. The recent selling in gold prices accelerated, with futures falling 2.7% to the lowest level since Nov. 13. And the 10-year Treasury note had the biggest one-day sell-off since November 2013. The yield jumped to 2.24% from 2.11% on Thursday.
Stocks reacted to the pre-market announcement that the U.S. economy added 295,000 jobs and February’s unemployment rate fell to 5.5%. Traders reasoned this puts pressure on the Federal Reserve to hike interest rates. Fed Chair Janet Yellen has already stated that the central bank would consider raising rates when the economy had recovered, as shown by jobs data and other indicators.
Meanwhile, it appears that the European Central Bank (ECB) is at the beginning of stimulative rate cuts, which should weaken the euro even more. The ECB starts its 60 billion-euro-a-month asset purchase program today.
The U.S. dollar rose to an 11-year high versus the euro, which closed at $1.0843. Light, sweet crude oil for April delivery fell 2.3% to $49.61 a barrel.
Interest-rate-sensitive assets, including municipal bonds and utility stocks, both risk-off investments, fell. Utilities were the worst-performing S&P sector, off 3%.
At Friday’s close, the Dow Jones Industrial Average fell 279 points to 17,857, the S&P 500 lost 30 points at 2,071, the Nasdaq dropped 55 points to 4,927, and the Russell 2000 was down 17 points to 1,218.
The NYSE’s primary market traded 903 million shares with total volume of 3.8 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 5.5-to-1, and on the Nasdaq, decliners were ahead by 2.3-to-1.
Just four days after hitting a new all-time high, the Dow Jones Industrial Average broke two immediate support lines, which now form a resistance zone at 17,910 to 18,053.
The next support is at the 50-day moving average at 17,807, and then the 200-day moving average at 17,238 and the support line from the July high at 17,153.
The Dow Jones Transportation Average began to create a problem for investors on Feb. 20, which I pointed out as a potential Dow Theory non-confirmation, saying: “Despite a break to new highs by other indices, the Dow Jones Transportation Average has not yet broken its Nov. 28 high at 9,310. Until a new high is established, a Dow non-confirmation exists. ”
The quadruple-top of the transportation average has been mentioned by several technicians.
Dow Theory is so well-researched and verified that there is little more I can add than what I said on Feb 23:
“There are few signals as closely watched as Dow Theory buy and sell signals. Dow Theory states that when the Dow Jones Industrial Average or Dow Jones Transportation Average makes a new high, that high must be confirmed by a new high in the other index. Until that occurs, the breakout is in doubt and is called a ‘non-confirmation.’
“According to Technical Analysis of Stock Trends, by Edwards and Magee, the theory also states that ‘volume goes with the trend,’ meaning that a breakout should be accompanied by higher volume than the days or weeks leading up to it.”
The next support line for the industrials is at the 50-day moving average at 17,807, and it is possible that it will hold. I wouldn’t be surprised to see an intraday break of that line, but it is the close that counts. That is where you should focus your attention today.
A close under 17,807 would result in a much weaker near-term situation and could lead to a test of the July support line at 17,153 and the Dow’s 200-day moving average at 17,238.
The overall trend is still up. Market volatility is a condition we must live with. Long-term investors should hold and continue to invest fixed amounts of money into dollar-cost-averaging plans.
However, until the market is able to reverse and remove the troubling Dow non-confirmation, both traders and investors seeking the “right time” to put a significant amount into stocks should wait for an all-clear signal from the transports before moving ahead.
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.