Market Flirting With a Death Cross

Stocks fell Wednesday for the second consecutive day, but losses were modest compared to Tuesday’s sell-off. The major indices were fractionally lower, but the small-cap Russell 2000 outperformed, gaining 0.6%.

The focus remained on the Federal Reserve’s intentions with regard to an interest rate hike. And since there was no word from Fed Chair Janet Yellen despite a pending policy meeting next week, the pressure to sell stocks remained.

The financial sector gained 0.6%, as higher rates are considered beneficial to banks’ earnings.

Technology stocks were mixed. Apple Inc. (NASDAQ:AAPL) fell 1.8%, SanDisk Corporation (NASDAQ:SNDK) gained 3.2%, and Intel Corporation (NASDAQ:INTC) rose 2%.

The euro continued its decline, falling 1.4% to $1.0548, as a result of positive U.S. economic numbers and the beginning of the European Central Bank’s aggressive easing program.

The yield on the 10-year Treasury note fell to 2.11%, down from 2.13% on Tuesday. Gold lost 0.8% at $1,150.60 an ounce, and crude oil futures for April delivery fell 0.2% to $48.17 a barrel.

At Wednesday’s close, the Dow Jones Industrial Average fell 28 points to 17,635, the S&P 500 was down 4 points at 2,040, the Nasdaq lost 10 points at 4,850, and the Russell 2000 rose 7 points to 1,216.

The NYSE’s primary exchange traded 777 million shares with total volume of 3.4 billion. The Nasdaq crossed 1.8 billion shares. On both major exchanges, advancers outpaced decliners by 1.3-to-1.

VIX Chart
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In just seven sessions, the VOLATILITY S&P 500 (VIX) has jumped more than 30% from a low of 12.87 on March 2 to Wednesday’s close at 16.87. And there is probably more volatility to come if the downtrend line, which is drawn from just below the October high with three subsequent connections, has relevance. That line intersects at about 20, which is 19% above current levels.

The VIX is considered a contrarian indicator, so it is telling us to expect more near-term selling pressure on stocks.

NYSE Composite Stock
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Chart Key

The NYSE Composite includes all stocks listed on the New York Stock Exchange, which makes it an excellent cross-section of American industry.

The index broke its 50-day moving average at 10,839 and 200-day moving average at 10,830 within the past five trading sessions. And it is attacking the major bullish support line, now at about 10,600.

While falling to this major support line, the index’s two primary moving averages are flirting with a death cross, i.e., 50-day crosses down through the 200-day. Some will counter that this has happened before with no impact on stocks. That’s true, but not when the index was also moving against the major bullish support line.


With the major indices incapable of sustaining even a modest rally following Tuesday’s 333-point Dow decline, we may see the 20% correction that has overhung most equity strategies for months. And a vicious round of profit-taking could drive stocks down even more than 20% from the highs made just last week.

Keep focused and don’t be intimidated by the fear that will grip the TV anchors. You should have already sold your weakest holdings and made a list of the stocks that you would buy if you could pick your lowest imaginable price.

Enter good ’til cancelled (GTC) orders and forget them. No matter what you hear, keep the orders in place. By year’s end you could see 30%-plus gains.

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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