Stocks retreated for the second day on Wednesday, sending the major indices to their lowest levels in two weeks. The health care and technology sectors hit their low of the day during the first hour of trading and spent the remainder of the session clawing their way back.
The declines were broad-based, taking nine of the S&P’s 10 sectors lower. The only one to show a gain was health care, helped by biotech stocks. While this group had lagged for several days, the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) rose 0.6% on Wednesday.
Oil fell on the opening following an Energy Information Administration storage report showing that crude inventories had increased by 10.3 million barrels from the prior week. But black gold rallied on the close, finishing up 1.9% at $51.50 a barrel.
The Federal Reserve’s Beige Book showed that the U.S. economy continues to expand, employment is on the rise and consumer spending is increasing. Bad weather had an impact on the Northeast, but lower fuel prices tended to offset some of the retail-related slowdown.
Talk of when to increase interest rates had an obvious impact on stock prices Wednesday, even though some of the Fed’s members want to wait until early next year for the inevitable hike. Most, however, seemed in favor of an increase sometime in the third quarter of this year.
The ADP employment report showed nonfarm payrolls rose by 212,000, but 220,000 was expected. The ISM non-manufacturing index increased to 56.9 in February while the consensus expected a drop to 56.5.
Gold prices closed lower with the April contract falling 0.3% to $1,200.90 an ounce. The U.S. dollar climbed to a new high against the euro. The euro fell 0.9% to $1.1075, the lowest level since 2003.
At Wednesday’s close, the Dow Jones Industrial Average fell 106 points to 18,097, the S&P 500 lost 9 points at 2,099, the Nasdaq was off 13 points at 4,967, and the Russell 2000 fell 4 points to 1,231.
The NYSE’s primary market traded 724 million shares with total volume of 3.4 billion. The Nasdaq crossed a total of 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.6-to-1, and on the Nasdaq, decliners were ahead by 1.4-to-1.
The Dow Jones Industrial Average is in danger of piercing its first support at 18,053. This line was penetrated by Wednesday’s intraday low at 18,029.50, so it will more than likely also break on a close.
The next meaningful support is the 50-day moving average at 17,802. This and the Fibonacci support line at 17,910 (33.3% retracement of the Jan. 29 reversal low and the March 2 closing high) establish a support zone.
Conclusion
With a Dow non-confirmation (i.e., failure of the Dow transports to make a new high), and now a roll off from the industrials’ high, it is time to play defense.
Selling pressure, though not accompanied by high volume, will most likely test the 50-day moving average. If that important line fails to hold, the result could be an extended sideways move into a long, boring summer.
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.
