Transports’ Collapse Pulls Rug Out From Under Bulls

On Monday, stocks gave back a small portion of last week’s gains. Most of the selling occurred in the final hour of the session, leaving traders wondering whether a round of profit-taking would result in lower prices again today. Disappointment was voiced by floor traders who noted that the major indices are less than 1% from breaking to new highs and now appear to be in retreat.

On balance, the losses were mild with the Dow industrials down 0.1%, the S&P 500 off 0.2% and the Nasdaq down 0.3%. Market activity fell sharply from last week’s high-volume days. However, last week’s volume was no doubt influenced by the FOMC meeting and Friday’s quadruple witching day.

Transportation stocks fell hard, led by Kansas City Southern (NYSE:KSU), which lost 8% due to a reduced outlook for the remainder of 2015. And the technology sector was impacted by a downgrade of NVIDIA Corporation (NASDAQ:NVDA) by Goldman Sachs Group Inc (NYSE:GS), with shares falling 3.2%.

The U.S. dollar fell against other major currencies, and the euro gained 1.1%, rising to $1.0942. Crude gained in reaction to the dollar’s decline. West Texas Intermediate (WTI) oil spiked on the close to finish with a gain of 1.8% at $47.44 a barrel.

Gold futures rose 0.3% to $1,188 an ounce. And the yield on the 10-year Treasury note fell to 1.92% as bonds rose.

At Monday’s close, the Dow Jones Industrial Average fell 12 points to 18,116, the S&P 500 was down 4 points at 2,104, the Nasdaq lost 15 points at 5,011, and the Russell 2000 dropped 2 points to 1,265.

The NYSE’s primary market traded 733 million shares with total volume of 3.2 billion shares. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 1.4-to-1, and on the Nasdaq, advancers led by 1.2-to-1.

Dow Jones Industrial Average Chart
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Chart Key

The Dow Jones Industrial Average fell and closed very near the support zone of 17,910 to 18,053. That shallow zone has been significant as both support and resistance since December. Its midpoint is near the 20-day moving average at 18,020. The 50-day moving average at 17,825 is also an important support line since it has been the midpoint of the Dow’s meanderings since early last year.

Despite Monday’s final spree of profit-taking, the MACD signaled a new buy signal.

Dow Jones Transportation Average Chart
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The Dow Jones Transportation Average again failed to break its November high. Now, with a decline of almost 180 points coupled with a MACD sell signal, the situation is becoming less positive for Dow Theorists.


A triple-digit decline in the transports can’t be ignored. Monday was a bad day for the stock market. Just as it appeared it would receive its final signal to move ahead, a Dow Theory non-confirmation reminded investors that Mr. Market was not going to make it as easy as they thought.

But both volume and breadth were relatively low, so it is still possible to have an upside reversal. But the market is known for its ability to confuse the majority of investors before revealing its true path. I am still optimistic that the path is up, but I’m not willing to recommend that readers jump until we get a clear Dow signal.

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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