Wall Street May Get Coal in its Stocking This Year

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Stocks closed lower Friday on a broad front after overnight weakness in China following its central bank’s devaluation of the yuan, which fell to a four-year low against the U.S. dollar.

In the United States, bond fund liquidations in the high-yield area, sometimes referred to as junk bonds, drove fund managers Stone Lion Capital Partners and Third Avenue Management to suspend withdrawals.

The iShares iBoxx $ High Yid Corp Bond (ETF) (HYG) fell 2% to prices not seen since 2011. And many iShares ETFs closed Friday at a discount to market value as investors worried over their ability to sell when they want to.

All 10 sectors of the S&P 500 ended lower on Friday, led by energy on continued weakness in commodity prices. Crude oil fell 11% last week to $35.62 a barrel.

The benchmark 10-year Treasury note rallied, with the yield falling 10 basis points to 2.14%.

At Friday’s close, the Dow Jones Industrial Average fell 310 points to 17,265, the S&P 500 dropped 40 points to 2,012, the Nasdaq lost 112 points at 4,933, and the Russell 2000 was off 25 points at 1,124.

The NYSE Composite’s primary exchange traded over 1 billion shares with total volume of 4.3 billion. The Nasdaq crossed 2 billion shares. On the Big Board, decliners outpaced advancers by 6.9-to-1, and on the Nasdaq, decliners led by over 5-to-1.

Declining volume outpaced advancing volume by 11.1-to-1 on the NYSE. Block trades had a sharp increase to 6,027, up from 5,143 on Thursday.

Dow Jones Industrial Average Chart
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Chart Key

Downside volume rose Friday, breadth was negative, and volume breadth at 11-to-1 is a clear sell signal. In one session, the Dow Jones Industrial Average broke down through its 50-day moving average at 17,496 and its 200-day at 17,564. MACD also gave a clear sell signal.

Dow Jones Transportation Average Chart
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The Dow Jones Transportation Average is in free fall. Very high selling has driven the index almost to its Aug. 25 closing low at 7,467.

Conclusion

There appears to be little hope of turning this market around before Dec. 31. A recent Wall Street Journal headline says it all: “2016 Forecast for Stocks: More Gloom, More Volatility and Few Gains.”

In the near term, China’s economy is stumbling, the Federal Reserve is ready (or not) to raise interest rates, and junk bonds are in free fall.

Throughout the past four months, the longer-term, predictive Dow Theory stubbornly refused to confirm a solid bullish turn. Now we know why: Fundamentals for next year don’t support higher prices.

The technology sector has largely supported a market with an economy that is over 65% dependent on retail sales. But when energy and retailers fail, technology stocks alone can’t fuel a market advance.

As noted on Bloomberg, even though the market has held its own for much of the year, Alphabet Inc (GOOGL, GOOG), Facebook Inc (FB), Apple Inc. (AAPL) and Microsoft Corporation (MSFT) have accounted for about 60% of the rally in the S&P 500’s technology sector. Let’s face it; four stocks can’t buoy a stock market forever.

Sell into rallies and hold cash or enter bearish strategies.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2015/12/daily-market-outlook-wall-street-may-get-coal-in-its-stocking/.

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