Most U.S. markets were closed Monday in honor of Martin Luther King Jr. Day, but foreign markets including Brent crude oil traded.
Chinese stocks closed slightly higher with the Shanghai Composite up 0.4%. This took the index out of bear market territory (i.e., 20% or more decline) with the index down 17.7% year to date.
However, the Japanese Nikkei 225 lost 1.1% and is about 19% from its September high.
Brent crude oil fell 2.7% to $28.13 a barrel, driving down energy stocks in Hong Kong, Australia and Tokyo.
Gold also traded, gaining 0.1% at $1,093 an ounce.
On Friday, the Dow Jones Industrial Average fell 391 points to 15,988, the S&P 500 lost 42 points at 1,880, the Nasdaq declined 127 points to 4,488, and the Russell 2000 was down 18 points at 1,008.
For the week, the Dow and S&P 500 each lost 2.2%, the Nasdaq dropped 3.3% and the Russell 2000 declined 3.7%.
The NYSE Composite’s primary exchange traded 1.5 billion shares on Friday with total volume of 5.4 billion. The Nasdaq crossed 2.7 billion shares. On the Big Board, decliners outpaced advancers by 4.7-to-1, and on the Nasdaq, decliners led by 4.5-to-1. Block trades on the NYSE increased to 7,124 from 6,418 on Thursday. Declining volume led by 8.9-to-1.
Using the criteria that a loss of 20% or more from an index’s recent high qualifies as a bear market, as of Friday’s close, two U.S. indices are in bear markets — the Russell 2000, off 22.2%, and the Dow Jones Transportation Average, off 27.6%. For comparison, the Dow Jones Industrial Average is off 12.9%, the S&P 500 is down 11.9% and the Nasdaq is off 14.2%.
The Dow Jones Transportation Average has fallen over 28% from its November 2014 high of 9,310 and is in a downtrend. This is both significant and perplexing.
It’s significant because the transports, along with the industrials, determine whether “the market” is bear or bull. The Dow Jones Industrial Average is a mere 322 points, or 2%, from setting a new low to complete a Dow Theory bear market signal (see Jan. 14 Daily Market Outlook).
It’s perplexing because the decimation in the price of crude oil should benefit most of the companies in the transportation index.
Conclusion
The very high selling volume on the Dow Jones Transportation Average recently may be about to be resolved with a selling climax marked by a dramatic upside reversal. However, in absence of a reversal, a new closing low in the industrials below 15,666 would confirm that a new bear market has begun.
Watch the volume of both indices for a clue as to the future direction of the trend while taking a cautious approach to bargain hunting.
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.
