A round of heavy selling in energy stocks Tuesday had a broad impact on the major indices.
The Dow Jones Industrial Average fell 1.8%, weighed down in part by Exxon Mobil Corporation (XOM), off 2.2%, and Chevron Corporation (CVX), down 4.7%. Exxon reported its lowest quarterly profit in 14 years and put its share repurchase program on hold. And Standard & Poor’s downgraded the corporate credit rating of Chevron and a number of other energy companies.
Oil was able to regain some of its early losses but still declined 5.5% for the day, closing below $30 a barrel. The selling was partially the result of an announcement by Iran that it plans to increase crude exports to 2.3 million barrels a day in its next fiscal year.
The iShares NASDAQ Biotechnology Index (ETF) (IBB) dropped 2.8% as traders sold speculative biotech stocks. Utilities, generally considered to be defensive, managed to hold their own, gaining 0.5%.
Gold lost 0.1% at $1,127.30 an ounce. The yield on the benchmark 10-year Treasury note fell to a nine-month low in the biggest one-day decline since July 2015, according to The Wall Street Journal.
At Tuesday’s close, the Dow Jones Industrial Average fell 296 points to 16,154, the S&P 500 lost 36 points at 1,903, the Nasdaq dropped 103 points to 4,517, and the Russell 2000 was off 24 points at 1,009.
The NYSE Composite’s primary exchange traded just over 1 billion shares with total volume of 4.4 billion. The Nasdaq crossed 2.1 billion shares. On the Big Board, decliners outpaced advancers by 3.9-to-1, and on the Nasdaq, decliners led by 3.8-to-1. More importantly, downside volume on the NYSE reached 9-to-1 in favor of sellers.
The iShares Russell 2000 Index (ETF) (IWM) shows a high-volume buy signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR), in January, followed by an up-channel flag formation. The high of the flag was made on Monday at about $103, and that will be the next challenge for a recovery.
Unfortunately, recovery flags usually break to the downside. However, if this one manages to make it through $103, the next resistance is the formidable breakdown point at $107, which forms a significant line of resistance.
Despite several bullish indicators on the charts of IWM and SPDR S&P MidCap 400 ETF (MDY), reviewed in the previous Daily Market Outlook, these are short-term signals. Tuesday’s aggressive, energy-led sell-off is convincing proof that any negative news produces a volatile response.
A positive surprise today would be welcome, but I remain neutral to negative on the broader market. Overall support for the S&P 500 is at 1,885 with resistance at about 2,080.
I suggest selling into rallies and using the proceeds for more stable income sources, such as utility stocks. Traders should revert to 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.