Not Much Room for Error in the Market

On Wednesday, stocks fell for the third consecutive day. While the Dow Jones Industrial Average dipped 0.6% to its lowest close in almost four weeks, the broad-based decline was led by the mid- and small caps, with the Nasdaq and Russell 2000 both down 0.8%.

Disappointing economic reports from Europe led to a lower opening. Then, after an attempted rebound, investors resumed selling following an ADP national employment report that showed the U.S. private sector added just 156,000 jobs in April, the lowest in three years.

The iShares NASDAQ Biotechnology Index (ETF) (IBB) fell 2.9% as investors sold riskier assets. The only sectors to show gains were defensive ones, with consumer staples up 0.3% and utilities gaining 1.2%.

Investors were also reported to be concerned that the recent decline in the U.S. would be reversed. A stronger dollar means U.S. goods are more expensive abroad and typically results in lower stock prices.

As the dollar gained against a basket of currencies, gold lost 1.3% at $1,273.30 an ounce. And WTI oil rose slightly despite reports that crude stockpiles grew by 2.8 million barrels last week. Gasoline stockpiles increased unexpectedly by 536,000 barrels and are near record highs for the past quarter century.

At Wednesday’s close, the Dow Jones Industrial Average fell 100 points to 17,651, the S&P 500 lost 12 points at 2,051, the Nasdaq dropped 38 points to 4,726, and the Russell 2000 was down 9 points at 1,113.

The NYSE Composite’s primary market traded 1 billion shares with total volume of 4 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 1.5-to-1, and on the Nasdaq, decliners led by 2-to-1. Block trades on the NYSE increased to 5,879 versus 5,845 on Tuesday.

Dow Jones Industrial Average Chart
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Chart Key

The chart of the Dow Jones Industrial Average is showing weakness. Note the break of the short-term trendline. However, the long-term bullish trendline from May 2015 still holds.

At this stage, lower volume helps to stabilize, but not when negative volume pops above the average volume line. MACD is negative, and the next support is at the 50-day moving average at 17,500. So, there is not much room for downside days to dissipate selling.

Nasdaq Chart
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The Nasdaq is in much worse shape than the Dow Jones Industrial Average and other higher-quality indices. The major breaks occurred at the 200-day moving average at 4,839 and the 50-day moving average at 4,798. Wednesday’s low penetrated the support line at 4,715 by a point.


Although the higher-quality stocks are comparably stronger, the Nasdaq and Russell 2000 led most of last year’s powerful move to new highs. Now they are victims of profit-taking, poor earnings and a fearful public — a recipe for lower prices.

The January/February lows are not yet in jeopardy. But May is upon us and, whether or not you believe in “Sell in May and go away,” stocks were under broad selling pressure Wednesday that was increased by weaker-than-expected economic data.

Note: Many thanks to Serge Berger for stepping in during my vacation. His analysis and high level of professionalism is greatly appreciated.

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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