Stocks fell broadly on Friday with investors rushing to buy U.S. government bonds and other traditionally defensive holdings like telecommunications and consumer staples.
Concerns over the U.K.’s potential exit from the European Union and a disappointing May CPI report from China contributed to investors’ anxiety.
The yield on the 10-year Treasury note fell to 1.64% from 1.68% on Thursday as investors bought bonds. And gold, another safe haven, rose 0.3% to $1,273.40 an ounce, logging a gain of 2.7% for the week.
Crude oil reached an 11-month high at $51.67 a barrel on Thursday but reversed course on Friday, closing at $49.06. Energy stocks fell 2.2% on Friday. Southwestern Energy Company (SWN) was the biggest decliner on the S&P 500, falling almost 11% to $13.15.
The U.S. dollar rose 0.6% against a basket of currencies, and the euro fell 0.5% against the buck to $1.1258.
At Friday’s close, the Dow Jones Industrial Average fell 120 points to 17,865, the S&P 500 lost 19 points at 2,096, the Nasdaq was down 64 points at 4,895, and the Russell 2000 declined 17 points to 1,164. The NYSE Composite’s primary exchange traded 879 million shares with total volume of 3.5 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 4-to-1, and on the Nasdaq, decliners led by 3.8-to-1. Block trades on the NYSE increased to 5,300 from 5,026 on Thursday.
For the week, the Dow rose 0.3%, the S&P 500 fell 0.1%, the Nasdaq lost 1%, and the Russell 2000 was flat.
The most important development of last week was the failure of the S&P 500 to hold onto a high at 2,120, which is only 15 points from its all-time high. Selling volume was below average, but more than the week’s buying volume.
The fast line of the MACD is arching down and close to a sell signal with the next support at the 50-day moving average, now at 2,076.
Like the S&P 500, the Nasdaq set a 2016 new closing high but failed to hold it. Its failure resulted in a reversal down through support at 4,960 with a gap down on Friday.
Selling for the week came on average volume. MACD is within a smidgen of issuing a sell signal. And the next support is at the 50-day moving average at 4,858, followed by the 200-day at 4,815.
Conclusion
In over 50 years of studying equity investments, I have never observed a stock market that rose for so many months against such a plethora of bad news. But a market that rises in the face of bad news is considered a strong market and good for long-term investors.
However, this week’s failure of the major indices to hold onto new 2016 highs is technically a bad sign for the bulls.
Central banks around the world, along with the Fed, are unsure of the best way to manage interest rates; crude oil prices are being disrupted (a negative impact on the U.S. dollar); China’s recent economic numbers could negatively impact U.S. producers; and the U.K.’s threat to leave the EU adds another layer of uncertainty
These are all barriers to an immediate advance, and uncertainty is usually the mother of a sideways market. Thus, look for a slow summer with a trading band from support at 2,000 to resistance at about 2,100 on the S&P 500.
A slow period of back-and-forth trading appears to be in the cards until around Halloween — unless something really scary happens beforehand.
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.
