US Stocks Retreat on Global Concerns

The major indices could fall to key support levels

U.S. stocks retreated from key technical support on Monday due to selling in European and Asian markets. The Dow Jones Industrial Average closed down 0.7%, the S&P 500 lost 0.8%, and the Nasdaq fell 0.9%.

Following a report showing disappointing investment growth in China, the Shanghai Composite fell 3.2% and Hong Kong’s Hang Seng Index declined 2.5%. The Stoxx Europe 600 closed down 1.8% as fears of a “Brexit” mounted. Polls show an increasing number of people in favor of the United Kingdom withdrawing from the EU when the issue is put to a vote on June 23.

The British pound fell 0.2% against the U.S. dollar, and U.S. Treasury bonds rose as global investors raced to find safety. This pushed yields on the 10-year down to 1.62% from 1.64% on Friday. Gold, another save haven, added 0.9% at $1,284.40 an ounce.

The Volatility S&P 500 (VIX) jumped more than 23% to 20.97, its highest close since February. The “fear gauge” has logged the biggest two-day advance since August.

WTI crude oil attempted an early reversal but ended the day down 0.4% at $48.88 a barrel. This led the energy sector to a 0.3% loss. But the day’s worst-performing sectors were technology and materials, both down 1.1%.

At Monday’s close, the Dow Jones Industrial Average was down 133 points at 17,732, the S&P 500 fell 17 points to 2,079, the Nasdaq lost 46 points at 4,848, and the Russell 2000 was off 13 points at 1,151.

The NYSE Composite’s primary exchange traded 869 million shares with total volume of 3.4 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, decliners outpaced advancers by 3-to-1, and on the Nasdaq, decliners led by 2.9-to-1. Block trades on the NYSE fell to 4,722 from 5,300 on Friday.

IWM Chart
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Chart Key

The iShares Russell 2000 Index (ETF) (IWM) turned down from the resistance line at $119 on higher-than-average volume, and MACD issued a sell signal. Next support is at the 50-day moving average and support line at $112.

MDY Chart
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The SPDR S&P MidCap 400 ETF (MDY) failed to exceed the July closing high at $281.66, reversing from $278. It then failed to hold at the first line of support, drawn from the April high at $271. Selling was on higher-than-average volume, and MACD issued a sell signal. Next support is at the 50-day near $267.

VIX Chart
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Monday’s big jump in the VIX is telling us there is concern over the Brexit vote and the market’s failure to penetrate the potential selling bands of the S&P 500 and Dow Jones Industrial Average.


The market’s failure to make a stronger attempt — i.e., with higher volume and better breadth — will probably lead to a very cool market in a long, hot summer. My guess is that MDY will eventually challenge the 200-day moving average at $256, and by late September, could challenge the support line at $240.

Large blocks of overhead (sellers) have not been displaced, and sentiment, as shown by the VIX, is headed in the wrong direction for the bulls. But the VIX is only predictive for the very short term. Perhaps it will calm down following the Brexit vote on June 23.

Watch the support lines and moving averages as prices respond to volume for clues as to the near and intermediate future of the market.

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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