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Investors, Stay Alert in the Dow Jones Industrial Average

With the risk of a reversal high, the Dow Jones is growing more dangerous


On Thursday, buyers managed to squeeze less than a 0.1% gain from the S&P 500 while the Dow Jones Industrial Average fell less than 0.1%, and the Nasdaq gained less than 0.1%. The Russell 2000 fell 0.2%.

Buyers were reluctant to commit despite the House of Representatives passing the revised American Health Care Act. A drop in crude oil of 4.7% and Facebook Inc’s (NASDAQ:FB) gain in earnings but a slowdown in ad revenue growth seemed to put a lid on enthusiasm.

Buyers also appeared to ignore or be unaware of the issuance of the “revision ratio,” a report issued by Bank of America Corp (NYSE:BAC). This report showed that the ratio of upward and downward earnings estimates by analysts was the best improvement ever in April.

But the drop in the price of crude oil to $45.52 per barrel put pressure on energy stocks, causing a decline of 1.9% in the energy sector of the S&P 500. Exxon Mobil Corporation (NYSE:XOM) fell 1.28% and Chevron Corporation (NYSE:CVX) lost 1.8%.

At the close, the Dow Jones Industrial Average fell 6 points to close at 20,951, the S&P 500 gained a point at 2,390, the Nasdaq rose 2.8 points to 6,075, and the Russell 2000 fell 2 points closing at 1,389. The NYSE’s primary exchange traded over 1 billion shares with total volume of 4.3 billion shares. The Nasdaq crossed 2 billion shares. On the Big Board, decliners outpaced advancers by 1.8-to-1, and on the Nasdaq, decliners led by 1.2-to-1. Blocks on the NYSE increased to 7,724, up from 7,610 on Wednesday.

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Investors, Stay Alert in the Dow Jones

Ever since the April break from 20,601 that left two gaps in its wake — the most recent at 20,792 to 20,909 — the Dow Jones has been consolidating. Support on pullbacks should hold at the 20,780 (50-day moving average) to 20,740 (20-day m.a.).

Conclusion: Although the overall pattern is bullish, the big stocks of the Dow Jones have flattened to the point of looking like a double top with the March high on the left and the recent April high on the right. But my readers know that I have always encouraged them not to prejudge a formation until it actually occurs.

However, it pays to be alert as well as reactive. Currently, with some exceptions (defense and aerospace), cash seems like king since risk of reversals is relatively high.

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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