On Friday, a weak jobs report sent stocks into a tailspin. All 30 Dow stocks fell, and the S&P 500 ended the week with a loss of 2.4%. In addition to the weak jobs numbers, investors and analysts fretted over the probable inability of the Fed to offer additional quantitative easing. And Europe was again at the top of the list of concerns as polls showed that socialists in France and Greece could take control of those governments.
The major indices fell hard, led by energy and technology stocks, both with losses of over 2%. The Dow Jones Industrial Average lost 168 points to 13,038, the S&P 500 was off 22 points at 1,369, and the Nasdaq lost 68 points to close at 2,956. Volume on the Big Board totaled 825 million shares and the Nasdaq traded 492 million shares. Decliners on the NYSE outnumbered advancers by 3-to-1, and on the Nasdaq decliners led by 4-to-1.
It was a bit of a surprise to have Berkshire Hathaway (NYSE:BERK.A) fail to meet its already lowered earnings expectations. Warren Buffett’s pride and joy was expected to earn $1,780 a share for Q1, and instead came in at $1,615 a share. Nevertheless, The Wall Street Journal proclaimed, “Berkshire Hathaway Profit Doubles.” Sure, compared to a really lousy Q1 last year. But no amount of hype can cover the fact that Berkshire’s stock price has not even approached the high of January 2011, and trails the performance of virtually every major broad-based index.
Friday’s break in the major indices, especially the S&P 500, which closed significantly below its 20-day and 50-day moving averages, means that the next test is the April low at 1,357. By crushing the 50-day moving average, the near term is down and the intermediate trend has turned negative too. The stochastic has flashed a sell signal, and MACD and momentum turned negative for the first time since early last month.
Meanwhile, the Dow slightly broke both the 20-day and 50-day moving averages, but the Nasdaq’s situation is far more serious. The former leading index appears capable of turning the overall trend down.
After failing to hold above 3,059, on Friday it violated its 20-day and 50-day moving averages, as well as the important support line at 3,000. And like the S&P 500, all internal indicators are negative. But the most important feature of this chart is the apparent violation of the island reversal, with a gap up, made on April 24 at 2,962. This is an indication of a very weak market with the potential of turning the broad market into more than a normal correction.
Conclusion: With little in the way of important earnings and economic reports, the focus switches again to Europe. And the political situation there will not help the technical picture of our markets. Further breakdowns in the S&P 500 and Nasdaq will no doubt put pressure on the Dow as well. A warning flag is flying since the stock market is in danger of turning much lower. All purchase plans should be suspended until the technical picture is stronger. Traders should aggressively pursue 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.
