Stocks opened on a dismal note following a weak European bond market. A rebound failed when a Fed official warned that Europe’s debt problems could have a negative impact on U.S. growth.
Despite a slightly better jobs number, it was the focus onEuropeand the breach of an important technical number on the S&P 500 that brought out the sellers. At the close, the Dow Jones Industrial Average was down 1.13%, the S&P 500 lost 1.68%, and the Nasdaq was hit for 1.96%. Volume increased to over 1 billion shares on the Big Board, and 590 million shares traded on the Nasdaq. Decliners exceeded advancers by over 4-to-1 on the NYSE and 2.5-to-1 on the Nasdaq.
Sellers increased just as the S&P 500 sliced through the small triangle noted in yesterday’s Daily Market Outlook, and downside momentum accelerated when the support line at 1,220 was broken.
Even the financial media could not help but comment on the technical breakdown of two important support lines. The break of support took the stochastic indicator sharply lower along with MACD. But a last-minute rebound saved the index from closing below the 50-day moving average at 1,206.
A bull’s nightmare occurred today when the Nasdaq — the market leader on the way up — fell through various support lines, the two most important being the 2,600 line and then its 50-day moving average at 2,589. The next support for the Nasdaq is around 2,526, which would be 50% of the retracement of the early October low and late October high.
The Nasdaq’s sharp break lower could indicate that the index will still be the market leader, but this time it will lead south rather than north.
Conclusion: Yesterday’s performance by the bears was impressive, so look for an early follow through of weakness on the opening, especially ifEurope’s bourses open lower. However, short traders may want to take profits on any sharp thrust lower, especially since today is options expiration and big swings may be anticipated.
Some of our internal indicators are close to oversold numbers, thus a bounce could occur around mid-morning. But any strength should be used as a selling opportunity since the bears are now fully in charge again. (Or find out how to use options to profit.)
On Tuesday, I suggested that gold and silver could have a move before the end of the year. That suggestion did not take into account the broad liquidation of most commodities yesterday in order to meet a wide range of equity margin calls. Along with the metals breaking lower, crude oil experienced a key reversal, falling to a loss after hitting a new high. Cover the long metals stocks with stop-loss orders and expect a better buying opportunity before mid-December.
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.
