On Thursday, the S&P 500 was tagged for its eighth-straight loss and its longest period of declines in eight years. However, the declines have been minimal, just 0.44% yesterday and 3% since Oct. 25.
The last pullback, due to Brexit, hit the index for a 5.3% decline in two sessions. And while there are serious issues at stake in the election, investors appear more concerned with the price of crude oil, which fell below $45 per barrel and closed at $44.45 on Wednesday. WTI has fallen 8.8% since last Friday’s close.
The CBOE Volatility Index, or “Fear Index”, closed up 14% on Thursday but is still far from a panic condition. (See my VIX chart on Wednesday.)
Facebook Inc (NASDAQ:FB) fell 5.6%, after an excellent period of surging profits, because of a warning from management of a slowdown in advertising growth.
A sector that appears to have no bottom, the biotechnology stocks, were pummeled again yesterday. The exchange-traded fund iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) fell 2.9% and its weekly loss rose to 5.2%. Yesterday’s selling came about after CNBC reported that the Department of Justice is looking into the pricing of generic pharmaceutical companies.
Nine of the sectors of the S&P Index suffered losses with energy, utilities, and financials having small gains.
At the close the Dow Jones Industrial Average fell 29 points to 17,931, the S&P 500 lost 9 at 2,089, the Nasdaq fell 47 points to 5,058, and the Russell 2000 lost 6 to close at 1,157. The NYSE’s primary exchange traded just shy of 1 billion shares with total volume of 4.2 billion shares. The Nasdaq crossed 2 billion shares. On the Big Board, decliners outpaced advancers by 3.2-to-1, and on the Nasdaq, decliners led by 2.9-to-1. Blocks on the NYSE fell to 5,234 from 5,756 on Wednesday.
The Dow Industrials’ first challenge to the 50-day moving average occurred in September. But instead of taking a beating, like the S&P 500, the Dow formed the base of a triangle while challenging the 50-day almost weekly.
Then, on Oct. 28, the DJIA flashed a CBR Sell from my internal indicator and on Monday broke the support line of the shallow triangle’s base that had been in place since May. The next support for the Dow is the 200-day MA at 17,758. Sellers’ volume has been falling, and so the chances are improving that the 200-day will hold.
The Dow Jones Transportation Average has not only held above its 50-day moving average, but has, over the last eight months, formed a shallow but discernable Cup-and-Handle formation. This formation is bullish, and since it has occurred on the transports’ chart, it is forecasting that better economic times are in the future.
Conclusion: Who can count the complexities of the stock market with the many uncertainties in the future of our economy? It is refreshing to see at least one indicator, the DJT, in a positive trend.
Some may call it “simplistic” to rely on one indicator, and perhaps it is. However, if you have tuned in to the pundits on CNBC lately, each has a very different outlook but all very convinced and convincing. I found that in the long run, simplicity gains over complexity. Note how the DJT has been bullish for eight months, rising amidst the hoots of the bears. And long term, my model is still bullish despite the many lurking bears.
Advice: Go long at the Dow’s 200-day moving average from a list of good-quality, low P/E stocks, and by the end of the first quarter of 2017, I predict that you will be able to pocket gains of 10%-15%.
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.
