Yesterday was almost devoid of European troubles, and so the focus was on several positive U.S. economic reports. Producer prices increased in November by 0.3%, and weekly jobless claims fell to 366,000, the smallest number of claims since May. And the Empire State Manufacturing Survey improved to 9.5 for December versus an expected 3. Finally, the Philly Fed Survey reported a reading of 10.3 in December versus an expected 4.5.
But early gains were erased mainly for technical reasons. It was evident that the market lacked leadership after opening higher. Thus, the remainder of the day was spent in a slide.
At the close, the Dow Jones Industrial Average had gained 0.38%, the S&P 500 rose 0.32%, and the Nasdaq was up 0.07%. Volume was light with the Big Board trading 869 million shares and the Nasdaq crossing 475 million. Breadth was positive on both exchanges: NYSE advancers exceeded decliners by 1.7-to-1, and on the Nasdaq, advancers were ahead by 1.3-to-1.
Despite a recent sell-off in the other indices, the Dow industrials still tenuously hold above the 200-day moving average (solid red line), as well as the support line at 11,650. However, MACD is grossly overbought, and on a pullback of the Dow, this internal indicator will no doubt issue a sell signal.
Note the ominous possible double-top, which would be confirmed on a break of the support line at 11,650. But even if broken there is a broad band of support from about 10,800 to 11,650 that should contain trading and avoid a bear-market crash.
But technically, the Dow is in a bear market with lower highs in July, August, October and December, and lower lows in August and October.
The Dow Jones Transportation Average is the most important predictive index of all since it responds directly to the amount of goods being shipped both within and outside theUnited States.
Like the Dow industrials, it has possible double-tops with support at 4,685, which if broken would confirm the tops. The transports issued a MACD sell signal on Tuesday, but like its brother, the industrials, a decline should initially be contained within the August to October trading zone.
Utility stocks as evidenced by the Dow Jones Utility Average have done well this year. Their combination of steady growth with dividends outpaced all other indices except precious metals.
The bullish channel trend is intact, but a recent sell signal from the MACD internal indicator could drive the index to the support line of the channel. Note, however, that even commodities are not immune to dramatic, temporary sell-offs. But when they occur, the pros jump in, quickly pushing prices back to the dominant trend. (If you’re looking for fast profits, check out my colleague John Jagerson who turned a 67% profit overnight last week.)
The recent collapse of gold and other commodities seems strange since the yellow metal is usually considered the “safe haven” in times of economic stress. But no commodity is safe when the call to liquidate other assets is made.
Old-timers will recall the Art Cashin quote that was sent to me by a friend yesterday, “When you can’t sell whatever you want, you sell whatever you can — even your grandmother’s necklace.”
And recently, that’s the story of the $100 sell-off in gold. Oil plunged, triggering margin calls in commodity accounts when the Italian bond auction drove yields to over 7%, the euro tanked, and rumors spread of a cutback in lines of credit to commodity traders. Thus, whatever could be sold was sold in order to meet margin calls, including gold.
Conclusion: After months of mayhem, markets appear to be settling down for the holiday week. But new money and renewed crises will no doubt join us again in January, and so it would be wise to accumulate some liquid assets to take advantage of irrational declines like the sell-off in gold. The metal will be a buy again soon, but jumping the gun could be dangerous. Currently, stocks and commodities should only be bought on deep sell-offs when no one wants them.
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.
