On Friday, the S&P 500 closed slightly higher, but it was clear that profit-taking was occurring on the broad market following three weeks of advances following the presidential election. During that period, investors chose stocks over bonds in a rush to get into growth, which is focused on the financial, energy, and defense industries.
Rising oil prices kept the rally going but at a slower pace. Then, on Friday, a Labor Department report indicated that although unemployment fell to its lowest level in November, weakness in average hourly wages offset that fall. That led some analysts to conclude that the Federal Reserve would not rush the pace of interest rate increases.
Of the S&P’s eleven sectors, energy shares performed the best, up 2.6%. The technology sector performed the worst, off 2.9%, due to the anticipation of tighter trade and more restricted immigration policies.
At the close on Friday, the Dow Jones Industrial Average fell 22 points to 19,170, the S&P 500 lost a point at 2,192, the Nasdaq gained 5 to close at 5,256, and the Russell 2000 was unchanged at 1,314. The NYSE’s primary exchange traded 910 million shares with total volume of 3.8 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.3-to-1. On the Nasdaq, advancers were slightly in the lead. Blocks on the NYSE fell to 4,805 from 6,418 on Thursday.
For the week: The DJIA gained 0.1%, the S&P 500 fell 1.0%, Nasdaq lost 2.7%, and the Russell 2000 fell 2.4%.
Even though the Nasdaq had a small gain on Friday, it appears no more than a reflex action following five days of drubbing just after hitting a new high. On Thursday it closed under its 50-day moving average and with the small gain on Friday didn’t make it back over the blue line. Note too that in two of the last four days, there were more sellers than buyers.
On the other hand, the DJIA is holding its near-term trend, MACD is still positive, and there are more buyers than sellers. The breakout on the Dow is preserved.
Conclusion: Some technicians seemed concerned over the “divergence” between the Nasdaq’s round of profit- taking and the Dow’s ability to hold to its short-term advance line.
However, many were concerned when “the shoe was on the other foot” — that is when the Dow lagged the small-caps, and that can lead to a major reversal. But record closes from the highest-quality stocks are a sign that the bull is still strong. Weakness in the small-caps is usually a signal that profit-taking is occurring and some of the proceeds of the gains are going into better-quality stocks. This is positive “group rotation” and at least for now, a positive development.
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.
