Stocks opened higher yesterday, but troubling headlines from Europe’s financial centers and uncertainty in Asia following the death of North Korea’s leader resulted in lower prices. Banks were the hardest hit, down 2.3%, led by Bank of America (NYSE:BAC), which hit a new low for the year, losing 4.1%.
The Dow Jones Industrial Average fell 0.84%, the S&P 500 lost 1.17%, and the Nasdaq fell 1.26%. Volume was light with just 774 million shares trading on the NYSE and 419 million on the Nasdaq. Decliners outpaced advancers by 4-to-1 on both exchanges.
Yesterday’s break by the Dow Jones Industrial Average through its 50-day moving average at 11,824 (blue line) confirms the break of its 200-day moving average (red line) and shifts the momentum to the bears.
The only remaining barrier needed to confirm a double-top is the support line at 11,650. A break of that barrier would give a downside target of around 11,000, which is well within the support zone of 10,800 to 11,650. Note that last week’s MACD sell signal is confirmed by a continuation lower of its red fast line.
The Dow Jones Transportation Average has thus far held better than any of the major indices. That is until yesterday when the index finally closed under its 50-day moving average (blue line) at 4,815. But like the industrials, it too has a support line (4,685) that must be penetrated before the double-top is confirmed. And its MACD sell signal is also confirmed by a continuation of its red fast line.
Conclusion: Until yesterday, the two major Dow indices, the industrials and the transports, were exhibiting more resistance to the bear’s growl than either the S&P 500 or Nasdaq, both of which have broken down. And now all of our internal indicators have flashed sell signals.
In addition, last week the AAII sentiment survey reported that the bullish reading rose for the third consecutive week to 40.19% from 33.04%, while its bearish reading has dropped for three consecutive weeks and is now at 33.64%, from 39.42%. This inverse indicator is warning that lower stock prices are likely. Continue to pursue bearish strategies. (For fast profits, check out my colleague John Jagerson, who turned a 67% profit overnight.)
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.
