Stock market bulls take another hit

Good day! Eurozone sovereign debt concerns and continued signs of a slowing economic recovery weighed on the market in Monday's session. The indices were already showing the vulnerability of the bulls in Friday's session and turned their focus towards the next level of support at 100 day moving averages. Headlines abroad merely reinforced this sentiment.

France and Greece both announced pullbacks in their PMI Manufacturings readings, as did the overall eurozone. This created weakness heading into Monday morning in the indices, while at the same time gave the U.S. dollar another lift. The dollar has been pulling strongly off this month's lows over the past several weeks while the overall market has retreated. As I mentioned in yesterday's column, a drop such as the one which occurred on Monday will have very little chance of offering up a strong recovery off support. Instead, expect either rounded lows, creating a shift in the momentum, before the market can bounce, or a period of daily congestion with gradual price correction within the channel. The latter is currently the most likely outcome.

Dow Jones Industrial Average (Figure 1)

It is fairly common for the market to shift gears as earnings season winds down. This is particularly true if earnings do little to offer hope for the current quarter. We've seen a number of top names report decent earnings for the first quarter, but coupled their announcement with diminished forecasts. Although this is a slower week for earnings as the season winds down, some other names to watch are Autozone (AZN) and Applied Materials (AMAT) on Tuesday, Costco (COST) and Polo Ralph Lauren (RL) on Wednesday, and H.J. Heinz (HNZ) and Tiffany (TIF) on Thursday.

Every single one of the S&P 500's industry groups took a hit on Monday. Due to the large gap on Monday morning, the market struggled throughout the first half of the session. Action was choppy, making even daytrading more difficult. An intraday shift in momentum mid-day helped pull the market into a more favorable direction for the bulls, which was confirmed with the 14:00 ET correction period and the trigger for a buy out of a five minute PhoenixTM. A slowdown into the final hour of trading, however, showed continued uneasiness from buyers.

S&P 500 (Figure 2)

The Dow Jones Industrial Average ($DJI) ended the day with a loss of 130.78 points, or 1.05%, and closed at 12,381.26 on Monday. Only McDonalds (MCD) managed to end the session in positive territory, and it did so only barely with a gain of 0.21%. The top decliners in the index were Caterpillar )(CAT) (-2.34%), DuPont (DD) (-2.16%), Alcoa (AA) (-1.72%), and United Technologies (UTX) (-1.61%).

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