Stocks opened sharply lower Wednesday following the re-election of
President Obama and comments by Mario Draghi who said that the European
debt crisis is impacting the German economy. The opening decline
accelerated when tech favorites like
Apple (NASDAQ:
AAPL) broke sharply lower around 11:15 a.m., and the Dow hit its low of the day at the close of European exchanges at 11:30 a.m.
At Wednesday’s close, the Dow Jones Industrial Average was off 313
points at 12,933, the S&P 500 fell 34 points to 1,395, and the
Nasdaq was down 75 points at 2,937. The NYSE traded 876 million shares
and the Nasdaq crossed 499 million. Decliners outpaced advancers by
4.2-to-1 on the Big Board and by 5.7-to-1 on the Nasdaq. Down volume on
the NYSE exceeded up volume by 9.8-to-1.
Click to Enlarge
There is a lot to show on this chart of the S&P 500. Note the
turn down from the blue, 50-day moving average, the break of the solid
red, intermediate support line, and then the two lines at 1,418 and
1,403, which were support lines but now are resistance lines.
The break through all of these support lines confirms that the index
is in a short-term and intermediate-term decline. The next support for
the index is at its 200-day moving average at 1,380 and the longer-term
support line drawn from the July 2011 high.
The break below 1,400, its first since Aug. 30, has no technical significance, but is a psychological negative.
Click to Enlarge
The sector that was impacted by much of the selling Wednesday was the financials. The
Financial Select Sector SPDR’s (NYSE:
XLF)
3.3% decline broke through the support of its 50-day moving average
(blue line) and its intermediate support line (red dashed line). MACD is
now on a sell signal and the break lower was from an ascending
triangle. All of these factors are extremely bearish for this sector.
Click to Enlarge
Commentators remarked that the increase in the CBOE Volatility Index
(VIX) was uncharacteristically mild compared to the overall market
decline. This is no doubt due to shorts taking profits throughout the
day. A further spike up would indicate that more broad-based selling
could occur.
Conclusion: I noted the more positive footing of the
Dow and Nasdaq recently, but Wednesday’s intermediate breakdown of the
S&P 500 confirms that the broad market is headed lower.
There are two important support lines within the immediate range of
the breakdown: the 200-day moving average at 1,380 and the July 2011
support line at 1,356. If these lines fail to hold, then the entire
structure of this year’s price action could be under attack.
The immediate cause of the breakdown was no doubt the re-election of
the president, but a more important long-term consequence is his stated
desire to enforce new and more strident regulations on the financial
sector.
And then there is the looming fiscal cliff, which, in my opinion, was
made worse by House Speaker John Boehner’s remarks that came at about
3:45 p.m. The headline from
The Wall Street Journal read, “Boehner Open to Deal to Avoid Cliff,” but the market sold off anew following his statement.
Thus, we are again faced with uncertainties of both a domestic and
international nature, and neither usually leads to higher stock prices.
Sell into rallies until a more positive technical picture emerges.
UPDATE: GRPN discounted by 13% after-hours on sales-staff and outlook cut
Today Tom Fitzpatrick spoke with King World News about what to expect
going forward from gold, silver, the US dollar, the euro, bonds and
stocks. Fitzpatrick has been astonishingly accurate in forecasting the
movements of both gold and silver. Now Fitzpzatrick lets KWN readers
know what to expect from stocks, bonds and the currencies, as well as
the metals.
