On Monday, the news that impacted U.S. stocks was again all about Europe. Both Moody’s and Fitch rating agencies warned of credit downgrades. And Fitch predicted a “significant economic downturn in Europe.” European markets took a big hit with Germany’s DAX down 3.4% and France’s CAC 40 off 2.6%.
But even though Europe’s troubles were the focus of yesterday’s sell-off, China also has investors concerned due to a reported slowdown in November export growth. The Shanghai Composite lost 1%.
Banks and financial stocks were sharply lower. But so was the technology sector following a profit warning by Intel (NASDAQ:INTC). The big chip maker lost 4% due to hard-drive shortages. Advanced Micro Devices (NYSE:AMD) was off 4.3% and Micron Technology (NASDAQ:MU) fell 1.2%.
Volume was surprisingly low yesterday with the NYSE trading just 777 million shares and the Nasdaq crossing 438 million. Decliners outpaced advancers on both exchanges. On the NYSE, decliners were ahead by 4-to-1, and on the Nasdaq, the ratio was a negative 3-to-1.
Yesterday, the focus was again on the U.S. dollar. The dollar has a direct inverse impact on the price of stocks and commodities, and the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) is close to a major breakout.
Yesterday’s gap up is very bullish (bearish for stocks), and it was accompanied by a buy from the stochastic. But in order for it to complete a breakout it must punch through both the $22.40 bearish resistance line and October’s high at $22.62.
The NYSE Composite is an important chart indicator because of its broad market representation and predominant role as a market leader since the low of March 2009. But since July, it has been the Composite that has failed to follow through on rallies and led the decline in the July/August, October and November “corrections.”
With the index now just a fraction away from a breakdown through the 7,285 support line, as well as the 50-day moving average at 7,330, traders should follow its track very closely. A break under the current support could easily lead to a test of the 6,985 line and the October low. Note yesterday’s sell signal from the stochastic. (If you are looking for fast profits, check out my colleague John Jagerson who turned a 67% profit overnight last week.)
Conclusion: Yesterday’s sell-off with its focus on financial and technology stocks puts the ball back into the clutches of the bear. But headlines continue to dominate the markets, and so if the focus shifts to this week’s importantU.S. economic reports the bulls could assert themselves again. At 8:30 this morning, the November retail sales forecast is for 0.5%, and at 2:15 p.m., the FOMC meeting’s decision will be announced.
And on Thursday, the jobless claims, producer price index (PPI), core PPI, industrial production, and the Empire State Index, as well as the Philly Fed numbers, will be released. Friday brings us the consumer price index (CPI) and core CPI.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.
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