Today is another example of the failure of the Dow at what is becoming a pattern of pre-defined resistance levels. The index began the day with a fast gain of 36 points up to 19,981…then it turned down quickly. After an attempt to stabilize around 11 AM, things took a turn for the worse and really went into an accelerated downside pattern. The Dow reached down by 85 points, the S&P was lower by 13 and the NASDAQ lost 44 at this midday mark.
There was no specific reason for the decline such as a poor earnings report or a fundamental situation. The decline is strictly a function of the fact that things cannot go straight up like this without some sort of downside payback. Many investors and pundits appeared to be “certain” of the inevitability of Dow 20,000 and sooner rather than later.
I had spoken about the relationship that had become more favorable for bonds. The S&P 500 is still the same at 2% as it was in July while the 10-year Note yield is up to around 2.55% from 1.39% at that time. It is the highest its been in two years and could be another reason why the Dow seems to be having difficulty breaching the 20,000 level.
Perhaps leading to some selling today was the disappointment that NVDA, which has been a market darling, went to 120 before declining to 109 where it sits about 1/2 an hour before the closing bell. AMZN is holding on to gains as the sentiment around this one, still well off of its all-time highs, is attracting renewed interest on strong holiday activity and hopes for further cloud expansion.
Breadth numbers are negative at worse than a 1 to 2 downside ratio and the VIX ix enjoying every minute of this slippage. It is higher by 8%, now up to 12.96. The VIX held support close to 11 and proves my contention that it really cannot decline below 10.
Bond yields are a little lower at 2.53% for the 10-year Treasury note, the dollar is getting stronger again with the Euro down to 1.0387. Gold gold is idle at $1,140 an ounce. The strong dollar could also be starting to exert its negative influence. In addition, sentiment might also have been hurt by the November pending home sales report which showed a decline of 2.5%.
Donald M. Selkin
These are excerpts from Don Selkin’s Daily Market Notes, abbreviated and updated with permission from the Author. Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: Bloomberg Financial, Reuters, Associated Press.