I love down markets because, as the old saying goes, “stocks take the stairs up and the elevator down.”
Monday was another tough day for stocks as the market spent the afternoon on a long climb which almost brought them out of the red, until the major indexes lost energy during the last hour. Stocks couldn’t hold it down the stretch after nearly clawing their way into positive territory. Just after 10:00, the Dow Jones Industrial Average (NYSEARCA:DIA) was down by 244 points.
Ongoing anxiety about life after quantitative easing was met with increasing trouble in China. After the People’s Bank of China again refused to ease monetary policy to reduce escalating interbank lending rates, the Chinese stock market took a hard fall, putting global stock markets in a “risk off” mode. An upbeat Texas Manufacturing Survey from the Dallas Fed and a “less bad” Chicago Fed National Activity Index (CFNAI) helped the bulls get a little traction early in the afternoon, although the advance faded during the last hour of the session.
The Dow lost 139 points to finish Monday’s trading session at 14,659 for a 0.94 percent decline. The S&P 500 (NYSEARCA:SPY) sank 1.21 percent to close at 1,573. The Nasdaq 100 (NASDAQ:QQQ) fell 1.03 percent to close at 2,848. The Russell 2000 (NYSEARCA:IWM) sank 1.31 percent to close at 951. In other major markets, oil (NYSEARCA:USO) jumped 1.20 percent to close at $33.64. On London’s ICE Futures Europe Exchange, July futures for Brent crude oil advanced by 16 cents (0.16 percent) to $101.07/bbl. (NYSEARCA:BNO). August Gold Futures declined by $9.60 (0.74 percent) to $1,282.40 per ounce (NYSEARCA:GLD).
Transports broke down on Monday, with the Dow Jones Transportation Average (NYSEARCA:IYT) dropping 1.97 percent.
In Japan, yen weakness was outweighed by concerns that exports to China would fall as a result of a slowdown in China’s economic growth as well as the Chinese liquidity crunch. The yen fell as far as 98.7 per dollar during Monday’s trading session in Tokyo. A weakened yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY). Nevertheless, exporters who rely on China for business saw their share prices lead Monday’s decline. The Nikkei 225 Stock Average fell 1.26 percent to 13,062 (NYSEARCA:EWJ).
Concern about a potential liquidity crisis in China took its toll on the major European stock indices during Monday’s trading session (NYSEARCA:VGK).
The Euro STOXX 50 Index finished Monday’s trading session with a 1.48 percent drop to 2,511 — remaining below its 200-day moving average of 2,633. Its Relative Strength Index is 25.77 (NYSEARCA:FEZ). The drop in the RSI below 30 is considered an “oversold” signal. Nevertheless, a “head-and-shoulders” pattern has appeared on the chart, suggesting a continued selloff. The STOXX 50 is now far below its 200-day moving average and Monday marked its lowest closing level for 2013.
In China, stocks took a hard fall after the People’s Bank of China told the nation’s banks that they would need to clean up their own mess. The PBOC is attempting to get control over the nation’s shadow banking system, which has been notoriously reckless in its lending practices. The nation’s financial sector led Monday’s stock market swoon with a 7 percent slump. The Shanghai Composite Index took a 5.29 percent nosedive to 1,963 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index sank 2.22 percent to 19,813 (NYSEARCA:EWH).
Technical indicators reveal that the S&P 500 finished a third consecutive session below its 50-day moving average of 1,617 after closing at 1,573. Bears are anticipating a further decline to the 200-day moving average of 1,506. The S&P has not closed this low since April 22. Its Relative Strength Index dropped from 40.81 to 36.90. The MACD remains below the signal line and has crossed far below the zero line to negative 7.54, suggesting the likelihood of a continued decline.
For the day, all sectors were in negative territory, with the financial sector taking the hardest hit with a loss of 1.78 percent. The utilities sector escaped with the least damage, declining only 0.08 percent.
Consumer Discretionary (NYSEARCA:XLY): -0.92 percent
Technology (NYSEARCA:XLK): -1.21 percent
Industrials (NYSEARCA:XLI): -1.68 percent
Materials (NYSEARCA:XLB): -1.59 percent
Energy (NYSEARCA:XLE): -1.48 percent
Financials (NYSEARCA:XLF): -1.78 percent
Utilities (NYSEARCA:XLU): -0.08 percent
Health Care (NYSEARCA:XLV): -0.84 percent
Consumer Staples (NYSEARCA:XLP): -0.42 percent
Bottom line: Stocks made a strong effort to get into positive territory on Monday, with the Dow climbing from a 244-point slump to a mere, 23-point decline before fading during the last hour. Anxiety about life without quantitative easing continues to spook investors, despite the fact that the dreaded taper has yet to begin.
John Nyaradi is the author of The ETF Investing Premium Newsletter.