The decline in stocks should not be a surprise given that the stock indices were unable to break or hold above some topping resistance on the charts. The failure to break higher was a red flag.
There are numerous technical breaks to the downside on Wednesday, with all four of our key stock indices turning negative this year. The NASDAQ and Russell 2000 are trading below their respective 50- day moving average (MA) and 200-day MA. The DOW is below the 200-day MA, but holding just above the 50-day MA. The S&P 500 is holding precariously around its 50-day MA. I feel that the recent failures to break above the chart tops for the various indices were bearish.
Watch for downside supports as follows: DOW at 10,000; SP 500 at 1,040; NASDAQ at 2,100; and Russell 2000 at 600.
Driving the selling was renewed concern towards slower growth in the United States by the Federal Reserve, along with news of slower growth in China and England. Weakness in China could easily spread globally to Europe and the U.S. due to economic interconnectivity. News of lower imports in China is driving concerns of slower growth in the country, which would also impact other global economies.
Overseas in England, the central bank lowered its GDP estimate, blaming the potential slowing in the U.S. and the eurozone. Germany also announced slower growth.
The Fed will expand its measures to increase lending; even so, this may not be enough to avoid weakness imported from overseas economies. Again, the fear of a potential double-dip recession is surfacing.
In addition to the economic growth concerns, the lack of job creation will continue to be a critical factor going forward into 2011 that could impact the rate of economic renewal. There were about 2.9 million jobs available in June, according to the Labor Department.
Consider that there are over 14 million workers looking for jobs at the same time, it does not look promising for the unemployed. And, until we see a pick-up in jobs, consumer spending and GDP will be impacted.
Further on the corporate front, tech bellwether Cisco Systems, Inc.
(NASDAQ/CSCO) has indicated a shortfall in revenues, which we have said is not what we want to see.
Oil is edging lower after retrenching back below $80.00 on the global economic concerns. Gold is failing to hold above $1,200 despite the stock market concerns.
Watch to see if there’s any buying on weakness. Be careful, and wait for the dust to settle. It may be an opportune time to accumulate stocks on weakness. Market indices have decent bottom support.