Apr 11 2014, 1:55pm CDT | by Forbes
Carnage in the technology and biotechnology stocks continued on Thursday as the major averages erased all of Wednesday’s gains. Selling was heavy and there were some signs of panic liquidation. The ARMS Index closed at 2.37, which is just below the March 13 high of 2.48. At the February 3 low, the index closed at 3.42.
Those stocks that have borne the brunt of the selling show no signs yet of a bottom, while other stocks, both in the US, and overseas, do look much better. The Nasdaq Composite lost 3.10% Thursday and is now down 2.93% for the year. The Vanguard MSCI Europe (VGK) is actually up 1.3%, with the Vanguard MSCI Emerging Markets (VWO) up 0.7%.
Weak data out of China apparently contributed to the selling pressure, yet the Hang Seng Index is down just 0.66% for the year. The stock market bears are arguing that the global markets, as well as the large-cap US stocks, are going to soon join the Nasdaq 100 by dropping sharply.
After Thursday’s close, the McClellan oscillator closed at -168 and dropped below support, suggesting it will drop to more oversold levels. The NYSE A/D Line turned lower but is still above the April, as well as the late March, lows. Therefore, is does not yet show signs of a completed top (2 Stock Market Scenarios). Given the sharp declines in the Eurozone markets in early trading, the selling is clearly not over yet.
The economic data also continues to improve and that suggests to me that those who sold Thursday will be surprised by the economy’s strength later in the year. Though it may not be enough to justify the high levels that some momentum stocks reached in March, it is a positive sign for many of the large-cap stocks. A technical examination of the weekly charts of the SPDR Dow Industrials (DIA) and iShares Dow Transportation (IYT) continues to support a more positive long-term outlook.
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Chart Analysis: The weekly chart of the SPDR Dow Industrials (DIA) reveals that it is not that far now below the April 4 high of $166.06.
The iShares DJ Transportation Average (IYT) was down over 2% on Thursday, closing just above the quarterly pivot at $132.63.
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The long-term chart of the SPDR Dow Industrials (DIA) goes back to 1999 and includes the 40-week MA at $157.72.
What it Means: The disappointing earnings from JPMorgan Chase & Co (JPM) has pushed the stock down almost 4% before the NY open. On the other hand, Wells Fargo & Company (WFC) beat estimates but is only up slightly in pre-opening trade. The US futures are down sharply.
How to Profit: No new recommendation.
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