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 MORNING MARKET COMMENTARY   - Monday, August 04, 2014  
Adam Sarhan Major Averages' Technical Deterioration Raised Concerns This Week
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net

With Friday's retreat, the major averages ended the week in firmly in negative territory. The Dow was down -2.8%, the S&P 500 shed -2.7% and the NASDAQ fell -2.2%. The volume totals were lighter than the prior session volume totals on the NYSE and on the Nasdaq exchange. Decliners led advancers by nearly a 2-1 margin on the NYSE and on the Nasdaq exchange. Leadership contracted as there were 6 high-ranked companies from the CANSLIM.net Leaders List that made new 52-week highs and appeared on the CANSLIM.net BreakOuts Page, down from the prior session total of 12 stocks. A healthy level of leadership (stocks hitting new 52-week highs) is necessary for any sustained rally. New 52-week lows outnumbered new 52-week highs on the NYSE and on the Nasdaq exchange. There were gains from 7 of the 13 of the high-ranked companies currently included on the Featured Stocks Page. The market (M criteria) deterioration has been enough to earn the label of a "correction" as the technical damage became significant to chart readers.  Disciplined investors limit losses and reduce market exposure during rough market periods by selling any stocks which fall more than -7% from their purchase price.

 

PICTURED: The Dow fell 70 points to 16,493. It violated its 50-day moving average (DMA) line while falling toward its 200 DMA line with volume-driven losses. 

The S&P 500 was down 6 points to 1,925 after the damaging loss on heavy volume on the prior session led to a violation of its 50-day moving average line, a clear sign of the market's deteriorating strength. It also violated a multi-month upward trendline. The NASDAQ Composite declined 17 points to 4,352 also violating its 50 DMA line. The major averages extended their pullbacks to a second day while investors weighed the latest jobs report. Non-farm payrolls rose 209,000 in July, less than a projected 233,000 increase. The unemployment rate ticked up to 6.2% as more workers entered the labor market. Additional releases showed manufacturing expanded at a faster pace while consumer sentiment edged lower last month. Some weakness was also attributed to credit concerns surrounding Portugal and Argentina.

The defensive consumer staples and utility sectors were the best performing sectors. Procter & Gamble (PG +3%) and Clorox (CLX +2.7%) rose after both posted earnings above analyst estimates. Edison International (EIX +2.1%) was higher. Financials, telecom and energy were down the most on the session. JP Morgan Chase (JPM -2.1%) and Verizon (VZ -1.2%) declined. Chevron (CVX -1%) fell after lowering its 2014 production target.
Treasuries rose with the 10-year note up 16/32 to yield 2.50%.

The Networking Index ($NWX -1.87%) dragged on the tech sector while the Biotechnology Index ($BTK +0.23%) and the Semiconductor Index ($SOX +0.36%) both posted small gains. The financials were a negative influence on the major averages as the Bank Index ($BKX -1.40%) and the Broker/Dealer Index ($XBD -1.01%) both lost ground. The Retail Index ($RLX -0.53%) ended lower. The Integrated Oil Index ($XOI -0.69%) and Oil Services Index ($OSX -0.33%) edged lower while the Gold & Silver Index ($XAU +0.63%) posted a small gain.

Charts courtesy www.stockcharts.com

PICTURED: The Broker/Dealer Index ($XBD -1.01%) met resistance at prior highs and retreated toward its 50-day moving average (DMA) line.

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