Dow Jones Industrial Average Fades Into Weekly Loss

The Dow Jones Industrial Average (DIA) closed lower on Friday to break its longest weekly winning streak in a year.

The S&P 500 (SPY) also closed lower, unable once again to hold the psychologically and technically important 1700 level, while the Nasdaq Composite (QQQ) and Russell 2000 (IWM) also closed in the red.

For the week, the Dow Jones Industrial Average (DIA) fell 1.5%, the Nasdaq Composite (QQQ) slid 0.8% and the S&P 500 (SPY) declined 1.1%.

On My Stock Market Radar
The Dow Jones Industrial Average (DIA) continues to show weakness on a technical basis as depicted in the chart below where we see relative strength declining and momentum faltering. Relative strength is in a downtrend while MACD is on a “sell” signal on both the daily and weekly time frames.

Significant support rests at the 50 day moving average of 15, 264.

Also, on Friday, August 9, 2013, the Dow Jones Industrial Average (DIA) posted a “sell” signal in point and figure charting methodology and the index now has a downside price objective of 15,000 with significant support at the 14,400 level.


A number of other warning signs point to the possibility of further weakness ahead, including multiple Hindenburg Omen sightings, (four in five days) wide spreads between current prices in the major indexes and their 200 day moving averages, near record margin debt and inflated profit margins.

Fundamentals are also looking weaker as major indexes have rallied while profits haven’t kept pace.

P/E ratios over the next year for the S&P 500 (SPY) are 14.5, the highest in several years and just above long term average of 14.2.

The Shiller P/E calculations put stocks at even more expensive levels with a reading of 24 versus the long term mean of 16.5 and so this calculation is 45% higher than its historical norm, indicating a significantly overpriced and overbought situation. Shiller P/E

Stock Market News You Can Really Use

Stocks were mostly weaker last week due to concern over “Fedspeak” regarding the possibility of a September taper while economic reports were relatively positive.

In a slow data week, ISM services sector rose to 56%, up from the previous reading of 52.2%, while home prices continued their advance. Weekly jobless claims were lower than expected and posted the best numbers since late 2007.

It was also a low volume week with some of the lowest volume days of the year being logged as the dog days of summer took full hold of global financial markets.

Earnings season is beginning to wind down, but next week will see important results from Deere & Co. (DE), Macy’s (M), Wal-Mart (WMT) and Cisco (CSCO).

J.C. Penny’s (JCP) is also likely to stay in the news in coming weeks as the company continues to founder. The company’s stock lost 5.78% on Friday and is down more than 50% from its yearly high.

This coming week will also see a pick up in economic reports with a busy midweek schedule that includes:

Tuesday: July retail sales, June business inventories, August NFIB small business index

Wednesday: July producer price index

Thursday: July Consumer price index, August Empire State Index, July Industrial production, August Philadelphia Federal Reserve, August home builders index

Friday: July housing starts, July building permits

All of these will be carefully perused as market participants try to weigh the benefits of economic growth against the possibility of the Federal Reserve starting to taper its $85 billion/month bond buying program.

Bottom line: Numerous fundamental and technical warnings point to vulnerability in the Dow Jones Industrial Average (DIA) and other major U.S. indexes as the dog days of summer unfold.

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