Stock Market Retreats Slightly On Volatile Trading Day

Wednesday’s stock market volatility left commentators confused while investors experienced motion sickness.  

Financial commentators struggled to explain Wednesday’s stock market activity. When the major stock indices opened in the red, the “usual suspects” (the taper-plotting FOMC) took the blame. As the trading session progressed, it became obvious that we were experiencing a volatile trading day.
 
As we pointed out on November 19, stock market volatility historically increases during the period from Thanksgiving through the end of the year. A review of the chart for the Chicago Board Options Exchange Volatility Index (VIX) reveals that just before Thanksgiving, on November 25, the 50-day moving average crossed below the 200-day moving average, placing a “death cross” on the VIX chart. This is understood to signal a more significant decline. Nevertheless, the VIX went on a steady climb since that point and we are about to see the pattern reverse itself, with a “golden cross” appearing on the VIX chart within the next few sessions.
 
Wednesday’s volatile session was demonstrated by the movement of the S&P 500 Index, which began the day in the red, went positive, and fell back to the breakeven level where it dipped back and forth into the red four times before making a more decisive move downward to the day’s low of 1,779. From there it peeked back into positive territory, dipped into the red, climbed back out and faded into the close. Welcome to the volatile trading season.
 
The Dow Jones Industrial Average (DIA) lost 24 points to finish Wednesday’s trading session at 15,889 for a 0.16 percent decline. The S&P 500 (SPY) retreated 0.13 percent to close at 1,792.
 
The Nasdaq 100 (QQQ) advanced 0.11 percent to finish at 3,483. The Russell 2000 (IWM) declined 0.21 percent to end the day at 1,121.
 
In other major markets, oil (USO) jumped 1.07 percent to close at $34.88.
 
On London’s ICE Futures Europe Exchange, January futures for Brent crude oil declined $1.07 (0.95 percent) to $11.06/bbl. (BNO).
 
February gold futures advanced $22.10 (1.81 percent) to $1,242.90 per ounce (GLD).
 
Transports encountered bad weather during Wednesday’s trading session, with the Dow Jones Transportation Average (IYT) falling 0.44 percent.
 
In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks were crushed, as the yen strengthened to 102.48 per dollar before Wednesday’s closing bell in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average sank 2.17 percent to 15,407 (EWJ).
 
Stocks soared in mainland China after the People’s Bank of China announced plans to enhance the Shanghai Free Trade Zone during the next three months. In Hong Kong, stock prices continued to retreat as profit-taking resumed, after Monday’s close of the Hang Seng Index at its highest level since April of 2011. The Shanghai Composite Index jumped 1.31 percent to 2,251 (FXI). Hong Kong’s Hang Seng Index dropped 0.76 percent to end the day at 23,728 (EWH).
 
Contrary to what you may have read elsewhere, European stocks declined for reasons other than fear about the American Federal Reserve’s plans to taper its bond purchases. European investors have their own concerns, and America’s Federal Reserve is not as important to them as our financial commentators would like to imagine. European stock prices dropped because the final November Markit Eurozone Composite PMI declined to 51.7 from October’s 51.9. A reading above 50 indicates expansion. The final Eurozone Services Business Activity Index also declined, dropping to 51.2 from October’s 51.6. Furthermore, Chris Williamson’s Commentary in the report says nothing about our Federal Reserve’s FOMC as having anything to do with the region’s decline in business conditions.
 
Eurostat reported that the volume of retail trade declined by 0.2 percent in the Eurozone between August and September. In the greater, 28-nation European Union, retail trade declined by 0.4 percent during the same period.
 
Eurostat also reported that the second estimate of third quarter GDP confirmed that the Eurozone’s economy expanded by only 0.1 percent during the third quarter, compared with 0.3 percent growth experienced during the second quarter. In the greater, 28-nation European Union, third quarter GDP expanded by only 0.2 percent, compared with the second quarter’s 0.4 percent growth.

The Euro STOXX 50 Index fell 0.73 percent to 2,991 – crossing below its 50-day moving average of 3,014. Its Relative Strength Index is 39.49 (FEZ).
 
Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,747 despite declining 0.13 percent to finish Wednesday’s session at 1,792. Its Relative Strength Index declined from 59.02 to 57.56. The MACD is falling below the signal line, which would suggest that the S&P will continue to retreat during the immediate future.
 
On Wednesday, four sectors finished in positive territory and five sectors finished in the red. The industrial sector took the hardest hit, falling 0.40 percent.
 
Consumer Discretionary (XLY):  -0.23%
 
Technology:  (XLK):  +0.09%
 
Industrials (XLI):  -0.40%
 
Materials: (XLB):  +0.48%
 
Energy (XLE):  -0.32%
 
Financials: (XLF):  +0.24%
 
Utilities (XLU):  +0.45%
 
Health Care: (XLV):  -0.35%
 
Consumer Staples (XLP):  -0.23%
 
Bottom line:  After a wild ride, the Dow and the S&P 500 finished the day slightly in the red, while the Nasdaq 100 made a modest advance.  

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