After staging a huge intra-day turn off the day's low on Tuesday, some thought the market was going to head higher on Wednesday. The move higher was not meant to be.
In what was the highest S&P 500 Trust Series ETF (SPY) volume since the Oct. 16 low, trading in excess of 155 million shares on Wednesday, the stock indices finished near the day's low.
The DJIA lost 268.05 points, or 1.51%, to close at 17,533.15. The S&P lost 1.64%, or 33.68 points, to close at 2,026.14. The Nasdaq was down 82.44 points, or 1.7%, to finish at 4,684.03 and the Russell 2000 lost 26.19 points, or 2.2%, to close at 1,161.86. It now appears that the many negative divergences under the surface of this stock market have finally taken hold.
It seems that a stock market that was continually moving higher through the month of November and early December on less than average volume has been met with much higher downside volume. The volume on Wednesday was over 60% higher versus the year-to-date average in the SPY.
One technical indicator that seems to now be bearish is the New High/New Low Index, which measures how many stocks in various indices have reached 52-week highs and how many have reached 52-week lows. Both the monthly and yearly signals have crossed into bearish territory.
Thus, for now, traders and investors need to be extremely cautious going forward.
If we look further out at the weekly indicators, all four indices have come down from their overbought signals and appear, at the moment, to be heading lower. This usually means that, from a longer term perspective, the trend is now signaling lower prices ahead.
From a daily perspective, the S&P 500 and the Nasdaq are in oversold territory. That usually means that we should see a market turn to the upside within the next few days. The DJIA and the Russell 2000 do not yet appear to be in oversold territory, but they are not far behind.
In sum, it appears the markets should turn higher in the short term within a longer-term downtrend.
The Barclays 20+Year Treasury Bond Fund (TLT) continues to put on a stellar performance in 2014, now up 22% in 2014. This seems to signal a slowing economy, along with the price of the S&P Goldman Sachs Crude Oil Index (OIL) , which is down 37% in 2014.
For the moment, the only stocks that appear to be oversold and worthy of buy's are selected oil stocks. Southwestern Energy (SWN) , Noble Corporation (NE) and Encana (ECA) are three stocks that are oversold and worthy of buys.
Thus, stay defensive for the moment and be patient. Good things come to those who wait.