Credit: Shutterstock photoLed by a 12.8% decline in the Russell 2000 Index, an 8.3% drop in the NASDAQ composite, a 6% setback in the NASDAQ 100 Index and a 5.4% pullback in the S&P 500 Index, the Dow Jones Industrial Average followed ending the week off 4.25 % from its September 19th peak. Worries over a decline in global growth, concerns over the possible spread of the Ebola virus, as well as increased uncertainties over conflict in the Middle East have caused investors to become cautious.
As a result, the Dow Jones Industrial average broke below key trend line support at the 16,845 level last week accompanied by a set of bearish technical indicators. Underscoring the increase in equity bearishness was a decline in U.S. Treasury 10-year yield to the 2.285% level late in the session on Friday.
That being said, an unexpected decline in fuel costs as well as the beginning of a dip in the food prices have given U.S. consumers a jolt of good news well ahead of the all important holiday shopping season.
In addition, a rise in the value of the Dollar relative to the Euro and Yen could keep the recent deflation/disinflation advantage for U.S. shoppers going for quite a while longer. In the end, that prospect could boost earnings expectations for futures quarters and, in turn, be a welcomed plus for stock prices.
Over the short-run, however, the technical set-up of the Dow Jones Industrial average suggests that the pullback in stocks is not yet over with an eventual test of key trend line support at 15,725 possible. Putting things into perspective, a test of that level would represent a modest 9% decline from its September 19 high, implying that the current setback is nearing the halfway point. At the very least, such a scenario could finally give investors the buying opportunity that they have long awaited.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
