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Is Dow 20k a Resistance Level? Milestone Looks Like a No Go in 2016

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December 29, 2016

(Thursday Market Open) Looks like the Dow Jones Industrials (DJIA) may have found its resistance level in that 20,000 highpoint. Despite repeated attempts to penetrate it, it appears it might not have been meant to be—at least in 2016. U.S. equities look weak again today,

Some analysts are likely telling traders to pack up their bags and leave for a long weekend of New Year cheer. Others remind us that this sleepy week may also be one of volatility in either direction.

But would it be enough to move the mark to that psychological, but fundamentally meaningless 20k target? Would it matter? Probably not, say many market watchers, except for maybe wrapping up the year and a largely unexpected fast-moving market rally that seems to have been riding on a wave of consumer confidence and the likelihood of some market deregulation with some pretty bows. And given the direction yesterday and today, it looks like it might not happen.

Wednesday was a bust. It started looking like the run-up since early November was still on the upside. Until it didn’t. That flirting game the Dow Jones Industrials (DJIA) was having with that 20k milestone turned south quickly after the bell rang. When all was said and done, DJIA finished near its session lows, tumbling away from the 20k level and possibly in danger of breaking its streak of consecutive weeks to the upside. Today may be telling.

Ditto for the S&P 500 (SPX), the Nasdaq Composite (COMP), the dollar and the price of crude oil weakness. Meanwhile, that fear gauge, the Volatility Index (VIX) jumped 8%. It is certainly not time to hit the panic button as the volume yesterday—and likely again today--continues to be very light. What appeared to drive much of yesterday’s selling pressure was the unexpected 2.5% drop in pending home sales. (See below.)

What does this mean for today’s trading activity? Maybe more of the same. Maybe not.

S&P Chart

THE PAUSE.

The S&P 500 Index (SPX), plotted here through Wednesday on the TD Ameritrade thinkorswim® platform, stumbled as all 11 sectors sold off, closing just $0.08 cents under the 2,250 support level in its biggest one-day percentage sell off since October. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Working 9-to-5 Again. Jobless claims fell to 265,000, down 10,000 to return initial claims for unemployment benefits to the extremely low levels that seem to have become the norm in recent months and since peaking in May, according to the Labor Department. In mid December, they had jumped to a six-month high of 275,000.

That marks 95 uninterrupted weeks that initial claims have held under 300,000, the longest stretch since 1970. Meanwhile, continuing claims were reported in line with Wall Street expectations and now stand just a whisper under 2.04 million for the week ending Dec. 17. Continuing claims count the number of people already on unemployment.

Oil Stockpiles Surge. Oil prices appeared to lose their upward momentum in the early going today after the American Petroleum Institute reported that U.S. crude stocks climbed by 4.2 million barrels for the week before Christmas. That was well ahead of the decline of 1.4 million barrels Wall Street forecast, according to published reports.

Prices for West Texas Intermediate (WTI) crude oil prices were off modestly to $53.91 in early trading after climbing to an 18-month peak earlier this week.

The official word on supplies from the Energy Information Administration is expected to be out later today, a day later than usual because of the holidays. Last week, crude stocks rose by 2.3 million barrels, EIA reported.

Fast Reaction on Interest Rates...And the fallout that may put the brakes on the housing recovery. Pending U.S. home sales tumbled 2.5% in November to a trough not seen in nearly a year, according to the National Association of Realtors.

The NAR’s index that measures pending home sales dropped to 107.3 from 110.0 in October, the trade group said. Why? Higher mortgage rates, which jumped to 4.36% on a 30-year home loan from 3.59% ahead of the presidential election, appears to have held some buyers at bay, according to analysts.

Given the consensus from the Federal Reserve and market experts that tax cuts and new spending under a new administration will lead to rising inflation, it’s likely that interest rates will continue to climb in 2017. When the Fed raised interest rates earlier this month, it indicated that it expected to hike them again at least three times in the new year.

Meanwhile, the yield on 10-year Treasury notes has hit 2.6% this week, but is trending slightly lower at 2.5% today.

Good Trading,

JJ
@TDAJJKinahan

Economic calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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