HEAVY SELLING PUSHES U.S. STOCK INDEXES NEAR DECEMBER LOWS -- EARLY 2018 LOWS ARE NEXT -- RUSSELL 2000 SMALL CAP INDEX AND THE DOW TRANSPORTS FALL TO 52-WEEK LOWS -- SO DOES THE S&P RETAIL SPDR -- THAT'S A BAD SIGN FOR THE STOCK MARKET AND THE ECONOMY
HEADING BACK TO EARLY 2018 LOWS... After a unimpressive bounce this week, stock prices are ending week under heavy selling pressure. The first three charts show the Dow Industrials, the S&P 500, and the Nasdaq Composite nearing new lows for the month of December, which puts them on a path to retest their early 2018 lows. Several writers on this site (besides myself) have explained why that will be a very important test for the stock market. Unfortunately, longer range technical indicators remain bearish which isn't very encouraging. Neither is the fact that some of the most economically-sensitive stock groups have already fallen to new 52-week lows. That includes small caps, transports, and retailers.
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Chart 1
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Chart 2
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NDEXES HITTING NEW 52-WEEK LOWS ... Two of the earliest warning signs since October that the stock market was in trouble was the fact that economically-sensitive stock groups like small caps and tranports were leading the market lower. And they're doing that again today. Chart 4 shows the Russell 2000 Small Cap Index undercutting its February intra-day low today to put it at a new 52-week low. Chart 5 shows the Dow Transports doing the same. Weakness in those two groups is a negative warning sign for the market and the U.S. economy. So is the drop in our last chart. Chart 6 shows the S&P Retail SPDR (XRT) also falling to a new 52-week low. And that's happening during the Christmas shopping season which is supposed to be the best time of the year for retailers. It seems clear from the heavy selling in those three groups, and the rest of the market, that investors are bracing for bad economic news in the new year. And they're not waiting around to hear that news. That's why stocks usually peak before the economy. And why we can't use old economic data to predict the direction of the economy or the stock market.
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Chart 5
