Stocks Dip After Hitting New Record Highs

Stocks made a retreat at one hour into Friday’s trading session, after hitting new record intraday highs.  

After starting Friday’s trading session with a quick advance to new record intraday highs, both the S&P 500 and the Dow Jones Industrial Average headed slightly into the red, as their relative strength indices rose above 70 – a level seen by many investors as an “overbought” signal. Stocks spent the rest of Friday’s session bobbing above and below the breakeven level, finishing the bullish Christmas week with a toe in the red.
 
The Dow Jones Industrial Average (DIA) lost a point to finish Friday’s trading session at 16,478 for a 0.01 percent dip, after hitting a record intraday high of 16,529.01. The S&P 500 (SPY) slipped 0.03 percent to close at 1,841, after hitting a new record intraday high of 1,844.89.
 
The Nasdaq 100 (QQQ) declined 0.29 percent to finish at 3,574. The Russell 2000 (IWM) retreated 0.13 percent to end the day at 1,161.
 
In other major markets, oil (USO) climbed 0.53 percent to close at $35.84.
 
On London’s ICE Futures Europe Exchange, February futures for Brent crude oil advanced 14 cents (0.13 percent) to $112.12/bbl. (BNO).
 
February gold futures advanced $1.10 (0.09 percent) to $1,213.40 per ounce (GLD).
 
Transports were stuck in snowbound traffic on Friday, as the Dow Jones Transportation Average (IYT) declined 0.17 percent.
 
In Japan, the exchange rate for the yen returned to its role as the dominant factor in stock market activity. Japanese stocks advanced as the yen weakened to 104.98 per dollar during Friday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average advanced 0.03 percent to 16,178 (EWJ).
 
Stocks rallied in mainland China after the seven-day repurchase rate dropped to 5.09 percent, easing the persistent concerns about liquidity, which have been keeping the Shanghai Composite Index below its 50-day moving average (currently at 2,165) since December 16. The Shanghai Composite Index jumped 1.36 percent to 2,101 (FXI). Hong Kong’s Hang Seng Index advanced 0.27 percent to 23,243 (EWH).

Stocks advanced in Europe, as the euro strengthened to $1.3893 – its highest exchange rate in two years – after Jens Weidmann, President of Germany’s Bundesbank and a member of the European Central Bank Governing Council, spoke out against low interest rates. The Euro STOXX 50 Index finished Friday’s session with a 1.25 percent jump to 3,111 – climbing further above its 50-day moving average of 3,031. Its Relative Strength Index is 64.59 (FEZ).
 
Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,784 after dipping 0.03 percent to finish Friday’s session at 1,841. Its Relative Strength Index slipped from 69.69 to 69.30. The MACD is climbing above the signal line, which would suggest that the S&P should resume its advance during the immediate future.
 
On Friday, four sectors advanced and five sectors declined. The consumer discretionary sector took the hardest hit, with a 0.47 percent drop.
 
Consumer Discretionary (XLY):  -0.47%
 
Technology:  (XLK):  -0.08%
 
Industrials (XLI):  -0.12%
 
Materials: (XLB):  +0.31%
 
Energy (XLE):  +0.49%
 
Financials: (XLF):  -0.05%
 
Utilities (XLU):  +0.40%
 
Health Care: (XLV):  -0.09%
 
Consumer Staples (XLP):  +0.23%
 
Bottom line:  Investors responded to the “overbought” signals as the relative strength indices for the Dow, the S&P 500 and the Nasdaq 100 rose above 70. As a result, the major stock indices finished Friday’s session slightly in the red.
 
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