U.S. Stock Market - Meaningful Correction Now Underway?

U.S. stocks opened slightly higher on balance this morning, but then turned south almost immediately in NY dealings. The Dow Jones Industrial Average traded up about 21 points to 14,683 in the opening minutes before sellers began to dominate. Weaker than expected employment news from the payroll processing firm ADP is one excuse being mentioned for the downturn in the U.S. stock market. ADP reported early on Wednesday morning that the private sector generated 158,000 jobs in March, which was below Wall Street consensus forecasts calling for 215,000 gain.  However, the pace of hiring was revised up sharply in February, which suggests to me that this particular employment report was not the real catalyst for today’s stock market decline. Several Fed officials, Fed Governor Williams from San Francisco and Fed Bank President Bullard from St. Louis, hinted in speeches today that maybe the Fed will be able to reduce its monthly bond purchases beginning as early as this summer. And Williams actually said that “If all goes as hoped [with the expected improvement in the labor market], we could end the purchase program sometime late this year”. Of course, EVERY comment from EVERY Fed official last week was friendly, friendly, and more friendly, and these comments last week never hinted that the Federal Reserve would scale back or eliminate its current purchases of $85 billion worth of bonds per month until well into 2014 and maybe even beyond. Where’s Ben when you need him?

Here are today’s closing marks, with changes from Tuesday’s close:

                                                                                    Wednesday’s Closing Prices              

Dow Jones Industrial Average                        14,550.35        -111.66            -0.76%

S&P 500 Index                                                  1,553.69        -  16.56            -1.05%

NASDAQ Composite Index                               3,218.60        -  36.26            -1.11%

Russell 2000 Index                                               918.71        -  15.59            -1.67%

Dow Jones Transportation Average                  6,005.95        -  81.09            -1.33%

Gold/Silver mining stocks were crushed again today as investors reacted to “less friendly” Fed comments, falling precious metals futures prices, and a widely circulated report from Societe Generale which declared “the end of the gold era” and forecast lower gold prices ahead. The widely followed and very popular Gold ETF (symbol GLD) fell 1.12% today, and the Silver ETF (symbol SLV) was down 0.99% today. These changes were less than earth-shaking, but Gold/Silver mining stocks still plummeted in response. The Philadelphia Gold/Silver Mining Stocks Index plunged 4.24% today, with many components losing 5% or more on top of significant losses sustained yesterday as well. My own view is that many of these gold/silver mining shares are compelling values now (with some actually trading at only 6x forward 12-month earnings). In the interest of full disclosure, I am long the following gold/silver mining shares: ABX, AG, EXK, and GG. I am also long the Junior Gold Miners ETF (symbol GDXJ).

Bottom Line: At today’s close, a weekly chart sell signal was triggered in the New York Composite Index. The weekly bar chart for the New York Composite Index, with all computer-generated buy and sell signals, is attached below for your review. With the exception of a Transportation Index sell signal yesterday, this is the first broad market weekly chart sell signal in any major index for the current up leg which began in June 2012. A double "yellow dot" buy signal was triggered by my computer algorithm in June 2012 in almost every major stock index, and today’s "red dot" sell signal strongly suggests that an important correction is now underway. This correction will probably be at least 10% or more from recent intra-day highs and may last several months or more. While it would be nice to have confirmation of today's sell signal in other major indexes, the NY Composite is alone right now. However, it is my view that weekly chart sell signals will be triggered in other major stock indexes before the end of this week as this latest downturn continues to unfold.

NY Composite Index Weekly Bar Chart with Computer-generated Buy & Sell Signals