Here Are The Fundamental And Technical Reasons Driving U.S. Stocks Lower

&l;p&g;&l;img class=&q;dam-image getty size-large wp-image-949172358&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/949172358/960×0.jpg?fit=scale&q; data-height=&q;639&q; data-width=&q;960&q;&g; (Photo by Bryan R. Smith/ AFP/Getty Images)

Investment strategists are giving a host of reasons why the five major U.S. equity averages have been sliding lower since highs were set between January 16 and March 23. I will explain and provide the two main reasons.

&l;strong&g;What Wall Street and the financial media are saying&l;/strong&g;

&l;/p&g;&l;ul&g;&l;li&g;First quarter earnings were solid, and stocks will soon resume the bull market run. This good news was priced into individual stocks as many become overvalued fundamentally and overbought technically. I described some weekly charts as &a;lsquo;inflating parabolic bubbles&a;rsquo; as 2018 began.&l;/li&g;

&l;li&g;Today Wall Street is worried about a potential trade war with China. This is a factor, but the result has been volatile day to day trading.&l;/li&g;

&l;li&g;Investors are worried by rate hikes by the Federal Reserve. This is also a factor, but there is a more important Fed factor.&l;/li&g;

&l;/ul&g;&l;strong&g;Here are the real reasons for downside risk for U.S. Stocks&l;/strong&g;

&l;ul&g;&l;li&g;The unwinding of the Federal Reserve balance sheet is a real reason for stock market weakness. In the fourth quarter of 2017 the Fed destroyed $30 billion in Treasurys and mortgages by beginning its unwinding exercises. This grew to $60 billion in the first quarter of 2018, which was finally felt by the market mid-month in January.In April another $30 billion was flushed down the toilet. Another $30 billion will be evaporated in May. Beginning in June it will jump to $40 billion per month. In October it will jump to $50 billion a month, which could last through 2020. Stocks rallied on quantitative easing money printing, they will decline as QE unwinds&l;/li&g;

&l;/ul&g;&l;ul&g;&l;li&g;Dollar weakness helped stocks rise, dollar strength since the end of January reversed this correlation.&l;/li&g;

&l;/ul&g;&l;strong&g;Here&a;rsquo;s the Scorecard for the Major Equity Averages&l;/strong&g;

&l;img class=&q;size-full wp-image-57044&q; src=&q;http://blogs-images.forbes.com/investor/files/2018/05/ScorecardUSEquityAverages050318.jpg?width=960&q; alt=&q;&q; data-height=&q;212&q; data-width=&q;894&q;&g; Scorecard For The Five Equity Averages

Stocks rallied during quantitative easing and the Dow Jones Transportation Average peaked first on Jan. 16, the Russell 2000 then peaked on Jan. 24, and the Dow Jones Industrial Average and S&a;amp;P 500 peaked on Jan. 26 as balance sheet unwinding began to accelerate. This has caused stocks to roll over beginning in January. The tech-heavy Nasdaq continued higher but peaked on March 13.

&l;strong&g;The dollar bottomed on Jan. 25 as the Dow and the S&a;amp;P peaked.&l;/strong&g;

Stocks were strong given a weak dollar as corporations were able to convert sales in foreign currencies into more dollars at home. Now, currency converging is a drag.

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&l;strong&g;Here are the daily charts for the five major equity averages &a;nbsp;&l;/strong&g;

&l;strong&g;Dow Jones Industrial Average (DIA)&l;/strong&g;

&l;img class=&q;wp-image-57045 size-full&q; src=&q;http://blogs-images.forbes.com/investor/files/2018/05/DJID050318.jpg?width=960&q; alt=&q;&q; data-height=&q;614&q; data-width=&q;951&q;&g; Courtesy of MetaStock Xenith

The daily chart for the Dow (23.930.15 on May 3) shows that the Dow traded below its 200-day simple moving average of 23,751.02 on Thursday. The average is in correction territory, 10.1% below its all-time intraday high of 26,616.71 set on Jan. 26.&a;nbsp;My semiannual value level is 23,018 with my annual pivot of 24,666 and quarterly and monthly risky levels at 25,280 and 26,581, respectively.

&l;strong&g;S&a;amp;P 500 (SPY)&l;/strong&g;

&l;img class=&q;wp-image-57046 size-full&q; src=&q;http://blogs-images.forbes.com/investor/files/2018/05/SPXD050318.jpg?width=960&q; alt=&q;&q; data-height=&q;611&q; data-width=&q;949&q;&g; Courtesy of MetaStock Xenith

The daily chart for the S&a;amp;P 500 (2,629.75 on May 3) shows that the index traded below its 200-day simple moving average of 2,615.04 on Thursday. Keep in mind that the 200-day held at the Feb. 9 low when this average was 2,539.27. My semiannual pivot remains a magnet at 2,648.4.&a;nbsp;My annual and quarterly risky levels are 2,769.1 and 2,777.3, respectively, with my monthly risky level at 2,837.3, which is below the all-time intraday high of 2,872.87 set on Jan. 26.

&l;strong&g;The Nasdaq Composite &l;/strong&g;

&l;img class=&q;wp-image-57047 size-full&q; src=&q;http://blogs-images.forbes.com/investor/files/2018/05/NasdaqD050318.jpg?width=960&q; alt=&q;&q; data-height=&q;615&q; data-width=&q;951&q;&g; Courtesy of MetaStock Xenith

The daily chart for the Nasdaq (7,088.15 on May 3) shows how my annual and semiannual pivots of 6,928 and 6,782, respectively, have been magnets since Feb. 8. The 200-day simple moving average is now between these levels at 6,847.93. My annual and semiannual pivots are 6,928 and 6,782, respectively, with my quarterly and monthly risky levels at 7,381 and 7,545, respectively, which are below the all-time intraday high of 7,186.09 set on March 13. &l;strong&g;Keep in mind that March 13 was a &a;lsquo;key reversal&a;rsquo; day as the close was below the March 12 low.&l;/strong&g;

&l;strong&g;The Dow Transportation Average&l;/strong&g;

&l;img class=&q;wp-image-57048 size-full&q; src=&q;http://blogs-images.forbes.com/investor/files/2018/05/DJTD050218.jpg?width=960&q; alt=&q;&q; data-height=&q;617&q; data-width=&q;951&q;&g; Courtesy of MetaStock Xenith

The daily chart for the Dow Transportation Average (10,254.64 on May 3) shows that this average tested its 200-day simple moving average of 10,100.10 on Thursday. The 200-day was 9,773.90 when nearly tested on Feb. 9. The average is in correction territory, 10.2% below its all-time intraday high of 11,423.92 set on Jan. 16. My semiannual pivot remains at 10,435.&a;nbsp;My quarterly and annual risky levels are 10,858 and 11,401, respectively, with my monthly risky level at 11,383. These levels are below the Jan. 16 all-time intraday high of 11,423.92.

&l;strong&g;The Russell 2000&l;/strong&g;

&l;img class=&q;wp-image-57049 size-full&q; src=&q;http://blogs-images.forbes.com/investor/files/2018/05/RUTD050318.jpg?width=960&q; alt=&q;&q; data-height=&q;614&q; data-width=&q;953&q;&g; Courtesy of MetaStock Xenith

The daily chart for the Russell 2000 (1,546.56 on May 3) shows the small-cap index tested my semiannual value level of 1,454.79 on Feb. 9. This index is well above its 200-day simple moving average of 1,503.64, which has risen from 1,461.22 on Feb. 6.&a;nbsp;My semiannual value level is 1,454.79 with my monthly, annual and quarterly risky levels of 1,655.54, 1,664.90 and 1,696.46, respectively. The all-time intraday high is 1,464.61 set on Jan. 24.