After a 6% run in just four days, profit taking overtook the markets Monday with 22 of the Dow’s (DJI) 30 blue chips closing lower. There was little in the way of negative news to account for the pullback; in fact, there were a number of positive developments.
Several retail sales stocks, including Best Buy (BBY) and Amazon.com (AMZN), were upgraded because of their strong positions in an otherwise weak economy, but Macy’s (M) and Target (TGT) received lower earnings revisions.
The energy stocks were generally higher, impacted by higher crude oil prices, and the banking group was generally lower following a cut in estimated earnings for the year on JPMorgan Chase (JPM).
Technology stocks were strong, following an assurance by Apple’s (AAPL) Steve Jobs, who addressed his health issues with investors, and the stock rose 4.2%.
But the health of the auto industry is still poor, and even though the December auto sales numbers were better than expected they were the worst in many years with General Motors (GM) reporting December sales off 31% versus December 2007 and Ford (F) down 32%. Worst hit was Chrysler, which reported sales down 53%.
Yet economic news was better than expected. The Commerce Department reported that construction spending in November fell 0.6%, but experts had been looking for a fall of 1.2%.
At the close, the Dow Jones Industrial Average (DJI) was down 82 points to 8,953. The S&P 500 (SPX) fell four points, closing at 927, and the Nasdaq (NASD) was off four points at 1,628.
The February crude oil contract rose $2.47 to $48.81 a barrel, and the Amex Energy SPDR (XLE) gained $1.18 to $51.33.
Gold futures were lower on Monday. The February contract lost $21.70 at $857.80. The PHLX Gold/Silver Index (XAU) lost $4.65 and closed at $118.78.
What the Markets Are Saying
Monday’s low-volume selling did little to enlighten technicians as to the future direction of the market. But it should serve to remind anyone who is an outright bull that the going is tough for those who choose to run against the grain of a bear market.
Even though last week’s rally was impressive, there have been stronger rallies than that recently. The six-day run that ended on Nov. 4 (Election Day) at Dow (DJI) 9,625 produced a return of more than 18%. It wasn’t long, however, before the bear reared its head and, on Nov. 21, stocks hit a new low at Dow 7,392.
Our internal indicators are now overbought and the S&P short-term indicators are now bearish. Only the intermediate term is neutral, and long term is bearish. Let’s not get caught up in bullish fever unless Dow 9,600 and S&P 1,010 are broken with gusto. We remain hedged with a bias to the short side of the market.
Today’s Trading Landscape
Earnings to be reported include: Acuity Brands (AYI), Aehr Test Systems (AEHR), AngioDynamics (ANGO), Finish Line (FINL), Global Payments (GPN), Landec Corp (LNDC), Neogen (NEOG), Resources Global Professionals (RECN), Standard Microsystems Corp. (SMSC), The Mentor Network (NWK) and Xyratex Ltd (XRTX).
Several economic reports are due including: the Redbook Retail Sales Index for Jan. 3, December Non-Manufacturing Index (the consensus expects 37), November Pending Home Sales (the consensus expects 0.4%), November Factory Orders (the consensus expects -2.2%), December FOMC Minutes, and ABC/Washington Post Consumer Confidence for Jan. 3.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
