Stocks started Thursday on a positive note due to a better-than-expected weekly jobless claims number. But the S&P 500 ran into technical resistance at its 1,055 line as soon the Federal Reserve of Kansas City released a report showing a slowdown in manufacturing activity in its district. A broad round of selling ensued, and the Dow closed below the psychologically important 10,000 mark for the first time since early July.
But even though the broad market took another hit, metals made gains. Diversified metals and miners rose almost 0.6%, and gold stocks jumped 1.2%. Barrick Gold Corporation (NYSE: ABX) rose 2.22%, and ASA Limited (NYSE: ASA) was up 1.42%.
Technology stocks were the worst performers, down 1.1%. The biggest decliner on the Dow Industrials was Cisco Systems Inc. (NASDAQ: CSCO), off 1.93%. International Business Machines (NYSE: IBM) fell 1.83% and Intel Corporation (NASDAQ: INTC) was down 1.57%.
The Boeing Company (NYSE: BA) rose 0.9% on news that it will double the number of employees at its parts factory in China. Other Dow stocks showing a gain were American Express Company (NYSE: AXP) and United Technologies Corporation (NYSE: UTX).
The U.S. dollar and yen fell versus other currencies due to a rumor that the two countries might reveal plans for more monetary easing. And the euro rose following a successful debt issue from Ireland.
At the close, the Dow Jones Industrial Average fell 74 points to 9,986, the S&P 500 was off 8 points at 1,047, and the Nasdaq lost 23 points at 2,119.
The NYSE traded just over 1 billion shares with advancers ahead of decliners by about 2-to-1. The Nasdaq crossed 520 million shares, also with advancers ahead by about 2-to-1.
Crude oil for delivery in October rose 84 cents to $73.36. The Energy Select Sector SPDR (NYSE: XLE) closed at $50.78, off 46 cents.
December gold fell $3.60 to settle at $1,237.70 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 2.99 points to 180.38.
What the Markets Are Saying
Even though the major indices fell yesterday, they managed to still stay above their absolute breakdown points. Despite the negative response to the good jobs numbers in what should have been an up day for the markets, the summer of 2010 is still stuck at S&P 1,040 to 1,060.
However, the bulls can’t sustain many more days of selling, as the key indices are now within a fraction of a percent of the support lines that mark the lower end of important zones for each. In times like this, our internal and sentiment indicators can often help to clarify things.
Currently every major internal indicator is oversold, although not as oversold as in the May retreat. But sentiment is another story. The AAII Sentiment Survey, a contra indicator, is as oversold as the July survey with the bulls now at 20.74% and bears at 49.47%. And the other contra indicator, the Investors Intelligence Advisor Sentiment, showed that, “After an 8.4% drop in two weeks, the bulls ended at 33.3%, down from 36.7% last time.” The number of bulls is “typical of a correction bottom.”
As the “wall of worry” builds, investors continue to buy bonds and avoid stocks at what is an alarming rate to some analysts. Many are calling the current bond buying spree a bubble, and it does have some of the characteristics of an overbought situation. Recently, IBM easily raised $1 billion by issuing a three-year bond with a record low yield of 1%. And some companies are even considering issuing bonds with a 100-year maturity.
This buying spree was most recently fueled by Fed Chairman Ben Bernanke’s comment of “unusual uncertainties” in the economy. At the time, I pointed out that there is nothing more abhorrent to an investor than uncertainty, and for the Fed Chairman to use the term is almost unheard of.
The indices now sit at the bottom of major support zones. The public is bearish, the Fed is uncertain, and everyone wants to buy bonds. With all of the bricks in the wall of worry in place, perhaps we will finally see a meaningful bounce in stocks. But if you buy, don’t forget to put a stop-loss order in with your purchase, just in case “the herd” has got it right and stocks head lower.
Today’s Trading Landscape
Earnings to be reported before the opening include: Frontline and Tiffany & Co.
Economic reports due: GDP (the consensus expects 1.3%), corporate profits and consumer sentiment (the consensus expects 69.6).
If you have questions or comments for Sam Collins, please e-mail him at firstname.lastname@example.org.
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