Editor’s Note: Due to the Thanksgiving holiday, we will not be publishing the Daily Trader’s Alert or the Trade of the Day Thursday, Nov. 27, or Friday, Nov. 28. We will return with new market commentary and a Trade of the Day on Monday, Dec. 1. We wish you a safe and happy holiday.
Before Tuesday’s opening, the Fed announced the creation of programs to provide another $800 billion to shore up consumer lending. That announcement managed to overshadow a report showing that the U.S. economy is contracting at a 0.5% annual rate, faster than previously forecasted. And a rise in consumer confidence by 6.1% in November to 44.9 — compared to 38.8 in October — helped too.
With all of that in front of the market, it opened with triple-digit gains but the opening strength didn’t last long. It was impacted by an announcement of U.S. and Canadian facilities closing at Cisco (CSCO) and analysts’ doubts that Hewlett-Packard (HPQ) could deliver on its optimistic outlook for 2009 that was delivered on Monday. Technology stocks reacted by falling 1.5%, with HPQ and CSCO each down 6%.
Economic data continued to push stocks lower, with the Richmond Fed Manufacturing Index falling in October and home prices in 20 major metro areas down 17.4% in September compared to the previous year.
At the close, the Dow Jones Industrials (DJI) were up 36 points to 8,479, the S&P 500 (SPX) rose six points to 857 and the Nasdaq (NASD) fell seven points to close at 1,465.
On the New York Stock Exchange, 1.9 billion shares were exchanged with advancers ahead by 2-to-1. The Nasdaq (NASD) traded more than 1 billion shares and advancers topped decliners by 5-to-4.
Also weighing on stocks was another sharp decline in the price of crude oil; the January contract fell $3.73 to $50.77 a barrel. The Amex Energy SPDR (XLE) rose 76 cents, closing at $48.39.
The December gold contract fell $1 to $818.50 per troy ounce, and the PHLX Gold/Silver Index (XAU) gained 11 cents to $94.93, closing a gap created on Monday’s opening. The trend in the XAU appears to be improving with a series of higher highs and higher lows. The intraday highs of the past two days hit the 50-day moving average and turned away. Look for a modest pullback to around $80 before a test of the 50-day m.a. and a possible break to $120.
What the Markets Are Saying
Tuesday marked the third day up for the S&P 500 (SPX) and the Dow (DJI) — the first three-day winning streak in three months. But late in the day, it was rough going for both indices and given more time they could have easily joined the Nasdaq (NASD) in a lower close.
Approaching the Thanksgiving holiday, with the markets closed on Thursday and open only a half day on Friday, it is likely that many Wall Street traders will stay away, so volume may be light. But as on past pre-Thanksgiving days, despite lower volume, volatility could be high.
Yesterday’s intraday highs for the Dow and the S&P 500 matched Monday’s highs with both just under their 20-day moving averages at Dow 8,681 and S&P 500 892. But Friday’s big reversal got everyone’s attention and many are saying that it signifies a major market bottom.
But there is little to justify such a conclusion. The significance of the reversal strengthens the importance of Dow 7,774 and S&P 840 as the bottom of a major support zone. But there is much more work by the averages needed to confirm a major bottom rather than just a reversal (as important as a reversal is) including a decisive test of the low and the penetration of other barriers just above yesterday’s highs.
The 20-day moving average appears to be the immediate barrier that these key indices must penetrate to keep the rally going. And if they can penetrate it, they could easily run to the tops at Dow 9,305 and S&P 985. But, with the holiday upon us, it is unlikely that all of this can be accomplished in just a day-and-a-half of trading.
Today’s Trading Landscape
Earnings to be reported include: Central Garden & Pet Co (CENT), Conns (CONN), Deere & Co (DE), eLong (LONG), Fred’s (FRED), Golar Lng Ltd Bermuda, (GLNG) Hellenic Telecommunications (OTE), The Descartes Systems Group (DSGX), Tiffany & Co (TIF), Wegener (WGNR) and Yingli Green Energy Holding Co Ltd (YGE).
Several significant economic reports due today including: initial jobless claims for the week of Nov. 22 (the consensus expects a 17,000 drop), October Personal Income (the consensus expects 0.1%), October Personal Spending (the consensus expects negative 1.2%), October Durable Goods Orders (the consensus expects negative 3.8%) , November Chicago Purchasing Managers’ Index (PMI) (the consensus expects 38), End-November Reuters/University of Michigan Sentiment Index, September new home sales (the consensus expects a 3.0% drop), the DJ-BTMU Business Barometer for Nov.15, U.S. Energy Dept. Oil Inventories, API Oil Industry Report, Natural Gas Inventories and the October Chicago Fed Midwest Manufacturing Index (MMI).
China slashed the one-year lending rate 1.08% to 5.58% — the biggest cut in a decade.
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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.
