In what has almost become the norm, stocks headed south in a frenzy of selling in the last hour of trading Thursday. Volatility has been the hallmark of the bear market of ’08, and it has enriched many traders, while long-term investors continue to head for the exits.
Yesterday’s employment report for November before the opening bell apparently had something to do with the selling, even though the Labor Department released data showing initial jobless claims had dropped to a one-month low, while a less-volatile average climbed to a 16-year high. The important “jobs report” comes at 8:30 a.m. Eastern this morning.
On Capitol Hill, executives from the three major U.S. auto companies tried to make their cases for a big chunk of recovery funds. But many Congress members are expressing doubts about the rescue plan, though the market plainly showed its interest in supporting the deal by selling off when those on the Hill balked at the bailout.
JPMorgan (JPM) and McDonald’s Corp. (MCD) were the Dow’s biggest gainers. Alcoa (AA) was its biggest loser, off 13.2% on dividend worries.
DuPont (DD) cut its Q4 earnings forecast and said it would dismiss 6,500 employees. DD gained on the news. Retail sales for November missed an already lower estimate but Wal-Mart (WMT) said sales for last month were up 3.4%.
But another big government announcement also upset the markets — a Commerce Department report that U.S. factory orders plunged in October by the sharpest amount in more than eight years. Orders for primary metals plunged by 23.1%.
At the close, the Dow Jones Industrials (DJI) were off 215 points to 8,376, the S&P 500 (SPX) fell 26 points to 845 and the Nasdaq (NASD) lost 47 points, closing at 1,446.
The New York Stock Exchange traded almost 1.5 billion shares, with decliners ahead of advancers by 3-to-1. On the Nasdaq, the breadth was also negative but by just 2-to-1 and it traded 899 million shares.
The January crude oil contract fell for the fifth straight session, closing at $43.67, off $3.12. The Amex Energy SPDR (XLE) fell $3.22 to close at $43.26.
Gold for February delivery was off $5, closing at $765.50 per troy ounce. The PHLX Gold/Silver Index (XAU) lost $2.77 and closed at $87.70.
What the Markets Are Saying
Despite some of the worst economic news on Wednesday, the Dow (DJI) and S&P 500 (SPX) closed slightly above their 20-day moving averages, rallying almost 400 Dow points in the last two hours. This surprised the bears, especially in light of the horrible Institute for Supply Management (ISM) numbers in the morning, and it shook their confidence since the market acted favorably in the face of very bad news and that is usually a bullish sign.
And what of the American Association of Individual Investors (AAII) Sentiment Survey and the Investors Intelligence data? Both registered very high bearish readings and both are contrarian indicators.
Despite yesterday’s final hour sell-off, which merely expresses fear that today’s jobs number will be worse than the loss of 500,000 jobs, the market continues to react favorably to bad news. The ability of buyers to hold declines at the S&P’s 800 area (as illustrated by the large number of upside reversals and many Collins-Bollinger Reversal, or CBR, buy signals) places enormous importance on the S&P 800 level.
And if buyers can manage to jump above the S&P close at 897 made on Nov. 28, the market will have reversed through a small inverse head-and-shoulders bottom with a target of at least Dow 9,625, the election-day high. It could even run to S&P 1,040.
But even this would not change the overall direction of the market, which is still a strong bear. Rallies should be used as buying opportunities for UltraShort plays. But traders may want to double up on a long Exchange-Traded Fund (ETF) to profit from a tradable bounce.
Today’s Trading Landscape
Earnings to be reported include: Big Lots (BIG), Blyth (BTH), Cantel Medical (CMN), Flow Int’l (FLOW), Johnson Outdoors (JOUT), Logility (LGTY), OYO Geospace (OYOG), Rosetta Genomics Ltd (ROSG) and Royal Bank of Canada (RY).
The following economic reports are due today: November non-farm payrolls (the consensus expects a loss of 310,000), November unemployment rate (the consensus expects a 6.8% increase), and October Consumer Credit (the consensus expects negative $2.3 billion).
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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.
