While the Fed pondered further interest rate cuts — perhaps to the lowest level ever — the Treasury Department announced that it will make funds available to the automakers from the $700-billion TARP. If done, this puts the final decision regarding aid to Detroit onto the new Congress and new administration when President-elect Barack Obama takes office on Jan. 20.
Stocks opened almost 200 points lower on Friday following the disappointing news that the Senate had rejected a bailout for autos. But as the situation began to show that President George Bush was considering making the loans, the markets strengthened.
Retail sales were down 1.8% in November for the fifth-straight loss. But since that was a better-than-expected number and October came in at 2.9%, the market treated it as a positive.
At the close, the Dow Jones Industrial Average (DJI) was up 65 points to 8,630, the S&P 500 (SPX) gained six points to 880 and the Nasdaq (NASD) rose 33 points, closing at 1,541.
Trading was fairly light, with volume on the New York Stock Exchange at 1.4 billion shares and 773 million on the Nasdaq. Breadth on both exchanges was positive with the New York at 3-to-2 and Nasdaq 2-to-1.
For the week, the Dow fell 0.1%, the S&P 500 rose 0.4% and the Nasdaq rose 2.1%.
On Friday, futures prices continued to decline with crude oil (January contract) off $1.70 to close at $46.28 a barrel. The Amex Energy SPDR (XLE) fell 48 cents, closing at $48.28.
The February gold contract was off $6.10 at $820.50 per troy ounce, and the PHLX Gold/Silver Index (XAU) closed at $108.24, up $2.77.
What the Markets Are Saying
With the enormous amount of bad news that hit the market last week, it’s amazing that the stock prices didn’t break into a sharp sell-off.
There were massive job cuts, major companies either filing for Chapter 11 bankruptcy (Tribune Co.) or talking about a filing (General Motors, GM), jobless claims hit a 26-year high, the yield on the U.S. T-bill went negative for part of the week, the governor of Illinois was indicted on charges of trying to sell the president-elect’s Senate seat, November Retail Sales were off, and a former chairman of the Nasdaq (NASD) was arrested on charges that he orchestrated a $50-million Ponzi scheme.
On and on it went, but even with all of that pounding, the stock market ended with a slight gain for the week.
A market that can withstand this type of negative news day after day without breaking usually indicates that a bottom is being made. But along with the tenacity shown by the bulls, the key indices have been issuing internal indicator numbers that usually precede a breakdown.
One of my favorite indicators is the stochastic and it has predicted virtually every sell-off this year. The Stochastic is now at a major top and, on Friday, it issued a very clear sell signal.
The sentiment indicators are neutral but the American Association of Individual Investors (AAII) Sentiment Survey shows a switch from extreme bearish to neutral with the bullish side now at 37.5% versus 26.67% the week before. That could be telling us that the market has more selling left to do.
So for now, we’re keeping the defense on the field of play.
Today’s Trading Landscape
Earnings to be reported include: ABM Industries (ABM), CPI International (CPII), Fortune Industries (FFI), Imperial Sugar (IMP), Integrated Electrical Services (IESC), National Technical Systems (NTSC), Smith & Wesson Holding Corp (SWHC), Titan Machinery (TITN) and WPCS International (WPCS).
Several economic reports due including: the December New York Fed Manufacturing Index (the consensus expects negative 26.5), October Treasury International Capital Flows, November Industrial Production (the consensus expects a 0.6% drop), November Capacity Utilization (the consensus expects 75.8), and the December NAHB Housing Market Index.
In late news, billions of dollars have been lost by the Ponzi scheme run by Bernard Madoff and many of the losses have come from European banks.
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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.
