Editor’s Note: Sam will be enjoying the holidays with family and friends this week and next. Our next Daily Trader’s Alert will be posted on Monday, Jan. 5.
We wish you a joyous holiday season.
Just when it looked like Santa was about to make a stop at Broad and Wall Streets Tuesday, it seems that he must have gotten lost. Stocks closed lower for the fifth-straight session as buyers were put off by more bad economic news and fear that the administration’s auto-rescue package may not help.
The markets opened higher following a report that real GDP for Q3 fell at a 0.5% annualized rate. That was the expected decline, but rumors had circulated that the fall could be greater, so the market rallied.
But later, following the Commerce Department’s report that the sale of new homes fell to 17-year lows, stocks took to the downside. A separate report showed that the sale of existing homes fell 8.6%, with home prices falling at their most rapid annual pace on record.
Of the 30 stocks in the Dow Jones Industrial Average (DJI), 25 closed lower. But Alcoa (AA) was higher by 3.7% with investors anticipating that the company may be favored under the new administration’s emphasis on infrastructure rebuilding. General Motors (GM) and Ford (F) each fell about 15%.
Financial stocks again led the way down finishing off by 1.9%. Bank of America (BAC) and JPMorgan Chase (JPM) pulled the Dow lower.
At the close, the Dow was down 100 points at 8,419. The S&P 500 (SPX) fell eight points to 863 and the Nasdaq (NASD) was down 11 points, closing at 1,522.
Pre-holiday volume was at just 985 million shares on the New York Stock Exchange, with decliners ahead by 3-to-2. The Nasdaq traded less than 500 million shares and there the decliners led by 9-to-5.
Crude oil (February contract) fell 93 cents, closing at $38.98 a barrel, and the Amex Energy SPDR (XLE) rose 10 cents to $44.73.
The February gold contract ended down $9.10 to $838.10 per troy ounce, and the PHLX Gold/Silver Index (XAU) rose $3.20, closing at $113.03.
What the Markets Are Saying
Thus far, this shortened holiday week has the S&P 500 (SPX) and the other indices below their 20-day moving averages, with momentum dipping into negative territory. And the stochastic indicators have issued a chorus of sell signals following the fall from their respective bearish resistance lines and double-tops.
Meanwhile, the news of possible auto bankruptcies and poor economic reports has investors on the edge.
This sets up the market for a test of the immediate support lines at Dow (DJI) 8,176 and S&P (SPX) 810. With volume declining as the Christmas holiday approaches, we could see a pick-up in volatility. And, as a year plagued with massive stock losses comes to a close, more tax selling will likely lead to a full test of the market’s lows.
Most of the internal indicators are neutral, as are the sentiment indicators. But the stochastic of the major indices has issued a double sell signal and that could be a warning that a serious attack on the market’s lows is about to occur.
Currently, the immediate support for the major indices is at last Friday’s low: For the Dow it is 8,272, for the S&P 851, and for Nasdaq 1,748. Then before the annual low, there is support at around Dow 8,000, S&P 810 and Nasdaq 1,400.
Today’s Trading Landscape
There are no significant earnings to report today.
However, there are several economic reports due: initial jobless claims for the week of Dec. 20 (the consensus expects an increase of 11,000), November personal income (the consensus expects negative 0.1%), November personal spending (the consensus expects negative 0.6%), November durable goods orders (the consensus expects negative 2.6%), the DJ-BTMU Business Barometer for Dec. 12, the Dec. 19 U.S. Energy Dept. Oil Inventories, the Dec. 19 API Oil Industry Report and the Dec.18 natural gas inventories.
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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.
