With the exception of healthcare and utility stocks, almost everything took a hard hit Wednesday.
Leading the charge lower were some familiar sectors and names: Crude oil prices fell and had a major impact on the energy sector, which dropped 4.3%. Oversupplies and huge inventories of gas and oil drove refiners down 6.8%, oil and gas equipment companies down 6.3%, and integrated oil companies down 3.6%. Consol Energy (CNX) fell 10.4%, National Oilwell Varco (NOV) was down 9.2%, and Valero Energy (VLO) fell 7.5%.
Financials were hard hit, too, following a Morgan Stanley (MS) report that Europe’s largest bank, HSBC Holdings PLC (HBC), would need to raise $30 billion and slash its dividend in half. The report challenged the perception that the bank is one of the strongest in the world.
Citigroup (C) fell more than 23% and pulled the Dow down with it. Citi fell on reports that it will reduce its size by one-third and will effectively kill its financial-services supermarket model.
Other banks were sharply lower, as well: Huntington Bancshares (HBAN) fell more than 16%, CIT Group (CIT) was down 14.6%, and Bank of America (BAC) dropped 4.2%. The Royal Bank of Scotland (RBS) fell 17.6% and announced the sale of its stake in Bank of China. Other European banks were hit hard with Deutsche Bank (DB) off 9.1% and Barclays PLC (BCS) off 14.5%.
Government reports showed that retail sales in December fell by more than twice the expected decline, a drop of more than 3.1%. Retail sales have fallen for more than six months in a row, the longest decline on record, with the final quarter worse than the others.
The Dow Jones Industrial Average (DJI) is on a six-day losing streak, off 248 points and closing at 8,200. The S&P 500 (SPX) fell 29 points to 843 and the Nasdaq (NASD) lost 57 points closing at 1,490.
The New York Stock Exchange traded more than 1.4 billion shares, with decliners ahead of advancers by 9-to-1. On the Nasdaq, decliners were ahead by better than 5-to-1 on volume of 801 million shares.
The February crude oil contract fell 50 cents to $37.28 a barrel, and the Amex Energy SPDR (XLE) fell $2.29 to $45.60.
The dollar rose but gold fell, with the February contract down $11.90 to $808.80 an ounce. The PHLX Gold/Silver Index (XAU) closed at $104.25, down $5.51.
What the Markets Are Saying
My commentary yesterday ended with my statement that a drop below Tuesday’s low at Dow (DJI) 8,377 could trigger a quick test of the support at 8,000. That comment was not meant to be predictive but, with the Dow’s close yesterday at 8,200, there is no doubt of a test of the support at 8,000 — and perhaps even a test of the market closing low of 7,552.
Yesterday’s intraday low at Dow 8,140 comes very close to almost the exact number that marked daily lows 6 times since mid-October. But the key psychological number is still Dow 8,000.
Our internal indicators are now oversold but not as much as the extremes that marked the November low.
But one of our key sources for a read on public sentiment just went very bearish; the American Association of Individual Investors (AAII) Sentiment Survey is now 27.63% bullish and 47.37% bearish. The AAII bearish number is not as low as the all-time low number of 57.14% on Nov. 20, which fell on the exact day of the closing market low, but it does show a move to extreme fear and that is good since this is a contra-indicator.
So, what does all of this mean?
Our indicators and charts are telling us that the market is testing its support at Dow (DJI) 8,000 and S&P 500 (SPX) 800, and they are telling us that the chances are that the support will hold.
But the indices have broken down from the support line of the eight-week channel up and that is not good. Several days of low volume and an even greater increase in bearish sentiment would help, but high volume on the downside with a crush of the support will likely send stocks to new lows.
What should we do? Wait and let the market’s compass show us the next path to take.
Today’s Trading Landscape
Earnings of note to be reported include: Amphenol (APH), ASML Holdings NV (ASML), Bank of the Ozarks (OZRK), Briggs & Stratton Corp (BGG), Fortune Industries (FFI), Genentech (DNA), Home Bancshares (HOMB) and Intel Corp (INTC).
JPMorgan Chase & Co (JPM), Marshall & Ilsley (MI), Sealy Corp (ZZ), Shaw Communications (SJR), Shuffle Master (SHFL), Simmons First National (SFNC), Suffolk Bancorp (SUBK) and Westamerica Bancorporation (WABC).
The following economic reports are due today: initial jobless claims for the week of Jan. 10 (the consensus expects and increase of 28,000), December Producer Price Index (the consensus expects negative 1.8%), December Producer Price Index excluding food and energy (the consensus expects 0.1%), January Empire State Fed Manufacturing Survey (the consensus expects negative 26), November Treasury International Capital, January Philadelphia Fed Business Index (the consensus expects negative 36), DJ-BTMU Business Barometer for Jan. 2, and EIA Natural Gas Inventories.
Microsoft (MSFT) announced it will cut jobs. Bank of America (BAC) will get billions in aid to help close its purchase of Merrill Lynch (MER). Apple’s (AAPL) Steve Jobs will take a medical leave of absence until June. JPMorgan Chase (JPM) reported fourth-quarter earnings of 7 cents profit versus an expected zero.
Get Sam Collins’ Daily Trader’s Alert e-mailed straight to your inbox each morning before the opening bell absolutely FREE!
In addition to getting instant access to his Daily Market Outlook, you’ll also receive, in the same e-mail, his Trade of the Day so you can start your day off right by positioning yourself for profits!
Click here today to sign up today for Sam’s FREE Daily Trader’s Alert!
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.
