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Editor’s Note: Due to the Martin Luther King, Jr. holiday Monday, Jan. 19, we will not be publishing The Daily Trader’s Alert. The next issue will arrive Tuesday, Jan. 20.
An early sell-off Thursday that continued until noon took stocks below the Dow (DJI) 8,000 for the first time since the market low on Nov. 21. But heavy buying several hours before the close broke the downtrend and, despite a round of profit-taking, a late rally managed to salvage what initially appeared to be a perfectly horrible day.
In early trading, the financials again led the way lower with Citigroup (C) and Bank of America (BAC) at one point each down more than 20%. While both recovered a bit before the close they were still off 15% and 18% respectively.
BAC’s stockholders voiced their anger over the government’s assistance to BAC in its takeover of Merrill Lynch (MER) by selling the stock. And C’s shares were pummeled in advance of Q4 earnings, which will be released before this morning’s opening.
Citigroup reported a Q4 loss of $1.72 versus an expected loss of $1.31, and Bank of America reported Q4 loss of 48 cents versus an expected profit of 8 cents.
The entire sector seemed shaken over JPMorgan Chase’s (JPM) earnings of 7 cents. Even though the net was better than the break-even that was expected, it was still far less than the 86 cents a year ago.
The Nasdaq (NASD) was aided by gains from large-cap stocks Research in Motion (RIMM), up 9.18%, and Qualcomm (QCOM), up 3.08%. But Apple Inc. (AAPL) fell 2.29%.
Initial jobless claims for the week ending Jan. 10 totaled 524,000, which was 21,000 more than expected. But continuing claims were 4.497 million and that was less than the 4.62 million that were expected.
At the close, the Dow (DJI) had gained 12 points at 8,212, the S&P 500 (SPX) gained a point at 844, and the Nasdaq (NASD) rose 22 points to 1,512.
Volume rose on the late rally and the New York Stock Exchange reported that 1.65 billion shares traded, with advancers ahead of decliners by 8-to-7. The Nasdaq traded 979 million shares with breadth at a positive 3-to-2.
February crude oil closed down $1.88 at $35.40 a barrel ending at the lowest level in a month. The Amex Energy SPDR (XLE) rose 57 cents to $46.17.
Gold for February delivery fell $1.50 to $807.30 per troy ounce in response to another day of a stronger dollar and that the result of a cut in interest rates by the European Central Bank.
What the Markets Are Saying
Even though the net gains were modest Thursday, the major indices managed to rally from a deep sell-off. And that rally resulted in a reversal of a six-day run of losses which yesterday took the Dow (DJI) briefly under the 8,000 line.
Since October, that line, with the exception of Nov. 20, has held and represents the key support for the Dow. Even after the closing lower on Nov. 20 at 7,552, a reversal the next day popped the Dow to 8,046. This gives this support line enormous technical and psychological importance.
Yesterday’s reversal from below 8,000 was accompanied by heavier volume on the NYSE (1.65 billion) than on any day of the six-day decline, which averaged just 1.2 billion and triggered our internal Collins-Bollinger Reversal (CBR) to issue a short-term buy signal. The short-stochastic also turned from the extreme oversold zone and that also signaled that a rally is likely to occur.
But despite yesterday’s reversals, nothing has changed the major trend of the market. We may get a trading rally back to the conjunction of the 20- and 50-day moving averages at Dow 8,600, but it will take much more work on the part of the bulls to muster a permanent reversal.
For now, we’ll be content with a reprise in what has been a nasty start to the new year.
Today’s Trading Landscape
Earnings to be reported include: First Horizon National Corp (FHN), Johnson Controls (JCI) and PPG Industries (PPG).
The following economic reports are due: December Consumer Price Index (the consensus expects negative 1.0%), December Consumer Price Index excluding food and energy (the consensus expects 0.1%), November Treasury International Capital, December Industrial Production (the consensus expects negative 1.5%), December Capacity Utilization (the consensus expects 74.6%), Mid-January Reuters /Univ. Michigan Sentiment Index (the consensus expects 57).
Late news: Intel (INTC) reported Q4 earnings that were in line with forecasts, and Genentech’s (DNA) Q4 was also reported in line with forecasts.
P.S. For more market commentary, we invite you to check out OptionsZone’s contributing editor, Jame Dlugosh.
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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.
