Thursday was reminiscent of the volatile days of 2008, as stocks were crushed for more than 100 Dow (DJI) points at the opening, then meandered a bit before sagging again and hitting the low at mid-session, down 280 points. Then we saw a reversal and a rally to break-even at 2:15 p.m. Eastern, and then another sell-off and a rally, which failed to make it to break-even. Finally, the Dow closed off over 100 points!
The news was blamed for the extremely high volatility as first Apple (AAPL) entered the arena with positive news for the last quarter but a cloud over future earnings, then negative earnings from Microsoft (MSFT) and eBay (EBAY) and news that housing starts plunged to another record low.
Along with the lower housing starts, initial jobless claims for the week ending Jan. 17 jumped 62,000 to 589,000. Since the consensus was for 543,000 this, too, put pressure on the markets.
Continuing unemployment claims also increased — gaining 97,000 to nearly 4.61 million, which indicates a level of weak labor conditions and sets the stage for a lower employment number today.
The Dow Jones Industrial Average (DJI) fell 105 points to 8,123, the S&P 500 (SPX) was off 13 points to 823 and the Nasdaq (NASD) fell 42 points, closing at 1,465.
More than 1.6 billion shares traded on the New York Stock Exchange, with decliners ahead by almost 4-to-1, The Nasdaq traded over 1 billion shares with decliners there also ahead by about 4-to-1.
Crude oil (March contract) gained 12 cents, closing at $43.67 a barrel, and the Amex Energy SPDR (XLE) fell $1.29 to $45.73.
The February gold contract rose $8.70 to end at $858.80 per troy ounce, and the PHLX Gold/Silver Index (XAU) fell $1.60 to $115.56.
What the Markets Are Saying
Thursday’s action combined a bit of both Tuesday and Wednesday as stocks fell 4.3% shortly after the opening then rallied back to break-even on Apple’s (AAPL) earnings only to be crushed before the close on lousy earnings by Microsoft (MSFT).
It’s this kind of extreme volatility that sends money managers to Clancy’s Bar, since it gives few hints as to the market’s true direction.
Contrary signals are everywhere, with the bulls pointing to a tenacious support at S&P 500 (SPX) 800 to 820, an oversold stochastic which almost gave a buy signal on Wednesday, as well as grossly oversold internal indicators yesterday and high fear numbers by the Association of American Investors (AAII) and others.
But the bears say that a breakdown is almost upon us and point to the higher CBOE Volatility Index (VIX), a foreboding series of charts, and a world banking crisis that seems to have no end.
So what does an investor do?
One of the first things that I did was to redraw the support line at S&P 820 to reflect the lows at 804 on Tuesday and Wednesday. This results in a broader major support zone at SPX 800 to 820. A break of that zone would probably result in an immediate test of the closing low of 752.
At 752, we could hold again by forming a double-bottom and a volatile sideways market for the rest of this year. But if S&P 750 is crushed on high volume, look out below since there is little support before 620-650.
Today’s Trading Landscape
Earnings of note to be reported include: GATX Corp (GMT), (SYBTP), Webster Financial Corp (WBS) and Xerox Corp (XRX).
In terms of economic reports, the EIA Natural Gas Inventories are due.
General Electric (GE) met Q4 estimates by reporting 37 cents and committed to maintaining its dividend. Harley-Davidson (HOG) reported 34 cents versus an expected 57 cents for Q4. Schlumberger (SLB) came short of estimates by 2 cents, reporting $1.03 versus an expected $1.05 for Q4. Pfizer (PFE) is in talks to buy Wyeth (WYE).
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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.
