Tuesday, uncertainty — the enemy of stocks — seemed to characterize the outlook on the world economy, the U.S. stimulus plan, the future of the auto industry, and the bank rescue plan. The result was a fear-laced sell-off that ended very close to the November market lows.
Even before the opening bell, the mood was soured by a report that Eastern Europe’s banks were in trouble, and Asian stocks sank in the wake of bank troubles in South Korea and Japan.
All but one of the Dow’s (DJI) 30 stocks, Wal-Mart (WMT), closed lower, and the highly-watched index fell to a low of 7,551.01 — just above the Nov. 20 low of 7,464.51.
Wal-Mart’s shares rose on better-than-expected Q4 earnings and an announcement by management of a new stock buy-back program. But 98% of all of the companies in the S&P 500 (SPX) closed lower, with the hardest-hit being the financial stocks, which closed down 9.8%.
At the close, the Dow Jones Industrial Average (DJI) was off 298 points at 7,553, the S&P 500 (SPX) lost 38 points at 789 and the Nasdaq (NASD) fell 64 points to close at 1,471.
The New York Stock Exchange traded 1.6 billion shares, with decliners ahead of advancers by the wide margin of 14-to-1. And the Nasdaq traded 949 million shares, with decliners ahead by more than 5-to-1.
Crude oil for March delivery fell $2.58 to $34.93 a barrel as the teetering global economy impacted prices. The Amex Energy SPDR (XLE) fell $3.25, closing at $43.74.
While nearly everything else decreased in value, the February gold contract rose again to the highest level in seven months, closing at $967 per troy ounce, up $25.50. The PHLX Gold/Silver Index (XAU) gained 85 cents and closed at $131.73.
What the Markets Are Saying
With turmoil in virtually every equity market, caused by the uncertainty of the world’s economies, there was a rush for the exits Tuesday. But negative breadth of 14-to-1 on the New York Stock Exchange — with just 1.6 billion shares traded –is usually not the mark of a breakdown but of an emotional selling-climax.
Yesterday, the Dow’s (DJI) close came within just 0.31 of the index’s lowest close made on Nov. 20 at 7,552.29, with decliners on that day ahead by 15-to-1. Curiously, on that day the Nasdaq (NASD) recorded breadth of 6-to-1 compared to a negative 5-to-1 yesterday.
On Nov. 21, stocks opened lower, falling about 150 points before a massive short-covering rally resulted in a bear-trap that ran the Dow (DJI) up more than 9,000 in just two weeks.
Virtually every internal indicator is very oversold, and the sentiment indicators show almost unprecedented fear on the part of the public.
Conclusion: The group at greatest risk at this low point in the major indices is the shorts, since the chance of an impending bear-trap is very high. The market may pull back even more, but traders may now want to identify positions in the oversold sectors that provide the greatest chance for an immediate reversal and then jump on them as they reverse.
Today’s Trading Landscape
Earnings of note to be reported include: Acergy S.A., Advance Auto Parts, AdvanSource Biomaterials Corp, Agnico-Eagle Mines Ltd, Amtrust Financial Services, Analog Devices, Auxilium Pharmaceuticals and Avista Corp.
Baidu, Blue Nile, Brandywine Realty Trust, Brink’s Home Security, Cal Dive Int’l, Calumet Specialty Products, CBS Corp, Champion Enterprises, Cimarex Energy Co, Constellation Energy Group, CoStar Group, Cowen and Company LLC and Cyberonics.
Deere & Co, Denny’s Corp, Dollar Thrifty Automotive Group, Donegal Group, Dress Barn, Enernoc, , ExpressJet Holdings, Extra Space Storage, Federal Realty Investment Trust, First Mercury Financial Corp, Genpact Ltd, Gentiva Health Services, Glimcher Realty Trust and Goodyear Tire & Rubber.
Haverty Furniture, Hewlett-Packard, HNI Corp, Host Hotels & Resorts, Incyte Corp, ING Groep NV, Ingram Micro, Inverness Medical Innovations, IRIS Int’l, Itron, Jakks Pacific, Kinross Gold, Lihir Gold Ltd, LoJack and Longtop Financial Technologies Ltd.
Magic Software Enterprises, National Interstate Corp, Nationwide Health Properties, Navios Maritime Holdings, NCI, NewStar Financial, NightHawk Radiology Holdings, Northeast Utilities, Oceaneering Int’l, Odyssey Healthcare, OfficeMax, O’Reilly Automotive and Owens Corning.
Pan American Silver, Penn West Energy Trust, Platinum Underwriters Holdings Ltd, Playboy Enterprises, Priceline.com, RC2 Corp, Rimage Corp, Rockwood Holdings, Rogers Communications, Rogers Corp and Rubicon Technology.
Silic, Skechers USA, Socket Mobile, Suntech Power Holdings Co Ltd, Synopsys, Telefonica de Argentina, Trinity Industries, UIL Holdings Corp, Universal American, Vectren Corp, Westlake Chemical Corp and Whole Foods Market.
Several economic reports are due today including: MBA Mortgage Application Refinance Index for Feb. 13, International Council of Shopping Centers (ICSC) Chain Store Sales Index for Feb. 14, January Housing Starts (the consensus expects a 5.5% drop), January Import Prices (the consensus expects a 1.3% drop), Redbook Retail Sales Index for Feb. 14, January Industrial Production (the consensus expects a 1.7% loss), January Capacity Utilization (the consensus expects 72.3%), January Federal Open Market Committee (FOMC) Minutes, and API Oil Industry Report for Feb. 13.
Late news: Details of the president’s bank recovery plan will be announced this morning, General Motors (GM) said it is seeking another $16.6 billion in aid, and John Malone has “scooped Sirius XM [SIRI] from the clutches of bankruptcy” according to The Wall Street Journal.
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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.
