An early short-covering rally fizzled Thursday when talks circulated of a government move to “pre-privatize,” or nationalize, several large banks. The result was a low-volume sell-off of financial stocks and a break to a new low by the Dow Industrials (DJI).
One of the banks rumored to be on the list to be taken over by the government was Dow member Citigroup (C), whose stock went down 13.75%. The other was Bank of America (BAC), off 14%. Hartford Financial (HIG) was also hit hard, off 24.5%.
Another Dow member, giant General Electric (GE), fell to a new low at $9.95 but managed to close above $10. Prudential (PRU) was smashed for 15.88% following a Fitch downgrade of Pru’s debt rating and also its commercial paper rating.
Hewlett-Packard (HPQ) issued a tepid earnings forecast, which not only impacted its price but the performance of the technology sector. HPQ fell almost 8% and the sector fell by 3.3%.
Initial jobless claims rose to 627,000, topping the forecast of 620,000. And continuing claims rose to a record high of 4.99 million.
At the close, the Dow Jones Industrial Average (DJI) was down 90 points to 7,466. The S&P 500 (SPX) lost nine points, closing at 779, and the Nasdaq (NASD) fell 25 points to 1,443.
The New York Stock Exchange traded 1.5 billion shares, with decliners ahead by almost 3-to-1, while on the Nasdaq, 768 million shares traded with decliners ahead by 2-to-1.
Crude oil for March delivery rose $4.86 to $39.48 a barrel, and the Amex Energy SPDR (XLE) closed up a penny at $43.50.
The February gold contract fell $1.60 to $976.10 per troy ounce as profit-taking set in. And the PHLX Gold/Silver Index (XAU) fell $6.20 to $127.87.
What the Markets Are Saying
One by one, the key indices appear to be breaking their support lines.
The Dow Industrials (DJI) were the first to break earlier this week and yesterday set a new bear-market closing low, but the S&P 500 (SPX) has also fallen through its support zone at 800-820, and so has the NYSE Composite (NASD). Only the Nasdaq (NASD) is holding above its January low, while the others are in a full test of the November bear-market bottoms.
For several days, I’ve been comparing this week’s market action with the week of Nov. 17, when the market broke to new lows and then reversed. We’ve discussed the closing low of Nov. 20 and the subsequent reversal on Nov. 21, with its new intraday low, the similarity in the volume, the similar stochastic readings and so on.
There is another similarity as well: The closing low of Nov. 17 was the day before the expiration of the November options — and the new closing low this week was also made on Thursday with February options expiring on Friday.
Will the market rally today and reverse — creating a perfect mirror image of the November bottom — or will it be buried in new lows?
If it rallies, the market could run into the enormous four-month supply area and then turn and test the lows again — or it could form a permanent double-bottom. But if stocks fail to reverse today and volume increases while setting a new closing low, we could be on our way to S&P 500 (SPX) 650.
Today’s Trading Landscape
Earnings of note to be reported include: Barrick Gold (ABX), Constellation Energy Partners LLC (CEG), HMS Holdings Corp (HMSY), Interline Brands (IBI), Jaco Electronics (JACO) and J.C. Penney (JCP).
Kingsway Financial Services (KFS), Lowe’s Companies (LOW), Pinnacle West Capital Corp (PNW), Prudential PLC (PRU), Standard Register (SR), TC PipeLines LP (TCLP), TRW Auto (TRW) and Weingarten Realty Investors (WRI).
In terms of economic reports, the January Consumer Price Index (the consensus expects 0.2%) and January Consumer Price Index excluding food and energy (the consensus expects 0.1%) are due today.
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.
