Just when it looked like the values of the market would attract buyers, more problems in the financial sector surfaced.
Monday started on a bright note, with the government indicating that it may convert its preferred Citigroup (C) shares into common shares and thus increase the bank’s equity and its ability to absorb losses. The Dow Industrials (DJI) opened more than 50 points higher.
But while the news of a deal between Citigroup and the government was being dissected in the media, CNBC reported that American Insurance Group (AIG) was in discussions with the government to secure additional funds. It seems that the big insurer will shortly announce an astounding loss that could even exceed $60 billion. This morning, however, AIG has received bids for its American Life Insurance unit.
All of that was bad enough, but then technology stocks turned lower following a downgrade of expected computer sales for 2009. IBM (IBM) was off 5%, Hewlett-Packard (HPQ) fell 6.3%, and the broader market dropped to the lowest levels in 11 years.
Even the brighter news of Ford’s (F) agreement with the UAW did little to attract buying. And neither did a report from The Wall Street Journal that the Treasury Department was lining up funds in the event they are needed to finance a bankruptcy at General Motors (GM) or Chrysler.
At the close, the Dow Jones Industrial Average (DJI) was off 251 points, closing at 7,115. The S&P 500 (SPX) fell 27 points to 743 and the Nasdaq (NASD) lost 54 points to finish at 1,388.
The New York Stock Exchange traded 1.6 billion shares, with decliners over advancers by over 6-to-1. On the Nasdaq, 799 million shares traded with decliners there ahead by 4-to-1.
The April crude oil contract fell $1.59 to $38.44 a barrel and the Amex Energy SPDR (XLE) lost $1.98, closing at $40.40.
Gold for February delivery fell $7.20 to $994.60, and the PHLX Gold/Silver Index (XAU) closed at $128.33, off $4.31.
What the Markets Are Saying
Despite oversold internal indicators and almost record bearish sentiment numbers, the three major indices fell again yesterday, with the Dow (DJI) and the S&P 500 (SPX) recording new lows. It appears that one by one the major indices are falling, with the Dow leading the way down.
The most important event Monday was the S&P 500 setting a new closing low while just above a point from the intraday low of Nov. 21 at 741.02. The other important broader-based index, the NYSE Composite (NYA), is also just a fraction of a point from a new closing and intraday low. Only the Nasdaq (NASD) is holding but even it is approaching a major support line at 1,385, and if that gives way, an attack on its November low seems inevitable.
The major problem for technicians now is that the market has not only taken out the November ’08 lows but the more important lows of 2002 are also yielding.
The Dow (DJI) has already penetrated both the intraday Oct. 10, 2002, low and the closing low of 7,178. And the S&P 500 (SPX), too, has penetrated the October closing and intraday lows.
This means that there are few identifiable chart support areas that we can refer to until July 1996, where some support is shown for the Dow at 5,300 to 5,700 and the S&P 500 at around 650. But that is so far back in time that the probability of using the figures as real targets is impractical.
Currently stocks are technically oversold and due for a bounce but there are few signs of a traditional market capitulation — for example, the CBOE Volatility Index (VIX) is up just 3.32.
We must face the fact that this bear has just clawed its way back into what appears to be a new wave of selling. And until we identify a genuine reversal, we should not try to anticipate a rally but go along with the major trend and that is definitely down.
Today’s Trading Landscape
Earnings of note to be reported include: Acorda Therapeutics, Alnylam Pharmaceuticals, Applied Signal Technology, , Astec Industries, Atlas Air, Bankfinancial Corp, Basilea Pharmaceutica AG Basel, Boise and BTU Int’l.
Carter’s, CBRL Group, Chicago Bridge & Iron, China Mass Media Int’l Advertising Corp, Crown Castle Int’l, Daktronics, Dolan Media Co, Domino’s, DreamWorks Animation SKG, Dresser-Rand Group and Dycom Industries.
Euronet Services, First Advantage Corp, First Solar, FirstEnergy, Foster Wheeler AG, Franklin Street Properties, Fresh Del Monte Produce, GrafTech Int’l Ltd, .J. Heinz Co, HCC Insurance Holdings, Health Care REIT, Healthsouth, Heartland Payment Systems, HEICO, Helix Energy Solutions Group, Henry Schein, Herbalife Ltd, Home Depot and Huron Consulting Group.
Iam Goldcorp, Iconix Brand Group, Kendle, Macy’s, Magyar Telekom, Marvel Entertainment, MDC Partners, Medco Health Solutions, Mohawk Industries, Nabors Industries, Navigant Consulting, North American Palladium and NorthStar Realty Finance Corp.
Office Depot, Orbitz Worldwide, Papa Johns Int’l, Parker Drilling, PG&E Corp, ProAssurance Corp, Quanta Services, Questcor Pharmaceuticals, Radian Group, Radiant Systems, RadioShack Corp, , Sociedad Quimica y Minera de Chile SA, SRS Labs, Steven Madden, Sturm Ruger and Symmetry Medical.
Target Corp, Taser Int’l, TechTeam Global, Tenet Healthcare, Tennant Co, Temium SA, The St. Joe Co, Thomson Reuters Corp, Unit Corp, Valeant Pharmaceuticals Int’l, Versant, ViroPharma, World Wrestling Entertainment and Wynn Resorts Ltd.
The following economic reports are due today: International Council of Shopping Centers (ICSC) Chain Store Sales Index for Feb. 21, Redbook Retail Sales Index for Feb. 21, Dec. S&P/Case Shiller Home Price Index, Feb Richmond Fed Manufacturing Survey, Feb Conference Board Consumer Confidence, and ABC/Washington Post Consumer Confidence for Feb. 21.
Late news: JPMorgan Chase (JPM) cut its dividend to save $5 billion a year. The focus today will be on Fed Chairman Ben Bernanke’s testimony to Congress and President Barack Obama’s speech tonight.
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