An apparent lack of confidence in the Fed’s ability to control inflation drove stocks lower on Friday.
It was the second session in a row of losses following a rebound, which resulted in more than a 20% gain in just seven days. But the combination of profit-taking and uncertainty about the Fed’s new efforts to control the banking system took its toll.
Financial stocks led the decline on Friday, and selling picked up steam following a comment by the head of the FDIC that the agency expected $65 billion in losses for the FDIC fund because of bank failures. The Financial Select Sector SPDR (XLF) fell 5.04%, with its losses accelerating after the FDIC’s comments.
Bank of America (BAC) fell 10.68% and JPMorgan Chase (JPM) was down 7.21%. But Citigroup (C) rose 0.77%.
By the close, the Dow Jones Industrial Average (DJI) was off 122 points to 7,278, the S&P 500 (SPX) fell 16 points to 769, and the Nasdaq (NASD) was down 26 points to 1,457.
Decliners were ahead of advancers on the New York Stock Exchange by more than 3-to-1 with volume of 2.4 billion shares. On the Nasdaq, 1.1 billion shares traded with decliners ahead by more than 2-to-1.
For the week, the Dow was up 0.8%, the S&P 500 gained 1.6%, and the Nasdaq was ahead by 1.8%.
The expiring April contract for crude oil fell 55 cents to $51.06, and the Amex Energy SPDR (XLE) was down $1.75 to close at $43.
The April gold contract fell $2.60 to $956.20 an ounce on profit-taking, following a gain of almost $70 an ounce on Thursday. On Friday, the PHLX Gold/Silver Index (XAU) was down 34 cents to $136.31, but the break on Thursday, which closed the XLE above its 200-day moving average, was taken by traders as a signal the index is headed higher.
>
What the Markets Are Saying
Wednesday’s announcement that the Fed would buy into the U.S. Treasury bond market was no surprise to most Fed watchers. In fact, the Fed has been talking about it for weeks.
But the big surprise was the size of the buybacks and the impact on future inflation. So, with a newly revived concern about inflation and five days out of seven of gains under their belts, traders decided it was time to cash in some chips.
But technically there is much more to the market’s reaction to Wednesday’s Fed move. The market should have greeted this as good news, since more financial backing from the Fed will help many banks and homeowners through a difficult time. But instead the good news was treated badly — and that is not good for the market.
Then there is the matter of the S&P 500 (SPX) turning away from its first serious zone of overhead at 800 to 820. That, coupled with a sell signal from the slow stochastic, is enough for us to now jump heavily onto the bear’s back for a test ride to the low at 667.
With the financial stocks now in full retreat again, it looks like they will become bear meat and lead the way down.
Today’s Trading Landscape
Earnings to be reported include: Focus Media Holding Ltd (FMCN), Hastings Entertainment (HAST), Phillips-Van Heusen (PVH), Sonic Corp (SONC), Tiffany & Co (TIF), and Walgreen (WAG).
The lone economic report due today is February Existing Home Sales (the consensus expects a 0.2% drop).
This morning, stock futures are higher in anticipation of the “Geithner Plan” to take toxic debt off of bank’s balance sheets. Tiffany (TIF) missed Q4 estimates and projects ’09 figures to be below current estimates.
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.
