After three consecutive sessions of gains, the market pulled back Tuesday, following a disappointing retail sales report and profit-taking in the financial group.
Apparently, there was some impact on the financial stocks from Goldman Sachs’s (GS) $5-billion common stock offering, which is dilutive to existing shareholders. But the deal was announced before the close on Monday with little effect on the market that day.
Goldman reported better-than-expected earnings following the close on Monday, but yesterday the stock fell 11% along with others in the group. An exception was Citigroup (C), which rose 7.4%.
Johnson & Johnson (JNJ) came through with better-than-expected earnings and that helped the defensive healthcare group to hold up under broader selling. Selling was especially heavy in the small- to mid-cap sectors, and the Russell 2000 (RUT) fell 3.2% while the S&P 500 (SPX) fell only 1.5%.
The Commerce Department reported that retail sales fell 1.1% last month which was more than expected. But later in the day, stocks rallied on news that February inventories decreased more than economists had expected, suggesting that demand was catching up with supply.
At the close, the Dow Jones Industrial Average (DJI) was down 138 points to 7,920, the S&P 500 (SPX) was off 17 points to 842, and the Nasdaq (NASD) fell 28 points to close at 1,626.
The New York Stock Exchange traded 7.6 billion shares with decliners ahead of advancers by 9-to-4; on the Nasdaq 776 million shares crossed and decliners there were ahead by 2-to-1.
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What the Markets Are Saying
After six weeks of gains, the advance of the major indices appears to be slowing down. Yesterday’s violent attack on the mid- and small-cap stocks, as well as the financial group, is an indication that the bears are waiting in the wings for the slightest excuse to pounce. But yesterday’s selling was not a reversal in the classic sense.
Yes, the stochastic in several groups issued a sell signal, but the absence of high-volume reversals is evidence that yesterday’s round of selling is little more than what we saw last week and also two weeks ago.
The chart patterns that emerged then were the classic step-ups of four up and two or three down that are characteristic of advances. In the strictest sense, chartists call these stepping stones “flags” and they almost always point in the opposite direction of the trend.
That said, the market’s internal indicators are still grossly overbought, so a genuine reversal could take place at anytime. Yesterday could be the beginning of some serious liquidating, but unless Dow (DJI) 7,750 is crushed, don’t look for a meaningful sell-off just yet.
Today’s Trading Landscape
Earnings to be reported include: Abbott, Acergy S.A., Adtran, America Defense Systems, AMR Corp, AptarGroup, ASML Holdings NV, China Eastern Airlines, China Southern Airlines, Community Trust, Crown Holdings, Datalink Corp, Emrise Corp, Infosys Technologies Ltd and Kinder Morgan Energy Partners L.P.
Lakeland Industries, Landstar System, Lufkin Industries, Medialink Worldwide, Medtox Scientific, Pacific Continental Corp, Petsec Energy Ltd, Piper Jaffray, Polycom, Rex Stores Corp, Stanley Furniture, The Progressive Corp, Union Bankshares and Universal Forest Products.
Several economic reports are due including the Mortgage Application Refinance Index, March Consumer Price Index (the consensus expects negative 0.1%), March Consumer Price Index excluding food and energy (the consensus expects 0.1%), April Empire State Fed Manufacturing Survey (the consensus expects negative 35.5), February Treasury International Capital, March Industrial Production (the consensus expects negative 0.9%), March Capacity Utilization (the consensus expects 69.6%), U.S. Energy Dept Oil Inventories for April 10, April NAHB Housing Index, and Federal Reserve Beige Book.
Late news: Intel (INTC) beat Q1 estimates by reporting 11 cents versus an expected 3 cents a share.
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