The stock market endured broader selling Wednesday as a result of a disappointing pre-opening retail sales report. The Commerce Department said that retail sales fell 0.4% in April and that sales, less autos, decreased by 0.5%. The decline was expected to be about 0.1%.
And there was more bad news in the housing and mortgage areas: RealtyTrac reported that the number of U.S. households facing foreclosure jumped by 32% in April and mortgage applications declined.
The twin pieces of bad news hit at a time when the market is at a critical technical point and subject to some selling pressure from the flood of new stock offerings from the financial sector. So, although the retail sector was hit yesterday with a 3.3% loss, the financial sector was pounded with a loss of 5.2%.
Technology stocks started the day on weakness due to a $1.45 billion fine levied on Intel (INTC) by the European Commission for antitrust violations. But Intel shook off the early bad news by reporting that its Q2 is going better than expected, and IBM said that full year 2009 earnings will be at least $9.11.
But even with the better news and reaction from the technology sector, stocks closed lower. The Dow Jones Industrial Average (DJI) fell 184 points to 8,285, the S&P 500 (SPX) lost 24 points, closing at 884, and the Nasdaq (NASD) was down 52 points at 1,664.
The New York Stock Exchange traded 1.76 billion shares with decliners ahead of advancers by over 8-to-1 while on the Nasdaq 783 million shares traded with decliners ahead by over 7-to-1.
Crude oil for June delivery fell 83 cents to $58.02 a barrel, and the Amex Energy SPDR (XLE) closed at $48.91, off $1.67.
The June gold contract rose $1.70 to $926.10 an ounce, and the PHLX Gold/Silver Index (XAU) fell $4.05 to $137.70. Although in a channel uptrend, the XAU is having a tough time breaking through the resistance line at $143 and will likely pull back to the conjunction of moving averages at $127 before making another attempt to move higher.
What the Markets Are Saying
The key leadership of the stock market has turned south and with it the broader market. Yesterday the three major indices confirmed near-term sell signals from both the stochastic and Moving Average Convergence/Divergence (MACD) indicators, and the S&P 500 (SPX) confirmed a strong Collins-Bollinger Reversal, or CBR, (which first flashed on Thursday) as the genuine article.
So it appears that the long-awaited correction of the March-to-May rally is finally underway. Leading the group lower are the formerly strongest sectors, namely financial, retail, and technology. But the financial sector is being smacked worse than the others for several reasons.
First, the banks received the brunt of the enormous selling that was caused by an international financial crisis, so they led a market rally from their record lows. Now, with the unprecedented volume of secondary issues being priced below current market prices in order to attract capital to pay back TARP, they are sinking under the weight of the size of the offerings and the resulting stockholder dilution.
I’ve been reviewing sectors to focus on new group leaders and thought that energy, precious metals, and a resurgence of technology might provide new leadership. So far, those groups are still most likely to lead but the past three days have been so overwhelmingly negative that only energy and the metals have barely even held their ground.
With the next level of support at S&P (SPX) 875 and then 825, and with the Nasdaq (NASD) blowing through the 1,652 line, it is best to get into cash and do it quickly. The next real support for Nasdaq is at 1,600 and if that doesn’t hold look out below.
Traders: It’s time to short the financials for a 20% fall from grace.
Today’s Trading Landscape
Earnings to be reported include: A.C. Moore Arts & Crafts, ADA ES, Agilent Technologies, American Medical Alert, AMSC, ARYx Therapeutics, ATA, Audiovox Corp, Birmer Dental Management Services, Blockbuster, Blonder Tongue Laboratories, Brasil Telecom S.A., CAE, Cavco Industries, CGGVeritas, China Grentech Corp Ltd, Companhia Siderurgica Nacional, Compuware Corp and Darling Int’l.
Ecopetrol SA, Elixir Gaming Technologies, Emrise Corp, Evolution Petroleum Corp, Exar, Flexible Solutions Int’l, Gafisa S.A., Gidian Activewear, Green Plains Renewable Energy, Henry Bros Electronics, Iam Gold Corp, ICX Technologies, Interleukin Genetics, KHD Humboldt Wedag Int’l Ltd, Kohis Corp, Kowabunga!, Lear Corp and Middleby.
National Grid, Nordstrom, Nuflare Technology, Orion Energy Systems, Orleans Homebuilders, Outdoor Channel Holdings, Perdigao S.A., Phonera AB, Prestige Brands Holdings, Ready Mix, Retalix Ltd, Sadia S.A., Shamir Optical Industry Ltd, Ship Finance Int’l Ltd, SIGA Technologies, Sony Corp, Spark Networks PLC, Stantec and Stealthgas.
Teekay LNG Partners LP, Telkonet, The Allied Defense Group, Urban Outfitters, URS Corp, ViaSat, ViewCast Corp, Votorantim Celulose e Papel S.A., Wal-Mart Stores, WSP Holdings Ltd, and WuXi PharmaTech Co Ltd.
The following economic reports are due today: initial jobless claims for the week of May 9 (the consensus expects an increase of 10,000), March Producer Price Index (the consensus expects 0.3%), March Producer Price Index excluding food and energy (the consensus expects 0.2%), and DJ-BTMU Business Barometer for May 2.
Late news: Wal-Mart (WMT) met Q1 earnings of estimates for 77 cents and said it sees Q2 earnings of 83 cents to 88 cents.
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.
