Last week, the Dow Jones Industrial Average (DJI) lost on four of the five trading days, closing lower for the first time in a month. But, on Friday, the Dow rallied off the low of the day beginning at around 2:30 p.m., and looked like it could salvage a gain. By 3:30 p.m., it was ahead, but a final rush of selling sent stocks lower, and the Dow ended with another down day.
Energy stocks were lower, as oil fell below $70 a barrel. And even though technology and financial stocks were higher, the broad energy sell-off more than offset their gains.
Tech shares rallied on the news of high demand for Apple’s (AAPL) new iPhone and live reports showing lines of buyers. Apple rose 2.7%, and Palm (PALM) gained more than 6% due to the evidence that consumers are willing to pay up for the new generation of smartphones. So even though the broad market was lower, Nasdaq (NASD) benefited from the gains in technology stocks, rising 1.1%.
Energy stocks and futures traded higher during the day on Friday, amid concerns that the political crisis in Iran and an attack on a pipeline in Nigeria might curtail oil shipments. But, later in the day, the concerns switched to the economy and the possibility of lower demand for energy in a period of recession.
Some of Friday’s moves could also have been the result of traders’ moves on “quadruple witching” expiration, which often creates above-average volatility and volume. As it turned out, the volume was high, but volatility was lagging, and the CBOE Volatility Index (VIX) fell 6.79% to 27.99.
>
At the close on Friday, the Dow was down 16 points to 8,540, the S&P 500 (SPX) rose 3 points to 921, and Nasdaq gained 20 points to 1,827.
On the NYSE, more than 2.1 billion shares traded, with advancers ahead of decliners by 9-to-5. On Nasdaq, volume was just under 1.2 billion shares, and advancers were ahead by 8-to-5.
For the week, the Dow fell 2.8%, the S&P 500 was down 2.6%, and Nasdaq declined by 1.7%.
On Friday, July crude oil settled down $1.82 to $69.55, and the Energy Select Sector SPDR (XLE) fell 75 cents to $49.21. August gold rose $1.60, closing at $936.20. The PHLX Gold/Silver Index (XAU) closed at $141.64, up $4.10.
What the Markets Are Saying
This weekend, technicians from various sources voiced their opinions as to whether we are currently experiencing a top or just a short pause before moving higher. Interestingly, not a single one was very convinced that his forecast was correct.
Sometimes the best course is to “let the market tell you what its next direction will be,” voiced one S&P’s analyst, and he is correct.
At times like these, when we are most often surprised by the strength of the market despite the many negative technical indicators, it is best to wait it out and let the market break above resistance or below support, thus signaling the future direction of stock prices.
>
Although I am bullish long term, I have expected the market to turn down to the support at S&P 880, and possibly even lower, before the turn up is made.
The evidence for a pullback is still strong. Not only has the market flashed non-confirmations in the Dow, but also in other indices like Nasdaq and the Russell 2000 (RUT) versus the S&P 500 and the NYSE Composite. And the 10 major S&P sectors are shaky too.
S&P points out that the two hottest sectors, financials and consumer discretionary, have been among the weakest during the past 10 to 30 trading days. Meanwhile, several of the traditionally defensive sectors, utilities and healthcare, have taken the lead, and that means that investors don’t trust the broad market.
For now it’s best to stay on the sidelines with a slight near-term bearish tilt. The market will eventually tell us whether it’s headed north or south. Either way, be prepared to jump aboard.
Today’s Trading Landscape
Earnings to be reported include: Tortoise North American Energy Corp. (TYN) and Walgreen Co. (WAG).
No economic reports are due today.
Get Sam Collins’ Daily Trader’s Alert e-mailed to you each morning before the opening bell absolutely FREE!
In addition to getting instant access to his Daily Market Outlook, you’ll also receive his Trade of the Day in the same e-mail so you can start your day off right by positioning yourself for profits!
Sign up today for Sam’s FREE Daily Trader’s Alert today!
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 his most recent market outlooks.
