Monday turned out to be a day of rest for the stock market. With most quarterly earnings from minor players and nothing in the way of economic reports, the day turned out to be a real snoozer.
Before the opening, McDonald’s (MCD) reported a monthly increase in global sales, but that had little impact on the market.
The strongest group was a defensive one — health care. But the gains there weren’t widespread, and the group was up just 0.8% as a whole. Merck (MRK) rose 1.7% on an opinion increase to “conviction buy” from Goldman Sachs. But Eli Lilly (LLY) fell 3.04% when Goldman cut their opinion to a “conviction sell.”
Trading volume was light in advance of the Federal Reserve meeting today and tomorrow. The Fed governors aren’t expected to make any changes to their target range for the federal funds rate, but the Street usually gets just a bit nervous when the Fed meets, especially when stock are overvalued following a major move up.
At the close, the Dow Jones Industrial Average (DJI) was off 32 points to 9,338, the S&P 500 (SPX) fell 3 points to 1,007, and the Nasdaq (NASD) was down 37 points to 1,992.
The NYSE traded 1.1 billion shares, and the Nasdaq crossed 553 million shares. Decliners were just slightly ahead of advancers on both exchanges.
Crude oil for September delivery fell 33 cents to $70.60 a barrel, and the Energy Select Sector SPDR (XLE) gained 22 cents at $51.05.
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Gold (December contract) fell $12.60 to $946.90 for the fourth-straight session of losses. Declines in oil and gold were attributed to renewed strength in the U.S. dollar.
What the Markets Are Saying
Today seems like an appropriate time to look at some of the key sentiment indicators.
Long-time readers of this column and experienced investors recognize that when public sentiment is bullish, this is an indication that the market is overbought. It means that the institutional money is already in the market and the public is trying to catch up before prices get too far ahead. It is at that time that the market is subject to reversals, and when they occur, the public commitment dries up very quickly and the only remaining players are large sellers who are ready to reap profits.
Last week, I noted that the American Association of Investors (AAII) reported that their weekly poll of subscribers showed 50% were bullish for the highest reading of public bullishness in four months.
But Investors Intelligence reported only slight changes in the sentiment readings on which they focus that would indicate that a “major” correction is about to occur. However, they noted that many of their indicators are overbought.
On Friday, stocks rose to their highest level this year after a better-than-expected jobs report, and with that the ratio of put options to call options reached its lowest point since October 2007, at the top of the market. This tells us that the small investor sentiment is very bullish. Meanwhile, insiders are increasing their selling.
What all of this adds up to is that the market is more prone to a correction than at any time since mid-June. But broad polls indicate that most investors are still very wary and many have yet to invest following the March lows.
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In addition, money-market cash balances are still huge by historical standards, providing a pool of ready support for stocks during a moderate pullback.
So a correction at this time is likely to turn into no more than a modest pullback and an opportunity for investors to pick up stocks at slightly lower prices. With a lack of reversals and a huge pool of cash available, my guess is that you had better be quick to pounce on your favorites since others are waiting to pounce, too.
Today’s Trading Landscape
Earnings to be reported include: 3SBIO, American Medical Alert, Anthracite Capital, Applied Materials, Banco de Chile, Baytex Energy Trust, Bitstream, Bob Evans Farms, Broadridge Financial Solutions, Cardiome Pharma Corp., Celadon Group, Clearwire Corp., Cornerstone Therapeutics, CPI Aerostructures, Cree, Environmental Power, Euroseas Ltd., Federal Agricultural Mortgage Corp., Fossil, Fuel Tech, Geoeye, Gilat Satellite Networks Ltd., Harbin Electric, HearUsa, Jazz Pharmaceuticals, Learning Tree International, Mobile Telesystems, Nanosphere, NGP Capital Resources Co., North American Palladium, Origin Agritech Ltd., Pan American Silver, Paragon Shipping, Rand Logistics, Shenqda Tech, Sociedad Quimica y Minera de Chile SA, Symmetricom, Synutra International, Systemax, Textainer Group Holdings Ltd., The Hackett Group, Universal Power Group, Vaalco Energy, VisionChina Media, Vivus, Warnaco Group, Western Gas Partners LP, WSP Holdings Ltd. and WuXi PharmaTech Co Ltd.
Economic reports due: ICSC-Goldman Store Sales, nonfarm productivity (the consensus expects 5.5%), unit labor costs (the consensus expects -2.8%) and Redbook.
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