Stocks took a breather yesterday after rising more than 2% in the past five sessions and breaking to new highs in each of the past three. But after opening higher and then running up 60 points on the Dow Jones Industrial Average (DJI), profit-taking took over and prices fell until around 1 p.m. The remainder of the day was spent making up for the earlier selling.
The profit-takers emerged following a better-than-expected report from the Philadelphia Fed index for September, which showed a two-year high. And there were other positive economic numbers, too: Housing starts hit an annualized rate of 598,000 (expected), building permits came in at 579,000 (close to expectations), and initial jobless claims were better.
So, with stocks up in eight of the past 10 trading sessions, it seems that buyers were just primed to take profits before the weekend. Not a single major sector was able to post a gain, and each of the three major indices fell 0.3%.
FedEx (FDX) fell 2.2% after reporting that Q1 earnings fell 53%. And Oracle (ORCL) fell 2.8% after reporting lower sales for the quarter ending in August.
At the close, the Dow fell 8 points to 9,784, the S&P 500 (SPX) was down 3 points to 1,065, and the Nasdaq (NASD) fell 6 points to 2,127.
The NYSE traded 1.5 billion shares with decliners ahead by 17-to-13. The Nasdaq had more winners than losers by a small margin, and volume was at 755 million shares.
October crude oil fell 4 cents to $72.47 a barrel, and the Energy Select Sector SPDR (XLE) lost 27 cents, closing at $55.62.
December gold fell $6.70 to $1,013.50 an ounce. The PHLX Gold/Silver Index (XAU) closed at $171.09, off $3.08.
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What the Markets Are Saying
Yesterday’s mild round of profit-taking was no doubt due to traders cashing in after so many days of gains.
There is little doubt that some of the internal indicators gave them pause, chiefly the Relative Strength Index (RSI), which for the S&P 500 is now at 70.15. The last time that we saw readings this high was in early August, and that led to a mild correction. Anything above 70 is considered excessive, so we could see a pullback that might last for several days before the next attack on this year’s highs can be mounted.
If stocks continue to fall, the first support for the S&P 500 is at the 20-day moving average at 1,028, and then the zone from 980 to 1,010.
But I’ll still stick with the “screw on your hat” mentality, because an explosive breakout should be the result of such a powerful surge from a bull channel. Watch this closely, because a run to the goal of S&P 1,245 could result in a rapid expansion of gains in our current positions and a chance to cash in on some very fat profits.
Today is quadruple-witching day when four major options series expire. This may create unusual volatility that impacts today’s session.
Today’s Trading Landscape
Focus Media Holding Ltd. (FMCN) is reporting earnings today.
No major economic reports are scheduled for today.
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