An early morning rally fizzled yesterday after just an hour of trading, taking back almost 100 Dow points. Sellers emerged following a rush to buy dollars, with the financial group leading the way down.
It was the third straight day up for the U.S. dollar, which rose 0.7% versus a basket of currencies. Multinationals, financials and materials stocks were the worst hit. Technology, and especially the chip companies, preformed the best, although they, too, suffered minor losses.
Amazon.com (AMZN) rose 5.14% as it continued to benefit from its Q3 report last week that smashed estimates. Marvel Technology (MRVL) rose almost 3% after raising its Q3 revenue forecast, and Microsoft (MSFT) rose more than 2% after industry reports of strong sales for Windows 7, which was released Oct. 22.
Bank of America (BAC) was hit hard, off 5.06%, after reports that the feds may be forcing BAC to raise more capital. And the energy group lost as the dollar rose, with Chevron (CVX) off almost 2% and Apache Corp. (APA) off over 1.5%. The iShares Dow Jones U.S. Energy Sector Index Fund (IYE) was down 1.52%.
At the close, the Dow Jones Industrial Average (DJI) was off 104 points to 9,868, the S&P 500 (SPX) fell 13 points to 1,067, and the Nasdaq (NASD) was down 13 points to 2,142.
The NYSE traded 1.4 billion shares with decliners ahead of advancers by more than 3-to-1. On the Nasdaq, 744 million shares changed hands with decliners ahead by 9-to-4.
December crude oil fell $1.82 to $789.68 a barrel, and the Energy Select Sector SPDR (XLE) lost 96 cents, closing at $57.34.
December gold fell to $1,042.80, off $13.60, and the PHLX Gold/Silver Index (XAU) lost $6.62, closing at $165.47.
What the Markets Are Saying
The failure of the major indices to break through the upper trendline of their respective bull channels led to reversals late last week. And that, coupled with an inability to surmount major psychological numbers like Dow 10,000 and S&P 500 1,100, now has the defense back on the field and investors as spooked as kids in a cemetery on Halloween night.
As noted in recent Daily Market Outlooks, my internal indicators are telling me that the reversals of last week could lead to a minor correction with the first support at the S&P 500’s 20-day moving average at 1,070. That support was broken by 4 points yesterday. The next support for the S&P is at the conjunction of the bullish support line and the 50-day moving average at around 1,050.
>
But another more unusual pattern is forming that tells us that the advance is maturing and, therefore, tiring. Both the Relative Strength Index (RSI) and the momentum indicators are showing declining tops and bottoms, while the major trend is plodding along with the normal higher highs and higher lows.
This phenomenon usually occurs when the angle of attack of the intermediate trend becomes abnormally steep, pulling away from the 200-day moving average by more than 15%. The S&P is now 16.7% above its 200-day moving average.
Conclusion: Even though the current pullback will most likely be contained at the conjunction of the 50-day moving average and the intermediate support line, the broad, long-term advance is tiring, which will most likely result in a more extended consolidation with prices heading sideways until the overbought situation is resolved.
Today’s Trading Landscape
Earnings to be reported: A.M. Castle & Co., Abaxis, Acadia Realty Trust, ACE Ltd., Advent Software, AGCO Corp., AK Steel Holding Corp., Akzo Nobel N.V., Alcon, Amedisys, American Capital Ltd., American Ecology Corp., Ametek, Amkor Technology, Anadigics, Angang Steel Co. Ltd., Anixter International, Apollo Group, ARM Holdings PLC, Armstrong World Industries, Arthur J. Gallagher & Co., ATC Technology Corp., Atmel Corp., Avery Dennison Corp., B&G Foods, Banco Bilbao Vizcaya Argentaria, Banco de Chile, Bayer AG, BE Aerospace, Bemis Co., Benchmark Electronics, Berkshire Hills Bancorp, Black Box Network Services, Boston Properties, Boyd Gaming Corp., BP PLC, BTU International, Buffalo Wild Wings, Cabela’s, Calamos Asset Management, Canadian Pacific Railway Ltd., Capella Education Co., Carpenter Technology Corp., Carter’s, Cavium Networks, Celanese Corp., Centene Corp., Central European Media Enterprises, Century Aluminum Co., Cephalon, Ceradyne, Chemed Corp., Chicago Bridge & Iron Co N.V., Chiquita Brands International, Ciber, Coca-Cola Femsa S.A.B. de C.V., CommScope, Compass Minerals International, Convergys Corp., Corn Products International, CSG Systems International, Cynosure, Daimler AG, Delphi Financial Group, Desarrolladora Homex, DeVry, Diamyd Medical AB, DineEquity, Double-Take Software, DreamWorks Animation, DSP Group, Dynamics Research Corp., ETrade Financial Corp., EarthLink, Ecolab, eHealth, Encore Acquisition Co., Endologix, Energy Transfer Equity L.P., Entegris, ev3, Exactech, First Advantage Corp., First Financial Holdings, First Energy Corp., FirstMerit Corp., Fiserv, FMC Technologies, Franklin Resources, Fresh Del Monte Produce, FTI Consulting, G&K Services, General Maritime Corp., Geron Corp., Golfsmith International Holdings, Group 1 Automotive, Harris Corp., Hatteras Financial Corp., Heidrick & Struggles International, Heritage Financial Corp., Hospira, Hydrogenics Corp., IAC/InterActive Corp., Iconix Brand Group, Illumina, Insituform Technologies, Integrated Device Technology, Inverness Medical Innovations, IRIS International, Johnson Controls, Jones Lang LaSalle, Kona Grill, L-3 Communications Holdings, LCA-Vision, Life Technologies Corp., Martin Marietta Materials, Massey Energy Co., McKesson Corp., Mercury Computer Systems, Merit Medical Systems, Methanex Corp., MicroStrategy, Molex, Nalco Holding Co., National Instruments Corp., NeuStar, NewAlliance BancShares, Norfolk Southern Corp., Norsk Hydro ASA, NuStar Energy L.P., NutriSystem, Open Text Corp., Orbital Sciences Corp., Orion Energy Systems, Paccar, Pacer International, Panera Bread Co., Parametric Technology Corp., Parexel International Corp., Patriot Coal Corp., PDL BioPharma, Peet’s Coffee & Tea, Penwest Pharmaceutical Co., Petroleum Geo-Services ASA, Pharmaceutical Product Development, PLX Technology, Pool Corp., Psychiatric Solutions, Pzena Investment Management, RadiSys Corp., Rayonier, RenaissanceRe Holdings Ltd., RF Micro Devices, Ritchie Bros. Auctioneers, Rogers Communications, Royal KPN N.V., Satcon Tech Corp., Scana Corp., Schnitzer Steel Industries, SeaBright Insurance Holdings, Sepracor, Sonic Automotive, SonoSite, Staar Surgical Co., Stericycle, Subsea 7, SuccessFactors, Sun BanCorp., Super Micro Computer, Svenska Cellulosa AB, Swedish Match Ab, Switch & Data Facilities Co., Tanger Factory Outlet Centers, TD Ameritrade Holding Corp., Teleflex, Tennant Co., Textron, Theravance, Total System Services, TransAlta Corp., Trimble Navigation Ltd., Trustmark Corp., Ultimate Software Group, UltraPetroleum Corp., Under Armour, United States Steel Corp., Universal Stainless & Alloy, USANA Health Sciences, Valero Energy Corp., ValueClick, Vasco Data Security International, Vestas Wind Systems A/S, Virginia Commerce BanCorp., Visa, Vishay InterTechnology, Vitran Corp., Waddell & Reed Financial, Waste Services, Waters Corp., WatsCo, Watts Water Technologies, Wilshire Bancorp, Wintrust Financial Corp., Wynn Resorts Ltd. and Zix Corp.
Economic reports due: ICSC/Goldman Sachs chain store sales, Redbook, S&P Case-Shiller Home Price Index, Conference Board Consumer Confidence Index (the consensus expects 54), Richmond Fed’s manufacturing survey, API oil industry report and ABC/Washington Post consumer confidence index.
The old ways of investing don’t work anymore. But trading options founded on scientific principle can and does work in volatile times like these. Learn how to leverage the power of technical analysis to identify the short window when a trade is set to go straight up or down. Get your FREE copy here!
