Thursday’s sell-off late in the session sent the major indices to the negative side for the second straight day.
Sellers drove stocks down 65 Dow points in just 25 minutes as financial stocks again led the way down amid concern over today’s jobs report and interest rates.
The interest rate issue came as a surprise from St. Louis Fed President James Bullard in an interview with Dow Jones. They reported that Bullard “hinted that an economic recovery with anemic job growth wouldn’t necessarily preclude an increase in interest rates.”
And they quoted the official as saying, “If a tepid recovery in labor markets is just the new reality … then you shouldn’t be saying, ‘oh, we are just going to keep interest rates where they are, based on labor-market issues.'”
The market started the day off on a positive note when Bank of America (BAC) said that it will repay its $45 billion TARP loan with $26.2 billion in excess liquidity and $18.8 billion in proceeds from the sale of common stock.
But then FDIC Chairman Sheila Bair threw some cold water on the statement by saying that “regulators are being very careful and very measured about letting banks repay TARP funds,” according to Reuters.
Despite the counterthrust by Bair, BAC closed higher by 11 cents.
The Institute for Supply Management caused some early morning selling when it reported that its non-manufacturing index fell to 48.7 in November, down from 50.6 in October. That was lower than the 51.5 to 51.7 expected, and shows a contraction in the service sector.
At the close, the Dow Jones Industrial Average (DJI) was down 87 points to 10,366, the S&P 500 (SPX) was down 9 points at 1,100, and the Nasdaq (NASD) fell 12 points to 2,173.
On the NYSE, 1.1 billion shares were traded, and the Nasdaq traded 600 million shares. Decliners led advancers by about 2-to-1 on both exchanges.
What the Markets Are Saying
For the second day, stocks failed to complete drives to new highs. And yesterday’s closing sell-off, which included large-, mid- and small-cap stocks, created a minor triple-top on most indices that could result in a further pullback.
But even though a failure to break out is disappointing, especially in light of the recent strength in the small- and mid-cap stocks, it’s not yet a major event.
There are so many zones of support under the market that, despite yesterday’s reversals, it is probably just a matter of time and not points that will be lost.
For the S&P 500, the support zones first start at 1,070 to 1,100, which houses both the 20- and 50-day moving averages, then the zone at 1,020 to 1,070, where the intermediate support line resides, and, finally, 980 to 1,010, which takes us back to July.
Sentiment indicators, which include the Investors Intelligence summary of advisers, shows that there are “fewer and fewer bears. They were just 16.7%, down from 17.6% the previous week and 26.7% the first week in November.” And they report the lowest level of “long-term bears” in more than six years.
As for the AAII numbers, they’re showing 41.58% bullish and 33.66% bearish, and have been at approximately this level for three weeks.
Neither report supports the view that the market is about to make a major break higher.
Investors are nervous, and the backing and filling that is going on is testament to their fear that there is still “something big in the wings.”
But this bull market has climbed that sort of wall of worry before, so rather than jump aboard the bear train, it’s best to wait this out.
The signs still point to a “January Effect” rally focused on the technology sector.
The question is, when will it begin?
Today’s Trading Landscape
Earnings to be reported include: Big Lots (BIG), Sirona Dental Systems (SIRO) and Focus Media (FMCN).
Economic reports due: employment situation (the consensus expects non-farm payrolls at -100,000 and a 10.2% unemployment rate), and factory 0rders (the consensus expects 0.2%).
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