Yesterday, a stronger U.S. dollar and a pounding of energy stocks led to the first negative day in more than a week. Energy stocks were the worst performers, caused by a gross underestimate of reserves in both crude oil and gasoline.
But energy wasn’t the only loser. Financial stocks and telecommunications were leading the pack lower, as well. Bank of America (BAC), JPMorgan (JPM) and Travelers were all down more than 2%.
Even the good news that Wal-Mart (WMT) posted better-than-expected earnings and raised its 2010 forecast had little impact. And Hewlett-Packard’s (HPQ) positive guidance for Q4 and 2010 didn’t have any effect either. Applied Materials (AMAT), too, had good news in the form of better-than-expected earnings for Q3, and it also raised revenue forecasts for 2010.
Finally, not even improved jobless claims lifted the dour mood of Wall Street yesterday, despite the report showing the lowest weekly total claims since January.
So Thursday was a day of retrenchment after so many gains. The Dow Jones Industrial Average (DJI) fell 94 points to 10,197, the S&P 500 (SPX) lost 11 points to 1,087, and the Nasdaq (NASD) fell 18 points to 2,149.
The NYSE traded just more than 1 billion shares with decliners ahead of advancers by 4-to-1. On the Nasdaq, decliners were ahead by just over 3-to-1 with volume of 715 million shares trading.
Crude oil (December contract) fell to the lowest price in almost a month, down $2.34 to $76.94 a barrel, and the Energy Select Sector SPDR (XLE) fell $1.28 to $56.91. December gold fell $8 to settle at $1,106.60 an ounce. Traders attributed the losses to profit-taking and strength in the dollar. The PHLX Gold/Silver Sector Index (XAU) fell $4.86 to $177.35.
What the Markets Are Saying
As noted yesterday, all of our internal indicators were overbought, just as prices popped into the upper regions of the bull channel that has marked the advance since July. This pattern of bouncing from the bullish support line to the bullish resistance line has become so predictable that I wonder how much longer it can continue.
Nothing in stock-land ever lasts very long. And when the public finally gets wind of the pattern, you just don’t want to become part of “hoi polloi,” since the market is, according to Richard Russell, determined to fleece the vast majority of them.
But while the internal indicators were flashing “overbought,” the masses appear to be confused, as the sentiment indicators illustrate. Last week’s American Association of Individual Investors (AAII) numbers showed the public was more than 55% bearish — in other words, “terrified” — in fact, the most terrified than any time this year, including the March low.
This week, the AAII number went absolutely flat with 38.62% bullish and 38.62% bearish. This seems to say investors are either puzzled or hedging their bets. But I’ll bet they’re just afflicted with an emotional malady called “sick from missing the boat.”
When that happens, many investors panic while others retrench even more. Meanwhile, the Investors Intelligence Advisors’ Sentiment went more bearish, which is a good sign, and the difference between bulls and bears contracted to 17.7% from 23.6%, and that’s good, too.
Conclusion: Despite the possibility of the “bull channel” being so obvious, traders will probably continue working the pattern until some outside force shakes them loose. Therefore, the next major support for the Dow, the S&P 500 and the Nasdaq is most likely at 9,810, 1,040, and 2,055, respectively, with a likely hesitation at the 50-day moving average lines of 9,825, 1,061, and 2,110.
Today’s Trading Landscape
Earnings to be reported include: Abercrombie & Fitch, Agilent Technologies, Artio, Boise Cascade Holdings LLC, Companhia de Saneamiento Basico, Companhia Energetica de Minas Gerais, Dynatronics, Enterra Energy Trust, Harvest Energy Trust, JC Penney, Mobile Telesystems, SMF Energy Corp., Sutor Technology Group Ltd, Teekay Corp. and Yingli Green Energy Holding Co. Ltd.
Economic reports due: international trade (the consensus expects -$32.5 billion), import and export prices, consumer sentiment (the consensus expects 71) and EIA natural gas report.
ETF Profit Secrets Revealed
New profit guide details a breakthrough new strategy designed to help you to lock in short-term gains from ETFs in sectors just heating up. Then, when those sectors are on fire, grab money-doubling profits from the fastest-moving individual stocks. Get your FREE copy here!
