Yesterday the U.S. dollar matched its prior low, but contrary to recent trends, the stock market opened down, too. The day started off with broad selling in response to weaker-than-expected U.S. housing starts and the analysts’ downgrades of key technology stocks. By just after 10 a.m., the Dow Jones Industrial Average (DJI) was already off 75 points.
The weaker dollar contributed in large measure to another new high in gold. The precious metal closed at its fourth-straight record high and helped the precious metals stocks to outperform the rest of the broad tape until late profit-taking trimmed the gains, sending many of the mining shares to the minus side.
But it was the financials’ late-afternoon bounce from Tuesday’s decline that in large part salvaged the day. Instead of steep losses by the Dow and S&P 500 (SPX), both closed just fractionally lower.
At the close, the Dow was down 11 points to 10,426, the S&P 500 was off half a point to 1,110, and the Nasdaq (NASD) fell 11 points to 2,193.
The NYSE traded just over 1 billion shares with decliners ahead of advancers by 8-to-7. On the Nasdaq, 613 million shares were exchanged with decliners ahead of advancers by 8-to-5.
December crude oil rose 28 cents to $79.42 a barrel, and the Energy Select Sector SPDR (XLE) fell 23 cents to $58.44.
December gold rose $1.80 to $1,141.20 after topping at a new high of $1,153.40. The PHLX Gold/Silver Index (XAU) fell $2.72 to $184.68 as profit-taking in gold stocks dominated the afternoon’s action.
What the Markets Are Saying
One noted analyst is convinced that the market is going to break higher because it has been tenaciously holding above its 20-day moving average. Another is equally convinced that the market is going to decline because it has broken below its major uptrend line. Both are correct in their observations, but wrong in their conclusions.
How could both be wrong if they are reaching opposite conclusions?
Simply because they have no basis for those conclusions.
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First, there is little if any evidence to support the notion that “holding above the 20-day moving average” has long-term validity. The 20-day moving average is not a long-term indicator, but is used by traders for very short-term decisions.
As for the major uptrend broken thesis: I went into that fallacy at some length on Nov. 11, but briefly it is wrong because the major trendline was drawn from the very sold-off March low and, thus, created a steep angle of attack — one that could never be maintained for the long term.
So what is the answer to the future of the market?
We must wait for the answer since the indices are approaching critical resistance and target zones after advancing more than 60% from the March lows. As stocks approach these zones, note that volume is declining to the lowest levels of the year, and that’s because major investors are reluctant to put more cash to work until they are convinced that the economy is moving forward enough to warrant new investment.
Our internal indicators — stochastic, Moving Average Convergence/Divergence (MACD), momentum and Relative Strength Index (RSI) — are all overbought while the sentiment numbers remain confused. That, too, sends a signal to us to be cautious — to hold tight and let the market tell us of its next direction.
No one said that it would be easy, but by being patient and non-emotional, despite the hype heard and seen from the media, the market will eventually reveal the direction of its next move.
Today’s Trading Landscape
Earnings to be reported before the opening include: Bon-Ton Stores, Brady, Children’s Place, China Medical Tech, Dick’s Sporting Goods, Gamestop, Helmerich & Payne, Kulicke & Soffa, New York & Co., NJ Resources, Patterson Companies, Ross Stores, Sally Beauty, School Specialty, Sears Holdings Corp., Shoe Carnival, Stage Stores, Stein Mart, Suntech Power, Sycamore, The Buckle, Transdigm Group, Trina Solar and Williams-Sonoma.
Earnings to be reported after the close: A-Power Energy, Aruba Networks, Chordiant Software, Dell, Dress Barn, Foot Locker, Gap, Hibbett Sporting, Intuit, MTS Systems, Orleans Homebuilders, SkillSoft, The Street.com, Verigy, Wet Seal and Zumiez.
Economic reports due: jobless claims (the consensus expects 504,000), leading indicators (the consensus expects 0.4%), Philadelphia Fed Business Outlook Survey (the consensus expects 12), and EIA natural gas report.
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