With the year drawing to a close and investors nervous over today’s options expiration “quadruple-witching day,” the stock market was shaken by a handful of nasty events yesterday.
Greece’s credit rating was cut to triple-B-plus from single-A-minus by S&P late in the day, which triggered a last-minute sell-off. Before that, the U.S. dollar was strong the entire day and finally closed up 1.1% at a three-month high.
But it was weakness in the financial sector that really hurt the averages. Citigroup (C) was forced to price its new stock offering at $3.15, almost a 9% discount to Wednesday’s closing price, and that forced the government to hold off on unloading its $5 billion of shares. The financial sector makes up 14% of the S&P weight, and it was down 1.8%.
With the rally in the dollar, commodities fell, as did stocks in companies that depend on large exports. Basic materials companies were hard hit with Newmont Mining (NEM) off 6.1% and Freeport McMoRan Copper & Gold, Inc. (FCX) down 4.4%.
The Labor Department reported that initial jobless claims for jobless benefits rose 7,000 where economists were looking for claims to fall by 9,000. But the index of leading economic indicators rose for the eighth straight month for the only good news of the day.
Finally, Fed-Ex (FDX) reported $1.10 per share for its fiscal second quarter while analysts expected $1.06. But even that turned into a problem when the company announced that Q3 would come in only at between 50 cents and 70 cents per share where analysts anticipated 84 cents. FDX fell $5.48 to $84.47.
At the close, the Dow Jones Industrial Average (DJI) was off 133 points closing at 10,308, the S&P 500 (SPX) fell 13 points to 1,096, and the Nasdaq (NASD) lost 27 points to 2,180.
The NYSE traded 1.7 billion shares with decliners ahead of advancers by 11-to-4. The Nasdaq traded 684 million shares and decliners there led advancers by almost 3-to-1.
Despite heavy buying in the dollar, January crude oil settled just 1 cent lower at $72.65 a barrel, and the Energy Select Sector SPDR (XLE) lost 48 cents, closing at $56.16.
February gold fell $28.80 to $1,107.40 an ounce, and for a part of the session traded under $1,100 an ounce. The PHLX Gold/Silver Sector Index (XAU) fell $8.92 and closed at $164.53.
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What the Markets Are Saying
There were several outstanding technical developments this week as we approach today’s quadruple-witching expiration, which in itself, usually causes lots of furrowed brows on the Street.
Despite the long and intermediate trends still being positive, the near-term trend has become clouded for two of our most watched indices. A fourth top in a series that began in early November was accompanied by short-term sell signals on the slow-stochastic and now momentum, too, has turned negative.
The overall pattern in the Dow and the S&P 500 is that of a small rounding top, which could even be preliminary to a mini head-and-shoulders formation. But even if the head-and-shoulders should develop on the Dow, the neckline would be at approximately 10,170, so the breakdown target might be close to 9,800, which is at the upper end of the support zone from 9,380 to 9,900.
In other words, not a disaster but still rather unpleasant, and one that would certainly put off any break to new highs into the new year. But, I must emphasis that it is too early to call for a head-and-shoulders — just file this away as a possibility.
A technical development that is much more important to the market is the sharp rally in the dollar, because it will have an enormous impact on other industry groups, especially gold, silver and other metals. But that is a discussion for another day. (See the Trade of the Day for my take on whether the dollar has bottomed.)
For now, we’ll see what the quadruple witching has to offer with the hope that the witch is really Santa in disguise.
Today’s Trading Landscape
Earnings to be reported before the opening: CarMax (KMX), Carnival (CCL), Neogen Corp. (NEOG) and Stewart Enterprises (STEI).
There are no significant reports due today.
Late news: Research In Motion (RIMM) reported “surging profits and sales of its BlackBerry devices,” but Palm (PALM) posted another quarterly loss.
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