A mid-session rally was abruptly cut short yesterday when within an hour of the close stocks got a round of selling as traders turned skittish about holding stocks overnight in light of uncertainties.
And this week could be full of surprises as the Fed considers whether to move on interest rates, the president’s delivers that State of the Union address tonight, the Fed Chairman’s reconfirmation is yet to be determined, bailout hearings on AIG (AIG) continue, and Chinese regulators are rumored to be considering more moves against lending.
But earnings continue to exceed estimates. Apple (AAPL) reported strong earnings after Monday’s close and yesterday. Johnson & Johnson (JNJ) and Verizon (VZ) reported solid earnings. DuPont (DD), EMC Corp. (EMC), McGraw-Hill (MHP), Sherwin Williams (SHW) and Travelers (TRV) all exceeded estimates by a large margin.
Apple’s strong report kept technology stocks ahead for most of the day. And Nasdaq (NASD) was buoyed by the report, as well. But as the closing bell approached, buyers backed off leaving the field to sellers who carried the ball in the closing minutes.
The Conference Board said its reading of U.S. consumer confidence rose again, beating expectations. It was the third consecutive month that the confidence number exceeded estimates.
At the close, the Dow Jones Industrial Average (DJI) fell 3 points to 10,194, the S&P 500 (SPX) fell 5 points to 1,092.17, and the Nasdaq was down 7 points to 2,204.
The NYSE traded 1.1 billion shares and Nasdaq crossed 724 million shares. On both exchanges decliners exceeded advancers by about 2-to-1.
Crude oil for March delivery fell 55 cents to $74.71 a barrel, and the Energy Select Sector SPDR (XLE) fell 36 cents to $56.31.
Gold for February delivery gained $2.60, closing at $1,098.30, as a result of strong physical demand and a strong consumer confidence number. The PHLX Gold/Silver Sector Index (XAU) fell $1.16 to $156.08, closing just under its 200-day moving average now at $156.48.
What the Markets Are Saying
The good news about yesterday’s failed attempt to rally was that most stocks held above Monday’s prices. But the bad news was that the midday rally failed, leaving the market in a conspicuously vulnerable position.
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The Dow and the S&P 500 acted badly yesterday, but did hold just above Monday’s lows. But at midday, the Nasdaq failed to breach the 50-day moving average, and then sold off for most of the afternoon, setting both a closing low and intraday low below the shallow support of the last two days. The Nasdaq could find support at the Dec. 17 low of 2,178, but it is more likely that it will fall as far as the Nov. 27 low of 2,114.
Following the decisive break under its 50-day moving average and yesterday’s failed rally, the Dow appears most vulnerable of all. The break below the 50-day moving average is the first decisive decline under that number since July, and unless buyers can drive it back up at least to that line, the intermediate trend must be considered questionable.
Volume was light again yesterday, but on most days down volume has been expanding, while on days that the market closes higher volume has been declining. This not the pattern that bulls would like to see since it usually leads to a complete breakdown.
On the positive side the most significant internal indicators, i.e., Moving Average Convergence/Divergence (MACD), Relative Strength Index (RSI), stochastic and momentum, are all at lower ranges than the June correction and lowest since the March low. I’ll give a read on the sentiment numbers in the next couple of days when they are released, but my guess is that they, too, will confirm that the public is turning bearish, and that could at least lead to a reactive bounce.
But currently it is the news that is controlling the market, and so far this week the news has been anything but good. If you’re a bull you had better be looking for someone to pull a rabbit from his hat.
Today’s Trading Landscape
Earnings to be reported before the opening: Abbott Labs, Affiliated Managers, Air Tran Holdings, Allegheny Tech, Alliance Resource, AmeriGas Partners, BlackRock, Boeing, Caterpillar, CGI Group, ConocoPhillips, Cullen/Frost Bankers, DSP Group, Eagle Materials, First Cash, General Dynamics, Hess, Illinois Tool, LeCroy, McClatchy, MeadWestvaco, Moog, Northwest Pipe, NY Comm Bancorp, OSI Systems, Phoenix Tech, Piper Jaffray, Praxair, Regis, Rockwell Automation, RPC, SAP AG, SEI Investments, Smith International, Southern Co., St. Jude Medical, Stanley Works, Tyco Electronics, UAL Corp., UGI Corp., United Tech, Universal Stainless/Alloy, USG Corp., Valero Energy, WellPoint and Wintrust Financial.
Earnings to be reported during trading hours: Energen and Susquehanna Bank.
Earnings to be reported after the close: Align Tech, AmeriCredit, Amylin Pharmaceuticals, Astoria Financial, Bally Technologies, BMC Software, Cabot, Citrix Systems, Cloud Peak Energy, Cohu, Covance, Crown Castle, CTS Corp., Duke Realty, E-Trade, East West Bancorp, Electro Scientific, Elizabeth Arden, Ethan Allen, Flextronics, Fortinet, Green Mountain Coffee, Hanesbrands, Harris, Hexcel, HOKU Scientific, IberiaBank, Intersil, Kirby Corp., Knight Transportation, Lam Research, Landstar System, LogMeIn, LSI Logic, Mellanox Tech, Methanex, Murphy Oil, Netflix, Noble Corp., Norfolk Southern, Omeros, Orleans Homebuilders, Owens-Illinois, PSS World Med, Qualcomm, Ryland Group, ShoreTel, Sun Microsystems, SurModics, Symantec, Teradyne, Tetra Tech, Texas Capital, Tollgrade, Tractor Supply, Varian Medical and Werner Enterprises.
Economic reports due: MBA purchase applications, new home sales (the consensus expects 370,000), EIA petroleum status report and the FOMC meeting announcement (the consensus expects interest rates of 0% to 0.25%).
Quarterly earnings news: Allegheny Tech (ATI) reported 36 cents vs. a 23-cent est.. BlackRock (BLK) reported $2.39 vs. a $2.10 est. Boeing (BA) reported $1.75 vs. a $1.36 est. Caterpillar reported 41 cents vs. a 28-cent est. General Dynamics (GD) reported $1.59 vs. a $1.57 est. Hess (HS) reported $1.10 vs. a 91-cent est. Southern (SO) reported 31 cents vs. a 30-cent est., Smith International (SII) reported 9 cents vs. a 9-cent est. St. Jude Medical reported 64 cents vs. a 62-cent est. WellPoint (WLP) reported $1.16 vs. a $1.02 est.
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