After six days of gains for the market, investors had heightened expectations yesterday for the first Q4 earnings report from a major company — Alcoa (AA). But following the market close on Monday, Alcoa failed to meet analysts’ estimates, and the market showed its displeasure with a broad sell-off.
Almost every S&P sector registered a loss Tuesday, but the financial stocks and commodity-based indices and stocks were hit the worst. Alcoa fell more than 11%, and Caterpillar (CAT) was a big loser as well, off 3%, following China’s central bank raising reserve requirements. CAT had rallied on Monday due to favorable trade data from China.
Bank of America (BAC) fell 3.4% and JPMorgan Chase (JPM) was off 2.3%. The big banks fell following news that the government wants to impose fees on banks to help recoup TARP funds.
The weakest S&P sector was basic materials, which was off 1.9%.
But despite the gloom, one strategist cited in the Wall Street Journal said that Wall Street is expecting Q4 earnings from S&P companies to nearly triple over the year-ago period. Hartford Financial Services (HIG) rose 3.6% on news that it doubled its Q4 earnings estimate and was upbeat concerning future earnings for this year.
At the close, the Dow Jones Industrial Average (DJI) fell 37 points to 10,627, the S&P 500 (SPX) lost 11 points to 1,136, and the Nasdaq (NASD) fell 30 points to 2,282.
The NYSE traded just under 1.1 billion shares with decliners ahead of advancers by more than 4-to-1. The Nasdaq traded 660 million shares and decliners there were ahead by 3-to-1.
February cude oil fell $1.73 to $80.79 on news of milder weather and concerns that China’s change in monetary policy could stem demand for commodities. The Energy Select Sector SPDR (XLE) fell 87 cents to $59.35.
January gold fell $21.80 to $1,128.90 an ounce, and the PHLX Gold/Silver Sector Index (XAU) fell to $181.77, down $6.70.
What the Markets Are Saying
Yesterday’s pullback was not, I repeat, NOT a correction (at least one commentator was heard to say the word), and was mild by any standard. But with the internal and sentiment indicators both overbought, and the Dow up for six consecutive days prior to this, we are bound to have a healthy pullback. So let’s review the current support areas (zones) for each of the major indices.
Dow Jones Industrial Average: The first line of support, as with all of the indices, is the 20-day moving average. For the Dow, it is at 10,511, and since August the Dow has been trading either slightly above or below that line. The next important moving average is the 50-day, now at 10,360, which is squarely in the support zone of 10,250 to 10,500. Unless this zone is penetrated, the near-term trend is still up.
S&P 500: The first line of support is its 20-day moving average at 1,124. Its 50-day moving average is at 1,106, which is within the support zone of 1,070 to 1,120. This zone, like the Dow’s 10,250 to 10,500 zone, defines the near-term uptrend.
Nasdaq: The first line of support is its 20-day moving average at 2,266. Its 50-day moving average is at 2,197, which is within the support zone of 2,120 to 2,210. The Nasdaq has been lagging the other indices for days, and the reason is that it accelerated off of support on Dec. 21, and rose much faster than the other indices, becoming overbought more quickly than the other others, and was forced to adjust before they did.
January has started off faster than 75% of all other bull market Januarys. It’s entitled to a short rest.
Be prepared to buy on any pullback since this bull is strong and hearty, and more than likely won’t rest for long.
Today’s Trading Landscape
Earnings to be reported include: Northwest Pipe Co. (NWPX), Clarcor (CLC), Orleans Homebuilders Inc (OHB) and Sealy (ZZ).
Economic reports due: MBA purchase applications, EIA petroleum status report, Beige Book and Treasury budget (the consensus expects -$92 billion).
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