The uncertainties surrounding a bailout plan by the EU for Greece put a lid on trading yesterday. Then, just to complicate things more, Fed Chairman Bernanke introduced the subject of market normalization and eventually raising some borrowing costs.
At the corner of Broad and Wall Streets, the combination went over like a lead snowball as traders pondered the Fed’s next move. Many feel it is too early to raise rates and were under the impression that there was still an accommodative spirit and more time before the Fed would hike rates.
But in prepared testimony by the Fed Chairman before the House Finance Committee, Bernanke “said that the rate paid to banks on excess reserves held at the central bank may for a time replace the Fed funds rate as the main operating target for policy,” according to the Wall Street Journal.
As a result of the jawboning about rates, the financial sector moved higher. And the buying was broad based with multiline insurers, diversified banks and diversified financial services all strong.
However, volume was light due to another snowstorm that blanketed the eastern United States, as well as the imponderable situation in Greece. Several traders said that as long as the crisis in the EU remained unresolved they would not be trading stocks.
At the close, the Dow Jones Industrial Average (DJI) fell 20 points to 10,038, the S&P 500 (SPX) lost just over 2 points to 1,068, and the Nasdaq (NASD) fell 3 points to 2,148.
The NYSE traded just over a billion shares, and the Nasdaq processed 625 million trades. On both exchanges advancers and decliners were at breakeven.
March crude oil futures rose 77 cents to $74.52 as heating oil demands due to recent storms pushed prices higher. The Energy Select Sector SPDR (XLE) fell 23 cents to $54.64.
April gold fell 90 cents to $1,076.30, and the PHLX Gold/Silver Sector Index (XAU) closed at $154.58, down 49 cents.
What the Markets Are Saying
With uncertainty enveloping the markets, I felt it was important to consider both the resistance and support zones of the various stock indices, and we covered that earlier this week.
We’ve also considered how similar the advance from March 2009 to January 2010 is to the March 2003 to March 2004 markets, and that if investors had sold out in August 2004 with losses approaching 8,5%, they would have missed the 48% run to August 2007.
Conclusion: Unless you are a trader, stick with a quality portfolio and enjoy long-term gains.
Now let’s consider the internal market indicators that might give us a hint as to the future direction of the market.
First, the public sentiment indicators are universally bearish, and in its perverse way the market sees that as bullish (the public is usually wrong). Last week, the American Association of Individual Investors (AAII) sentiment survey, a good measure of public sentiment, had the bulls declining for the fourth week in a row, while bearish sentiment increased — bulls 29.23%, bears 27.61%. And the number of bullish advisers has fallen to the lowest number since March 2009, according to Investors Intelligence.
Despite the recent bearish readings from the public and the advisers, near-term stocks are still trading in a bearish channel. Stocks fell 8.3% from the January high to last Friday’s low, and that qualifies as a correction.
However, until the bearish channel is broken, my advice is to stay on the sidelines and wait for an opportunity to catch some bargains on a sharp day down. Perhaps today may be that day.
Today’s Trading Landscape
Earnings to be reported before the opening include: Administaff, Akeena Solar, Alcatel-Lucent, Alexandria Real Estate, Alexion Pharmaceuticals, Ariad Pharmaceuticals, AutoNation, Borg Warner, Cardtronics, China Automotive, Cincinnati Bell, Ecolab, Emergency Medical Services, EnCana, EnPro Industries, Expedia, FLIR Systems, Glatfelter Co., Group 1 Automotive, Holly Energy Partners, Hornbeck Offshore Services, IMS Health, Infinity Property & Casualty, Inland Real Estate, JA Solar Holdings, Journal Communications, KBW, Laboratory Corp., Leapfrog Enterprises, Lufkin Industries, Macerich, Mack-Cali Realty, Marriott, Momenta Pharmaceuticals, Novamed, NRG Energy, Och-Ziff Capital Management, Omega Health, Palomar Medical Technologies, Patni Computer Systems, Patterson-UTI Energy, PepsiCo, Progress Energy, ProLogis European Properties, QC Holdings, Quixote Corp., Revlon, SCANA Corp., SkyWest, Smith & Nephew, Stifel Financial, Strayer Education, Syneron Medical, Syntel, Tekelec, Teradata, Total S.A., TradeStation, TreeHouse Foods, V.F. Corp., Viacom and World Wrestling.
Earnings to be reported during and after trading hours: Alcon, AllianceBernstein, Allied World Assurance, Beckman Coulter, BJ’s Restaurants, Blue Nile, Buffalo Wild Wings, CEC Entertainment, Cephalon, Cheesecake Factory, Chemspec International, Chipotle Mexican Grill, Choice Hotels, Cognex, Coinstar, Compellent Technologies, DCT Industrial Trust, Delphi Financial, eHealth, Enernoc, Epicor Software, FARO Technologies, FBL Financial, Gardner Denver, General Cable, Gorman-Rupp, Hansen Medical, Hawaiian Electric Industries, Ixia, Las Vegas Sands, McAfee, Molina Healthcare, Natural Resource Partners, Panera Bread, PAR Technology, Penson Worldwide, Philip Morris International, Portfolio Recovery Assoc, Pros Holdings, Quidel, RealNetworks, Republic Services, Rovi, Sequenom, SonicWall, SonoSite, Stamps.com, Sunstone Hotel, SYMYX Technologies, Syniverse Holdings, The Knot, United Stationers, Varian, Xenoport and ZymoGenetics.
Economic reports due: jobless claims (the consensus expects 467,000), Fed balance sheet and money supply.
Late quarterly earnings news (earnings vs. expected):
- AutoNation (AN): 29 cents vs. 27 cents
- Cincinnati Bell (CBB): 10 cents vs. 11 cents
- EnCana (ECA): 50 cents vs. 42 cents
- Group 1 Auto (GPI): 43 cents vs. 44 cents
- Hornbeck Offshore (HOS): 32 cents vs. 33 cents
- Laboratory Corp. (LH): $1.16 vs. $1.15
- Leapfrog (LF): 46 cents vs. 24 cents
- Lufkin Industries (LUFK): 24 cents vs. 16 cents
- Macerich (MAC): 90 cents vs. 91 cents
- Marriott (MAR): 32 cents vs. 26 cents
- Smith & Nephew (SNN): 20 cents vs. 92 cents
- Strayer Education (STRA): $2.32 vs. $2.30,
- TEKELEC (TKLC): 28 cents vs. 23 cents
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