During most of yesterday’s session, buyers looked like they were just taking a breather following a major sell-off and then a sudden reversal up. But during the last two hours of trading, sellers entered and drove the Dow Jones Industrial Average (DJI) to the first triple-digit decline since last week.
With a lack of positive news, investors focused on the tepid weekly jobless claims report. Although initial claims were about what was expected, continuing claims were higher than expected.
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The S&P 500’s (SPX) consumer-discretionary sector was hit by several earnings disappointments. Kohl’s Corporation (NYSE: KSS) fell more than 5% following a better earnings report, but issued a forecast that was not in-line with analysts’ expectations. Urban Outfitters, Inc. (NASDAQ: URBN) lost 6.7% after saying that expenses rose more than some analysts expected. And Macy’s, Inc. (NYSE: M) fell 4.9%, while Target Corporation (NYSE: TGT) lost 3.6%.
The euro fell to 1.2530 as sovereign debt worries continued to plague the Greek bailout. The U.S. dollar index rose 0.7%.
At the close, the Dow was off 114 points to 10,783, the S&P 500 fell 14 points to 1,157, and the Nasdaq (NASD) fell 31 points to 2,394.
The NYSE traded 1.2 billion shares, and the Nasdaq traded 637 million shares, both with decliners over advancers by almost 2-to-1.
Crude oil for June delivery fell $1.25 to $74.40 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) was off 37 cents to $57.38.
June gold fell $13.90 to $1,229.20 an ounce on profit-taking, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell 3.3 points, closing at 182.76.
What The Markets Are Saying
Volatility has fallen from the heights of last week, but yesterday, it hopped up to 26.68, which places it in the highest range in more than six months. This indicates that there will most likely continue to be wide swings in both directions for at least the next several weeks.
After months of plodding ahead, making an average gain of just 2.5 points per day, the market topped on each of the major indices in late April, traded briefly in small reversal formations, and on May 4, broke lower. But the break temporarily held on each index’s 50-day moving average.
Then, on Thursday May 6, all three major indices sliced through the 50-day moving average like a knife through butter. The attack lower didn’t stop until it had slightly overshot the 200-day moving averages on each index. It was the biggest one-day loss in history, with the Dow falling 779 points from intraday high to low. But late that afternoon, much of the loss had been regained and the integrity of the 200-day moving averages was preserved.
The major support at the February lows of the indices held with reversals from just under their respective 200-day moving averages. Then, on Monday, each index ran smack into primary resistance at its 50-day moving average.
From Monday until yesterday, buyers unsuccessfully pounded the 50-day until the Dow reversed with a triple-digit decline. This sets up the markets for a test of the support zones just below Thursday’s closes.
The immediate next support zones for each average are as follows:
- Dow: 10,550 to 10,730
- S&P 500: 1,115 to 1,150
- Nasdaq: 2,270 to 2,320.
Today’s Trading Landscape
Earnings to be reported before the opening: JCPenney.
Economic reports due: retail sales (the consensus expects 0.2%, and 0.5% less autos), industrial production (the consensus expects 0.6%, capacity utilization rate (the consensus expects 73.7%), consumer sentiment (the consensus expects 73.8), and business inventories (the consensus expects 0.4%).
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