Wednesday morning’s strong opening looked like a follow-through from Tuesday’s big reversals. But, as the afternoon approached, buying dried up as selling took back the earlier gains. Then, in a reversal of Tuesday’s final jump in the last hour, sellers appeared with heavy blocks to dispose at market prices. The Dow fell to a 0.41% loss after holding a 1% gain in the morning.
Energy stocks led the market higher in the morning. And late morning buying occurred following the weekly inventory report that showed a draw of 1.83 million barrels versus an expected draw of 900,000.
Selling developed following the release of the Fed’s Beige Book. The summary of the Fed’s appraisal of the economy said that it has been improving, but at just a “moderate pace.” Then the euro suffered heavy selling against the U.S. dollar, and more sellers drove prices sharply lower.
Fear again seemed to be the prime motivator of sellers in BP plc (NYSE: BP), as rumors spread that the company would be cutting its dividend and could be in serious financial trouble. The rumors were not verified, but the stock fell 15.8%, mostly in the last 30 minutes of trading.
The late selling hit almost every sector very hard. At the close, 9 of the 10 major S&P sectors showed a loss, while in the morning, all had gains. Only the retail stocks managed to be winners at the end of the session.
When the closing bell sounded, the Dow Jones Industrial Average (DJI) was down 41 points to 9,899, the S&P 500 (SPX) fell 6 points to 1,056, and the Nasdaq (NASD) lost 12 points to 2,159.
The NYSE traded 1.7 billion shares with advancers ahead of decliners by a small margin. The Nasdaq traded 656 million shares with decliners slightly ahead.
A surprising fall in U.S. oil inventories led to a strong day for crude oil. The July contract gained $2.39, closing at $74.38 a barrel. The Energy Select Sector SPDR (NYSE: XLE) fell 54 cents and closed at $51.41.
June gold fell $15.50, closing at $1,228.50 an ounce, due to comments from Fed Chairman Ben Bernanke that eased concerns over a possible economic slowdown in China. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 172.43, off 2.13 points.
What the Markets Are Saying
Stocks had another turbulent day, and this time, instead of strong buying on the close like we saw on Tuesday, yesterday’s final hour was marked by heavy selling. The Dow closed almost precisely on the support line at 9,900, and the S&P 500 settled in on the support at 1,055.
Further weakness in those two most-watched indices could result in a sell-off. But the focus now must be on Nasdaq, which, after showing remarkable strength late last month, appears to have lost its normal cadre of buyers.
The index — most known for its heavy technical industry weighting, including semiconductor stocks — fell for the fourth consecutive day.
Focusing in on the semis, the Philadelphia Semiconductor Index (NASDAQ: SOX) closed under its 200-day moving average for the first since May of 2009. Back then, when it broke above the important 200-day moving average, it was viewed as the leading index that would take the market to new highs. So the question now is: Will it now lead the market to a sharp decline?
With the major indices now squeezed to a tight trading range between important moving averages above and support just below the current price structure, the SOX may signal not only the near-term direction of the broad market, but perhaps even the longer term.
Today’s Trading Landscape
Earnings to be reported before the opening include: A-Power Energy, CRA International, Del Monte, lululemon athletica, New Frontier Media, North American Energy and School Specialty.
Earnings to be reported after the close include: ArcSight, Finisar and National Semiconductor.
Economic reports due: international trade (the consensus expects -$41 billion), jobless claims (the consensus expects 448,000), Quarterly Services Survey, EIA natural gas report, Treasury budget (the consensus expects -$140 billion), Fed balance sheet and money supply.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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