In a day that swung to and fro with the latest headlines, stocks closed slightly lower yesterday, after overcoming an early deficit of 1%. But despite the volatility and the barrage of news, volume remained anemic.
Most of the session was spent trying to overcome the first 30 minutes of trading when stocks ignored better-than-expected earnings from JPMorgan Chase & Co. (NYSE: JPM) and a higher euro, and instead focused on jobless claims. Initial jobless claims for the week ended July 10, were down by 29,000 from the prior week, which was below expectations, but continuing claims rose by almost 250,000 to 4.68 million.
If that wasn’t enough to start things off on a negative note, the producer price index (PPI,) for June fell 0.5%, which was more than the 0.1% that was expected. Then the Empire State Manufacturing Index came in at 5.1 versus an expected 18.
Financials led a lower opening. By 10 a.m., the Dow was off almost 100 points when news hit that the Philly Fed index for July was also a disappointment at 5.1 versus an expected 10, and that drove the most watched index to its low of the day at 10:30 a.m.—down about 125 points.
The major indices meandered for most of the day, but remained in the red until just 30 minutes before the final bell when CNBC reported a major announcement from Goldman Sachs Group, Inc. (NYSE: GS). The assumption was that the government had reached a final settlement with the big investment bank, and the financials rallied into the close.
Also boosting stocks was the late vote by the Senate approving the long-awaited finance reform bill, and then news that embattled BP plc (NYSE: BP) had finally capped its well disaster with a report of no further flow going into the Gulf of Mexico.
But despite the late favorable news, stocks only managed to make it back to breakeven, and the Dow Industrials broke a seven-day winning streak by closing at 10,359, off 7 points. The S&P 500 rose a point to 1,096, and the Nasdaq fell a point to 2,249.
The NYSE traded 1.1 billion shares with slightly more advancers than decliners, and the Nasdaq crossed 613 million shares with decliners ahead by almost 2-to-1.
Crude oil for August delivery fell 42 cents to $76.62 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell 6 cents to $52.99, confirming a lower high after failing to penetrate its 50-day moving average.
August gold rose $1.30 to $1,208.30 an ounce as a reaction to the weakening of U.S. and Chinese economic indicators. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell 0.73 points to 173.06 as it continues to trace its 200-day moving average now at 171.55.
What the Markets Are Saying
A late but impressive rally by the energy and financial groups brought the indices back from what would have been a nasty close. Instead the news-related advance diverted traders from a group of indicators, all of which point to a further decline.
Our internal indicators, chiefly Moving Average Convergence/Divergence (MACD), stochastic and momentum, are not just overbought but, after this week’s advance, grossly overbought.
Momentum on the S&P 500 ended yesterday just slightly higher than on June 21, the day before the latest sell-off. And the sentiment indicators are also overbought with the much-watched AAII Sentiment Survey reversing in just one week from bearish to bullish—a very bad sign for the bulls.
After all of this week’s back-and-forth, it is curious that both the Dow and the S&P 500 are locked in a very narrow trading range bounded by the 50- and 200-day moving averages, while the 20-day floats precariously below the range. The intraday highs of the Dow for the last three days were exactly at the 200-day, which also happens to be at its bearish resistance line.
So far the rallies have not produced a breakout, and the market remains in a long-term downtrend. That downtrend could end with a break above S&P 1,100 to 1,120, or be reconfirmed with a decline through the lows at 1,015.
Today is options expiration, which sometimes results in high volatility, and could resolve the current stalemate. The way it stands now, I’d rather be short than long, or just stand aside until this works itself out.
Today’s Trading Landscape
Earnings to be reported before the opening include: Bank of America, Citigroup, First Horizon, Gannett, General Electric, Genuine Parts, Knoll, Mattel, Rockwell Collins and Webster Financial.
Economic reports due: consumer price index (the consensus expects -0.1%, 0.1% ex-food and energy), Treasury International Capital and consumer sentiment (the consensus expects 75).
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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