Yesterday, stocks were mixed with the indices flat at the closing bell. And the volume was the lightest of the year on both the NYSE and Nasdaq.
To non-participants, that hot August day appeared to have been just another very boring session following a sell-off, but to those participating, it was a highly charged battle with big swings in the indices.
The Dow Industrials plunged 100 points on the opening, then rallied. By 10:30 a.m., almost all of the early losses had been erased. But in the early afternoon, broad-based selling drove stocks down again, but this time the selling abated at half the morning’s losses. At 3:15 p.m., the Dow was off about 60 points and drifting south, but late buying turned the market again, and by the close almost all of the losses had been regained for the second time in the session.
There were few reasons for the volatility other than low volume, which tends to exaggerate volatility as stocks are flipped by quick-footed traders. A lower-than-expected annualized Q2 GDP from Japan, renewed selling in Europe, and a smaller-than-expected rise in the August Empire Manufacturing Index, along with the downside momentum of last week, contributed to the lower opening.
The Nasdaq bounced more than its sister indices, and was led by the technology sector that rallied following Dell Inc.’s (NASDAQ: DELL) acquisition of 3PAR Inc. (NYSE: PAR), which jumped 87% on the news. During the last four weeks, the technology sector has experienced a decline of 2.2%, so it was subject to some bargain hunting.
The Federal Reserve said that its bank loan survey showed that business and consumer loan demand was flat. That announcement contributed to the mid-afternoon sell-off.
For-profit education stocks fell following reports of poor loan repayment rates at Strayer Education, Inc. (NASDAQ: STRA). And analysts at Deutsche Bank AG (NYSE: DB) downgraded Corinthian Colleges, Inc. (NASDAQ: COCO), which fell 21.62% and added to the woes of that group.
The U.S. dollar ended the day lower against both the euro and the yen with the euro at $1.2817.
At the final bell, the Dow Jones Industrial Average was off a fraction at 10,302, the S&P 500 rose slightly to 1,079, and the Nasdaq gained 8 points, closing at 2,182.
Volume on the NYSE totaled 788 million shares, the lowest of the year, and advancers were ahead of decliners by 1.64-to-1. The Nasdaq traded 477 million shares with advancers ahead by the same margin as the NYSE.
September crude oil fell 15 cents to $75.24 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell a penny to $53.34.
December gold rose 10 cents to settle at $1,226.20 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 2.59 points to 174.99.
What the Markets Are Saying
Yesterday’s volatile, low-volume session may have had its exciting moments, but in the end it accomplished little for the bulls.
The first minutes of trading erupted into another gap down, but as noted, prices reversed, and the morning’s gap was quickly covered and the losses overcome. At the end of the day, sellers were still in charge, but buyers were able to garner enough strength to avoid a breakdown, but unable to cover any of last week’s downside gaps.
The Dow and the S&P 500 are range bound by their respective 50-day moving averages on the top and the July 20 lows at the bottom. And with volume at the lowest level of the year, it is likely that trading will be contained within that zone for some time.
But the Nasdaq’s chart, with two enormous downside gaps, is quite different. Yesterday, the technology sector dragged the Nasdaq to an 8-point advance. But the outlook for the junior index is so bad that it will take more than a modest session of bargain hunting to overcome the damage. And a close under 2,150 could launch an all-out round of panic selling.
With most of the internal indicators now modestly oversold, the market is due for a reaction rally, but that’s all. The pressure now exerted by the bears is heavy, so the bulls must hold the current support through mid-September or be drowned in a sea of sellers.
Today’s Trading Landscape
Earnings to be reported before the opening include: Abercrombie & Fitch, Blue Phoenix, Elbit Systems, G&K Services, Home Depot, Saks, TJX Companies, VanceInfo Technologies and Wal-Mart.
Earnings to be reported after the close include: Analog Devices, Bob Evans, China Digital TV, Jack Henry, La-Z-Boy and Longtop Financial Technologies.
Economic reports due: e-commerce retail sales, ICSC-Goldman Sachs store sales, housing starts (the consensus expects 565,000), producer price index (the consensus expects 0.2%, and 0.1% ex-food and energy), Redbook, and industrial production (the consensus expects 0.6%, and 74.5% capacity utilization rate).
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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