On Tuesday, stocks fell on the worst existing homes sales on record for a single month. July existing home sales fell 27% month-over-month, and the report prompted some analysts to increase the likelihood of a double-dip recession. The total supply of homes now stands at 12.5 months.
World markets also fell with Stoxx Europe 600 index down 1.7%, the UK’s FTSE 100 off 1.5%, and France’s CAC-40 down 1.5%. And Ireland’s market was down 5.6% following a profit warning by the country’s largest construction company.
Only defensive sectors like telecom and utilities showed gains yesterday as investors fled to the safety of more stable investments while waiting for the government’s reading of Q2 economic growth, which is due on Friday. And another Friday meeting will receive investors’ attention — the Federal Reserve’s annual conference is set for Friday and Saturday, and will likely address both the domestic and foreign slowdowns.
Yields on Treasuries fell with the 10-year closing at a new low for the year. And the Wall Street Journal reported that “Classic safety plays performed well, with bunds and the Swiss franc rallying. Yields on 10-year bunds fell to 2.11%. The dollar fell nearly 1% against the franc, and the euro hit a fresh record low against the Swiss currency.”
At the close, the Dow Jones Industrial Average fell 134 points to 10,040, the S&P 500 lost 15 points at 1,052, and the Nasdaq fell 36 points to 2,124.
The NYSE traded 1.2 billion shares and decliners led advancers by 3.2-to-1. On the Nasdaq decliners were ahead by 2.8-to-1 and volume totaled 616 million shares.
Crude oil for delivery in October fell $1.47 to $71.63 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell 81 cents to $51.40.
December gold rose $4.90 to $1,231.80 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell 2.68 points to 173.16.
What the Markets Are Saying
In yesterday’s Daily Market Outlook, I reviewed the critical picture for the Nasdaq, saying, “A late sell-off that ends a session at the low of the day is never a good sign, but to finish on a support line is a nasty event for the bulls. Today [Aug. 24], with just modest selling, the Nasdaq could easily penetrate the 20-point support zone (2,160 – 2,140) and challenge the July 2 close at 2,092.”
No sooner had that message reached our readers than the Nasdaq gapped lower again, plowing through the support zone down to 2,123. With that dramatic blow to the bulls, the Nasdaq is now within reach of the July 1 low at 2,061 and a new leg down in the bear market.
Compounding the bulls’ situation was a lower opening for the Dow and a gap down opening for the S&P 500, too — a very unusual occurrence. The S&P 500 closed within the 1,055 to 1,040 support zone, but below the “flash crash” low of 1,066.
Volume picked up on the selling and breadth averaged around 3-to-1. These numbers are not indicative of a selling climax, telling us that, despite the S&P 500 still holding within the summer’s trading range, this condition is about to change. The chances are now very high that the S&P, as well as the other indices, will not only retest the lows of this year but break them and head further south. The bear has spoken.
Learn which country I think you should short now.
Today’s Trading Landscape
Earnings to be reported before the opening include: American Eagle, Brown Shoe, Coldwater Creek, Ituran Location and Control, OSI Systems, Perry Ellis, Synovis Life Technologies and Toll Brothers.
Earnings to be reported after the close include: Cyberonics, Guess?, Hain Celestial, HEICO, JDS Uniphase, Jo-Ann Stores, KongZhong, Semtech, Shoe Carnival, Sigma Designs and TiVo.
Economic reports due: Bank Reserve Settlement, MBA purchase applications, durable goods orders (the consensus expects 2.5%), new home sales (the consensus expects 340,000), FHFA house price index and EIA petroleum status report.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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