Stocks ended lower on Wednesday, as a lack of both economic and corporate news left a void, and investors could only ponder what the Fed’s policy statement on Tuesday meant. Two of the implications of the Fed’s policy were immediately felt, and they were a further decline in the U.S. dollar and a rise in the price of gold.
Large-cap tech stocks and financial stocks took a hit. Adobe Systems Incorporated (NASDAQ: ADBE) plunged more than 19% after reporting weak Creative Suite sales and predicting a disappointing outlook for the year. Microsoft Corporation (NASDAQ: MSFT) fell 2.15% following a dividend increase of 23%. JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), Bank of America Corporation (NYSE: BAC) and Goldman Sachs Group, Inc. (NYSE: GS) all fell between 1.5% and 2.2%.
Alcoa Inc. (NYSE: AA) was the leading stock on the Dow, up 4.7%, with no clear reason for the heavy buying. Copper and silver were two very strong commodities with copper up 2.4% and silver up 2% to a new 2010 high. And gold rose again yesterday for its fifth high in seven sessions, setting another all-time high.
The SEC pushed for more influence in the municipal bond market and is holding hearings that may end up requiring more disclosure. The price of the 10-year Treasury note rose for the third day, pushing the yield down to 2.56%. The euro hit its highest level since April, trading at $1.3393 versus the dollar.
At the close, the Dow Jones Industrial Average fell 22 points to 10,739, the S&P 500 lost 6 points at 1,134, and the Nasdaq gave up 15 points, falling to 2,335.
The NYSE traded 955 million shares with decliners ahead by 1.7-to-1. The Nasdaq exchanged 611 million shares with decliners ahead by 2-to-1.
Crude oil for November delivery fell 26 cents to $74.71 a barrel. The Energy Select Sector SPDR (NYSE: XLE) dropped 40 cents to $54.44.
Gold continued its romp as it closed in on $1,300 an ounce. Yesterday, the September contract rose $17.80 to $1,290.20 an ounce. And the PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 197.89, a gain of 2.31 points.
What the Markets Are Saying
The follow-through that should come if Friday’s breakout is to be confirmed was lacking yesterday, as all three major indices lost ground. The S&P 500 fell following a reversal down on Tuesday from our proprietary indicator, the Collins-Bollinger Reversal (CBR), and a sell signal from the slow stochastic as the “slowK” line crossed below the “slowD” line.
Our other internal indicators have not yet issued sell signals, but are very overbought and likely to issue them soon unless buyers are able to take prices into the next zone of resistance at S&P 500 1,153 to 1,170.
The first area of support for the Dow is its August high of 10,720, and for the S&P 500, it is the oft-mentioned high of 1,131. These numbers are important, and so far illustrate the fragility of the recent breakout since yesterday’s low was 10,708.4 for the Dow and 1,131.58 for the S&P 500.
But the bulls now have the momentum, and with both the near- and intermediate-term trends up, it is theirs to lose. As one who is intensely focused on the stock market, I would love to say that we are in a bull market since there is much more money to be made with the bull than the bear. However, just like the home plate umpire, I’ve got to “call ’em the way I see ’em,” and I still see a big bad bear lurking above the current prices.
That said, there is money to be made in all markets. Shorts and bearish strategies work most of the time, and even some trades on the long side can be taken when technical signals indicate that a strong rally is likely. For example, on Sept. 2, I wrote, “It should have been no surprise to our readers that the reversals — a key reversal and a Collins-Bollinger Reversal (CBR) — off of the 1,040 support line resulted in a breakout from the 1,040 to 1,055 zone. We covered it in detail for a week, and on Tuesday [Aug. 31], I provided a copy of the S&P trading chart.” Little did I know the turning power of the two CBR buy signals at 1,055 would in short order drive the S&P 500 above its 200-day moving average at 1,112.
So, even in bear markets, some very pleasant surprises come to those who are open to the signals that the market gives. A solid technician should never “predict,” but only “respond” to those signals and depend upon the probabilities of success to provide results.
Also, there are trades to be made in sectors that have not broken down and tend to profit from the mayhem of the bear market. Currently, the precious metals sector provides potential for profit, and our readers have frequently seen gold stocks as my Chart of the Day. And they will find another there today.
Here’s my hope for profitable trading and investing — whether bear or bull.
Today’s Trading Landscape
Earnings to be reported before the opening include: Neogen, Rite Aid, Scholastic Corp., Texas Industries and Vail Resorts.
Earnings to be reported after the close include: Comtech Telecommunications, Finish Line, Nike, Saba Software, Spectrum Control and TIBCO Software.
Economic reports due: Fed balance sheet, Money supply, EIA natural gas report, jobless claims (the consensus expects 450,000), existing home sales (the consensus expects 4.05 million), and leading indicators (the consensus expects 0.1%).
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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