Investors are nervous following the break to five-month highs that could lead to profit-taking, and they are concerned that Q3 earnings will fall short of the Street’s optimistic forecasts.
But stocks started higher yesterday, following a decision by the Bank of England to leave interest rates at current levels. And a pre-opening report that initial jobless claims for the week of Oct. 2 were slightly less than expected was greeted warmly, despite a continuing claims numbers that was slightly more than expected.
PepsiCo, Inc. (NYSE: PEP) fell 3% following its report of a 12% rise in Q3 profits, but it cut the top end of its annual forecast.
Retailers were strong throughout the day following a better-than-expected retail sales report. American Eagle Outfitters (NYSE: AEO), Abercrombie & Fitch Co. (NYSE: ANF) and Limited Brands, Inc. (NYSE: LTD) made gains and had the best results. Of the 25 retailers covered by Briefing.com, 19 had better-than-expected results.
Rumors also moved stocks yesterday. Adobe Systems Incorporated (NASDAQ: ADBE) jumped almost 3 points after the New York Times reported that Microsoft Corporation (NASDAQ: MSFT) CEO Steve Ballmer was at Adobe’s headquarters for a “secret meeting.” No announcement was made following the meeting.
The U.S. dollar fell in early trading, but made back most of its gains in the afternoon. The euro closed at $1.3912, down from $1.3936 on Wednesday. And the 10-year Treasury note rose 1/32, bringing its yield to 2.396%.
At the close, the Dow Jones Industrial Average fell 19 points to 10,949, the S&P 500 was off 2 points at 1,158, and the Nasdaq gained 3 points at 2,384.
The NYSE traded 915 million shares with decliners just slightly ahead of advancers. The Nasdaq crossed 511 million shares with decliners ahead by 1.25-to-1.
Crude oil for November delivery fell $1.56 to $81.67 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) lost 29 cents, closing at $57.64.
December gold fell $12.70 to $1,335 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 201.30, off 5.49 points.
What the Markets Are Saying
Apparently some of our readers missed Monday’s Daily Market Outlook and were somewhat confused by what seemed to be a turn in opinion from bearish to bullish on Wednesday’s report. You may still go back and retrieve them, but to summarize I said that two positives had occurred last week:
1. The rise that broke the top of the summer trading range of S&P 1,040 to 1,130.
2. The success of the Dow Transports to finally make a new five-month high, which confirmed the high made by the Dow Industrials.
These moves gave the bullish cause a boost and set the next objectives for the major indices at Dow 10,700 to 10,953, S&P 1,130 to 1,174, and Nasdaq 2,300 to 2,425.
I also pointed out that the “sell in May and go away” strategy I discussed in April is sometimes called the “Halloween indicator” because it expires in October. And studies indicate that investors who buy the S&P 500 on Nov. 1 and hold through April produced an average gain of 7.4% compared to just 0.4% for those who hold from May through October.
Furthermore, on Wednesday, I said, “The break yesterday also confirms that the S&P 500?s inverse head-and-shoulders formation, last discussed here on Sept. 27, has met the criteria needed to confirm a genuine break. The neckline of the formation at 1,129 was penetrated on Sept. 20, but required a 3% break to confirm it. That number, 1,163, was met yesterday, and gives a target of around 1,230. This, of course, would be a new high and, if it makes it, would confirm that the bull market has resumed. The number 1,230 is curiously coincidental in that the Fibonacci number of 61.8% retracement of the bear market is also at 1,230, according to S&P’s Mark Arbeter.”
If you did not read these Daily Market Outlooks, I can understand your confusion when yesterday I noted that despite what we might think should happen it is only “what is” that counts. And the “what is” is a blue-chip buying spree by major institutions, and also the better-quality technology stocks.
This, then, brings us up-to-date. As for changes in outlook, this column will often state my opinion on the direction of the market, which results from the analysis of charts, indicators, money flows and other data. Here is the current read: The near-term trend is up, the intermediate-term trend is up, and the long-term trend is still down. If this is confusing, please review the Dow Theory, which we discussed this summer.
Finally, bands of support and resistance, like those I discussed above, are important. I give them to you so that you many manage your trading scheme. If you are a trader, you should buy on support and sell on resistance. All effective traders know that they are in a game of probabilities and that the chances are that the zones will hold. But they also know that eventually all zones will be broken. Therefore, traders must protect against being on the wrong side of the market when a zone breaks against them by using stop-loss orders.
If some of our readers are still confused, I would be pleased to address your individual questions as to strategy. I cannot, however, give individual investment advice and portfolio analysis.
There’s one more thing I’d like to add today, and it applies to just a few of the thousands who read the Daily Market Outlook. We think it is important to provide a means for you to comment and have a discussion with other readers. But it has been brought to my attention that a few have been discouraging the many from an open and intellectual exchange. Let’s stop with the whining, carping and foul language. If you don’t have the emotional fortitude or financial means to trade and invest wisely, then don’t. As President Harry Truman said, “If you can’t stand the heat, get out of the kitchen.”
Today’s Trading Landscape
There are no significant earnings to be reported today.
Economic reports due: employment situation (the consensus expects -8,000 for non-farm payrolls and 9.7% unemployment rate), and wholesale trade.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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