On Wednesday, the stock market started off on a solid note with buying that continued through the session as better-than-expected jobless claims and good consumer confidence numbers cheered investors prior to the holiday break.
The rally not only erased the sharp losses of Tuesday, when the Dow fell 142 points, but added 8 points more as the key index closed 151 points higher at 11,187. The S&P 500 gained 18 points to 1,198 Wednesday, and the Nasdaq rose 48 points to 2,543.
Wednesday’s heavy buying was led by consumer discretionary and industrial stocks in response to the University of Michigan’s consumer sentiment index rising to 71.6 in November, up from 67.7 in October. But even before that, stocks opened higher following a report that jobless benefits fell more than expected for the week ending Nov. 19, and personal income grew at a faster pace while consumer spending expanded. The not-so-good news that new home sales fell for the fourth time in six months was largely ignored.
In corporate news, Tiffany & Co. (NYSE: TIF) jumped 5.3% after reporting a 27% increase in earnings, which exceeded analysts’ forecasts. Deere & Co. (NYSE: DE) fell slightly following a good earnings report, because the company was not upbeat regarding the remainder of the year.
Crude oil (January delivery) settled at $83.86, up $2.61 a barrel, and gold (December contract) fell $4.60 to $1,373 an ounce. The euro slid to $1.333 from $1.337 on Tuesday.
In Friday’s shortened session, stocks fell over increased tensions in Korea and a deteriorating euro debt crisis. Even as negotiators were meeting to solve the Irish debt crisis, investors’ worries over Spain and Portugal increased. Meanwhile, the German and French governments were backing a proposal to allow bond holdings to be restructured and have creditors take some of the losses.
The euro again fell slightly versus the U.S. dollar with late quotes at $1.3222 versus $1.3339 on Thursday in London. Treasurys rose on Friday with the benchmark 10-year note 0.375% higher, pushing the yield down to 2.87%.
There were strong indications that Black Friday sales were stronger than last year, but the euro zone problem overshadowed everything, leaving the session, which closed at 1 p.m. Eastern, sharply lower.
At Friday’s close, the Dow fell 95 points to 11,092, the S&P 500 was off 9 points to 1,189, and the Nasdaq fell 9 points at 2,535. Volume was very light with just 428 million shares trading on the NYSE and 195 million on the Nasdaq. Decliners led advancers by about 2-to-1 on both exchanges.
For the week, the Dow fell 1%, the S&P 500 was off 0.9%, and the Nasdaq gained 0.7%.
Crude oil for January delivery lost 10 cents Friday at $83.76 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell 76 cents to $62.51. December gold fell $10.60 to $1,362.30 an ounce as a stronger dollar drew buyers from gold on concerns of further declines in the euro. And the PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell 3.72 points to 209.79.
What the Markets Are Saying
Last week’s headline-charged trading left the major indices short of a breakout at the S&P’s 1,200 resistance line despite a big rally on Wednesday. However, the four and a half days contained some of the worst news imaginable, yet investors appear to have reacted more to positive news (better jobless claims and consumer confidence) than to the continuous flow of very nasty news (possible war in Korea, a growing threat of European default on its debt, etc.)
The trading zone of S&P 500 1,174 – 1,210 narrowed a bit to more like 1,175 – 1,200 due to last week’s 20-day moving average leveling off at 1,200, while the 50-day rose more sharply, closing the week at 1,176. So, chartwise, the bears ended the week with an edge since the violation of support at 1,200 on Monday, Nov. 15, was accompanied by two 9-to-1 down days followed by Tuesday’s sell-off.
In one sense, sentiment appears to be improving, with the market acting better on bad news, but from the statistical view sentiment has deteriorated. The Advisors Sentiment from Investors Intelligence (II) for the week ending Nov. 19 fell slightly to 55.7% from 56.2%, but the 56.2% was a 35-month high. The spread between bulls and bears is 34.1 and readings above 30% are dangerous, according to II.
Last week’s American Association of Individual Investors (AAII) Sentiment Survey shows that bulls jumped to 47.4% with a sharp decline in bears to 24.68%, and this too favors a more cautious approach to the market.
Much of the pressure on stocks is the result of a stronger dollar as investors flee the instability of the euro. If this recent rise turns out to be temporary and the greenback rolls over and retests its lows, a strong case for stocks and commodities could result.
But currently, the stock market and the world are caught in a daily ritual of “headline a day” (to borrow a phrase from S&P analyst Mark Arbeter). And until that cycle is broken or stocks break from the current narrow trading ranges, the near-term direction of the market is in doubt.
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Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
