The European Union’s financial woes, a new investigation of Wall Street traders, and a terrorist threat against Germany initially drove stocks lower on Monday. But bargain hunters emerged late in the day, and the broad market closed with only modest losses.
Just as European leaders were focusing on a deal with Ireland to rescue it from its financial problems, two other euro zone members re-emerged with similar issues. Spain and Portugal leapt into the news again, and that caused some selling in the financial stocks and a drop in the euro.
The Wall Street Journal reported that the FBI raided offices of three hedge funds in pursuit of records relating to an “insider trading scam.” The Journal went on to say, “It is the brokerage and the investment bankers that are going to be the most likely targets of these investigations.” In response, the financials were hit and the sector fell 1.4%.
Technology stocks were the biggest gainers yesterday, up 0.6%. And semiconductor stocks led with SanDisk Corporation (NASDAQ: SNDK) up 6.48%, and Broadcom Corporation (NASDAQ: BRCM) up 2.04%. Netflix, Inc. (NASDAQ: NFLX) jumped 8.8% to a new high after offering its first streaming-only subscription plan in the United States. And Hewlett-Packard Company (NYSE: HPQ) rose 1.8% in anticipation of Q4 earnings after the close. It was the biggest gainer of the Dow stocks, and earnings beat estimates.
The 10-year Treasury note rallied following the news of further crises in Europe, driving its yield down to 2.813%. The euro fell to below $1.36 on the threat of another sovereign debt crisis in Portugal and Spain.
At the close, the Dow Jones Industrial Average fell 25 points to 11,179, the S&P 500 was down 2 points to 1,198, and the Nasdaq gained 14 points at 2,532. Volume on the NYSE totaled just 917 million shares, and 511 million shares traded on the Nasdaq. On both exchanges, advancers were slightly ahead of decliners.
Crude oil for December delivery fell 24 cents to $81.74 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell 22 cents to $63.39. December gGold rose $5.50 to settle at $1,357.80 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 2.36 points to 214.73.
What the Markets Are Saying
The standoff between the bulls and bears continued yesterday, with the 1,200 mark on the S&P 500 still at center stage. But Thursday’s reversal on all of the indices and their ability to successfully survive a test of their respective 50-day moving averages, gives an edge to the bulls.
Yesterday’s volume was very light, falling below the 1 billion share mark on the NYSE. However, with a major holiday this week, such a decline is of little significance and neither are the breakeven breadth numbers. It would, however, be a pleasant surprise to have the S&P break above the stubborn resistance at 1,200 before the holiday and put to rest the current standoff with a burst of bullish energy.
In times when the stock market itself is offering few technical clues as to its next move, it is often useful to consider other indicators. One thing that has a direct bearing on future stock prices is the value of the U.S. dollar versus a basket of currencies. Our Trade of the Day has featured the PowerShares US Dollar Index Bullish Fund (NYSE: UUP) several times this year, noting that it is a contra indicator.
On Oct. 16, I quoted Mark Arbeter of S&P: “One of the main catalysts for strength of the markets of late has been the consistent downtrend in the U.S. Dollar Index. We think a counter-trend rally in the dollar is approaching and believe this will take away some fuel from the rally.”
UUP made a low coincident with the dollar on Nov. 4, one day prior to the November high in the S&P 500. Yesterday Arbeter pointed out that the rally in the dollar may be coming to an end, and that “a resumption of the longer-term downtrend is quickly approaching.” He believes that the recent low will be penetrated and that the dollar will fall to its 2009 low. If so, then the recent dollar rally to just above its 50-day moving average is approaching a top. On Friday, UUP’s stochastic issued a strong sell signal. This is another plus for stock market bulls.
The evidence for a bullish stance is gaining momentum, so any retracement of stock prices should be viewed as a buying opportunity.
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.
