On Tuesday, the stock market had its worst day of the year as riots in Libya resulted in a threat to cut the supply of Middle East oil at a time when the economic impact could be severe. Even though consumer confidence hit a three-year high, it had little impact on the market’s direction, and the major indices closed just slightly higher than their intraday lows.
Daily Stock Market News
Dow: -178 points at 12,213
S&P 500: -28 points at 1,315
Nasdaq: -78 points at 2,756
Volume and Breadth
NYSE: 1.3 billion shares traded; decliners ahead 5.8-to-1
Nasdaq: 646 million shares traded; decliners ahead 6-to-1
Futures and Related ETFs
March Crude Oil: +$7.62 at $93.82 per barrel; Energy Select Sector SPDR (NYSE: XLE) -75 cents at $76.27
April Gold: +$12.50 at $1,401.10 per ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU) -3.2 points at 109.25
What the Markets Are Saying
In a way, despite a big triple-digit day of selling, it was a relief to see investors react in a more logical manner following a period when nothing seemed to stand in the way of a consistent stream of new highs.
As noted, the market has been driven higher by QE2. Nevertheless, history tells us that not even the Fed can control markets indefinitely. Eventually, a secondary driving force, like the Fed, runs out of money and the real trend asserts itself. Last week was especially maddening as buyers drove stocks higher for the third consecutive week while ignoring major uprisings in countries that have been friendly to America. But it took just a weekend of rioting in a country that produces about 10% of the oil shipments from the area to send stocks off the cliff.
Yesterday may have shaken some stock owners from their lethargy, and so we will probably get more selling today, especially if Libya cuts oil shipments. But even yesterday’s selling, with the exception of the Nasdaq, has failed to signal that a major reversal is about to occur. From a technical standpoint, the other indices (S&P and Dow) stopped short of issuing a signal by closing just above the first area of support — the 20-day moving average lines.
However, the alarm has been sounded. Volume expanded rapidly and the Nasdaq, which has led stocks higher for months, closed below its 20-day moving average. Its next support line is the 50-day moving average, which has moved up to 2,719, coinciding with a support line that connects to a double-top back in 2007. In other words, this line is important since a close below it would target 2,670 and result a change in the intermediate trend of the index.
Contractions following a big run can be nasty affairs that wipe out gains in days that took weeks to achieve. Therefore, it is necessary to go to a defensive strategy until the crisis releases its grip on the markets. And there will be some excellent opportunities, especially in the domestic energy area, of which traders and investors should take advantage. (For one, see the Trade of the Day.)
But, until further notice, most other investments should be put on hold. I have a notion that we will see a great opportunity to buy stocks at much lower prices, especially if the price of crude oil pushes gasoline to over $4 per gallon.
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.
