Yesterday, another volatile day on Wall Street was capped by disappointing earnings and revenue shortages from utility, consumer and technology stocks.
From an opening gain, the Dow fell to a loss of more than 1% before a midday rally led by the financial stocks reversed the field and the gains extended into the afternoon. By 3 p.m., the major indices were struggling, but slightly ahead. However, late selling drove stocks back down, and by the close, the major indices showed modest losses.
But despite Thursday’s weakness, July has turned in a gain of more than 7%. And if it can hold on today, the month will be the best since July 2009.
Most of the afternoon selling seemed to stem from sharp declines in Europe and from the St. Louis Federal Reserve President James Bullard’s “suggestion that the U.S. was in danger of falling into a Japan-style deflation trap,” according to the Wall Street Journal.
Earnings of utility stocks had much to do with the early pressure on the market. Constellation Energy Group, Inc. (NYSE: CEG) fell 4.7% following earnings and a downgrade by one analyst. An EQT Corporation (NYSE: EQT) fell 2.6% after missing analysts’ expectations.
Colgate-Palmolive Company (NYSE: CL) and Kellogg Company (NYSE: K) led consumer staples lower following disappointing earnings. And a downgrade of CVS Caremark Corporation (NYSE: CVS) added pressure to the group’s performance.
Financial stocks kept the selling in the broad list from a deeper decline. Ameriprise Financial, Inc. (NYSE: AMP) jumped 12.3% following a double in Q2 earnings, and Citigroup Inc. (NYSE: C) rose 0.7% after agreeing to pay $75 million to settle regulatory charges with the SEC.
Initial jobless claims for the week of July 24 were 457,000 versus an expectation of 464,000. And continuing claims hit 4.57 million, up from 4.48 million the prior week.
At the close, the Dow Jones Industrial Average fell 31 points to 10,467, the S&P 500 was off 5 points to 1,102, and the Nasdaq was down 13 points to 2,252.
The NYSE traded 1.2 billion shares with slightly more decliners than advancers by 1.17-to-1. On the Nasdaq, 702 million shares traded, also with slightly more decliners than advancers.
Crude oil for delivery in September closed at $78.37 a barrel, up $1.38. The Energy Select Sector SPDR (NYSE: XLE) closed at $53.95, up 8 cents.
December gold rose $8.80 to settle at $1,171.20 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 0.77 points to 167.55.
What the Markets Are Saying
This week, the S&P 500 has been the focus of technicians for its failure to follow its companion indices higher and beyond several important technical barriers. As noted yesterday, this failure may seem minor, but to those who following the movement of the indices closely, any turn down by a major index like the S&P 500 could result in a turn down by the general market.
Yesterday’s deceptively mild weakness was not only the second day down for the indices, but for the S&P 500, it was a decisive turn from its 200-day moving average. And it came on a day in which the market swung violently from a mildly higher opening to a sharp sell-off, followed by another buying surge, and finally a sell-off on the close.
The turn lower produced a clear short-term sell signal from the stochastic. Volume picked up with the sell signal, and the result is that the charts appear to be forming a double-top at 1,117 to 1,120. If so, then the first support for the S&P 500 is at the 50- and 20-day moving averages now at 1,078 (20-day) to 1,080 (50-day).
The reversal was also confirmed by both the Dow Industrials and the Nasdaq. Initial support for the Dow is at 10,200. The Nasdaq’s first support is at yesterday’s low of 2,229, and then 2,200. A further penetration of these zones would put the bears in charge again.
The new AAII sentiment survey for July 29 shows an increase in bullish sentiment. The new reading is bulls 40%, up from 32.16%. Bearish sentiment dropped from 45.03% to 33.33%. This is a short-term negative for the market.
Buyers and sellers have been swinging from one extreme to the other this week. And the image I had was of black and white silent film in which passengers on a boat rushed from port to starboard rails again and again in a mad attempt to avoid being capsized. But over they went solely because of their panic.
Unless you are a trader, it is often better to stand aside and let the market work out its future course. Earnings appear to be improving, and by September or so, the ship may be on a more stable course.
Today’s Trading Landscape
Earnings to be reported before the opening include: American Axle, American Electric, Amerigroup, Aon, Apartment Investment & Management, Arch Coal, Belo, Bioscrip, Borg Warner, Brush Engineered Materials, CapitalSource, Chevron, CNA Surety, Coventry Health Care, Domtar, Endo Pharmaceuticals, Federal Signal, Fortune Brands, HMS Holdings, Interline Brands, ITT Industries, Louisiana-Pacific, McKesson, MDC Holdings, Merck, MoneyGram, Monotype Imaging, Moog, Newell Rubbermaid, Provident Financial, Public Service, Ruth’s Hospitality Group, Simon Properties, Ultra Petroleum, Volcano and Weyerhaeuser.
Earnings to be reported after the close include: Buenaventura SA.
Economic reports due: GDP (the consensus expects 2.5%), Employment Cost Index (the consensus expects 0.4%), Chicago PMI (the consensus expects 56), consumer sentiment (the consensus expects 67), and farm prices.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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