Like many sessions over the past six months, yesterday stocks reacted inversely to the direction of the U.S. dollar. The difference, however, was that instead of the greenback falling and stocks rising, the tables were turned with the dollar closing sharply higher while stocks fell. It was the third straight gain for the dollar, and some analysts even proclaimed that a bottom had been established.
Like Tuesday, financials were hit hard again, off 2.2%. Part of the decline in financial stocks was due to the bankruptcy of Ambac Financial Group, Inc. (NYSE: ABK). Dow members JPMorgan Chase & Co. (NYSE: JPM), American Express Company (NYSE: AXP) and Bank of America Corporation (NYSE: BAC) all suffered declines.
Precious metals stocks were strong early in the day, but gave back a large portion of the gains following the close of the futures markets. However, despite profit taking, the CRB Commodity Index rose 1.2% to a new two-year high.
Treasurys were lower with the 10-year note’s yield rising to 2.66% and the 30-year to 4.25%. The dollar rallied late in the day, driving down the euro, yen and sterling. The euro closed at $1.3778, down from $1.3923 on Monday.
At the close, the Dow Jones Industrial Average was off 60 points at 11,347, the S&P 500 fell 10 points to 1,213, and the Nasdaq was down 17 points to 2,563. The NYSE traded 1.1 billion shares with decliners over advancers by 2.7-to-1. The Nasdaq crossed 586 million shares and decliners there were ahead by 2.5-to-1.
Crude oil for December delivery fell 34 cents to $86.72 a barrel due to the reversal of the dollar. The Energy Select Sector SPDR (NYSE: XLE) fell 12 cents to $62.38. December gold fell from its highs, but closed up $6.90 at $1,410.10 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell 5.80 points to 214.37.
What the Markets Are Saying
Nothing goes up forever, and yesterday’s profit-taking resulted in an across-the-board pullback. The S&P 500 was the only index to penetrate its first line of support, the closing high of 1,217 made in late April. But like the other indices, the support band just below at 1,174-1,210 is broad and deep enough to contain most normal selling.
There has been a strong focus on the precious metals group, and I featured a silver ETF and a gold ETF in this week’s Trade of the Day section. Both recommendations were made with the caveat that the sector was extremely overbought. And I said that it was best to take a half position while waiting for a pullback to take a full position.
Yesterday’s late reversals resulted in a minus day for many of the precious metals funds. They all reacted to some late profit-taking, but in several cases the selling became frenzied. For the iShares Silver Trust (NYSE: SLV), this resulted in a 97-cent loss, closing at $26.18, but following a new high at $28.72. If further weakness develops this morning, buyers may want to jump aboard SLV, especially if it gets close to the open gap at just under $25.
Barring a reversal that takes the S&P through its major support at 1,200, we can use this pullback as the buying opportunity that we had hoped for. The favorite groups are still technology and precious metals stocks. But manufacturing and solid dividend-paying blue chips should also be on the list for buyers of quality issues. For one dividend stock to buy, see the Trade of the Day.
Favorite stocks to buy would include:
- SPDR Gold Trust (NYSE: GLD) under $133
- Barrick Gold Corporation (NYSE: ABX) under $49.50
- iShares Silver Trust (NYSE: SLV) under $25
- PowerShares DB Precious Metals Fund (NYSE: DBP) under $48
- Global X Silver Miners (NYSE: SIL) under $22
- Cliffs Natural Resources Inc. (NYSE: CLF) under $65
- AmerisourceBergen Corp. (NYSE: ABC) under $30
- Akamai Technologies, Inc. (NASDAQ: AKAM) under $47
- JetBlue Airways Corporation (NASDAQ: JBLU) under $6.80
- Ford Motor Company (NYSE: F) under $15
- International Business Machines Corp. (NYSE: IBM) under $140
- Motorola, Inc. (NYSE: MOT) under $8
- Direxion Emerging Markets Bull 3X Shares ETF (NYSE: EDC) under $38
- TICC Capital Corp. (NASDAQ: TICC) under $10.50
- Triangle Capital Corporation (NASDAQ: TCAP) under $16.50
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
