Editor’s Note: Due the President’s Day market holiday on Monday, Feb. 16, the next issue of The Daily Trader’s Alert will be available Tuesday, Feb. 17.
Stocks appeared headed to new lows Thursday when a late-day reversal turned the tide.
The rebound that occurred in the last 30 minutes of trading and turned a potential 3%-plus loss into a gain was prompted by word that the Obama administration is working on a plan to provide aid to homeowners struggling to make mortgage payments.
Earlier, financial stocks were the subject of heavy selling and, at one point, the sector was down more than 5%. But the late buying turned the tables and the group recovered most of the early losses.
Nevertheless, more than a few analysts were skeptical of the rally, even though an earlier report of better-than-expected retail sales was a pleasant surprise. But it was clear from the market’s response that it wasn’t retail sales that troubled stockholders but the economic stimulus plan and the lack of clarity in the bank rescue plan.
Despite the early losses, there were some positive earnings surprises: Coca-Cola (KO), Waste Management (WMI), and Network Appliances (NTAP) beat estimates. But overall, earnings had little impact on the day’s results.
At the close, the Dow Jones Industrial Average (DJI) fell seven points to 7,933. The S&P 500 (SPX) gained a point, closing at 835, and the Nasdaq (NASD) rose 11 points to 1,542.
The New York Stock Exchange traded 1.5 billion shares, with decliners ahead by 8-to-7, and the Nasdaq traded 953 million shares, with advancers slightly ahead of decliners.
The March crude oil contract fell $1.96 to $33.98 a barrel as rising inventories and worries over the economy took their toll on prices. The Amex Energy SPDR (XLE) rose 8 cents to $46.88.
Gold (February contract) rose $4.70 to $948.50 an ounce for its third-straight gain, and the PHLX Gold/Silver Index (XAU) closed at $132.93, up 79 cents.
What the Markets Are Saying
On Thursday, stocks opened sharply lower, with the financial sector caught in a wave of selling. And in the afternoon the selling accelerated as it began to envelope the entire market, driving into the heart of the major support zone of the S&P 500 (SPX) at 800 to 820.
With one hour left to go in the session, the broader index was at 810 and falling rapidly. It seemed inevitable that the day would end with a major breakdown and a rush to the November low at 752.
But a story from Reuters that the Obama administration is working on a plan to subsidize mortgage payments and stem foreclosures — and thus stop bank write-downs — turned the tide.
Within 40 minutes, the S&P took back all of its losses, closing at 835.19, up 1.45. Only the Dow (DJI) failed to make it to a gain, but the Nasdaq (NASD) and the NYSE Composite (NYA) both reversed course in a dramatic show of strength from a market that has absorbed almost unprecedented amounts of bad news.
Technically it doesn’t get more dramatic than this, as the cavalry again arrived just in the nick of time. So, another week ends with the market’s major support zone still intact and the bears wondering what it will take to penetrate that final stronghold of the bulls.
Today’s Trading Landscape
Earnings of note to be reported include: Abercrombie & Fitch (ANF), ATA Inc. (ATAI), Brookfield Asset Management (BAM), Cameco (CCJ), Cognizant Technology Solutions (CTSH) and Enbridge (EEP).
MFA Financial (MFA), Nordic American Tanker (NAT), NorthWestern Corp (NWE), PepsiCo (PEP), Standard Pacific Corp (SPF), Telus (TU), Wyndham Worldwide (WYN) and Xenonics Holdings (XNN).
The lone economic report due today is the Mid-February Reuters/University of Michigan Sentiment Index (the consensus expects 60.0).
According to Congressman Steny Hoyer (D-Md.), the U.S. House of Representatives and the Senate are expected to vote later today on the economic stimulus plan according to Congressman Hoyer. PepsiCo (PEP) reported Q4 earnings of 46 cents a share versus an expected 88 cents.
Get Sam Collins’ Daily Trader’s Alert e-mailed straight to your inbox each morning before the opening bell absolutely FREE!
In addition to getting instant access to his Daily Market Outlook, you’ll also receive, in the same e-mail, his Trade of the Day so you can start your day off right by positioning yourself for profits!
Click here today to sign up today for Sam’s FREE Daily Trader’s Alert!
Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
