Editor’s Note: Sam Collins is expected to return this week with his Daily Market Outlook and Chart of the Day.
Today, OptionsZone Contributing Editor Jamie Dlugosch shares his market commentary, which you can find here.
Wednesday, the stock market spent most of the day overcoming an opening plunge in prices that bottomed at around 11 a.m. EST.
The weak opening was attributed to investors’ response to the president’s state of the economy message and a National Association of Realtors’ report of weak existing home sales. But financial stocks, which shouldered the brunt of President Barack Obama’s attack on Wall Street, followed the decline with a rally that lasted most of the day.
With 30 minutes left in the trading session, the Dow (DJI) was at its high of the day, up around 50 points with upside volume picking up. It looked like we would get the second day up following six days down. But it was not to be.
Since Obama’s inauguration, the market seems to have responded negatively to the president’s rhetoric and yesterday was no exception. Within seconds of a White House alert that the president and his chief economic advisors would make an important announcement, stocks headed south. And by the time that President Obama — flanked by his team — began the address at 3:50 p.m. EST, the Dow had given up more than 100 points, with investors fearful that the team had decided on a major policy shift.
But with the sound of cameras clicking and the press corps hanging on every word, the briefing contained nothing more than details of regulators’ tests of banks’ ability to survive along with goals of the team as they struggle to wrap their collective wits around the complexities of the process of regulation. And all of this was pre-announced earlier in the day.
The markets are nervous and, after any rally, there has been a tendency on the part of traders and investors to exit with their profits.
With that in mind, perhaps the White House team should be more mindful of harm done by making “important announcement” alerts on the economy in the last 15 minutes, or even the last hour of trading — especially those of a routine nature, although they may seem of earth-shattering importance to them.
In other news, Lincoln Financial (LNC) and Allstate (ALL) cut their dividends. And The Wall Street Journal said that Wells Fargo (WFC) should also do the same “in order to help improve the bank’s capital ratios.”
At the close, the Dow Jones Industrial Average (DJI) was down 80 points at 7,271, the S&P 500 (SPX) lost eight points, closing at 765, and the Nasdaq (NASD) fell 16 points to 1,425.
The New York Stock Exchange traded 1.8 billion shares, with decliners ahead of advancers by 3-to-2. The Nasdaq traded 944 million shares, with decliners ahead by just over 2-to-1.
The April crude oil rose $2.54 to $42.50 a barrel and the Amex Energy SPDR (XLE) closed at $42.05, off 25 cents. The XLE found support at Monday’s low of $40.28, which matches lows of October, November, and December — all at around $40. Expect a rally to around $50.
The April gold contract fell for the third day in a row, ending at $966.20, off $3.30. The PHLX Gold/Silver Index (XAU) closed at $118.00, down $1.24.
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What the Markets Are Saying
Despite the poor timing of the White House’s news conference, which spooked traders into a flurry of profit-taking, Wednesday’s small correction did little to change Tuesday’s upside reversal and the probability of further buying.
The volume was somewhat higher than normal, but most of that occurred before 3:30 p.m. Eastern resulting from two afternoon rallies — one from Dow (DJI) 7,187 to 7,332 and S&P 500 (SPX) 754 to 771, and the other from Dow 7,218 to 7,404 (S&P 759 to 780).
In their mid-week technical notes, Standard & Poor’s said they expects a “counter trend rally” (a move up) to develop shortly and observes that the market has cycled into oversold territory on both momentum and “internal basis.” They noted that earlier this week, the S&P 500 (SPX) was more than 13% below its 65-day moving average, which matches the October oversold numbers. They think that the SPX could rally to the 805 to 825 area, and even though my numbers have a broader range of 750 to 875, we are in basic agreement regarding the high probability of an impending rally.
Pullbacks today should be contained at around the Dow 7,230 and S&P 760, but could extend down to Dow 7,155 and S&P 755. A daily upside breakout would occur with the indices breaking yesterday’s highs and the immediate trading target for that would be a band extending from Dow 7,480 to 7,620 and S&P 780 to 797.
The market is very nervous and, except for extreme pullbacks, is not generally suited for longer-term investors.
For that reason, I’ve included the above numbers for traders who may want to work on quick turnaround trades and avoid the risk of holding stocks and Exchange-Traded Funds (ETFs) for any more than a few days. It is important to not get caught up in the notion that the market has permanently turned until there is evidence that the current rally is nothing more than a solid bounce in a bear market.
Today’s Trading Landscape
Earnings to be reported include: ACI Worldwide, Affinion Group Holdings, Agree Realty, AirMedia Group, Allianz SE, American Dental Partners, American Tower Corp, AMN Healthcare Services, Anadys Pharmaceuticals, Ansys, Armstrong World Industries, Athenahealth, Autodesk and Axesstel.
Bare Escentuals, Basic Energy Services, BGC Partners, Big 5 Sporting Goods Corp, Bio-Rad Laboratories, Biovail Corp, Blonder Tongue Laboratories, Blue Coat Systems, Boyd Gaming and British American Tobacco.
Cablevision Systems Corp, Canadian Imperial Bank of Commerce, Caplease, Carriage Services, Cbeyond, CDI Corp, CGGVeritas, Checkpoint Systems, Cinemark Holdings, Cleco Corp, Cogent Communications, Comfort Systems USA, CommScope, Continental Resources, Cooper Tire & Rubber, Cott Corp, Covanta Holding Corp, CTC Media and Cubic.
Deckers Outdoor, Dell, Digital Realty Trust, DPL, DTS, Duff & Phelps Corp, Dynegy, El Paso Corp, El Paso Pipeline Partners L.P., Emcor Group, Employers Holdings, Enerplus Resources Fund, Ensco Int’l, Entravision Communications Corp, eResearch Technology, Erie Indemnity, Esterline Technologies and Exterran Holdings.
Federal Signal, FelCor Lodging Trust, Femsa, Frontier Oil, Frontline Ltd, Gap, Genco Shipping & Trading Ltd, General Motors Corp, Genoptix, Global Cash Access, Global Industries, Gran Tierra Energy, Graphic Packaging Holding Co, Great Lakes Dredge & Dock Corp and Grupo Aeroportuario Del Pacifico SA.
Hansen Natural, Harvard Bioscience, Hersha Hospitality Trust, HRPT Properties Trust, Hughes Communications, Huntsman Corp, I-Flow, Impax Laboratories, Indosat, Insituform Technologies, InterMune, Internet Gold, inVentiv Health, ION Geophysical Corp, Iron Mountain and iStar Financial.
Key Energy Services, King Pharmaceuticals, Kohls Corp, Lamar Advertising Co, Leap Wireless Int’l, Limelight Networks, Limited Brands, Linn Energy LLC, LKQ Corp, Macquarie Infrastructure Co, Mariner Energy, Mentor Graphics, Met-Pro, MetroPCS Communications, Mine Safety Appliances, Mobile Mini, MoneyGram Int’l and MSC Software.
Nanosphere, Natus Medical, NII Holdings, Novatel Wireless, Novell, Ntelos Holdings Corp, OM Group, Omnicare, Omnivision Technologies, Online Resources Corp, Orient-Express Hotels, Outdoor Channel Holdings, PC-Tel, Pioneer Drilling Co, Public Storage and Quanex.
RAIT Financial Trust, Redwood Trust, Regeneron Pharmaceuticals, Repsol YPF, Ritchie Bros. Auctioneers, Rowan Companies and Royal Bank of Canada.
Safeway, Sanderson Farms, SandRidge Energy, SBA Communications, Scientific Games Corp, Senior Housing Properties Trust, Shanda Interactive Entertainment Ltd, Siem Offshore, Smart Balance, Sotheby’s, Sourcefire, SourceForge, South Jersey Industries, Southern Union Co, Southwest Gas, Southwestern Energy, Stantec, StarTek, Stereotaxis, Strategic Hotels and Resorts and Superior Industries.
TAL International Group, Telefonica S.A., Telephone Data, Telvent, Tesco, The First American Corp, The Nasdaq OMX Group, Titan Int’l, UniSource Energy, Universal Health Services, U-Store-It Trust, Vina Concha y Toro S.A., Vonage Holdings Corp, W&T Offshore, W.P. Carey & Co LLC, Warnaco Group, Wilmar Int’l Ltd, and World Fuel Services Corp.
The following economic reports are due today: initial jobless claims for the week of Feb. 21, January durable goods orders (the consensus expects a loss of 2.5%), December new home sales (the consensus expects an 1.8% drop), DJ-BTMU Business Barometer for Feb. 13, and EIA Natural Gas Inventories for Feb. 20.
General Motors (GM) reported Q4 loss of $9.6 billion or $15.71 a share.
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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.
