If Monday’s huge rally seemed overdone, the market agreed with you yesterday. Profit-taking dominated the day, along with questions regarding the practicality of the Treasury’s new plan to revive the financial system and the huge deficits dominated the news.
Stocks were down for most of the session but the market fell almost 100 points in the last half hour of trading, led by the banks and other financials.
Testimony by Treasury Secretary Tim Geithner and Fed Chairman Ben Bernanke did little to assuage investors’ concerns; they spent much of their testimony focusing on the American Insurance Group (AIG) bailout and ways to limit executive compensation — egged on by committee members who seemed determined to capture the spotlight.
And if there wasn’t enough to worry investors, China proposed that a new world currency replace the U.S. dollar as the world’s standard. The comments were made by China’s central bank governor in an essay released Monday. The proposal is being made just prior to a meeting of the Group of 20 in London next week and could receive the backing of Russia and underdeveloped countries.
The Securities and Exchange Commission (SEC) is considering modifying the uptick rules. The New York Stock Exchange and the Nasdaq (NASD) have suggested that the rule be reviewed in light of recent “piling on” by some hedge funds.
At the close, the Dow (DJI) was down 116 points to 7,660, the S&P 500 (SPX) fell 17 points to 806 and the Nasdaq (NASD) was off 39 points, closing at 1,516.
The NYSE traded 1.6 billion shares with decliners ahead of advancers by over 2-to-1. On the Nasdaq, 672 million shares traded with decliners ahead by 8-to-5.
>
What the Markets Are Saying
While several technicians expressed confidence on Monday that the market’s ability to close above S&P 500 (SPX) 800 was a positive, yesterday they weren’t sure that the market can hold above that psychologically important number. And the market’s inability to move strongly into the zone north of 820 must also give them pause.
So the rally appears to be running out of steam and the ball is now passed back to the bears. Their strength is in the very overbought internal indicators.
Both the Moving Average Convergence/Divergence (MACD) and the slow stochastic are at levels equal to or greater than the key downside reversals in May 2008 and October 2007.
If buyers are not able to marshal their forces shortly, then the next support for the S&P 500 is at the 20-day moving average at 743, which also happens to be the bottom of the 742 – 780 trading island mentioned in earlier Daily Trader’s Alerts.
Today’s Trading Landscape
Earnings to be reported include: ADA ES, Antares Pharma, Citi Trends, CKE Restaurants, CPI Aerostructures, DryShips, DSW, Gainsco, Gammon Gold, Paychex, PetroChina Co Ltd, Pfeiffer Vacuum Technology Ag, Queenco Leisure Int’l Ltd, Red Hat, SAIC, Signet Jewelers Ltd, Solarfun Power Holdings Co Ltd, and WuXi PharmaTech Co Ltd.
The following economic reports are due today: Mortgage Applications Refinance Index, February Durable Goods Orders (the consensus expects a 1.6% drop), February New Home Sales (the consensus expects a 3.6% decrease), and U.S. Energy Dept. Oil Inventories for March 20.
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.
