On Friday a combination of profit-taking, lower commodities prices, and negative comments from the heads of several major banks resulted in a negative day for the stock market.
Following the well-publicized meeting with President Obama, Jamie Dimon of JPMorgan (JPM) said that the banking crisis may still have some surprises for later this year. Dimon also noted that March had been even tougher for the bank than January and February, and others at the meeting were quoted as saying the same. With that, JPM closed lower by almost 6%. Citigroup (C) fell more than 6% and Goldman Sachs (GS) was off almost 4%.
Oil fell 3.6%, again from the impact of profit-taking following a big gain for March. But in other commodities markets, The Wall Street Journal referred to several traders who thought that the “bounce in raw materials prices will continue for awhile.”
Several mutual funds referred to selling for profits for the quarter that ends on Tuesday. And with that, the Dow Jones Industrial Average (DJI) closed at 7,776 off 148 points, the S&P 500 (SPX) fell 17 points to 816, and the Nasdaq (NASD) was down 42 points, closing at 1,545.
The New York Stock Exchange traded 1.4 billion shares with decliners ahead of advancers by over 3-to-1. The Nasdaq’s volume was slightly more than seven million shares and decliners there exceeded advancers by just under 3-to-1.
For the week and year, the Dow was up 6.8% and down 11.4%, respectively. Likewise, the S&P 500 was up 6.2% and down 9.7%, and Nasdaq was up 6.0% and down 2.0%.
On Friday, the May crude oil contract fell $1.96 to $52.38 a barrel, and the Amex Energy SPDR (XLE) closed at $44.47, off $1.36.
A stronger dollar had a negative impact on gold, with the April contract falling $16.70 to end at $923.20 an ounce. The PHLX Gold/Silver Index (XAU) was hit for a minus $4.29, closing at $136.14.
What the Markets Are Saying
Most technicians agree that the rally from the January lows is now over-extended and, whether you are basing the resistance on Fibonacci numbers at S&P 500 (SPX) 833 or 838, or various support and resistance lines at 836 to 850, or internal indicators, you would have to be an over-enthusiastic bull to take many new positions now.
Even though the downside volume shrank to just 1.4 billion shares on Friday on the Big Board, there is other evidence to suggest that the current rally has already topped or is about to. The two leading sectors, financials and technology, are both grossly overbought at a time when history tells us that overbought sectors are subject to dramatic reversals — at the end of a quarter.
Once the correction gets underway, the most likely targets for a pullback are supplied by the Fibonacci numbers. A 50% pullback from the January low to the current high targets S&P 500 (SPX) 752 as the most likely number, but a sell-off could take the S&P to as low as 734, which would represent a 61.8% pullback.
Finally, corrections often take place when technically overbought markets run into a major negative news. The White House’s decision to withhold further bailout money could be the news that triggers the long-awaited sell-off.
Today’s Trading Landscape
Earnings to be reported include: Arotech Corp, Cal-Maine Foods, China Petroleum & Chemical, Chunghwa Telecom Co Ltd, Community Bankers Trust Corp, Enterra Energy Trust, Forest City Enterprises, Full House Resorts, Hong Kong Highpower Tech, Industrie Natuzzi, Jinpan, Layne Christensen, Oxford Industries, Pharmathene, Votorantim Celulose e Papel S.A., and Zagg.
The lone economic report dues is the February Dallas Fed Manufacturing Production Index.
Late news: The White House auto taskforce has rejected the plans of the automakers and has forced General Motors (GM) chairman Rick Wagoner out, given GM 60 days to restructure, and given Chrysler 30 days to work out a deal with Fiat.
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.
