Thursday’s markets opened strong on a string of solid earnings, but with little further news — other than Chrysler’s bankruptcy — prices sagged.
The early leading groups were the industrials and materials, but by late morning, it seemed that buyers had decided to take a long weekend. Then entered sellers who took charge of eliminating any gains in the financial and energy stocks and they led the market to the final bell.
Exxon-Mobil (XOM) fell 2.6% and Chevron (CVX) was off 2.16%. XOM reported Q1 earnings of 92 cents vs. analysts’ expectations of 98 cents a share.
Even though April turned in one of the best performances, up 7.3% for the Dow (DJI), the selling at the close yesterday left many traders with an uncomfortable feeling that the selling might continue. The saying, “sell in May and go away” was not what they wanted to hear as the old month was put to sleep.
At the close, the Dow Jones Industrial Average (DJI) was off 18 points to 8,168, the S&P 500 (SPX) fell a point to 873, and the Nasdaq (NASD) rose five points to 1,717.
The New York Stock Exchange traded 1.7 billion shares with advancers ahead of decliners by 4-to-3. On the Nasdaq, 967 million shares traded and advancers and decliners were perfectly even — at 1,352 up and 1,352 down.
The June crude oil contract rose 15 cents to $51.12 a barrel, and the Amex Energy SPDR (XLE) fell 77 cents to $66.10.
Gold for June delivery fell $9.30 to $891.20 an ounce. The PHLX Gold/Silver Index (XAU) lost $2.64, closing at $120.02.
What the Markets Are Saying
It now looks like the March low in the S&P 500 (SPX) at 667 and the other major indices is the low, and even though we are technically still in a bear market, 667 will probably hold any test. But no market goes up forever and after almost seven weeks of solid buying, a correction — and therefore a “test”– is overdue.
We have finally reached a point where momentum has almost ground to a halt. And just as the “500” entered the thick zone of key resistance at 875 to 920, two sell signals were triggered — a Moving Average Convergence/Divergence (MACD) sell on April 21 and a preliminary Collins-Bollinger Reversal (CBR) sell yesterday.
A CBR signal can take up to five days to be confirmed, but the bulls should be very cautious. In fact, now is an excellent time to cash in on any short-term trading gains.
If these signals turn out to be accurate, the S&P should slide under the short-term trend line at 875 and the 20-day moving average (green line) at 850 and head for the first support zone at 800 to 820.
And if that area doesn’t hold, then the next level is at 775, which would be a full 50% correction of the March to April rally. These support zones are the places to enter new long positions.
Today’s Trading Landscape
Earnings to be reported include: Allergan, Allete, Ameren Corp, Aon Corp, Apartment Investment & Management, Balchem, Blount Int’l, Brookfield Properties Corp, Cameco, Ceragon Networks Ltd, Chevron, Clorox, CNA Surety, CompX Int’l and Consolidated Edison.
Dean Foods, Domtar Corp, Dorman Products, EMS Technologies, Endeavour Int’l Corp, Energy Future Holdings, Federal Signal, FLIR Systems, Fortune Brands, Great Southern Bancorp, HMS Holdings Corp, Interline Brands, James River Coal Co, Kaydon, K-Sea Transportation Partners LP, LifePoint Hospitals, MasterCard, MDU Resources, Nicor, NiSource and OneBeacon Insurance Group.
Par Technology, Pericom Semiconductor, PHH Corp, PNM Resources, Provident Financial Services, Republic Services, Simon Property Group, T-3 Energy Services, The Washington Post Co, TransCanada Corp, United Therapeutics, and Viad Corp.
Economic reports due: End-of-April Reuters/University of Michigan Sentiment Index (the consensus expects 61.9), April Institute for Supply Management (ISM) Manufacturing Index (the consensus expects 38.3), and March Factory Orders (the consensus expects negative 0.5%).
Late news: Amerigroup’s (AGP) Q1 earnings rose to 69 cents a share versus an estimate of 51 cents and Teco Energy (TE) reported 16 cents versus an expected 15 cents. PPL Corp. (PPL) reported 60 cents versus an expected 46 cents 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.
