After an initial push from a less-than-expected jobless claims number Thursday, which opened the Dow (DJI) 60 points higher, profit-taking controlled the remainder of the day. So, by the time a disappointing Treasury auction hit the Street, stocks were already tumbling.
Most of the selling was in the financial and technology sectors with Cisco (CSCO) leading the techs lower, down 3.37%. But the financial stocks seemed to swoon from fear of what might not yet have been leaked about the “stress tests.” So, what began for the group as a gain of 3.5% turned into a loss of 3.5%.
After the close, the government revealed that the banks will have to come up with an additional combined $75 billion, but everyone seemed pleased with the result and in after-hours trading, the financials were much higher.
Retail stocks were the subject of selling even though giant Wal-Mart (WMT) reported that same-store sales increased 5% in April. But the retailer’s management said that it will no longer provide monthly sales results in the future.
At the close, the Dow Jones Industrial Average (DJI) was down 102 points to 8,410, the S&P 500 (SPX) fell 12 points to 907, and the Nasdaq (NASD) lost 43 points to close at 1,716.
Volume picked up with the New York Stock Exchange, trading almost 2 billion shares and the Nasdaq trading more than 1 billion. On both exchanges decliners were ahead of advancers by over 2-to-1.
Crude oil (June contract) closed at $56.71 a barrel, up 37 cents, and the Amex Energy SPDR (XLE) fell 65 cents to $49.72.
The June gold contract gained $4.50 to $915.50 an ounce after the European Central Bank (ECB) cut its benchmark rate to a record low of 1% and that brought renewed worries of inflation. The PHLX Gold/Silver Index (XAU) fell $1.81 to $133.68.
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What the Markets Are Saying
Yesterday’s pullbacks on the major indices may seem small but they could be significant.
First, the selling was led by the two stock-market leaders of the past seven weeks, the technology and financial stocks. The day ended with reversals down in both sectors punctuated by signals from our own Collins-Bollinger Reversal (CBR) internal indicator.
The signal on the Financial SPDR (XLF) occurred just as it entered the crucial resistance zone at $13 – $14 and, as it reversed, it picked up a significant amount of selling volume. No doubt much of the selling was just profit-taking in advance of the stress test findings and all could be corrected this morning with fresh buying. If that buying pokes through yesterday’s highs, look for a dynamic upside breakout.
But, along with the financial stocks and the techs, the S&P 500 (SPX) reversed, as well. And volume during a down day on the NYSE was about 2 billion shares for the first time in weeks. Meanwhile, the internal indicators are overbought but not excessively so while the sentiment indicators are flat and the CBOE Volatility Index (VIX) is at a favorable 33.44 .
As I said, yesterday’s reversals could all be corrected in short order. But for now, I’d rather sit this one out until the big buy signal is given.
Today’s Trading Landscape
Earnings to be reported: Aceto, Arbor Realty Trust, Arena Resources, Beacon Roofing Supply, Beazer Homes USA, Berkshire Hathaway, Bronco Drilling Co, BRT Realty Trust, Calpine Corp, Central Vermont Public Service, Cogent Communications, Coleman Cable, Compass Diversified Holdings, Constellation Energy Partners LLC, Crosstex Energy, Crosstex Energy LP, Edison Int’l, El Paso Corp, El Paso Pipeline Partners LP, Enerplus Resources Fund, Environmental Power, Evergreen Energy and Female Health.
Gartner, Gray Television, Halozyme, Harry & David Holdings, Harvest Natural Resources, Hooper Holmes, Huntsman Corp, ICO, inVentiv Health, Johnson Outdoors, K12, Kingsway Financial Services, Liberty Media Corp, LMI Aerospace, LTC Properties, Magnetek, Marlin Business Services Corp, MCG Capital Corp, MDC Holdings, Metalico, Metrogas S.A., MI Developments and Mirant.
Natural Gas Services Group, Newcastle Investment Corp, Nortel Inversora, Northgate Minerals Corp, Orix, Petroleum Development, Reis, Repsol YPF, Scripps Networks Interactive, Sonic Automotive, Star Gas Partners, Sunrise Senior Living, Superior Industries, Toyota Motor Corp, U.S. Global Investors, U.S. Gold Corp, Vanguard Natural Resources LLC, VNUS Medical Technologies, Westar Energy, and Windstream Communications.
In terms of economic reports, April non-farm payrolls (the consensus expects a drop of 628,000), April unemployment rate, and March Wholesale Trade (the consensus expects negative 1.0%) are all due.
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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.
