Even after Thursday’s drubbing, all that the major indices could accomplish yesterday was a mixed close in which the defensive stocks made some headway. Stocks opened lower extending last week’s losses and reacting to selling in foreign markets.
However, a better-than-expected ISM Services Index for June turned stocks up from their lows of the day. The index came in at 47, up from 44 in May, and has moved higher for the last three months. But as long as the index is below 50, it is interpreted to mean that activity is still contracting.
Among the blue chips, American Express (AXP) rose 5.6% on an analyst’s upgrade, and Merck (MRK) was up 3.3% along with other health care stocks. Procter & Gamble (PG) gained 2.1%, and Kraft Foods (KFT) was ahead 1.9%.
AT&T (T) and Verizon (VZ) gained despite reports that the Department of Justice is reviewing whether the telecom giants abused their market power in recent years. The Dow Industrials gained 0.5%.
Most of the day’s declines were energy related in reaction to a 4.02% drop in crude futures. Metals were also down. And materials stocks finished 0.7% lower with steel stocks off 3.4% and metals and miners down 7.7%.
Alcoa (AA) fell to its lowest level in a month in advance of its Q2 earnings on Wednesday.
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At the close, the Dow Jones Industrial Average (DJI) gained 44 points to 8,325, the S&P 500 (SPX) rose 2 points to 899, and Nasdaq (NASD) fell 9 points to 1,787.
Volume was again low with the NYSE trading just 1.1 billion shares and Nasdaq trading 637 million shares. On the Big Board decliners were ahead of advancers by 3-to-2, and on Nasdaq decliners were ahead by 5-to-3.
Crude oil for delivery in August fell $2.68 to $64.05 a barrel, and the Energy Select Sector SPDR (XLE) fell 47 cents to $45.69, both on renewed economic worries.
August gold fell $6.70 to $924.30 an ounce on strength in the U.S. dollar.
What the Markets Are Saying
Yesterday’s bounce was puny from a breadth and volume standpoint, but, nonetheless, it was a bounce. The intraday low of the S&P 500 penetrated the neckline of the much-discussed head-and-shoulders top and executed a minor reversal.
The reversal could result in a couple of plus days as bargain-hunters work the peripheral issues. But so far there is evidence that the decline that started in early June has formed a base. And even if the right shoulder of the formation doesn’t break this week, chances are that it will give way soon.
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Yesterday, I identified the supporting neckline of the formation as 888, but that’s an estimate. Others are saying 879 to 888, but it makes little difference since what we should look for is a break of that support zone on higher volume.
The market’s internal indicators are now in negative territory. Momentum has changed to down in the last two sessions, and one of the most-watched sentiment indicators, the CBOE Volatility Index (VIX), rose 1.05 to 29 yesterday.
Note: Crude oil has turned negative on the point-and-figure charts. I will have more to say on that tomorrow.
Today’s Trading Landscape
Earnings to be reported include: A. Schulman (SHLM), International Speedway (ISCA), Kayne Anderson Energy Development Co. (KED), Ruby Tuesday (RT) and The Greenbrier Companies (GBX).
Economic reports due: ICSC Chain Store Sales Index for July 4, Redbook Retail Sales Index for July 4, July 3 API Oil Industry Report and ABC/Washington Post Consumer Confidence for July 4.
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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 his most recent market outlooks.
