Yesterday, for the second day in a row, the broad market fell following a strong opening as investors were first cheered by good employment news, and then fretted about the employment news that was to come.
Not unexpectedly, the financials ran into some profit-taking after a couple of very strong days, and that, too, put pressure on the broad indices.
A smaller-than-expected weekly initial jobless claims of 550,000 caused a flurry of buying on the opening. But jobless claims are still at uncomfortably high levels, and “everybody is real, real nervous about the unemployment number tomorrow,” said a director of U.S. equity trading at Canaccord Adams, according to the Wall Street Journal.
And that does sum it up. With rumors of adjustments to prior reports and wildly pessimistic forecasts, it is no wonder that the markets have been flat lately.
After the close on Aug. 4, Cisco Systems (CSCO) beat earnings forecasts but said that the rest of the year would be challenging. The stock was off sharply until just after 10 a.m., when buyers emerged and drove it to a gain for the day. But technology in general was weak, and that was shown in an underperformance of the Nasdaq (NASD), which lagged the other major indices.
At the close, the Dow Jones Industrial Average (DJI) was off 25 points to 9,256, the S&P 500 (SPX) fell 6 points to 997, and the Nasdaq fell 20 points to 1,973.
Volume on the NYSE totaled 1.4 billion shares with decliners ahead of advancers by 9-to-5. The Nasdaq traded 730 million shares with decliners there ahead by more than 2-to-1.
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Crude oil (September contract) fell 3 cents to $71.94 a barrel as pit traders also awaited the unemployment numbers. The Energy Select Sector SPDR (XLE) fell 42 cents to $50.89.
The U.S. dollar rose and gold (December contract) fell $3.40 to $962.90 an ounce. The PHLX Gold/Silver Index (XAU) lost 41 cents and closed at $152.72.
What the Markets Are Saying
Has a new pattern emerged with strong openings and sell-offs following?
Perhaps yes, but despite the lower numbers after strong openings, the last two days have been marked by rallies on the close that just missed bringing the major indices back to break-even.
What is more interesting is how the sentiment numbers have changed in the past two weeks. The American Association of Individual Investors (AAII) Sentiment Survey, which is a contra-indicator, showed another jump in bullish attitude to 50% — up from 47.67% last week. This, plus other indicators, point to a mild pullback in stocks.
The S&P 500 and its companion indices ran into the middle of the resistance at S&P 1,005 to 1,010 on Aug. 4. They then jumped to 1,008 on Aug. 6, and with that met our initial target.
So, with virtually every one of our internal indicators now overbought and the sentiment readings at very bullish levels, the market appears vulnerable.
The first support is at around 975, but the real area of strength is 945 to 950.
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Despite all the fear going around, which is good for the markets since it tends to purge the weaker stockholders, buyers are still holding the markets from a sharp correction.
And with the better-than-expected 9.4% unemployment rate (the consensus had expected 9.7%) released this morning, we could see the market to break sharply to new highs today.
Today’s Trading Landscape
Earnings to be reported include: Aircastle Ltd., Allianz SE, Ambac Financial Group, American International Group, American Oriental Bioengineering, Applied Industrial Technologies, Arbor Realty Trust, Arena Resources, Ballantyne Strong, Bankfinancial Corp., Beacon Roofing Supply, Biodel, Brookfield Asset Management, Central Vermont Public Service, Cimarex Energy Co., Cinemark Holdings, Cogent Communications, Companhia de Saneamiento BasiCo., Core-Mark Holding Co., Crosstex Energy LP, Edison International, ENGlobal, Geokinetics, GP Strategies, Gray Television, H.H. Gregg Appliances, Halozyme, Hooper Holmes, ICO, Kingsway Financial Services, Liberty Media Corp., LifePoint Hospitals, LMI Aerospace, Magna International, Mirant, NeurogesX, New Frontier Media, Newcastle Investment Corp.,Nordic American Tanker, Novavax, OYO Geospace, Penwest Pharmaceuticals, Pinnacle Airlines Corp., Radnet, Reis, Ritchie Bros Auctioneers, Senior Housing Properties Trust, Sun Communities, Superior Industries, Superior Well Services, Telus, The PMI Group and U.S. Concrete.
Economic reports due: nonfarm payrolls (the consensus expects -275,000) and consumer credit (the consensus expects -$4.2 billion).
Late news: The unemployment rate came in better than expected at 9.4%. The consensus had expected 9.7%.
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