The S&P 500 fell by 1.01% yesterday, and even though the loss is small by historical standards, it was the biggest decline for that index in almost two months.
The big losses were in technology and financial stocks, both down 2.2%. And small-cap stocks had an even rougher day with the Russell 2000 index sinking 2.5%. But the focus was on the financial sector with two big names — Bank of America (NYSE: BAC) and American Express (NYSE: AXP) — leading the Dow Industrials lower. BAC fell 4.2%, and AXP was down 2.44%.
The fall from grace by the financial stocks came following a projection of low Q4 earnings from American Express. And Bank of America fell in anticipation of lower-than-expected earnings to be reported on Friday. The Wall Street Journal reported “general gloominess around the country’s largest banks” amid rumors of wide-ranging job cuts. Another disappointment for the financials came from no less than Goldman Sachs Group (NYSE: GS), off 4.7%, which reported slightly better-than-expected earnings for Q4, but with revenues that came in short of expectations.
The tech-heavy Nasdaq fell 1.46%. Even technology darling Apple (NASDAQ: AAPL) dropped 0.5% despite reporting Q1 income that jumped to $6.43 a share, up from $3.67 a share last year. Revenue was up more than 70% from strong holiday sales. IBM (NYSE: IBM) was the only bright spot of the day for tech as it rose 3.4% after reporting very strong quarterly revenue growth. Earnings for Big Blue rose 9.2% and revenues were up 6.6%.
In economic news, housing starts fell 4.3% in December to a seasonally adjusted rate of 529,000 from 553,000 in November. But building permits rose 16.7% to an annual rate of 635,000.
Treasurys rose yesterday as the stock market drove money to a more stable asset. The 10-year note’s yield fell to 3.337%, and the 30-year bond fell to 4.523%. The U.S. dollar fell against both the yen and the euro with the latter trading at $1.3469, up from $1.3385 late on Tuesday.
At Wednesday’s close, the Dow Jones Industrial Average lost 13 points, closing at 11,825, the S&P 500 was off 13 points at 1,282, and the Nasdaq fell 40 points to 2,725. The NYSE traded 1.1 billion shares with decliners ahead of advancers by over 3-to-1. On the Nasdaq, decliners were ahead by almost 5-to-1 on volume of 548 million shares.
Crude oil for February delivery fell 52 cents to $90.86 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) dropped 86 cents to $70.23. Gold rose as the dollar sank; the February contract rose $2 per ounce to settle at $1,370.20. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell $2.81 to very close to support at $205.56.
What the Markets Are Saying
We’ve all heard analysts, including me, say that “the market never acts the same way twice.” And that’s true — until it does. It was Jan. 19, 2010 that marked the top of a rally that began on Nov. 1, 2009. The current rally began on Dec. 1, 2010. Could it have topped yesterday, the same date as last year, Jan. 19?
If it has topped, it is the most widely anticipated pullback that I can remember with virtually every technical letter advising readers to prepare for it. And yet the advisory letters that are more weighted to fundamental analysis and economic data are still 56% bullish, according to Investors Intelligence. They are still close to the recent high of 58.8, which is the highest in years. This is a contra-indicator, and nothing better illustrates it than the reading of advisers in August just before the big rally started when only 29.4% were bullish. The other survey on which I rely, the AAII Sentiment Survey, is also still very bullish — now at 52.3%.
Michael Murphy of “New World Investor” thinks that the top will be made Friday, which marks the top of “the current 86-day cycle.” And even super bull Michael Ashbaugh of MarketWatch is getting squeamish noting downside stops at S&P 1,262. I think that Ashbaugh’s numbers make sense for traders since they bracket the 20-day moving average now at 1,273 with the Jan. 7 and Jan. 10 lows at 1,262. As for the very volatile Nasdaq, support is at 2,715 to 2,670. After that, there is little support for Nasdaq until around 2,580.
Well, it may not “be over ’til the fat lady sings.” But be careful — I hear her warming up in the wings.
For a bearish ETF to buy, see the Trade of the Day.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
