Stocks closed lower yesterday as the combination of a stronger U.S. dollar, lower energy prices and mixed signals from the economy led a second day of weakness.
Weekly jobless claims came in around where expected, but the leading economic indicators for October were at 0.3% compared to an expected 0.4%, and Q3 mortgage delinquencies reached 9.6%, up from 9.2% in Q2.
Energy and materials stocks were hit as were consumer staples. But health care stocks held their own following news that Nevada Democratic Senator Harry Reid had presented a health care bill to the Senate on Tuesday evening.
Within the first 30 minutes, the major indices hit their lows of the day, and the remainder of the session was spent taking back a portion of the early morning sell-off. But volume was low again as traders seem reluctant to make new commitments at the top of the market with just six weeks left in the year.
It was the worst single-session loss of the month with the Dow Jones Industrial Average (DJI) down 94 points to 10,332, the S&P 500 off 15 points at 1,091 (SPX), and the Nasdaq (NASD) smacked for a loss of 36 points, closing at 2,157.
The NYSE traded just over 1 billion shares with decliners ahead of advancers by 9-to-1. The Nasdaq fared no better with volume of 737 million and decliners ahead by 4-to-1.
Crude oil for December delivery fell $2.12 to $77.46 a barrel on fear of a slow economic recovery. The Energy Select Sector SPDR (XLE) fell $1.31 to $57.13.
December gold rose 70 cents to $1,141.90 an ounce, and the PHLX Gold/Silver Index (XAU) rose $1.17 to $165.85.
What the Markets Are Saying
On Fridays, I usually give a summary of our indicators and an overview of the market.
In the past week, I’ve been noting that our internal indicators are overbought. But none of them actually issued a sell signal until yesterday when the slow stochastic on all three major indices hit the red button, and Moving Average Convergence/Divergence (MACD) will do the same if the on-balance selling continues for several more days.
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As for the sentiment indicators, this week the American Association of Individual Investors (AAII) Sentiment Survey went from a neutral reading from the bulls and bears — indicating that there are some very confused investors — to 42.73% bullish and 31.82% bearish (which is slightly negative for the markets).
The CBOE Volatility Index (VIX) is at a tepid 22.63, and Investors Intelligence is also reporting flat readings from both the letter writers and the insiders.
The Relative Strength Index (RSI), which was close to being very overbought at 67.91 on Monday, has fallen to 61.76 (still overbought).
So the sentiment indicators are not indicating a dramatic change.
Chart-wise, after making new highs this week, the Dow is comfortably above its 50-day moving average at 9,907, and its intermediate support line at the same number.
The S&P 500 also hit new highs, but is just 20 points above its 20-day moving average and 25 points from its 50-day moving average. The intermediate support line for the 500 is at 1,050.
The Nasdaq, however, is just 30 points from the conjunction of its 20- and 50-day moving averages at 2,126. If it fails to hold there, the next support is the intermediate support line at around 2,070.
Although not a serious problem, a failure to hold at 2,070 could present some difficulties since it would mean that the seven-month bull channel was folding into a sideways pattern — and that pattern could take months to resolve.
Summary: Despite some warnings of the market being overbought, the long and intermediate trends are still up, and the short-term trend is neutral.
Today’s Trading Landscape
Earnings to be reported before the opening include: America’s Car-Mart (CMRT), Ann Taylor Stores Corp. (ANN), DR Horton (DHI), JM Smucker Co. (SJM), Kirkland’s (KIRK) and Met-Pro Corp. (MPR).
Earnings to be reported after the close: Focus Media Holding Ltd. (FMCN).
There are no economic reports due.
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