Financial and technology stocks led the stock market lower yesterday, as buyers sought less volatile investments.
JPMorgan Chase (JPM) was the weakest stock of the Dow 30, off 1.9%, and three of the four financials on the list closed lower.
U.S. GDP was readjusted lower for Q3 after it was determined that the economy expanded at a 2.8% rate rather than 3.5%, which had previously been reported. The adjustment came from the minutes of the Federal Reserve’s policy meeting early this month.
The Case-Shiller home price index showed the fifth monthly increase in U.S. home prices in September. Further good news: The Conference Board’s monthly reading of consumer sentiment rose more than analysts were expecting.
Consumer confidence for November showed an increase with a reading of 49.5. And, for a short time, the retail stocks showed some life. But at the end of the session they were marginally lower.
At the close, the Dow Jones Industrial Average (DJI) was down 17 points to 10,434, the S&P 500 (SPX) fell less than a point to 1,106, and the Nasdaq (NASD) was off 7 points to 2,169.
For the second consecutive day, the NYSE traded less than 1 billion shares. Yesterday, the Big Board traded about 964 million shares with decliners ahead of advancers by 5-to-4, and the Nasdaq traded 575 million shares with decliners ahead by 11-to-7.
Crude oil for January delivery fell $1.54 to $76.02 a barrel as traders feared an increase in oil supplies. The Energy Select Sector SPDR (XLE) gained 33 cents to close at $57.66.
December gold rose $1.10 to $1,165.80 an ounce, and the PHLX Gold/Silver Sector Index (XAU) fell $1.20 to $185.79.
What the Markets Are Saying
Yesterday, traders again showed their unwillingness to take risk. The sectors showing the biggest gains are considered relatively defensive, with telecom the biggest performer for the second straight day, followed by health care, oil and gas, and utilities. The worst performers were financials, technology, industrials and consumer services.
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The trend toward more conservative stocks began over a month ago. The best two performing groups in the past 30 days have been health care and telecom, compared to the prior three months when the best performers were basic materials and technology.
Perhaps this is the sign of a healthy group rotation, but the coincidence of a more conservative mood on low volume in the last six weeks of the year is, again, indicative of institutions being more conservative in order to lock in gains.
If this is the case, look for technology, financials and other more aggressive sectors to pick up steam in January.
It’s not too early to make up a shopping list of technology stocks, and the best place to start is the list of the group’s performers, i.e., key stocks that have bucked the overall pullback.
And we’re not necessarily looking for big performers, just those that resisted the profit-taking by closing higher.
Yesterday, for example, the performers in the semiconductor group were stocks like Rambus Inc. (RMBS), Analog Devices (ADI), National Semiconductor Corp. (NSM) and Integrated Silicon Solution (ISSI), as well as others.
In the next several weeks, as an astute investor you should cull the daily closings of stock groups that are subject to profit-taking in order to find those that consistently resist the trend.
The best technique is to determine the support zone where you are willing to take a stand and enter limit orders at those prices.
When the market turns north again you may find that you own the best performers at a reasonable price.
Today’s Trading Landscape
Earnings to be reported include: Conn’s Appliances (CONN), Deere & Co. (DE), Vimpel-Communications (VIP) and A-Power Energy (APWR).
Earnings to be reported Thursday and Friday include: The9 Ltd. (NCTY), Frontline Ltd. (FRO) and Ship Finance International Ltd. (SFL).
Economic reports due: MBA purchase applications, durable goods orders (the consensus expects 0.5%), Personal income and outlays (the consensus expects 0.2% for personal income and 0.5% for outlays), jobless claims (the consensus expects 495,000), consumer sentiment (the consensus expects 67), new home sales (the consensus expects 410,000), EIA Petroleum Status Report and EIA Natural Gas Report.
Late news: Tiffany & Co. (TIF) reported Q3 earnings of 33 cents versus a 23-cent estimate.
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