After six consecutive days of gains, the major indices closed slightly lower yesterday in a disinterested session, which was reflected in the low volume on each exchange. Stocks started off higher and the U.S. dollar lower, but as the day wore on the dollar picked up buyers and stocks sagged.
The Conference Board’s consumer confidence index rose this month rose to 52.9, which was in line with estimates. And the Case-Shiller home price index report showed a slowing in the rate of decline, coming in at 146.6 versus an expected 147. Since both reports met expectations, they had little impact on stock prices.
Energy stocks were the weakest of all sectors yesterday, with Exxon Mobil (XOM) off 0.4% and Chevron (CVX) off 0.7%. The best performers on the Dow Jones Industrial Average (DJI) were Microsoft (MSFT), up 0.7%, and 3M Co. (MMM), up 0.8%.
At the close, the Dow was off 2 points to 10,545, the S&P 500 (SPX) also lost 2 points at 1,126, and the Nasdaq (NASD) fell 3 points to 2,288.
The NYSE traded just 638 million shares and the Nasdaq traded 324 million. Both exchanges were approximately breakeven on advancers versus decliners.
February crude oil closed 10 cents higher at $78.87 a barrel, and the Energy Select Sector SPDR (XLE) fell 38 cents to $57.53.
Gold and silver traded lower yesterday with the December gold contract off $10.20 to $1,097 an ounce. The PHLX Gold/Silver Sector Index (XAU) fell $1.82 to $169.47.
What the Markets Are Saying
Group rotation, the changing of sector leadership in the market, is occurring, and that is a good thing. Healthy markets usually have big runs that highlight the performance of several sectors, take a rest, and then make another run higher with a different set of stocks.
For the last six months, the market has favored gold and other precious metals stocks as well as emerging markets, energy, financial and fixed-income shares. But in the past several weeks, market leadership has focused on small- and mid-cap stocks, and realty, gas, coal, forest product and media stocks.
That’s a healthy shift and the type of rotation that we monitor for our trading ideas, as well as confirmation that the market will continue moving up.
For the past month here, I’ve been especially focused on the shift from speculative to more stable, and back again, and the impact of the “January effect” on stocks.
Dorsey Wright & Associates does some fine work on sector rotation, and they point out that the “favored” sectors moving now are chemicals, coal, drilling equipment, health care providers and gas utilities. But unless you track the sector movements daily, it is difficult to know whether a sector is gaining or losing strength, and that itself is an art.
I’ll be keeping our readers up to date on sector movements and will focus even more on it as we enter the new year. One of the most effective ways for you to follow analysis is by watching the selections on the “Trade of the Day,” since they will often reflect current strength and possible momentum trades.
Today’s Trading Landscape
Earnings to be reported after the close: Orleans Homebuilders (OHB).
Economic reports due: MBA purchase applications, Chicago PMI (the consensus expects 54.9), and EIA petroleum status report.
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