Yesterday, a sluggish session ended on a down note as investors pondered the significance of last week’s rate cut, the economy, and a stubborn technical barrier. And it ended four days of advances with the energy sector down sharply and the financial sector folding in the final hours of trading.
Energy stocks were the worst performers with Schlumberger (SLB) off 1.3% following its announced stock-for-stock merger with Smith International (SII).
Financial stocks did well in the morning, helped by a 2.1% surge in Bank of America (BAC) after a federal judge approved a $150 million settlement between the bank and the SEC over matters involving disclosures before its acquisition of Merrill Lynch.
The uneventful session ended on low volume with the Dow Jones Industrial Average (DJI) down 19 points to 10,383, the S&P 500 (SPX) off a point to 1,108, and the Nasdaq (NASD) down 2 points to 2,242.
The NYSE traded just 944 million shares with slightly more decliners than advancers, and on the Nasdaq, 557 million shares traded with advancers ahead by 7-to-6.
March crude oil gained 15 cents to $76.96 a barrel as the refinery strike in France continued. The Energy Select Sector SPDR (XLE) fell to $56.57, down 79 cents.
Gold for February delivery fell $8.70 to $1,112.60 an ounce, and the PHLX Gold/Silver Sector Index (XAU) fell 2.44 points to 162.
What the Markets Are Saying
Sluggish trading failed to penetrate the key technical barriers as the Dow closed fractionally above its 50-day moving average, leaving only the Nasdaq cleanly above the barrier, but by just 9 points.
Both the S&P 500 and the NYSE Composite again closed below this important moving average, and the S&P is barely holding above the psychologically important number of 1,100.
The major indices are in a quagmire, and the internal indicators, which are in overbought zones, are starting to curve down, indicating that a sell signal from the stochastic and Moving Average Convergence/Divergence (MACD) could occur at the slightest round of selling. Just as important, the momentum indicator has moved to an extreme overbought position in just two days, and at this extreme level could quickly go negative.
This leaves us with a bullish divergence: The Dow and Nasdaq are above their 50-day moving average, and the two broad indices, the “500” and the NYSE Composite, are under it.
Meanwhile, as pointed out yesterday, only the Nasdaq has managed to penetrate the February trading peak, and that leaves the most speculative group of stocks as the only ones to have crossed two significant technical barriers, while the big caps and better-quality stocks are not attracting buyers.
Adding to the market’s difficulty in shaking out of a narrow trading range is the volume and breadth problem. With such low volume and narrow breadth working against the bulls, it will be hard for them to maintain their hard-won advances.
A definite confirmation of the Nasdaq’s move above resistance from the other broad-based indices is required in order to keep the bullish ball rolling, and that confirmation had better arrive soon, or stocks will fall.
Today’s Trading Landscape
Earnings to be reported before the opening include: Acorda Therapeutics, Amedisys, Astec Industries, Barnes & Noble, Bill Barrett, BluePhoenix Solutions, CDI Corp., Ceradyne, Checkpoint Systems, China Automotive, Cracker Barrel, Daktronics, Denbury Resources, Diana Shipping, El Paso Electric, Entercom, EW Scripps, Expeditors, Federal Signal, FirstEnergy, GrafTech, GTX, Heidrick & Struggles, Henry Schein, Home Depot, HRPT Properties Trust, Huron Consulting, Iconix Brand, IdaCorp, Interactive Data, IPG Photonics, Isle of Capri Casinos, Knology, Liz Claiborne, Macy’s, Marvel Entertainment, Medco Health Solutions, Medtronic, Mobile Mini, Navios Maritime Holdings, NRG Energy, Office Depot, Omega HealthCare Investors, Petrohawk Energy, Radian Group, Sanderson Farms, Sears Holdings, Sonic Automotive, St. Joe Company, Target, Tenet Healthcare, Tennant, Ternium S.A., Unit Corp., Vornado Realty Trust, Wabtec, Watson Pharmaceuticals and Westlake Chemical.
Earnings to be reported after the close: American Capital, American Reprographics, Apollo Commercial Real Estate, Autodesk, AXT, Basic Energy Services, BGC Partners, BioMarin Pharmaceuticals, Blue Coat, Brookdale Senior Living, Catalyst Health Solutions, Century Aluminum, Chiquita Brands, Conceptus, DealerTrack, Dolan Media, Dreamworks Animation, Duff & Phelps, Dycom Industries, Education Realty Trust, EPIQ Systems, Exco Resources, First Industrial Realty Trust, Global Cash Access, Global Defense Technology & Systems, Hansen Medical, Herbalife, Hersha Hospitality Trust, Hertz Global Holdings, Interface, ISTA Pharmaceuticals, Kaiser Aluminum, Limelight Networks, Northeast Utilities, Onyx Pharmaceuticals, Orient-Express Hotels, Ormat Technologies, OSI Pharmaceuticals, Papa John’s, Parallel Petroleum, Premiere Global Services, Psychiatric Solutions, Radiant Systems, Range Resources, Schawk, SRS Labs, STEC, Stone Energy, Sunstone Hotel Investors, Verigy, Volcano, Waste Services and Wilson Greatbatch.
Economic reports due: ICSC-Goldman Sachs store sales, Redbook, S&P/Case-Shiller home price index, consumer confidence (the consensus expects 55), and State Street Investor Confidence Index.
Quarterly earnings news (earnings vs. estimates):
- Ceradyne (CRDN): 55 cents vs. 32 cents
- Cracker Barrel (CBRL): $1.09 vs. 90 cents
- El Paso Electric (EE): 18 cents vs. 21 cents
- Home Depot (HD): 24 cents vs. 17 cents
- Medco Health Solutions (MHS): 76 cents vs. 75 cents
- Omega Health (OHI): 36 cents vs. 36 cents
- Petrohawk Energy (HK): 12 cents vs. 15 cents
- Sanderson Farms (SAFM): 75 cents vs. 64 cents
- Sears Holding Corp. (SHLD): $3.69 vs. $3.54
- Westlake Chemical (WLK): 19 cents vs. 19 cents
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