Yesterday started with some modest profit-taking, but by mid-morning selling picked up, following the announcement that consumer confidence was weak. By the close, the Dow had suffered a triple-digit loss and three of the major indices closed below their 50-day moving averages.
The financial sector led the way lower after a Federal Deposit Insurance Corp. comment that bank failures are continuing at a record pace. They said that in the fourth quarter of 2009, one out of four banks were deemed at risk of failure.
The dollar gained ground, up 0.5%, and that gave a jolt to both stocks and commodities. Futures were broadly lower with the CRB Commodity Index off 1.6%.
But despite the gloom and doom, retail stocks held their own chiefly because of better-than-expected earnings from Home Depot (HD). And that stock responded by hitting a new 52-week high. Macy’s (M) also finished higher after it, too, reported better-than-expected quarterly earnings.
At the close, it was the strong dollar that was the primary reason for heavy selling. The Dow Jones Industrial Average fell 101 points, closing at 10,282, the S&P 500 was off 13 points, closing at 1,095, and the Nasdaq lost 29 points at 2,213.
The NYSE traded below 1.1 billion shares with decliners leading advancers by more than 2-to-1. On Nasdaq 678 million shares were traded with decliners ahead by slightly less than 2-to-1.
The April crude oil contract fell $1.45 to $78.86, and the Amex Energy SPDR (XLE) closed at $55.63, off 94 cents. Gold (the April contract) fell for the second consecutive day, down $9.90 to $1,103.20 an ounce. The PHLX Gold/Silver Index (XAU) fell $5.54 to $156.46. With yesterday’s heavy selling the XAU is now in an intermediate downtrend (correction) having closed under all of its significant moving averages and receiving strong sell signals from the internal indicators.
What the Markets Are Saying
The bears took charge of the market yesterday on low volume, and breadth was solidly against buyers. With all major indices sharply lower, we now have a firm signal that the direction of the next short-term market move is down.
I’ve been concerned by the lack of upside support in the final days of the recent rally and opined that it was very unlikely for the bulls to succeed with such paltry volume and anemic breadth. Now the indices have turned solidly away from their respective 50-day moving averages, as well as the tops of November and December. And by so doing, the internal indicators have universally proclaimed that a short-term pullback is underway.
A pullback could turn into a resumption of a correction that began in mid-January with a target of 10%-plus from the January highs. But it is more likely that this round of selling will turn into no more than a mild profit-taking plunge that could find support at the respective 20-day moving averages of the leading indices.
Thus the initial target for a decline for the S&P 500 would be approximately1,080, which is not only the “500’s” 20-day moving average but 50% of the move from the Feb. 5 reversal low of 1,045 to Friday’s high of 1,112. But a failure to hold at that level could result in a further leg down to the 200-day moving average, now at 1,031. For now the short-term bears are back on the field.
Today’s Trading Landscape
Earnings to be reported before the opening include: AerCap Holdings, Allied Capital, Almost Family, American Tower, Atlas Air Worldwide, Broadview Security, Chart Industries, Chico’s FAS, Clean Harbors, Clearwire, CMS Energy, Cott, Dixie Group, Dollar Tree Stores, Donnelley & Sons, Eaton Vance, FirstService, Frontier Communications, Garmin, Genesis Energy, L.P., Great Wolf Resorts, Hospitality Properties Trust, inVentiv Health, J.M. Smucker, JAKKS Pacific, JMP Group, Lexington Realty Trust, Nicor, Par Pharmaceutical, Pennsylvania R.E.I.T., PetroQuest Energy, Saks, South Jersey Industries, Synovis Life Technologies, Teleflex, Thomson Reuters, TJX, Toll Brothers, Transocean, TravelCenters of America, Trina Solar, ViroPharma, and Zale.
After the close: 3D Systems, Adolor, Aegean Marine Petroleum, American Equity Investment Life, AmSurg, Avago Technologies, Bio-Rad Labs, Blockbuster, Brandywine Realty Trust, Brigham Exploration, California Water Service Group, Caribou Coffee, Carrol’s Restaurant Group, CDC Software, Churchill Downs, Circor, Cloud Peak Energy, Cobalt Int’l Energy, Concho Resources, CoStar Group, DigitalGlobe, Donaldson, Dynamics Research, Excel Maritime Carriers, Express Scripts, FARO Technologies, FelCor Lodging, FGX Int’l, First Advantage, Flowserve, Genco Shipping & Trading, General Maritime, Gibraltar Industries, Global Industries, Goodrich Petroleum, Granite Construction, Greif, Haverty Furniture, Health Care REIT, HEICO, Helix Energy Solutions, InterDigital, Kendle, KongZhong, Limited, Lithia Motors, ManTech, McCormick & Schmick’s Seafood Restaurants, Medicis, NetEase.com, Omeros, Omniture, PC Mall, Polypore Int’l, ProAssurance, RailAmerica, Redwood Trust, Republic Airways, Salesforce.com, Senorx, Service Corp, Smith Micro Software, Steiner Leisure, Sturm Ruger, Sun Microsystems, Superior Energy Services, Tenaris, Tollgrade, TriQuint Semiconductor, True Religion Apparel, Tyler Technologies, Weingarten Realty, and Whiting Petroleum.
Economic reports due: Bank Reserve Settlement, MBA Purchase Applications, New Home Sales (the consensus expects 360 K), and EIA Petroleum Status Report.
Late news: Quarterly earnings versus expected — AerCap (AER) 51 cents versus 53 cents, American Tower (AMT) 16 cent versus 18 cents, Clean Harbors (CLH) 53 cents versus 66 cents, Garmin (GRMN) $1.43 versus 95 cents, NICOR (GAS) $1.21 versus $1.03, J.M. Smucker (SJM) $1.17 versus $1.05, Teleflex (TFX) $1.01 versus 99 cents, Thomson Reuters (TRI) 44 cents versus 43 cents, Toll Bros (TOL) a loss of 25 cents versus a loss of 35 cents, Zale (ZLC) 21 cents versus 2 cents.
The Options Trader’s Guide to Technical Analysis
In his latest report, learn how John Lansing leverages the power of technical analysis to identify the short window when a trade is set to go straight up or down. Get your FREE copy here!
