The major indices took a big hit on the opening yesterday, with the S&P 500 (SPX) gapping down more than 1%, and by noon it was off 1.7%. This was mainly due to a nasty jobs report prior to the opening.
All 10 of the S&P’s sectors were down after the first hour of trading, and even though a late-afternoon rally took back a major portion of the losses, the opening surprise left many traders shaken.
Initial jobless claims for the week ended Feb. 20 were reported to be up by 22,000 to 496,000 for the highest number since November. And continuing claims were also worse than expected, all adding to more worries over an economic recovery.
In addition to the higher weekly jobless claims figures, a stronger U.S. dollar was also blamed for the opening salvo.
If that wasn’t enough gloom and doom for investors to wake up to, Moody’s had another thought regarding the rating of Greece’s bonds. The agency said that its “A” rating, which is required to exchange its bonds with the European Central Bank, is under review and dependent upon the country’s fiscal reform follow-through.
Late in the day the euro rallied, driving the dollar down to a 0.1% loss, which attracted bargain-hunters to the floors of U.S. exchanges. And commodity futures rallied from an early-morning decline of 3% to close at minus 1.3%.
At the close, the Dow Jones Industrial Average (DJI) was down 53 points to 10,321, the S&P 500 lost 2 points to 1,103, and the Nasdaq (NASD) fell about 2 points to 2,243.
Despite the volatility, the NYSE traded just over 1.1 billion shares with breadth even, while the Nasdaq traded 660 million shares with decliners ahead of advancers by about 3-to-2.
April crude oil fell $1.83 to $78.18 a barrel due to weakness in U.S. and global stock markets. The Energy Select Sector SPDR (XLE) rose 3 cents to $56.01.
April gold rose $11.30 to settle at $1,108.50 an ounce as investors shifted to the thought of gold as the traditional safe haven in times of uncertainty. The PHLX Gold/Silver Sector Index (XAU) rose to 160, up 4.58 points.
What the Markets Are Saying
This week I’ve been primarily focusing on the chart patterns (near-term bearish) and the internal indicators such as Moving Average Convergence/Divergence (MACD), stochastic, etc., (also near-term bearish). The other set of indicators that most often inform us of the psychological condition of the stock market’s make-up are the sentiment indicators.
Sentiment indicators are predicated upon the theory that certain groups of investors are usually correct and others are not. Thus, their buying and selling patterns are thought to be predictive of future market direction.
Some of these indicators are “contra” or opposite, like the American Association of Individual Investors (AAII) numbers. When AAII members are bullish that is a sign that the markets are headed lower. Market letter writers’ recommendations are also viewed as “contra” indicators.
The better informed market participants like corporate insiders, however, are generally considered to be “on target” or correct in their assessment of the markets, and at key market turns tend to act in a manner that is contrary to the majority of investors by selling at market tops and buying at bottoms.
Here are the sentiment indicators that I find most useful and their current results:
AAII members are 34.9% bullish and 29.53% bearish. The bullish number has been steady for five weeks. The bearish number is lower this week and has been declining for four consecutive weeks, while the neutral reading, now at 35.57%, has increased from 21.37% three weeks ago.
This is a somewhat neutral result but shows that AAII members are becoming more fearful, and that is mildly bullish.
Curiously, the advisors’ numbers are neutral too. Insider transactions (holders of more than 5% of a stock) are reported by the SEC on individual stocks and Vickers reports are available on their Web site. Insider numbers have also been flat.
Conclusion: The sentiment indicators are neutral and currently not predictive. So I’ll stick with our chart analysis and internal indicators, which are telling us that the near-term trend is down and that the intermediate trend is neutral but leaning toward bearish.
In other words, the defense is still on the field.
Today’s Trading Landscape
Earnings to be reported before the opening include: Aircastle, BioScrip, Calgon Carbon, Capital Lease Funding, CenterPoint Energy, Cheniere Energy, Diamondrock Hospitality, Frontline, FTI Consulting, Horsehead Holding, Interpublic, James River Coal, Magellan Health Services, Mediacom Communications, Met-Pro, Mine Safety Appliances, Mirant, Northwest Natural Gas, Pepco Holdings, Ship Finance International, Superior Industries, Susser, Tetra Technologies, Trex and Warner Chilcott.
Earnings to be reported after the close: AES Corp. and Rosetta Resources.
Economic reports due: GDP (the consensus expects 5.7%), Chicago PMI (the consensus expects 60), consumer sentiment (the consensus expects 73.7), existing home sales (the consensus expects 5.5 million), and farm prices.
Quarterly earnings news (earnings vs. estimates):
- AES Corp. (AES): 22 cents vs. 19 cents
- Bioscript (BIOS): 99 cents vs. 10 cents
- Frontline (FRO): 5 cents vs. 11 cents
- FTI Consulting (FCN): 71 cents vs. 73 cents
- Magellan Health (MGLN): $1.25 vs. $1.04
- Northwest Natural Gas (NWN): $1.18 vs. $1.14
- Pepco Holdings (POM): 18 cents vs. 18 cents
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