Strong gains by the euro and foreign market stocks gave the U.S. market its first advance in eight sessions. Despite a higher opening with the Dow up more than 170 points in the first 30 minutes, stocks faded for the rest of the day and were in the red by 3:30 p.m. But several late buying programs salvaged the day, and the three major indices closed higher.
But any gains were hard fought with little news to support large block buying. Consumer discretionary stocks closed lower and small caps closed in the red. Office Depot, Inc. (NYSE: ODP) fell 4.9%, Sears Holdings Corporation (NASDAQ: SHLD) fell 4%. The Boeing Company (NYSE: BA) was off 0.9% and American Express Company (NYSE: AXP) fell 0.5%. The Russell 2000 was down 1.5%.
The only economic news came from the ISM service index for June. The index came in at 53.8, which was lower than expected. The report, however, had little influence on the market.
Energy stocks gained as BP plc (NYSE: BP) rebounded, up 8.7%, and Exxon Mobil Corporation (NYSE: XOM) gained 1.57%. The utility sector was the biggest gainer, up 1.2%.
At the close, the Dow Jones Industrial Average was up 57 points to 9,744, the S&P 500 rose 5 points to 1,028, and the Nasdaq gained 2 points to 2,094.
The NYSE traded 1.3 billion shares with advancers just slightly ahead of decliners. The Nasdaq crossed 662 million shares with decliners ahead of advancers by almost 2-to-1.
Crude oil for delivery in August fell 16 cents to $71.98 as worries over a possible failure of an international recovery dominated the session. The Energy Select Sector SPDR (NYSE: XLE) closed at $49.86, up 48 cents.
August gold fell $12.60 to settle at $1,195.10 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) lost 1.39 points, closing at 168.37. It was the sixth consecutive day down for the XAU, and its third day under its 200-day moving average.
What the Markets Are Saying
Some technicians will make preliminary calls of “bull” or “bear” on the strength of one index or system. And some the systems, like the well-known “Dow Theory,” have been exceptionally accurate. However, the reliance on just one system for its predictive value, while ignoring scores of other technical tools, would be like a carpenter trying to build a house with just a saw or just a hammer. There is a complete toolbox of technical tools, and I try to use the most trustworthy before building a house of either bullish or bearish evidence.
Therefore, when I said Friday, that a new bear market has begun, that advice was based on the conjunction of many important, back-tested indicators that are telling us that the overall stock market is headed lower.
One of those indicators is the “death cross.” This highly bearish indicator occurs when the 10-week moving average crosses the 40-week moving average (i.e., 50-day crosses 200-day) and is usually followed by a downtrend for an extended period of time.
But the death cross, and its bullish counterpart, the gold cross, are not perfect. A June 30 Bloomberg article correctly points out inconsistencies in the indicator’s ability to predict, but admits that the S&P 500 fell 7.7% in the six months following the last death cross on Dec. 19, 2007.
My own call was based on the following evidence:
1) The broad-based NYSE Composite has executed a death cross (50-day moving average crossing down through the 200-day).
2) The other major indices are just a session or two away from the same signal. And many are forming a “horn” or “broadening top” — an unusual but highly accurate formation most often seen at market tops.
3) The Dow Industrials, Dow Transports, and Dow Utilities have a pattern of lower highs and lower lows for a Dow bear-market confirmation.
4) Finally, the S&P 12-month moving average has been decisively penetrated by June’s falling prices, which was triggered on the final day of the month.
In addition, the range of sentiment indicators are flashing “oversold,” and any rally is little more than a technical reaction. A bounce in the market indices here is not likely to have legs.
Our internal indicators — Moving Average Convergence/Divergence (MACD), stochastic, momentum, and Collins-Bollinger Reversal (CBR) — have also flashed “bear Market.” Even though this is an incomplete list of all indicators, their significance as primary signals over long periods has been tested. They are not perfect, but when taken together, they are very persuasive.
Today’s Trading Landscape
Earnings to be reported before the opening include: Canadian Solar and Family Dollar.
Earnings to be reported after the close include: WD-40 Company.
Economic reports due: MBA purchase applications, ICSC-Goldman Sachs store sales, Redbook, and Treasury STRIPS.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
Are You Ready for Dow 9,000?
John Lansing, trading maverick who called the market turn in March 2009, last summer’s “rebound rally,” gold’s meteoric rise and a continued “bull run” earlier this year, now sees huge trouble ahead, and then a surprising rally that will take the Dow back to new all-time highs. Here’s why — plus how to double your money as the market plunges and then soars.
