Stocks fell sharply yesterday morning, following growing tensions in Korea, and worries more than Europe’s bailout of Irish debt and its inability to include the crisis. And selling escalated right after a cut in estimated worldwide PC shipments.
By 10 a.m., the Dow Industrials had been off 160 points but rebounded swiftly as bargain hunters nibbled at a few of the sharpest decliners. Until mid-afternoon, stocks traded in a broad range until dealers put $9 billion of Treasury note sales to function within the equity marketplace. That action turned the marketplace greater, and by the close, most of the losses had been erased.
Retailers had been encouraged by Black Friday sales, and there had been reports from on the web retailers that Cyber Monday sales had been powerful. Amazon.com, Inc. (NASDAQ: AMZN) rose 1.3%, hitting an all-time high as analysts predicted that retailer would acquire marketplace share this year.?
Despite the trouble with European banks, financials on this side of the pond had been amongst the top performers. American Express Organization (NYSE: AXP) rose two.51%, and Bank of America Corporation (NYSE: BAC) gained 1.71%. Huntington Bancshares Incorporated (NASDAQ: HBAN), Regions Monetary Corporation (NYSE: RF) and Wells Fargo & Business (NYSE: WFC) had been also all greater.
The euro fell to $1.3123 versus the U.S. dollar from $1.3248 on Friday, as the 85 billion euro Irish debt bailout fueled fears that Portugal, Spain and Italy may also suffer the same fate. And even Belgium was mentioned as a possible problem country.
Treasurys rose following the Fed’s purchase of T-bonds. The 10-year note rose 0.4375%, pushing the yield down to two.82%.
At the close, the Dow Jones Industrial Average fell 40 points to 11,052, the S&P 500 lost two points at 1,188, and the Nasdaq fell 9 points to two,525. The NYSE traded 924 million shares with decliners ahead of advancers by 1.4-to-1. The Nasdaq traded 481 million shares with decliners ahead by 1.2-to-1.
Crude oil for January delivery rose $1.97 to $85.73 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) closed at $62.93, up 42 cents. Sovereign debt worries sent gold greater with the February contract gaining $3.20 to settle at $1,367.50 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 1.01 points to 210.8.
What the Markets Are Saying
After 30 minutes of what appeared to be a collapse of equity prices, Wall Street looked geared for another sell-off following news from Europe that did not inspire investor confidence. But a rush to bargain hunt funded by two Treasury purchase programs injected cash into the marketplace, and it was buying from those programs that turned the marketplace.
Yesterday’s turn again occurred at S&P 500 1,174, reinforcing that line as the most important support feature on the chart. But if it wasn’t for the Fed’s injection of more cash into the marketplace, it is doubtful that the day’s early losses would have been reversed. And another outside influence, a rising greenback, also had a lot to do with the bounce.
The intraday reversal yesterday was impressive, but the quality of the turn is questionable. Had the rush to buy been the result of an enthusiastic public display of optimism rather than the Fed’s second Permanent Open Marketplace Operation of the day, as Briefing.com put it, we could all sleep better.?
Adding to my concern about yesterday’s buying is a chart feature that hovers more than the near-term marketplace. Yesterday’s turn from the support at S&P 1,174 followed an intraday penetration of the 50-day moving average the first violation of that line since early August. And as a result of back-and-forth trading more than the past 10 days, the support line at 1,174 appears to have become the possible neckline of a small but significant head-and-shoulders (SHS) formation.
Anticipating a head-and-shoulders pattern should be treated as a cardinal sin the equivalent of shouting fire in a crowded theater. This is because most of the early forming SHS patterns never function out. However, another day of selling like yesterday, and a close below 1,174, would result in a breakdown with a target of around 1,120.
Please don’t interpret this as a change-of-trend call; it’s merely an alert. All purchases should be put on hold and traders might want to review short-term bearish strategies until a solid signal is given.
For one bearish trade, see the Trade of the Day.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.