Yesterday, there was much talk of fear: Fear of another
financial crisis in Europe with rumors of an Irish default and
change of government; fear of China doing more tightening to calm a
hot economy; and fear that the U.S. economy's record of just
inching higher is not good enough. And then there was fear that the
market would collapse on the opening following the worst day for
the market in two months that had 8-to-1 negative breadth - an
almost sure sign that a consolidation had begun.
But despite all the worry, the market had a mild reaction with
high-flying technology sector showing the most
. The S&P 500, NYSE Composite and Nasdaq briefly violated the
first lines of support at their respective 20-day moving averages,
but each closed above that trendline, so no technical harm was
The technology-heavy Nasdaq tends to overreact to both buyers
and sellers. A close under 2,699 would most likely lead to more
selling with the next support at the December highs around 2,670,
which in itself is not of real concern.
However, there has been a shift in market psychology with over
20% of the S&P 500 hitting new highs on Tuesday, followed by
weakness on Wednesday and Thursday. A lower close today would
likely result in many stocks triggering buying climaxes for the
And there were serious warnings from two other areas. First, the
commodity-based ETFs, and especially those with ties to metals,
took a hit yesterday.
Freeport-McMoRan Copper & Gold Inc.
) gapped down in a sharp sell-off that drove the stock through its
50-day moving average with a loss of 3.7%. Earlier in the day, FCX
reported better-than-expected earnings. (To learn how traders
should play FCX, see the
Trade of the Day
And gold and silver broke to intermediate downtrends with the
SPDR Gold Shares
) violating its first support line at $132, and the
iShares Silver Trust
) violating its first major line of support at $27.40. Last week,
GLD fell through its 50-day moving average, but the stronger
short-term sell signal came today with the gap down through
There is another concern that should be watched - the movement
of the Dow Jones Transportation Index, which on Wednesday closed
below its 20-day moving average, and yesterday fell to within 1% of
its 50-day moving average now at 5,027. Continued weakness in the
index presents several problems. From a technical viewpoint, if the
transports break, it could lead to a "non-confirmation" of the bull
market since the Dow industrials are still in a powerful uptrend.
And perhaps even more important is the fact that the transportation
average, more than any other index, has proven to be a reliable
indicator of future economic growth. Focus on the transports, and
you focus on the future.
Even though stocks have held up well, there is no reason to
chase stocks of interest. A consolidation appears to be under way,
so this is the time during which smart buyers let the market bring
good values to their portfolios. Traders should now revert to the
short side of the market for quick trades.
Today's Trading Landscape
To see a list of the companies reporting earnings today,
For a list of this week's economic reports due out,
If you have questions or comments for Sam Collins, please
e-mail him at