Investors Should be Back on the Defensive

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Financial stocks took a broadside yesterday that not only drove down the sector, but also caused the Dow Jones Industrial Average ( DJI ) to close under 10,000 for the first time since Nov. 4. 

Bank of America ( BAC ), off 3.5%, with the biggest price decline in the Dow, and the other Dow financial stocks, were the prime cause of the triple-digit-down day.

Financials also make up a significant portion of Nasdaq ( NASD ), and it, too, had big losses. The S&P 500 also fell as a result of heavy selling in the financials, but all of its other sectors were lower, as well.

American Express ( AXP ) fell 2.8%, Travelers ( TRV ) fell 2.5 %, and JPMorgan Chase ( JPM ) fell 1.6%. 

But there were a few winners yesterday: Rubbermaid ( NWL ) rose 1.7% after Morgan Stanley ( MS ) raised its rating on the stock. And Home Depot ( HD ) jumped 2.2% for the same reason. Hasbro ( HAS ) popped 12.7% after the toy company reported a big earnings increase, and CVS Caremark ( CVS ) jumped 5.3% following news of an 11% increase in net profit.

The U.S. dollar weakened versus both the euro and the yen.

At the close, the Dow was off 104 points at 9,908, the S&P 500 was even at 1,066, and the Nasdaq got hammered for more than 15 points at 2,126. 

The NYSE traded just over 1 billion shares with advancers trailing decliners by a ratio of 8-to-5. The Nasdaq traded 643 million shares with decliners ahead by 9-to-5.

March crude oil rose 70 cents to $71.89 a barrel, and the Energy Select Sector SPDR ( XLE ) fell 50 cents to $53.74. 

April gold rose $13.40 to $1,066 an ounce. The PHLX Gold/Silver Sector Index ( XAU ) fell $4.91 to $149.34. 

What the Markets Are Saying

Friday's set of reversals were not only dramatic, coming on high volume and late in the day, but they temporarily averted an intermediate breakdown of each of the major indices. But yesterday's triple-digit Dow loss places investors back on the defensive, putting the indices very close to some major technical break points.

The current outlook depends on the ability of the indices to hold above Friday's intraday reversal lows. A failure to hold above Friday's reversal low at S&P 1,041 could trigger a quick test of the bottom of the current range, which is 1,020. And just before the bottom of the range is the 200-day moving average at 1,022, which, if decisively penetrated, could change the long-term trend. 

Applying those ranges to the Dow and Nasdaq gives us the following support numbers:

  • Dow: Friday's low 9,823; bottom of current range is 9,380; 200-day moving average is at 9,491. 
  • Nasdaq: Friday's low 2,100; bottom of current range is 2,015; 200-day moving average is at 2,022.

As an astute trader and investor, you should know the importance of these support numbers, and at each stage have an investment plan that includes stocks that you want to buy at prices you are willing to pay and stop-loss points that will automatically protect you against unacceptable losses. 

Planning today may not only avoid tomorrow's disaster, but provide structure and discipline with a procedure that could reap untold future rewards.

Today's Trading Landscape

Earnings to be reported before the opening include: Aecom, AGCO, Agrium, Allied Healthcare, Allot Comms, Alpha Natural Resources, American Commercial Lines, Astronics, Biogen Idec, BJ Services, Cameron, Cedar Fair, Celanese, Centene, Church & Dwight, Coca-Cola, Cognizant Technology Solutions, Coventry Health Care, Cubic, Cynosure, Double Hull Tankers, Energy Conversion Devices, Gartner, Gaylord Entertainment, InterActive, International Flavors and Fragrances, KVH Industries, LCA- Vision, Martin Marietta, Molson Coors Brewing, New Frontier Media, NYSE Euronext, Overstock.com, Potlatch, Pulte Homes, RTI Biologics, Rubicon Technology, Temple-Inland, Triple-S Management, Vishay Intertechnology, Warner Music Group and Zebra Technologies.

Earnings to be reported after the close: Aftermarket Tech, AGA Medical, American Financial, American Science & Engineering, Aspen Insurance, Baidu.com, Bob Evans, CareFusion, Cerner, Corporate Executive Board, Corrections Corp., Diodes, Dionex, Drugstore.com, EOG Resources, Gildan Activewear, Globecomm Systems, Healthcare Services Group, HNI Corp., Insulet, Kforce.com, Learning Tree, Lions Gate Entertainment, Maxygen, Netgear, OpenTable, Peet's Coffee, Prospect Energy, Quality Distribution, RenaissanceRe, rue21, Rush Enterprises, Safe Bulkers, Taubman Centers, Team Health Holdings, UDR, Ultimate Software, Usana, Walt Disney, Web.com and XL Capital.

Economic reports due: ICSC-Goldman Sachs store sales, Redbook and wholesale trade.

Late quarterly earnings news (earnings vs. estimated):

  • Centene ( CNC ): 53 cents vs. 52 cents
  • Cognizant Tech ( CTSH ): 47 cents vs. 46 cents
  • Coventry Health Care ( CVH ): 74 cents vs. 56 cents
  • NYSE Euronext ( NYX ): 58 cents vs. 48 cents
  • Rubicon Tech ( RBCN ): 4 cents vs. 5 cents
  • Warner Music ( WMG ) 11 cents vs. 14 cents
  • Zebra Tech ( ZBRA ) 33 cents vs. 26 cents  

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks


Sam Collins

Sam Collins

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