Stocks were sharply lower on Friday following fraud charges
being levied against Goldman Sachs (
) by the Securities & Exchange Commission. The sell-off
ended a six-day winning streak for S&P 500 and gave the Dow
Jones Industrial Average its worst loss in two months.
The key to the SEC charges, according to securities lawyers, is
the word "fraud." And with that word possibly attached to
subprime securities and applied to other investment banks and
brokerages, the financial group fell by over 9%. Goldman
Sachs fell over 13%.
Even better-than-expected earnings from General Electric (
), Google (
), and Bank of America (
) could not stop the tide of selling.
In addition to the Goldman situation, one negative economic
result also helped to hammer stocks: The preliminary Consumer
Sentiment Survey for April from the University of Michigan came in
at 69.5, which was the worst reading since November and well below
the 75.0 that was expected.
Some good news was ignored: Housing starts for March hit
an annualized rate of 626,000, which is more than the rate of
610,000 that was expected. Building permits for March came in
at an annualized rate of 685,000 where 625,000 was
And hanging over the market was the cloud from the volcano in
Iceland which some economists fear could turn the European recovery
on its heels. A rush to Treasuries resulted with the 10-year
yield falling to 3.75%, which is about 25 basis points below
where it was 10 days ago.
At the close on Friday, the Dow Jones Industrial Average was off
126 points at 11,019, the S&P 500 lost 20 points, closing at
1,192, and Nasdaq fell 34 points to 2,481.
The volume on the NYSE increased to 1.8 billion shares (perhaps
because of a combination of bad news and options expiration) and
the decliners were ahead of advancers by over 4-to-1. Nasdaq
crossed 885 million shares with decliners ahead by 5-to-2.
Crude oil for May delivery was off $2.27 to $83.24 a barrel as
investors sought safer assets. The Amex Energy SPDR (
) fell $1.02 to $59.30. June gold fell $23.40 to $1,136.90 an
ounce, and the PHLX Gold/Silver Index (
) lost $4.39, closing at $168.67.
What the Markets Are Saying
The stock market has been plodding along to new highs almost
daily, looking like nothing could stop it. And yet with all
of our internal indicators at "very overbought" or "overbought"
levels, I've warned that all it would take would be some unforeseen
negative event to trigger a sell-off. We thought that perhaps
the Greece debt situation would evolve into that bad news scenario,
however that didn't happen (yet).
But all of last week seemed to be a struggle for stocks despite
the good news of daily earnings reports that beat analysts'
earnings estimates by large numbers. The market was acting
poorly in the face of good news -- and that is not good.
Then the twin bombs hit on Friday: Goldman was being
charged with fraud and the Iceland volcanic ash continued to spew
forth endangering Europe's fragile recovery. The market
Last week week, I discussed the Halloween Indicator, also known
as the "Sell in May and Go Away Indicator." The triggers that
I use to tell us when to sell are chiefly the "internal indicators"
of stochastic, momentum, and the Moving Average
On Friday, the stochastic and the MACD issued short-term sell
signals and momentum is overbought. The triggers on the
Halloween Indicator have been fired, and those who follow it should
be exiting stock positions and engaging in defensive strategies
like call writing, put buying, etc.
And the sentiment indicators have also issued sell signals, but
that is for tomorrow's discussion.
For now, sell before May and go away looks like a sound
Today's Trading Landscape
Earnings to be reported before the opening
Amylin Pharmaceuticals, Arch Coal, Bank of Hawaii, Citigroup, Eli
Lilly, Halliburton, Hasbro, IDEX Corp, M&T Bank, McMoRan
Exploration, Sensient Technologies, Standard Pacific. After the
close: Allegiant Travel, Atheros Communications, Brown & Brown,
C&D Technologies, Crane, Crown Holdings, Equity LifeStyle
Properties, IBM, ICU Medical, Packaging Corp, Pinnacle Financial,
Renaissance Learning, RLI Corp, Steel Dynamics, Werner Enterprises,
and Zions Bancorp.
Economic report due:
Leading Indicators (the consensus expects 1.1%).
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