The Dow Industrials were hit yesterday with the second straight
loss as investors again focused on the Fed and its quantitative
easing policy. Even a drop in the dollar and better economic
reports failed to rally the Dow, but both the S&P 500 and
Nasdaq closed slightly higher.
Initial employment claims fell by 21,000 to 434,000 in the week
ending last Saturday. The Street had expected claims would
rise by 3,000. Manufacturing activity in the Federal Reserve
Bank of Kansas City's district expanded but at a slower rate
than in September.
And the list of companies that reported better-than-expected
earnings continues to grow:
Las Vegas Sands
) all produced better earnings, but many had revenues that didn't
Treasurys rose, pushing the 10-year yield down to
2.659%. And the dollar fell in response to spreading lower
expectations from the Fed's QE2 plan. The euro closed at
$1.3929 vs. $1.3768 on Wednesday.
At the close the Dow Jones Industrial Average was off 12 points
to 11,113.95, the S&P 500 gained one point, closing at 1,184
and Nasdaq gained 4 points at 2,507. The NYSE traded one billion
shares with advancers slightly ahead of decliners. Nasdaq
crossed 540 million shares with decliners ahead by 1.36-to-1.
Crude Oil for December delivery rose 24 cents to $82.18 a
barrel, and the
Amex Energy SPDR
(XLE) fell 13 cents to $59.20. December Gold jumped $19.90 to
$1,342.10 an ounce, and the
PHLX Gold/Silver Index
(XAU) fell $5.07 to $201.60.
What the Markets Are Saying
The stock market's falling momentum, which may be due to the
Fed's feelers of a lesser response to QE2, is now causing some
technical issues. Finally, rather than just being overbought,
our internal indicators have each flashed short-term sell
signals. This is mainly because the extremely sharp,
straight-line advance from the late August lows is faltering and
prices are beginning to roll over in response to the overhead of
sellers that reside at the April highs.
The bulls will no doubt be quick to point out that the S&P
500 is still strong, successfully holding above its first support
line at 1,174, and the Dow has held above 11,000. This is true
but slowing momentum is not what the bulls need at a crucial area
of resistance. And combined with other indicators (
see yesterday's Daily Market Outlook
), falling momentum is more than just a hint of problems with the
rally but a graphic representation of a new direction - and it is
But cheer up! The new direction that I've described is not
a permanent change of trend but a mere alert that a rest is
due. The fact is that a rally with an angle up that is as
steep as this just can't be sustained. A rest will most likely
take the form of a mild correction first to the support on the
S&P at 1,175 and then a retreat to 1,150 and perhaps even to
1,130 before stabilization occurs.
Declines of this nature are quite common and normally take a
month or two to resolve. Jan. 2 to Feb. 8 and Aug. 6 to Sept.
1 are examples of normal corrections. And so if you are a bull
it may be time to just cool your well-worn hooves after a dash that
lasted for almost two months and enjoy the upcoming holidays.
Today's Trading Landscape
For earnings to be reported today, click here
Economic reports due: GDP (the consensus expects 2.0%),
Employment Cost Index (the consensus expects 0.5%), Chicago
PMI (the consensus expects 57.6), Consumer Sentiment (the
consensus expects 68.0) and Farm Prices.
If you have questions or comments for Sam Collins, please
e-mail him at