A headline grabbing week, in which the stock market was drubbed
on Monday and Tuesday, ended on Friday with a whimper. However,
despite the flat close, the U.S. markets still must confront
worries over China's response to its growth rate, Europe's shaky
economies, and the long-term impact of the Fed's second round of
quantitative easing (QE2). On Friday, China raised its bank reserve
requirements, but that had little impact on trading since the
increase had been anticipated.
Tuesday's sharp fall was in part due to China's tighter money
policy and the resulting impact on U.S. exports to that massive
market. Ireland's fragile economy was in the news for the entire
week, but late news on Friday seemed to indicate that talks with
the European Union (EU) and the European Central bank are going
well. And on Sunday, it was announced that Ireland had applied to
the EU for a bailout worth tens of billions of euros.
Of the Dow Industrials,
The Boeing Company
) was the worst performer, down 1.6%, and
The Walt Disney Company
) was a close second, off 1.5%. The top gainers were
), up 2.18%, and
American Express Company
), up 1.25%.
In corporate news,
AnnTaylor Stores Corp.
) jumped 8.5% on better-than-expected Q3 earnings and same-store
) said that it is buying
Bucyrus International, Inc.
) for a 32% premium of $7.6 billion, and
) said that it will pay
Isilon Systems, Inc.
) $2.25 billion, which is a 29% premium.
General Motors Co.
) closed on Friday at $34.26, one day following its successful
return to the NYSE following its restructuring and IPO.
The benchmark 10-year Treasury note rose on Friday bringing its
yield to 2.87%. Thirty-year Treasury bonds fell to a yield of
4.24%. The euro gained versus the dollar, and late Friday was
quoted at $1.3691 versus $1.3628 on Thursday.
At Friday's close, the Dow Jones Industrial Average rose 22
points to 11,204, the S&P 500 was up 3 points to 1,200, and the
Nasdaq rose 4 points to 2,518. The NYSE traded 1.1 billion shares
with advancers over decliners by 1.4-to-1. The Nasdaq crossed 581
million shares and advancers were ahead by 1.2-to-1. For the week,
the Dow rose 0.1%, the S&P 500 was unchanged, and the Nasdaq
Crude oil for December delivery fell 34 cents to $81.51 a
barrel, and the
Energy Select Sector SPDR
) rose 53 cents to $63.59. December gold fell 70 cents to $1,352.30
an ounce, and the
PHLX Gold/Silver Sector Index
) rose 1.58 points to 212.37.
What the Markets Are Saying
This has been a "headlines related market" for months, but last
week almost every twist and turn could be related to a
headline-grabbing event in some part of the world. This makes for
some interesting days for traders, but does little for the average
investor. Prices see-saw from support to resistance and back again,
sometimes traversing price bands in a matter of hours rather than
the days or even months that was typical several years ago.
The general result of this type of volatility is that the "big
money" and long-term investors tend to stay away. Thus, the markets
are left to short-term traders, some of whom are often in and out
in a matter of minutes, and this leads technicians to label the
market as having little commitment or conviction.
Last week, we saw the S&P 500 traverse the entire support
zone of 1,210 to 1,174 in three days, and then jump to an intraday
high of 1,200 on Thursday, and close at the round number on
Technically that's an upside reversal after falling from its new
high for the year to the important support at just above its 50-day
moving average, and then jumping to a big round number like 1,200.
But the bears would say that the rally was preceded by "9-to-1″
volume down days with the highest volume since June. The bulls say
that the reversal up to 1,200, which is just above the 20-day
moving average of the S&P 500, coupled with the big volume
down day on Tuesday was a "selling climax," which will result in a
So who is correct? When faced with a stand-off between bulls and
bears, it is sometimes helpful to go to our indicators, both
internal and sentiment, for a clue. Here is what they show:
Internal indicators, chiefly
Moving Average Convergence/Divergence (MACD)
, momentum, stochastics and
Relative Strength Index (RSI)
, have moved from extreme "overbought" numbers to modestly
"oversold," and the stochastics have even flashed a near-term "buy"
Sentiment indicators are mixed with Investors Intelligence
telling us that the advisers are now bullish, surging from 48.4% to
56.2% in just one week, while the bears fell to 20.2% from 23.1%.
In the words of II, this "shows that there is less and less cash on
the sidelines," and is thus a bearish sign. However, the AAII
Sentiment Survey shows that the bulls have fallen to 40% from
57.56% in just one week with bears increasing from 28.49% to
32.50%, and that is modestly bullish.
On balance, despite the mixed signals, I believe that the
technical situation is mildly bullish only because the last strong
technical signal was Thursday's impressive reversal. But the bulls
must back this up with a solid breakout on strong breadth and high
volume or prices will collapse back to support at 1,174 or
If you are a long-term buyer of stocks with a buy-and-hold
strategy, then there are many good values to be had as long as you
recognize the volatile nature of the market. But if you are a
trader or short-term holder, then you must memorize the support and
resistance numbers for the major stock market indices, as well as
for the stocks in which you have an interest. Buy on support (low
numbers) and sell on resistance (high numbers). This is easy to say
and difficult for most traders to execute because it is almost
always contrary to the current run of headline news.
See market's support zones here.
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
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