Stocks were relatively stable during most of Monday, despite
early weakness resulting from Spain's central bank's takeover of a
regional savings company. Following the assimilation of the news
from Spain, stocks recovered, and even though the Dow Industrials
were on the minus side of the ledger, other indices were either
breakeven or held onto gains through the early afternoon.
Some light selling came into the market at 3 p.m., but buyers
quickly moved on the weakness. However, suddenly heavy selling
overwhelmed the financial stocks, and within 30 minutes, all of the
major indices were driven to deep losses. Financial stocks were hit
with a 2.9% loss -- the worst of any of the S&P 500's sectors
-- with regional banks the worst performing stocks, down 4.2%.
Among the financials,
Bank of America Corporation
JPMorgan Chase & Co.
) fell more than 3.5%, and
American Express Company
) was off almost 2%.
Janus Capital Group Inc.
) was hit hard, off 7.5%, following a downgrade by analysts at
Goldman Sachs Capital Group Inc.
Several key technology stocks closed higher:
) gained 1.1% and
) rose 1.3%. But the technology group succumbed to selling in the
last minutes of trading, and the group fell 0.6%.
There was just one economic report of note. April existing home
sales rose 7.6% month-over-month to an annualized rate of 5.77
million units compared to an expected rate of 5.62 million
At the close, the
Dow Jones Industrial Average
) was off 127 points to 10,067, the
) fell 14 points to 1,074, and the
) was down 15 points to 2,214.
The NYSE traded 1.3 billion shares with decliners ahead of
advancers by 3-to-2. On the Nasdaq, 597 million shares traded, and
decliners there were ahead by just under 2-to-1.
Crude oil for July delivery rose 17 cents to $70.21 a barrel,
Energy Select Sector SPDR
) fell $1.21 and closed at $51.86.
June gold rose $17.90 to settle at $1,194 an ounce, and the
PHLX Gold/Silver Sector Index
) fell 5 points to 166.06.
What the Markets Are Saying
Yesterday's last half-hour sell-off was almost the mirror image
in reverse of Friday's final half hour of buying. It is just this
sort of volatile and strange behavior that often accompanies thin
markets with light volume, and perhaps that is the reason for the
selling, since the Canadian stock exchanges and banks were closed
for Victoria Day. And Friday's bizarre last-minute buying spree
could have been the result of the expiration of May options.
However, at some point we must discount the irrational behavior
of a given day and concentrate on the result instead of the cause.
Yesterday's sell-off took the S&P 500 perilously close to
Thursday's close, at 1,071.59, and could be telling us that the buy
programs, which so far have held prices within 2% or 3% of the
February low, have run their course. If that is the case, then we
are in for a broad sell-off that could take prices first to the
support at S&P 1,020 to 1,030, and if that fails, back to the
July 2009 peak at 950.
Even before yesterday's strange selling spree, the markets were
in an extremely oversold condition. Jeffrey Saut, the outstanding
technician from Raymond James, paraphrasing another outstanding
technician, Jason Goepfert, points out the following:
- "This is only the sixth time in history the S&P 500
futures have declined five days in a row and then gapped down
[by] at least 1%. All five others closed above the opening
price." (Note that this time the market opened lower.)
- "The total put/call ratio is poised to close at its fourth
highest level since modern reporting began in 1995. The other
three were all clustered in late February/early March of 2007
[right before a 12% rally]."
- "The Up Issues Ratio is so low, at just under 4%, that only
two other days since 1950 can match this bad breadth. They were
Sept. 26, 1955, and Oct. 19, 1987 (the crash), after which we saw
vicious short-term bounces."
These technicians conclude that the market will probably hold at
the low made in February. If they are correct, we should then
consider the next resistance zones: The first area of resistance to
buying is at the S&P's 200-day moving average now at 1,104,
which falls within the zone of 1,085 to 1,115. Above that is the
broad resistance zone at 1,115 to 1,150.
We are now at the crucial point where the bulls must hold the
line or pass control back to the bears.
Today's Trading Landscape
Earnings to be reported before the opening
AutoZone, Cracker Barrel, DSW, Flowers Foods, Ituran Location and
Control, Medtronic, Sanderson Farms and Trina Solar.
Earnings to be reported after the close include:
Dycom, HEICO, Netezza and TiVo.
Economic reports due:
ICSC-Goldman Sachs store sales, Redbook, S&P Case-Shiller home
price index, consumer confidence (the consensus expects 59), FHFA
house price index and State Street Investor Confidence Index.
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