Friday started on a positive note with an upward revision
of fourth-quarter GDP to an annualized quarter-over-quarter growth
of 5.7% versus an expected growth rate 4.7%. The report went on to
show that core personal consumption expenditures increased at an
annualized quarterly rate of 1.4% and that, too, was stronger.
This is good news that could result in more jobs, but investors
on Friday were thinking more about a possible round of inflation
than jobs and stronger growth. So after a modest rally, stocks slid
to the minus side and the U.S. dollar rallied carrying most
commodities along with it. Then, before the close, commodities and
materials stocks turned south and, by the close, ended with sharp
Technology stocks were among the worst performers with Apple (
) down and others following. Even though the leading technology
company reported higher earnings than expected this week, their
newest product--the iPad--is receiving a mixed review. And
) rolled over as well. After posting a strong quarter the stock
closed lower on Friday.
At the close, the Dow Jones Industrial Average (
) fell 53 points to 10,067, the S&P 500 (
) fell 11 points to 1,074, and the Nasdaq (
) was off 32 points, closing at 2,147.
The NYSE traded just under 1.6 billion shares with decliners
ahead of advancers by 2-to-1. The Nasdaq traded almost 1 billion
shares with decliners ahead by just under 2-to-1.
What the Markets Are Saying
Even though the market managed to close higher in two of the
last five sessions, each intraday low has been lower than the prior
day's low. That pattern eats into support and quickly exhausts
available buyers leaving only sellers in the market with nothing
remaining but lower prices.
This pattern of lower intraday lows crushed the first line of
support at S&P 1,080 to 1,085, and with the low of Friday at
1,072, selling is about to enter the next zone of support at 1,020
Looking back to Friday, Jan. 22, the S&P sliced through its
50-day moving average, setting it up for the challenge of the line
at 1,080 to 1,085 and, as noted, quickly dispatched that support.
So, in just two weeks, the stock market has confirmed that a
correction is under way.
In January, the S&P 500 fell 3.7%, the Dow was off 3.5%, and
the Nasdaq was down 5.4%.
Meanwhile, the U.S. dollar is breaking out from a reverse
head-and-shoulders bottom while, as Michael Ashbaugh points out on
MarketWatch, the Chinese markets have broken down from a
head-and-shoulders bottom. These two developments are important
since they signal that the global chase for stocks, especially
"emerging market stocks," has at least temporarily been stopped in
its tracks. But this could add value to domestic stocks.
This month, the market enters a support zone at S&P 1,020 to
1,070 that took many months to develop, and it enters it with
virtually every internal and sentiment indicator oversold.
So, with such a negative background and U.S. stocks cheap, my
guess is that Friday's higher downside volume signaled a near-term
selling climax and a rally is about to begin. If it does, it does
not signal the end of the correction, but merely a respite from the
panic that many investors felt as they were long stocks at the top
of a 10-month chase for bargains. The bargain counters of Wall
Street are empty, so rallies must be used as opportunities to raise
cash until the next "blue-light special" is announced.
Today's Trading Landscape
Earnings to be reported before the opening
Affiliated Managers, Alberto-Culver, Ceragon, Changyou.com, Duncan
Energy, Enterprise Products, Exxon Mobil, Gannett, Haemonetics,
Hewitt Associates, Humana, MDU Resources, Moog, NiSource, Old
National Bancorp, Sohu.com and Sysco.
Earnings to be reported after the close:
Advent Software, Anadarko Petroleum Corp., Array BioPharma, Crown
Holdings, DST Systems, Extreme Networks, Hologic, ICU Medical,
Local.com, Mannkind, North American Energy, Oclaro, PennyMac
Mortgage, Plum Creek, Reinsurance Group of America, Rent-A-Center,
Rudolph Technologies, Silicon Motion, Tupperware and Unica.
Economic reports due:
existing home sales (the consensus expects 5.9 million).
Late earnings news:
) reported $1.48 versus a $1.48 estimate.
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