In a volatile day with violent swings of almost 300 points, the
Dow Jones Industrial Average closed just 12 points lower. The day
started with a sharp rally of a full percent, which took back a
significant portion of Friday's fall.
But when the ISM Index, which was expected to be at about 54
came in at 50.9, the market turned sharply lower. This was a great
disappointment that confirmed that U.S.manufacturing has not yet
recovered, and by noon the index was off by about 145 points.
Then, even as rumors flew that S&P was about to lower the
U.S.debt rating to AA, a rally took hold and continued throughout
With the NYSE trading 1.1 billion shares and advancers almost
equal to decliners, it was a classic case of bad news being ignored
as investors focused on the likely passage of the debt deal while
ignoring all other negative input. Despite the heavy selling on
Friday, the Dow industrials' 200-day moving average has not been
violated and is now at an even 12,000.
The Dow Jones Transportation Index closed slightly below its
200-day moving average at 5,156, but has further support at 5,010.
But the failure of the index to hold such a significant line
presents investors with another of those "non-confirmation" issues.
Instead of the transports showing strength, as in early July, it is
now the industrials that are holding the line. Despite not breaking
down under grim news, the fact that the transports, a forward
economic indicator, are weak is not a positive. We will watch this
situation closely since a further breakdown would no doubt also
pull down the industrials, as well.
Despite the afternoon rally, some key groups showed pronounced
weakness: Health care, drugs, insurance and retail stocks closed
lower. The retail sector, however, appears to be approaching an
important support zone, which is roughly marked by its 50-day
moving average (blue line) at $53 on its
Retail Select Sector SPDR
). On Friday, our internal indicator, the Collins-Bollinger
Reversal (CBR), flashed a buy signal, and yesterday, the stochastic
did the same. With two positive developments and its ability to
hold above its 50-day moving average, the outlook appears to be
brighter for this sector.
See Serge Berger's Daily Market Outlook:
How High Could a Rally Take Us?
See Sam Collins' Trade of the Day:
DDS Stock Priced Right
See Serge Berger's Trade of the Day:
Short XLI on a Relief Rally