Despite a report showing that U.S. construction spending in
April had its largest gain in almost 10 years, stocks turned down
again on Tuesday. The construction spending numbers, however,
probably had a cushioning effect on selling, but despite that, the
Dow Jones Industrial Average
) closed with another triple-digit loss.
) fell another 15% in reaction to its recent failure to cap the oil
spill in the Gulf of Mexico. And the energy sector of the
) fell 4.3%.
), the operator of the rig that caused the oil spill, fell 11.9%,
Anadarko Petroleum Corporation
) lost 19.6%, and
) lost 14.8%.
Europe's economic worries were still on the top of stock
traders' list of fears. Reinforcing that fear was an announcement
by the European Central Bank (
) that some banks may face further write-downs over the next 18
And concerns over weaker-than-expected manufacturing data from
China caused selling of some emerging markets stocks. And while
U.S. investors were pondering what to do next, the Bank of Canada
announced that it added 25 basis points to its benchmark interest
rate, which is now at 0.5%.
The U.S. dollar rose versus the euro, which closed at $1.21.
At the close, the Dow was down 113 to 10,024, the S&P 500
fell 19 points to 1,171, and the
) lost 35 points to 2,222.
The NYSE traded 1.4 billion shares with decliners ahead of
advancers by more than 3-to-1. The Nasdaq traded 645 million
shares, and decliners there outnumbered advancers by almost
Crude oil for July delivery fell $1.39 to $72.58 a barrel. The
Energy Select Sector SPDR
) fell $2.52 to close at $50.53.
August gold rose $11.90 to $1,226.90 an ounce, and the
PHLX Gold/Silver Sector Index
) fell 0.9 points to 173.02.
What the Markets Are Saying
Our internal technical indicators are now grossly oversold, and
the sentiment numbers show the same result. The public is now
terrified of stocks, remembering the dramatic fall in prices from
2007 to 2009, and afraid that it will happen again. And the news,
especially from Europe, and now Asia, is so grim that many
investors are convinced that even if the U.S. economy manages to
blunder through, they want nothing to do with stocks.
Technically, we can't blame the average investor for that
emotional reaction to stocks. With every major index now below its
200-day moving average, there has been significant technical damage
done to virtually all U.S. markets. The Dow Industrials haven't
been above their 200-day line for seven trading sessions. And after
fighting to stay over the 200-day line for four days, even the
Nasdaq closed below it yesterday.
Stocks have fallen sharply from the highs of just six weeks ago,
and now the major resistance to rallies sits just several points
above the current close for each index. For the Dow that number is
10,285, for the S&P 500 it is 1,107, and for the Nasdaq it is
2,230 -- each number representing the respective index's current
200-day moving average. Until a sustained rally breaks above these
numbers, the pressure is downward.
editor Josh Levine, an excellent fundamental analyst, correctly
points to many factors that make today's stock prices look very
enticing, with the S&P 500 down more than 10% from its April
high. And a recent ChangeWave Alliance survey finds that the U.S.
consumer is alive and well, and that the economic recovery is on
track. Furthermore, contagion to the U.S. economy from Europe
appears much less likely than a few weeks ago, and one impact of
the European banking crisis has been lower gasoline prices in this
But Josh also adds, "Despite my bullishness, the best approach
is to remain patient and use discipline. Let the market come to you
by using the major moving averages (i.e., 20-day, 50-day and
200-day) as guides."
Josh is wise to be cautious. We should shortly know if the
all-important support at the February lows of the key indices will
hold firm or not. Patience is the key to success. As Josh said,
"Let the market come to you."
Today's Trading Landscape
Earnings to be reported before the opening
Canadian Solar, Daktronics, Isle of Capri Casinos, Layne
Christensen, Medical Action, RBC Bearings, Shoe Carnival and United
Earnings to be reported after the close include:
ABM Industries, Applied Signal Technology, Coldwater Creek, Copart,
Cyberonics, Dynamex, Greif and Hovnanian Enterprises.
Economic reports due:
Bank reserve settlement, motor vehicle sales (the consensus expects
8.9 million), MBA purchase applications, Challenger Job-Cut Report,
ICSC-Goldman Sachs store sales, Redbook and pending home sales
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