Stocks opened strong yesterday and quickly ran to multi-month
highs on a revised GDP report, which showed a growth rate of 1.7%,
up from 1.6%. It also reported a 2.2% increase in personal
consumption, up from the 2% that was reported earlier.
The resulting euphoria drove the Dow Industrials up 113 points
to a new high for September. However, the buying only lasted for
about 20 minutes before sellers swamped the trading floors with an
avalanche of profit-taking. By noon, the morning's gains had
vanished and the Dow was lower than Wednesday's close by 90
Even a positive report from the Labor Department that initial
unemployment claims fell by 16,000 failed to stop the selling. And
investors seemed to completely ignore the positive Chicago PMI
reading for September - 60.4 where 56 was expected.
Despite the profit-taking, September turned out to not only be a
winner but the best September in 71 years, with a gain of 7.7% for
the Dow. The Dow is now up 3.6% for the year.
But problems remain and the weakness in some European economies
surfaced again yesterday. Moody's Investors Service downgraded
Spain's credit rating, and the Central Bank of Ireland continued to
wrestle with its troubled banking sector. Shares of
Allied Irish Banks, plc
), which must raise an additional $4.09 billion, fell 13%.
The materials stocks fell as investors became increasingly
concerned about China's currency policy. The sector does a major
portion of its business with China, and legislation that targets
China could make it more difficult for multinational companies to
do business with the centrally controlled nation. As a result
CF Industries Holdings, Inc.
) fell 3.9% and
) was off 2.3%.
The U.S. dollar fell versus the euro, with the euro closing at
$1.3634, up from $1.3629. The 10-year Treasury note fell, pushing
its yield up to 2.519%.
At the close, the Dow Jones Industrial Average lost 47 points to
10,788, the S&P 500 was off 4 points to 1,141, and the Nasdaq
was down 8 points to 2,369.
The NYSE traded 1.3 billion shares and the Nasdaq crossed 741
million shares. Advancers and decliners were almost unchanged with
a slight advantage to the decliners.
November crude oil closed at $79.97 a barrel, up $2.11, and the
Energy Select Sector SPDR
(NYSE: XLE) closed at $56.06, up 2 cents.
December gold fell 70 cents to $1,307.80 an ounce on
profit-taking following many consecutive days of new highs. And the
PHLX Gold/Silver Sector Index
(NASDAQ: XAU) fell 1.98 points to 196.96.
What the Markets Are Saying
Daily Market Outlook
covered the indicators that, along with charting features and trend
analysis, guide my technical reviews. I bring a review of the
internal and sentiment indicators to our readers' attention weekly,
comparing the raw data from external sources before reaching a
At the time of yesterday's writing, one piece of important data
was not yet available - the American Association of Individual
Investor (AAII) Sentiment Survey. The AAII Sentiment Survey, like
the Investors Intelligence, is a reverse or "contra" indicator -
i.e., bullish is bad, bearish is good. Those numbers were since
made available and show a small drop in the number of bulls to
42.5%. The AAI points out that this is the fourth consecutive week
that bullish sentiment has been above its historical average of
These numbers are in accord with the Investors Intelligence
report of yesterday in which advisers were reported to have
increased their bullishness for four consecutive weeks. These
reports are not good news for those who are anticipating a breakout
of major proportions.
And the bulls are not going to like the result of yesterday's
sloppy tape action either. Volume picked up about 0.3 billion more
shares than on up days, which lately have been less than 1 billion
shares on the NYSE.
The bears will cheer the numbers and also the daily reversal
that triggered a sell signal from our internal indicator, the
Collins-Bollinger Reversal (CBR). This is the first reversal for
the Industrials while in the current price range, but it is the
second CBR sell for the S&P 500. The first occurred on Sept.
23, at a close of 1,139, just two points less than yesterday's
close. Multiple reversals that are close in price and accompanied
by higher volume are clear signs that all is not well for the
The secular bear market is still with us, and the recent reversals
are clear signals that investors should sell on rallies while
traders should pursue bearish strategies on the short side of the
Has this strategy worked in the past? Our regular readers know
that until mid-April, the Daily Market Outlook was bullish, but as
our indicators rose to oversold heights and reversals in the major
indices began to appear, I moved to a "cautiously bullish stance"
in late April, and by May 3, I became downright bearish.
Just before that, I began to change our outlook with a "sell in
May" piece on April 19, which read, "And so, with internal and
sentiment indicators telling us that the market is now dangerously
overbought and the 'sell in May and go away' strategy having
triggered a sell, it is time to go to cash on all rallies. It
doesn't get much better than this, so it will most likely get
On Monday, I'll review the "sell in May and go away" strategy in
more depth. Many of you will be surprised by my conclusion.
For a bearish trading idea, see my
Trade of the Day
Today's Trading Landscape
There are no significant earnings to be reported today.
Economic reports due:
motor vehicle sales (the consensus expects 8.6 million), personal
income and outlays (the consensus expects 0.3% for personal income,
0.4% for consumer spending, and 0.1% for the core PCE price index),
consumer sentiment (the consensus expects 67), ISM manufacturing
Index (the consensus expects 54.5), and construction spending (the
consensus expects -0.4%).
If you have questions or comments for Sam Collins, please
e-mail him at
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