by Sam Collins 09/02/08
On Friday, almost all of the focus was on Hurricane Gustav and its possible threat to the Gulf of Mexico's oil production. And even though crude closed slightly lower, the fear of another round of higher gasoline prices kept pressure on stocks.
Not helping matters for the technology group was a nasty Q2 report from Dell (DELL). Quarterly earnings turned out to be 31 cents a share versus expectations of 36 cents. Even though there were several cents a share of restricting charges that in the company's absence could have contributed to the bottom line, the stock fell 13.8%.
There were other technology problems that resulted in a sell-off of the group: Marvell Technology (MRVL) fell 4.4% after the chipmaker forecast the current quarter to be below expectations, and Microsoft (MSFT) was down 2.3% after saying that it was going to buy Greenfield Online (SRVY) for a price higher than a prior bid.
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At the close, the Dow Jones Industrial Average (DJI) was down 172 points to 11,544. The S&P 500 (SPX) fell 18 points to 1,283 and the Nasdaq (NASD) lost 44 points closing at 2,368.
Volume on the New York Stock Exchange topped 959 million shares and decliners were ahead by a margin of 5-to-3. On the Nasdaq, 653 million shares crossed and decliners were ahead by 9-to-5.
For the week, the Dow fell 0.7%, the S&P 500 was off 0.7% and the Nasdaq fell 2%. For the year, the Dow is off 13%, the S&P 500 is down 12.6% and the Nasdaq is off 10.7%.
On Friday, crude oil (October contract) lost 13 cents, closing at $115.46 a barrel, and the Amex Energy SPDR (XLE) fell 35 cents to $74.65. On Monday, all U.S. markets were closed but mid-day in European trading, crude prices for October delivery were down $4.21 to $111.25 a barrel as a result of little or no damage to Gulf oil rigs and processing facilities.
The December gold contract fell $2, closing at $835.20 per troy ounce. The PHLX Gold/Silver Index (XAU) fell $1.79, closing at $149.22.
What the Markets Are Saying
We are still in a bear market with the strong likelihood that the July 15 lows will yet have to stand a test. The internal indicators, including the stochastic, issued a short-term buy signal on Thursday which was negated by a sell-off on Friday.
This volatility is the result of the traditionally low volume of trading this time of the year. Investors should try to ignore this week's action and stick with the basic overall market trend, which is still down.
However, there is a strong possibility that some sectors have seen their market lows -- like the sold-out financial group. It is far too early, though, to begin taking positions in that sector, and I would prefer to see more evidence of a bottom before making commitments.
Crude futures prices are down sharply this morning after the near-miss in the Gulf of Mexico, but even before Hurricane Gustav, many floor brokers were looking for a low in crude at around $110 -- it is now at $108. Below $110 there is little support. Now, with minor damage in the Gulf, prices may even temporarily thrust down to below $100 a barrel.
Today energy stocks may get hit with some selling but this, like with crude, could be short-lived and even provide good entrance points for many of our favorite stocks. For now, we'll stand aside and wait for a good buying opportunity.
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Today's Trading Landscape
Earnings to be reported include: Aluminum Corporation of China Ltd (ACH), DHT Maritime (DHT) and Donaldson (DCI).
The following economic reports due: July Construction Spending (the consensus expects negative 0.5%), August Institute for Supply Management (ISM) Manufacturing Business Index (the consensus expects 49.5) and the ABC/Washington Post Consumer Confidence for Aug. 31.
After Friday's close, the Federal Deposit Insurance Corp. (FDIC) announced it had seized Integrity Bancshares of Georgia -- this is the tenth bank to fail this year.
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FAST is now consolidating and recently flashed a buy signal from our internal indicator.
Options Expiration Adds Volatility
The opening looks to be higher but today is options expiration day, and anything could happen.
Chances are high stocks will sell off further, but be alert for a dead-cat bounce after such a dramatic breakdown.
Traders and longer-term investors should sell any new positions at the first opportunity and short ETFs on a temporary recovery in the market.
CAT, the blue-chip of its industry, is the first to attract attention when it's time to dress up a portfolio.
