by Sam Collins 09/04/08
The stock market went through another day of volatility Wednesday, opening slightly higher, then selling off so that by noon Eastern the Dow (DJI) was down 100 points. The morning selling of stocks was mostly due to uncertainty over the world economic outlook and the reason for the sell-off in commodities nearly across-the-board.
The swings in individual stocks, which began several months ago, were again wild.
Ambac Financial (ABK) was up 22% after it confirmed that the Commissioner of Insurance in Wisconsin gave approval to restart Connie Lee Insurance, and Lehman Bros. (LEH) gained 5% because of speculation that the firm may be taken over or receive a capital infusion. General Motors (GM) gained 5.8% following a report that light-vehicle sales in August fell "just" 20.3% -- imagine what the stock would have done had there been a gain in sales!
But there were some losers too.
ConAgra (CAG) fell 8.6% after it warned of underperformance in the consumer business. Intel (INTC) lost 4.6% on no news. McDermott International (MDR) fell 7.8% also on no news and after the close Credit Suisse issued a research report saying that they "believe that the recent weakness is overdone."
Corning (GLW) fell 12.6% due to a Q3 earnings warning from the company about "lower-than-expected LCD glass shipments." And that warning from GLW caused further selling in the technology sector and on the Nasdaq (NASD).
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The Fed's Beige Book release showed that business conditions were "weak," "soft," or "subdued" in many Fed districts. Further, the report confirmed that the economy is on a downward path despite the strong 3.3% growth rate in the April-June quarter.
At the close, the Dow Jones Industrial Average (DJI) was up 16 points at 11,533, the S&P 500 (SPX) fell three points to 1,275 and the Nasdaq (NASD) was off 16 points closing at 2,334.
Volume on the New York Stock Exchange slightly exceeded 1.2 billion shares, with breadth at a positive 8-to-7. The Nasdaq (NASD) exchanged 876 million shares and there breadth was a positive 7-to-6.
Crude oil (October contract) fell again -- this time it was off 36 cents to $109.39 a barrel, and the Amex Energy SPDR (XLE) fell 27 cents to $70.28.
The December gold contract fell $2.30 to $808.20 per troy ounce, and the PHLX Gold/Silver Index (XAU) hit another new low at $134.46, off $4.85.
What the Markets Are Saying
The pattern of two or three days up or down, and then a move in the opposite direction, may continue as the markets continue to jockey for positions just above the lows of the year.
The bear market is still with us and so the chances are that, despite the frustrating daily volatility, these bounces will ultimately lead to another breakdown. The bulls have to be concerned about the determined selling by institutions in the last month after prices edged up to the massive overhead accumulated over the past nine months or so.
They should really focus on Tuesday's market when the Dow Jones Industrial Average (DJI) reversed down for the second day in a row flashing a Collins-Bollinger Reversal (CBR) sell signal on each occasion.
The S&P 500 (SPX) issued a CBR sell on Tuesday and then yesterday the stochastic had a sell signal and the Nasdaq (NASD) broke to the bottom of a channel which began on Aug. 15 just over the 200-day moving average.
Now the Nasdaq's 200-day moving average has been breached and yesterday's close fell exactly on the 50-day moving average, which, if broken, will almost certainly lead to a test of the low at 2,252.
It is no time to be a hero by trying to grab some high-tech, high P/E flyers. Instead, if you must buy, go for the best quality and buy it cheap. Currently, the sold-off energy group looks very, very cheap.
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Today's Trading Landscape
Earnings to be reported include: ABM Industries (ABM), ADC Telecommunications (ADCT), Alloy (ALOY), America's Car-Mart (CRMT), Bio-Reference Laboratories (BRLI), Blyth (BTH), Cascade Corp (CAE) and Ciena Corp (CIEN).Flow Int'l (FLOW), Hayes Lemmerz Int'l (HAYZ), iMergent (IIG), Jackson Hewitt Tax Service (JTX), Jos A. Bank Clothiers (JOS), MDS Inc. (MDZ), Movado (MOV), Navistar Int'l (NAV), Pike Electric Corp (PEC), Plato Learning (TUTR) and Point 360 (PTSX).
Quiksilver (ZQK), SeaChange Int'l (SEAC), Smith & Wesson Holding Corp (SWHC), Source Interlink Companies (SORC), Take-Two Interactive Software (TTWO), The Cooper Companies (COO), The Descartes Systems Group (DGSX), Toll Brothers (TOLL), Ulta Salon, Cosmetics & Fragrance (ULTA), UTi Worldwide (UTIW) and Volt Information Sciences (VOL).
Several economic reports due today: initial jobless claims for the week of Aug. 30 (the consensus expects negative 5,000), Q2 revised productivity figures (the consensus expects 3.9%), Q2 revised unit labor costs (the consensus expects negative 0.3%), the August Institute for Supply Management (ISM) Non-Manufacturing Composite Index (the consensus expects 49.0) and the DJ-BTMU Business Barometer for Aug. 16.
The Bank of England has maintained rates at 5.5%. Moody's (MCO) cut SunTrust Bank's (STI) senior debt rating one notch to A1. Boeing's (BA) largest labor union voted to strike.
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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.
