Market Analysis – A Good Time to Do Nothing

 

Stocks started out Tuesday on the upside following the better-than-expected S&P/Case-Shiller home price report for July, which showed a 13.3% decline versus an expected decline of 14.2%. But then the September consumer confidence numbers hit, and they showed a decline to 53.1 from 54.5 in August. Economists had expected 57 or more.

Both retail and bank stocks were hit by the confidence numbers, and banks also experienced selling on news that the FDIC will require insured institutions to prepay estimated quarterly risk-based assessments into 2012. Diversified banks fell 1.9%.

Walgreen Co. (WAG) gained more than 9% after posting better-than-expected earnings for their fiscal Q4. The retail drug store operator had a profit of 44 cents a share versus an expected 39 cents. WAG made a new high for the year at $38.44 and closed at $37.35, up $3.16.

The Dow Jones Industrial Average (DJI) fell 47 points to 9,742, the S&P 500 (SPX) lost 2 points to 1,061, and the Nasdaq (NASD) fell 7 points to 2,124.

Just 1.2 billion shares traded on the Big Board with decliners slightly ahead of advancers. On the Nasdaq, 612 million shares traded and decliners were ahead of advancers by 3-to-2.

November crude oil fell 13 cents to $66.71, and the Energy Select SPDR (XLE) closed at $54.27, off 15 cents. 

Gold for December delivery rose 30 cents to $994.40, and the PHLX Gold/Silver Index (XAU) gained $4.13, closing at $163.26.

What the Markets Are Saying

Following a nice rebound on Monday, which took back about two-thirds of the decline since Wednesday Sept. 23, yesterday was a slow day of trading that really went nowhere. This doesn’t help us to evaluate the reversal on Wednesday as genuine or just another bear trap on the road to riches for the bulls.

But the good news is that the 20-day moving average has held as the near-term support. As of yesterday’s close, the 20-day moving average for the Dow, at 9,631, is a comfortable 111 points below yesterday’s close.

A number of technicians are concerned about the action of the Nasdaq 100 (NDX). This index tracks the 100 largest non-financial stocks on the Nasdaq, and is thus primarily controlled by technology stocks.

They seem worried that its relative strength versus the S&P 500 is not good, and point to stocks like Apple (AAPL) as overpriced and Research In Motion (RIMM) as relatively weak. Well, RIMM did take a drubbing from a recent earnings miss, but RIMM isn’t the market. 

I don’t see the difference between the pattern for Nasdaq and the Nasdaq 100 — they both look very bullish to me, with initial support at their 20-day moving averages and strong support at the 50-day. Both, however, did issue Moving Average Convergence/Divergence (MACD) sell signals last Wednesday, but both have negated the Collins-Bollinger Reversals (CBR) of the same day.

Sometimes it is hard to wait. But I am reminded of a statement made by a former boss many years ago at E.F. Hutton & Co.: “In this case I will do what I do best — nothing.”

Today’s Trading Landscape

Earnings to be reported include: Actuant Corp. (ATU), Diamond Foods (DMND), Lawson Software (LWSN), TechTeam Global (TEAM), Worthington Industries (WOR) and Xyratex Ltd. (XRTX).

Economic reports due: MBA purchase applications, ADP employment report, GDP (the consensus expects -1.2%), corporate profits, Chicago PMI (the consensus expects 52), and EIA petroleum status report.

Late news: Mortgage applications are down 2.8% from last week.  

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