by Sam Collins 03/20/08
Editor's Note: In honor of the market holiday, we will not be publishing a Daily Market Outlook on Friday, March 21. Have a safe and enjoyable holiday weekend!
Before Wednesday's opening, there was little to warn investors that one of the best days for the market in five years was to be followed by one of the worst days this year.
Ahead of the opening bell, Morgan Stanley (MS), Adobe Systems (ADBE), Darden Restaurants (DRI) and General Mills (GIS) all beat earnings estimates, and Fannie Mae (FNM) and Freddie Mac (FRE) were allowed by the Federal Housing Administration to purchase more home loans. Stocks opened higher on the news.
It wasn't long, however, before sellers emerged. Some traders blamed margin calls as the source of the selling and others said they caused a stronger U.S. dollar. But whatever triggered it, both stocks and commodities took it on the chin for the remainder of the session. Commodities, chiefly gold and crude oil futures, led the selling in the pits; percentage-wise, gold was hit the worst, but crude oil suffered its worst loss since 1991.
At the close, the Dow Jones Industrials (DJI) were down 293 points at 12,100, the S&P 500 (SPX) lost 32 points to close at 1,298 and the Nasdaq (NASD) was clipped for 58 points and closed at 2,210.
On the New York Stock Exchange, almost 2 billion shares changed hands and the Nasdaq (NASD) traded almost 1.1 billion shares. Breadth was negative on both exchanges by 2-to-1.
As noted above, crude oil futures (April contract) had a sharp sell-off with the closing trade at $104.48, off $4.94. The Amex Energy SPDR (XLE) fell $4.60 to $70.70, breaking its 200-day moving average and heading for a test of the January and February closing lows at around $67.
The April gold contract fell to $945.30, down $59 per troy ounce, and the PHLX Gold/Silver Index (XAU) was hammered for $14.81 and closed at $178.16. Its next major support is at around $170.
What the Markets Are Saying
Sellers took back a good portion of the market's 420-point gain on Tuesday, and two of the major indices -- the Dow Industrials (DJI) and the S&P 500 (SPX) -- triggered our internal indicator Collins Bollinger Reversal (CBR) sell signals. So, in one session the optimism of Tuesday's rush to buy is a memory and the bears are back in charge again.
Sentiment, after scoring excessively high fear readings, is now closer to normal and the internal indicators like the Moving Average Convergence/Divergence, stochastic, and Relative Strength Index (RSI) suddenly moved into the midrange. Even though the major indices held at a fragile mini-double-bottom at Dow (DJI) 11,740 to 11,760, the bulls will have to marshal their forces to hold against further high-volume selling.
With the long Easter weekend ahead in a market that is overly sensitive to news, many traders will want to exit. New margin calls could add still more sellers.
Yesterday, crashing commodity prices applied additional pressure, with the precious metals experiencing the first correction from a steeply angled advance since October 2007. Now, both the food futures and hard metals are going to add more stress to stocks as they, too, trigger margin calls. Those with margin debt will probably be forced to do some across-the-board liquidations.
Today could be the day that the market tells us whether the bulls will turn back the tide of selling or if the bears will again prevail.
Today's Trading Landscape
Earnings reports expected today include VeriFone Holdings (PAY) and Guess? (GES).
The following economic reports will also be delivered: February Leading Indicators (the consensus expects negative 0.3%), the March Philadelphia Fed survey (the consensus expects negative 18.0) and weekly jobless claims.
Precious metals had a big sell-off in Asia and Europe, as margin selling continues. The drive for liquidity may place new pressure on stocks today.
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