by Sam Collins 08/28/08
Volume continued to contract yesterday as the three-day Labor Day weekend approaches, with the New York Stock Exchange trading just 820 million shares (average volume in July was 1.54 billion shares) -- marking the second consecutive day of the lowest volume for the year. Despite the low volume there was some positive economic news to keep buyers active.
The July durable goods orders report showed that orders rose 1.3% month-over-month, topping expectations. A Federal Reserve governor, Atlanta President Dennis Lockhart, predicted that inflation would ease in coming months, so the market concluded that a rate hike before the end of the year is unlikely. And Germany's consumer price index (CPI) declined for the month of August, indicating that U.S. inflation could ease by year end.
But a surprising shortfall in crude oil inventories led to a rally in crude oil that put pressure on stocks in the afternoon and taking away some of the early gains.
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At the close, the Dow Jones Industrial Average (DJI) gained 90 points at 11,503. The S&P 500 (SPX) was up 10 points at 1,282 and the Nasdaq (NASD) rose 20 points to close at 2,382.
The NYSE traded just 820.6 million shares while 610.5 million shares traded on the Nasdaq. On the Big Board, advancers topped decliners by 3-to-1, and on the Nasdaq advancers were ahead by 2-to-1.
Crude oil for October delivery rose $1.88 to $118.15 a barrel and the Amex Energy SPDR (XLE) rose $1.19 to $76.34. The next area of resistance for the XLE is at the conjunction of the 50-day and 200-day moving averages at $77.75.
A weaker dollar boosted the price of gold, with the December contract up $5.90 to $834 per troy ounce. The PHLX Gold/Silver Index (XAU) gained $3.77 at $151.26.
What the Markets Are Saying
With each of the major indices restricted to very narrow ranges and volume falling to the lowest of the year, we wouldn't expect a breakout in either direction until the big-volume players return. But a hint as to the next move comes from the price of oil.
After falling 22%, crude oil prices seem to be making a bottom. If the current lows of $111.50 to $112 aren't penetrated in the next several weeks, then a new trading range of $115 to $130 might be with us for some time. That means that there will be some more rocky days for stocks.
The current support for the S&P 500 (SPX) is the bottom of a small right triangle at 1,261 to 1,263, with resistance at a declining line at yesterday's intraday high of 1,285.
This is a very tight trading range, so a bounce up in the price of crude would likely force the S&P through support for a test of the Jan. 28 low of 1,234, or even a test of the bottom at 1,200.
Overall, we remain very cautious.
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Today's Trading Landscape
Earnings to be reported include: Aruba Networks (ARUN), ATA (ATAI), China Finance Online Co (JRJC), China Telecom Corp (CHA), Chunghwa Telecom Co Ltd (CHT), Del Monte Foods (DLM), dELiA's (DLIA), Dell (DELL) and DSW (DSW).
Esterline Technologies (ESL), Fleetwood Enterprises (FLE), Fred's (FRED), Genesco (GCO), Gerber Scientific (GRB), Gottschalks (GOT), Huaneng Power Int'l (HNP), Indosat (IIT), Jamba Juice (JMBA), Kirkland's (KIRK), LaBarge (LB), Layne Christensen (LAYN), Linktone (LTON), Marvell Technology Group Ltd (MRVL) and Micros System (MCRS).
National Bank of Greece SA (NBG), Netezza Corp (NZ), Novell (NOVL), Omnivision Technologies (OVTI), On Track Innovation Ltd (OTIV), Perceptron (PRCP), PetSmart (PETM), Quanex (NX), Royal Bank of Canada (RY), Sears Holdings Corp (SHLD), Sigma Designs (SIGM) and SourceForge (LNUX).
Tiffany & Co (TIF), Toronto Dominion Bank (TD), Urologix (ULGX), Vimpel Communications (VIP), Williams-Sonoma (WSM), Wimm-Bill-Dann Foods OJSC (WBD), Wind River Systems (WIND) and Zale Corp. (ZLC).
The following economic reports are due: Initial Jobless Claims for the Aug. 23 Week, preliminary second-quarter GDP estimates, preliminary second-quarter corporate profits, and the DJ-BTMU Business Barometer for Aug. 9.
Tropical storm Gustav continues to track toward the oil rigs in the Gulf of Mexico. Crude oil prices are up this morning in anticipation of possible damage to the production facilities in the Gulf.
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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.
