by Sam Collins 07/01/08
The second quarter of 2008 ended with a total loss of 7.4% for the 30 stocks of the Dow Jones Industrial Average (DJI). The major index is down 19.9% from its October high and one writer said the index was "to the brink of a bear market territory."
Yesterday, financial stocks again took a hit, down 2.1%, but institutional investors jumped on defensive sectors like utilities (up 2.3%) and telecoms (up 3.2%), while selling losers in a final effort to "dress up" portfolios as the quarter ended.
Merrill Lynch (MER) and Morgan Stanley's (MS) earnings estimates were cut by analysts at Ladenburg & Thalmann & Co. -- MER closed 3% lower and MS was off 1.7%. Ladenburg estimated that MER will have to raise equity in Q3 and be forced to unload 20% of its holdings in Bloomberg which might bring in up to $1 billion in equity.
AT&T (T), up 2.84%, and Verizon (VZ), up 3.27%, led the Dow 30 stocks. The biggest loser among the indices yesterday was the Nasdaq (NASD), off 0.98%, as tech issues were under heavy selling pressure from investors.
At the close, the Dow Jones Industrial Average (DJI) was up four points at 11,350, the S&P 500 (SPX) gained two points at 1,280 but the Nasdaq (NASD) fell 23 points to close at 2,293.
The New York Stock Exchange traded 1.6 billion shares, with decliners ahead by 3-to-2, and the Nasdaq (NASD) had volume of 892 million shares with decliners ahead by more than 2-to-1.
Crude oil (August contract) hit a new high at $143.67 on Globex but closed at $140 a barrel, down 21 cents, on the New York Mercantile Exchange. The Amex Energy SPDR (XLE) rose $1.43 to close at $88.48.
The August gold contract fell $3 to $928.30, and the PHLX Gold/Silver Index (XAU) gained 87 cents, closing at $195.25.
What the Markets Are Saying
This weekend, the financial press' favorite words were "bear market" and the phrase was trumpeted in every newspaper, internet service and TV broadcast -- from one end of the country to another. Most referred to the "widely accepted decline of 20% representing a bear market."
I have several problems with this: First, the terms "bull" and "bear" had no firm definition until Charles Dow applied them to his Dow Theory -- simply put, two of the three major indices had to confirm a direction in order to be termed "bull" or "bear."
By broadening the theory to the Dow's three indices (not just the DJI), Charles Dow put in place a definition that would set a standard for the identification of general market trends. Therefore, restricting the definition to just one index, as reporters did this weekend, makes little sense, especially since the index is constructed of just 30 stocks.
However, despite reporters' shortcomings, the impact of the hype may finally push the public's panic button and push people into heavy put buying and result in a bottom.
One of the two key volatility indicators moved closer to panic levels. The Nasdaq 100 Volatility Indicator (VXN) closed yesterday at 29.76. In January, a close above 30 led to a quick run to over 40 and a stock market reversal. In March, the close above 30 led to a swift move to over 37 and another market reversal.
With the second quarter now history, a short week of trading ahead, and internal and sentiment numbers at critical lows, stocks are ripe for a new direction. All eyes should be on CBOE Volatility Index (VIX) and the VXN for the buy signal (if one is to come).
Today's Trading Landscape
Earnings to be reported include: Apollo Group (APOL), Constellation Brands (STZ), Rostelecom (ROS), Schnitzer Steel Industries (SCHN) and Standard Microsystems Corp. (SMSC).
Several economic reports are due today: International Council of Shopping Centers (ICSC) Chain Store Sales Index for June 28, the Redbook Retail Sales Index for June 28, May Construction Spending (the consensus expects a 0.5% drop), the June Institute for Supply Management (ISM) Manufacturing Business Index (the consensus expects 48.3) and the ABC/Washington Post Consumer Confidence for June 29.
European bank stocks are sharply lower this morning.
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