Sam Collins

Dow, Nasdaq Trigger Sell Signal … But Don't Worry, Yet

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Stocks opened steady yesterday, and trading was flat until the Fed's decision to leave rates unchanged.

A brief but sharp rally followed the announcement, which drove the major indices to new highs for the year. But the rally failed to gain enough momentum to carry it to the close, and profit-taking took out the morning support, leaving sellers to themselves for the last half hour of trading.

The Dow Jones Industrial Average (DJI) ran to an intraday high of 9917.99 at 2:40 p.m., up 80 points for the day, but reversed and fell to end up with an 81-point loss. 

JPMorgan Chase (JPM) fell 3%, Caterpillar (CAT) was off 2.21%, and Pfizer (PFE) fell 2.20%.

The sharp reversal caused a jump of 1.78% in the CBOE Volatility Index (VIX), an index that is used by traders to measure volatility in the markets.

Energy stocks were weak, even before the Fed's announcement, and finished off 1.9%. A bearish oil inventory report was blamed for the fall, as a rise of 2.8 million barrels surprised traders. Demand was off 3.3%, the lowest level since June 26. 

As for the Fed's announcement, Chairman Ben Bernanke had commented earlier that it appears that the recession is over. Thus, the confirming news yesterday that "economic activity has picked up following its severe downturn" was no surprise. The central bank's rate-setting panel voted 10-0 to keep the target for its Fed funds rate for interbank lending at a record low range of zero to 0.25%.

At the close, the Dow fell 81 points to 9,749, the S&P 500 (SPX) lost 11 points to 1,061, and the Nasdaq (NASD) fell 15 points to 2,131. 

Volume on the NYSE totaled 1.3 billion shares with decliners ahead by just short of 2-to-1. The Nasdaq traded 796 million shares with decliners ahead by 8-to-5.

As noted above, crude oil fell yesterday on weak demand and growing inventories. The November contract fell $2.79 to $68.97 a barrel, and the Energy Select Sector SPDR (XLE) lost $1.16 and closed at $54.41. 

December gold fell $1.10 to $1,014.40 an ounce, and the PHLX Gold/Silver Index (XAU) lost $5.27 to close at $164.59.