2-16-2012
In yesterday’s newsletter I said we would see just how resilient these markets really are. The major indices all reversed Wednesday on rising volume. The DOW reversed early. Then Apple (AAPL) reversed sharply at midday bringing down the NASDAQ and S&P with it.
Apple is the largest weighted component of both indices, and so the S&P and NASDAQ reversed midday ending near their lows of the day (see 1 Day Graphs).
DOW 1 Day - Opened at High, Sold Off Throughout the Day on 2-15-2012
S&P 1 Day Peaked at Noon, then Sold Off on 2-15-2012
NASDAQ 1 Day - Peaked at Noon, then Sold Off on 2-15-2012
The good news is that Down Volume was 65% of the NYSE and just 53% of the NASDAQ. Therefore selling wasn’t as intense as the price action indicates. And, if you take Apple out, the NASDAQ didn’t look nearly as weak.
The bad news is the higher overall volume could be a sign of institutional selling. Total volume wasn’t spiking at panic levels though, and up till now, the markets had been shedding off the bad economic news continuing higher. But now, the bad news seems to be piling on and may wear on investors psyche.
The EU is postponing their bailout to Greece and proposing a much smaller bridge loan until they get more concessions. The FED’s FOMC (Federal Open Market Committee Meeting) minutes were released in the early afternoon. There was dissention and subdued support for round three of quantitative easing (QE3). Not what investors wanted to hear.
Late in the day you had Moody’s coming out threatening to downgrade 17 major international banks. UBS, Credit Suisse, and Morgan Stanley by as much as 3 levels, and Goldman Sachs, Deutsche Bank, JPMorgan, and Citigroup by as much as 2 notches. Thus investor sentiment maybe changing and becoming more defensive. Gold and gold mining stocks were one of the few places to hide yesterday showing positive results.
Thus far this still may be a light pullback. But we need to monitor the situation closely to see if it accelerates to the downside. Definitely hold off on any new buying and stand ready to raise cash if necessary.
The old saying used to be “So goes GM, so goes the nation,” or market. I believe you can now replace GM with Apple. It is one of the most widely institutionally held stocks.
Additionally, Apple just asked Amazon to pull all iPods for sale on Amazon’s website in Chinese markets over a trademark dispute with a Chinese Shenzhen-based company. This should put further pressure on Apple stock.
Dr. Chris Katcher and Gil Morales pointed out even before the announcement that if Apple fails to hold to hold the 500 price level it could trigger the Livermore Century Mark Rule making the stock a short (of course using stop losses). This strategy is only for active traders, not for investors.
For those of you who don’t know, Jesse Livermore was a very famous trader at turn of the last century (early 1900s). In fact, many consider him to be the father of technical trading.
His century rule(s) is that when a stock breaks a century mark – 100, 200, etc.. – to the upside, it tends to continue the uptrend a while for psychological reasons. Likewise, when a stocks breaks down below a century mark, it tends to continue to the downside.
These are not hard, fast rules, but may be a setup and opportunity to pay attention too. The main point is to use Apple as an one indicator for the market’s health. When Apple succumbs, the markets will likely succumb.
Also pay attention to how the investors react to the negative news. Many times, it is more about the investors than the investments.
Today the economic reports include the Producers Price Index (PPI), Initial Jobless Claims, Housing Starts, Building Permits, Mortgage Delinquencies and Foreclosures, and the Philly FED Business Outlook. This is a broad, full day of economic data.
We have numerous companies reporting earnings today across multiple sectors. We have 18 in the S&P alone. Among them are Waste Management (WM), Health Care REIT (HCN), Duke Energy (DUK), Nordstrom (JWN), Apache (APA), Frontier Communications (FTR), DirecTV (DTV), and Applied Materials (AMAT).
On the broader markets, a few include Ultra Petroleum (UPL), Allscripts Healthcare Solutions (MDRX), Advanced Auto Parts (AAP), and Hyatt Hotels (H). Oh yea, I almost forgot, General Motors (GM). GM is not in the S&P anymore as it was removed when it filed for bankruptcy.
In overnight trading (Wednesday 10:42 p.m. CST) the Asian equity markets are firmly in the red. Silver, gold, and oil are giving back some of their gains from our trading session. The US dollar is up against the other major currencies, and up significantly against the Euro.
Our US equity futures are also in the red. The DOW futures are down 51 points, the S&P futures are down 7 points, and the NASDAQ futures are down 13 points. Looks like we might have another tough day. Watch for acceleration.
