The Good News About Yesterday’s Sell-off

Yesterday, stocks again traded on the news of the day and the headlines weren’t pretty: Possible war in Korea, a resurgence of Europe’s debt crisis, China’s monetary tightening, a major insider trading probe of Wall Street firms, and a downgrade of the Fed’s projections for the U.S. economy. With stock markets closed on Thursday and a short session on Friday, there were some traders who obviously just want to exit positions and avoid risk. Only one stock of the 30 Dow Industrials rose, and that was Hewlett-Packard Company (NYSE: HPQ ), up 2.2% as a result of better-than-expected earnings coupled with higher future earnings guidance. But another big technology stock, Microsoft Corporation (NASDAQ: MSFT ), led the decliners, falling 2.4%.  The U.S. dollar rose 1.3% as investors sought its safety. It was the biggest one-day advance for the buck in two months. And the European sovereign debt problem drove the 10-year Treasury note up 16/32 to a yield of 2.813%. At the close, the Dow Jones Industrial Average lost 142 points at 11,037, the S&P 500 fell 17 points to 1,181, and the Nasdaq lost 37 points at 2,495. The NYSE traded just over 1 billion shares and the Nasdaq traded 525 million shares. Decliners outnumbered advancers by about 3-to-1 on both exchanges. Crude oil for delivery in January fell 49 cents to settle at $81.25 a barrel. The Energy Select Sector SPDR (NYSE: XLE ) was off $1.24, closing at $62.15. December gold rose $19.80 to $1,377.60 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU ) fell 2.23 points to close at 212.5. What the Markets Are Saying With so much bad news around, the remarkable thing about yesterday’s decline was that it wasn’t worse. Just weeks ago, a single crisis of the magnitude of any of yesterday’s heart-pounders would have driven stocks down several hundred Dow points. Instead, the Dow fell 1.27% and the S&P 500 was down 1.43%, which makes the reaction to the bad news look like an ordinary day of profit-taking with decliners ahead by 3-to-1. It’s impossible to predict the outcome or full impact of the North Korean attack on its neighbor, so uncertainty hung like a cloud over trading yesterday, and we all know how Wall Street feels about that. However, not only did stocks have a modest day down but they ended the day with a small rally. The support at Dow 11,000 held, as did the oft-repeated support line of the S&P 500 at 1,174, and the 50-day moving averages of the major indices held as well. The Nasdaq even closed the trading gap at 2,456 to 2,502, which was opened last Thursday, and rallied to the midpoint of the day’s trading range. So the day ended with stocks acting much better than anyone could have imagined. That is an encouragement to the bulls, and if we can get through the remainder of this holiday week with little damage, we may even launch into December with a meaningful rally. If that happens, this ETF could pay big . A friend sent a simple but meaningful Thanksgiving card to me yesterday morning that I will pass on to you: Take time to appreciate your family, friends, and all the joyful memories that make Thanksgiving so special. Today’s Trading Landscape To see a list of the companies reporting earnings today, click here . For a list of this week’s economic reports due out, click here . If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net .
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