A headline grabbing week, in which the stock market was drubbed on Monday and
Tuesday, ended on Friday with a whimper. However, despite the flat close, the
U.S. markets still must confront worries over Chinas response to its growth
rate, Europes shaky economies, and the long-term impact of the Feds second round
of quantitative easing (QE2). On Friday, China raised its bank reserve
requirements, but that had little impact on trading since the increase had been
anticipated. Tuesdays sharp fall was in part due to Chinas tighter money policy
and the resulting impact on U.S. exports to that massive market. Irelands
fragile economy was in the news for the entire week, but late news on Friday
seemed to indicate that talks with the European Union (EU) and the European
Central bank are going well. And on Sunday, it was announced that Ireland had
applied to the EU for a bailout worth tens of billions of euros. Of the Dow
Industrials, The Boeing Company (NYSE: BA ) was the worst performer, down 1.6%,
and The Walt Disney Company (NYSE: DIS ) was a close second, off 1.5%. The top
gainers were Hewlett-Packard Company (NYSE: HPQ ), up 2.18%, and American
Express Company (NYSE: AXP ), up 1.25%. In corporate news, AnnTaylor Stores
Corp. (NYSE: ANN ) jumped 8.5% on better-than-expected Q3 earnings and
same-store sales. Caterpillar Inc. (NYSE: CAT ) said that it is buying Bucyrus
International, Inc. (NASDAQ: BUCY ) for a 32% premium of $7.6 billion, and EMC
Corporation (NYSE: EMC ) said that it will pay Isilon Systems, Inc. (NASDAQ:
ISLN ) $2.25 billion, which is a 29% premium. General Motors Co. (NYSE: GM )
closed on Friday at $34.26, one day following its successful return to the NYSE
following its restructuring and IPO. The benchmark 10-year Treasury note rose on
Friday bringing its yield to 2.87%. Thirty-year Treasury bonds fell to a yield
of 4.24%. The euro gained versus the dollar, and late Friday was quoted at
$1.3691 versus $1.3628 on Thursday. At Fridays close, the Dow Jones Industrial
Average rose 22 points to 11,204, the S&P 500 was up 3 points to 1,200, and the
Nasdaq rose 4 points to 2,518. The NYSE traded 1.1 billion shares with advancers
over decliners by 1.4-to-1. The Nasdaq crossed 581 million shares and advancers
were ahead by 1.2-to-1. For the week, the Dow rose 0.1%, the S&P 500 was
unchanged, and the Nasdaq was unchanged. Crude oil for December delivery fell 34
cents to $81.51 a barrel, and the Energy Select Sector SPDR (NYSE: XLE ) rose 53
cents to $63.59. December gold fell 70 cents to $1,352.30 an ounce, and the PHLX
Gold/Silver Sector Index (NASDAQ: XAU ) rose 1.58 points to 212.37. What the
Markets Are Saying This has been a headlines related market for months, but last
week almost every twist and turn could be related to a headline-grabbing event
in some part of the world. This makes for some interesting days for traders, but
does little for the average investor. Prices see-saw from support to resistance
and back again, sometimes traversing price bands in a matter of hours rather
than the days or even months that was typical several years ago. The general
result of this type of volatility is that the big money and long-term investors
tend to stay away. Thus, the markets are left to short-term traders, some of
whom are often in and out in a matter of minutes, and this leads technicians to
label the market as having little commitment or conviction. Last week, we saw
the S&P 500 traverse the entire support zone of 1,210 to 1,174 in three days,
and then jump to an intraday high of 1,200 on Thursday, and close at the round
number on Friday. Technically thats an upside reversal after falling from its
new high for the year to the important support at just above its 50-day moving
average, and then jumping to a big round number like 1,200. But the bears would
say that the rally was preceded by 9-to-1 volume down days with the highest
volume since June. The bulls say that the reversal up to 1,200, which is just
above the 20-day moving average of the S&P 500, coupled with the big volume
down day on Tuesday was a selling climax, which will result in a new high. So
who is correct? When faced with a stand-off between bulls and bears, it is
sometimes helpful to go to our indicators, both internal and sentiment, for a
clue. Here is what they show: Internal indicators, chiefly Moving Average
Convergence/Divergence (MACD) , momentum, stochastics and Relative Strength
Index (RSI) , have moved from extreme overbought numbers to modestly oversold,
and the stochastics have even flashed a near-term buy signal. Sentiment
indicators are mixed with Investors Intelligence telling us that the advisers
are now bullish, surging from 48.4% to 56.2% in just one week, while the bears
fell to 20.2% from 23.1%. In the words of II, this shows that there is less and
less cash on the sidelines, and is thus a bearish sign. However, the AAII
Sentiment Survey shows that the bulls have fallen to 40% from 57.56% in just one
week with bears increasing from 28.49% to 32.50%, and that is modestly bullish.
On balance, despite the mixed signals, I believe that the technical situation is
mildly bullish only because the last strong technical signal was Thursdays
impressive reversal. But the bulls must back this up with a solid breakout on
strong breadth and high volume or prices will collapse back to support at 1,174
or lower. If you are a long-term buyer of stocks with a buy-and-hold strategy,
then there are many good values to be had as long as you recognize the volatile
nature of the market. But if you are a trader or short-term holder, then you
must memorize the support and resistance numbers for the major stock market
indices, as well as for the stocks in which you have an interest. Buy on support
(low numbers) and sell on resistance (high numbers). This is easy to say and
difficult for most traders to execute because it is almost always contrary to
the current run of headline news. See markets support zones here. Todays
Trading Landscape To see a list of the companies reporting earnings today, click
here . For a list of this weeks 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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