Mixed economic data, including an unexpectedly high weekly initial jobless claims number, left investors concerned over today’s non-farm payrolls report. So stocks started off lower, but around noon turned and plodded higher for the afternoon, but never made it back to the plus side.
Before the opening, initial jobless claims for the week ended July 31, were reported to rise to a three-month high of 479,000 vesrsus an expected 455,000. Continuing claims fell 34,000 from the prior week, but are still very high at 4.5 million. Adding to investors’ worries was a retail report that showed no better than mixed sales results.�
So the optimism of early this week has turned to skepticism and even worse, as investors ponder what Federal Reserve Chairman Ben Bernanke might say next week. They remember his last meeting with Congress when he voiced concern over the uncertainties of the economy and the market subsequently tanked. Next week, the Fed chief will hold a meeting to consider whether to use cash the Fed receives from maturing holdings instead of allowing its portfolio to shrink. That decision could signal that the Fed sees a slower recovery and darker skies ahead for the economy.
Investors rushed to Treasury bonds pushing down the yield of the 10-year note to 2.9%. The U.S. dollar fell 0.2%. And the European Central Bank left interest rates at 1%, as expected.
At the close, the Dow Jones Industrial Average was off 5 points to 10,675, the S&P 500 dropped just over a point to 1,126, and the Nasdaq fell 11 points to 2,293.�
The NYSE traded a dismal 876 million shares with decliners ahead of advancers by 1.35-to-1. The Nasdaq crossed 492 million shares with decliners there ahead by 2-to-1.
September delivery of crude oil fell 46 cents to $82.01 a barrel on concerns about the economy. The Energy Select Sector SPDR (NYSE: XLE) closed at $56.31 for a gain of 18 cents.��
December gol! d rose $ 3.40 to $1,199.30 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell 11 cents to $173.88.�
What the Markets Are Saying
Despite all of the negative talk of a slower economy, higher unemployment, and a Fed chief who speaks his mind, the market has been holding at the highs of the week. So what is supporting the market at the highest levels since early June?
At least one thing is clear, and that is that the Dow and its companions are just a hair below a resistance line that connects with the high of 10,736 made on Jan. 13. That high represents the very top of a trading range with a floor at around 9,800. The S&P 500′s range is 1,150 to 1,040, and the Nasdaq’s range is 2,320 to 2,100.
What do the sentiment indicators reveal? A quick glance at the numbers shows that the AAII Sentiment Survey has flipped for the fourth week. Last week, the subscribers to the survey were 40% bullish and 33.33% bearish. This week, they are 30.39% bullish and 38.24% bearish.
The other sentiment study that I find helpful is the Investors Intelligence Advisors Sentiment report, which is also a contrarian indicator. This week, advisers moved up to 38.9% bulls versus 38.2% last week, while three weeks ago they were 32.6% bulls. The theory is that both of these groups are usually wrong. Result: confusion. The public doesn’t know what to do with its cash and the advisers are saying, “Buy now!”
With the internal indicators at very overbought levels and the major indices hard against major resistance, it would appear that the rally is about to fail. And with the appearance of big money flowing to the safety of U.S. Treasury bonds and gold, the case for a pullback is strong.�
But bad news is not being treated all that badly. Just in the past two weeks, the S&P 500 has sliced through its 20-, 50- and 200-day moving averages, it has ploughed through an intermediate resistance line, and is now close to turning the intermediate-t! erm char t to up from sideways. Volume is still a problem for the bulls and got even worse yesterday with a puny 876 million shares on the Big Board and 492 million shares traded on the Nasdaq.
We’ll just have to let the market show us where it is going. Trying to outguess the current situation is a coin toss.
Today’s Trading Landscape
Earnings to be reported before the opening include: Abovenet, American International, Armstrong World Industries, Bronco Drilling, Brookfield Asset Management, Buckeye Partners, Central European Distribution, China Sunergy, Constellation Energy, Core-Mark, Crosstex Energy, Dynegy, General Steel, Imperial Sugar, James River Coal, LMI Aerospace, Magna, Mirant, New Frontier Media, Novavax, Pepco Holdings, Progress Energy, Ritchie Bros., Sunstone Hotel, and Warner Chilcott.
Earnings to be reported after the close include: Harleysville Group.�
Economic reports due: employment situation (the consensus expects an unemployment rate of 9.6%) and consumer credit (the consensus expects -$5 billion).
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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