The Dow Industrials fell slightly yesterday on losses by three of major components. United Technologies Corporation (NYSE: UTX) led the list, off 3.01%, McDonald’s Corporation (NYSE: MCD) fell 1.38%, and EI DuPont de Nemours & Co. (NYSE: DD) was down 1.21%.
But financial stocks had another strong day with Bank of America Corporation (NYSE: BAC), up 5.5%, leading the list of blue chips. Other winners included Cisco Systems, Inc. (NASDAQ: CSCO), up 2.07%, and Verizon Communications Inc. (NYSE: VZ), up 1.7%.
Initial jobless claims, for the week ended Dec. 4, fell to 421,000 when 429,000 was expected. And continuing claims fell to a two-year low of 4.09 million, though some of that could be the result of the jobless falling from the list but still unemployed.
There was a spurt of early buying resulting from the favorable jobs report, but it soon lost steam. The result was that, although two of the three major indices posted small gains, the market lacked both momentum and leadership. Though financials were the strongest sector, up 1.3%, they failed to have impact on the broad market.
In corporate news, American International Group, Inc. (NYSE: AIG) rose 13% after entering into an agreement with the government, which covers the rights of the Treasury Department in an accelerated exit plan. Youku.com Inc. (NYSE: YOKU) jumped 28% after the Chinese company had a strong debut in U.S. markets, and Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) rose 1.9% after announcing a $1-per-share special dividend and a 2-for-1 stock split. Arbitron Inc. (NYSE: ARB) spiked 19% after signing a contract with Clear Channel Radio, and JPMorgan Chase & Co. (NYSE: JPM)? raised its rating to overweight from neutral. Smithfield Foods, Inc. (NYSE: SFD) rose 11% following a swing to profitability in its second quarter.
U.S. Treasurys rose following two days of selling. The 10-year benchmark note’s yield fell to 3.228%, and the 30-year bond’s yield rose to 4.401%. The U.S. dollar fell versus the yen, and the euro fell to $1.3243 from $1.3263 on Wednesday.
At the close, the Dow Jones Industrial Average fell 2 points to 11,370, the S&P 500 rose 5 points at 1,233, and the Nasdaq gained 8 points at 2,616. The NYSE traded just over 1 billion shares with advancers over decliners by 1.3-to-1. The Nasdaq crossed 512 million shares with advancers ahead by 1.4-to-1.
Crude oil for January delivery rose 9 cents to $88.37 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) closed at $65.63, up 15 cents. December gold settled at $1,392.10 an ounce, up $9.60. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 1.76 points to 222.21.
What the Markets Are Saying
Despite a new high in the S&P 500 by just 6 points, the Nasdaq has taken off into new high territory, comfortably exceeding its November peak by 25 points. So a dichotomy exits between the Dow Industrials and the NYSE Composite versus the S&P 500 and Nasdaq. The Dow and NYSE are still under a key reversal day on Tuesday while the S&P and Nasdaq are plodding to new highs. And yesterday, the Dow Transports made a new closing high while the Industrials are still 136 points from a new high.
As for our sentiment numbers, the Association of Individual Investors (AAII) reported last night that bullish sentiment reached a four-week high. According to AAII, “Expectations that stock prices will rise over the next six months rose 3.4 percentage points to 53%. This is the 14th consecutive week that bullish sentiment has been above its historical average of 39%.”
And bearish sentiment fell 3.6% to 22.6% for a six-week low. The historical average for bearish sentiment is 30%.
And the Investors Intelligence advisors bullish sentiment rebounded after two weeks of declines to their highest reading since 2007. The bulls moved to 56.2%. According to II, “The current data calls for caution, suggesting lots of funds have now been committed. The recent highs for the bulls are just below the 56.5% reading from December 2007 when bulls reached 62%.” II went on to say that “sentiment now is negative and that raises the risk level.” Yesterday, I noted that our internal indicators, too, were overbought.
In light of the dramatic schism between the major indices and the possibility of a Dow non-confirmation, coupled with very poor sentiment numbers and overbought internal indicators, I remain a very cautious bull. The market is quite sensitive to news, and the internal numbers show a definite lack of commitment, while the Nasdaq roars on, indicating that the public is chasing lower quality stocks. That, too, has nasty overtones.
Meanwhile, precious metals are experiencing a correction with new reversals on Tuesday, which mirror the reversals of Nov. 9, which led to a correction down to the respective 50-day moving averages. A similar retreat would take Barrick Gold Corporation (NYSE: ABX) back to $50 from over $53, iShares Silver Trust (NYSE: SLV) to $25-$26, and Yamana Gold Inc. (NYSE: AUY) to $11.50. But precious metals are in a powerful bull market. If the correction continues to those prices, jump on them. See the Trade of the Day.
On another note, Wednesday’s Trade of the Day, Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) was a premature pick to say the least. On Wednesday afternoon, a major research firm placed a broad buy, up from neutral, on the banks and FAZ. Being a 3x contra ETF, FAZ fell from our buy under price of $11 to a low of $10.11, closing at $10.18 yesterday. This illustrates the volatility of this day trading ETF. I hope that you placed stop-loss orders on FAZ or will do so today. A risk of 8% to 10% is normal in these highly charged, speculative ETFs.
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.
