Red-Hot Markets Cool Off; Wall Street Fizzle Ater The Sizzle

After four weeks of gains, stocks suffered a minor pullback on Monday as the bulls failed to find a reason to continue Wall Street's summer surge.

Wall Street retreats as investors plead exhaustion after propelling the S&P nearly 50% in five months.

Shares have also benefited from the extensive stimulus efforts, with the Fed pumping trillions into the system and the government introducing programs such as Cash for Clunkers, which has revived auto sales.
After such a run, stocks were a bit weaker Monday. But in general, the trend likely remains up for the time being.

The Dow Theory
Both the Dow Jones Industrial Average and the Dow Jones Transportation Average have topped their January highs, developments that are regarded as a bullish signal by followers of the more-than-a-century-old Dow Theory.
The Dow industrials already had exceeded their January highs back in July, but the transportation counterpart only caught up on Friday, after the better-than-expected July jobs report.

"According to the Dow Theory, this signals a new primary uptrend and is a bullish indicator for the market," wrote Mary Ann Bartels, technical research analyst at Bank of America-Merrill Lynch, in a note.

The theory holds that as industrial firms' profits are rising, so is their output. This production has to be transported, one way or the other, and indications that it's advancing signal profits should rise down the line.
And according to the Dow Theory, gains in the Dow industrials should be matched by those on the transportation average.

Today's Markets
The Dow Jones Industrial Average fell 32.12 points, or 0.34%, to 9337.95, the Standard & Poor's 500 slid 3.38 points, or 0.33%, to 1007.10 and the Nasdaq Composite tumbled 8.01 points, or 0.40%, to 1992.24.

The markets lacked a clear catalyst on Monday as there weren’t any economic data or market-moving earnings reports for the bulls to hang their hats on. While stocks ended solidly in the red, the pullback did little to dent this summer’s surge, and some bulls even welcomed it.

“It’s somewhat nice today to see the market cool down a little bit. In this run we’ve had over the past four weeks, we need days like this,” said a senior analyst. “I don’t think there’s a lot of concern to be made about this small pullback in the market today.”

The recent action on Wall Street stands in stark contrast to the picture nearly a year ago, when fear gripped the markets, pushing the Dow to a triple-digit decline on a near regular basis.

Instead, the benchmark index's 32-point decline was one of its worst since July 7, when it plunged 161 points on earnings jitters. The fact that the index hasn't had steeper pullbacks underscores the strength of this summer's rally, which has pushed the Dow up 15% in a month to its highest levels since early November.

“The market can’t keep going straight up without a pullback. We’re seeing a little bit of that today,” said Michael James, senior equity trader at Wedbush Morgan Securities, adding that it’s “not much of a surprise, nor is it unwelcome.”

Monday appeared to be the day that would produce the long-awaited pullback. But stocks rallied off their lows to close with just minor losses, disappointing some who were hoping for a chance to enter the markets.

“As long as people keep praying and hoping for this pullback so they have an entry level where they can buy stocks, it’s not going to happen. It’s really a vicious game of leap frog," said NYSE trader Jason Weisberg of Seaport Securities.

Global Markets
Europe's two-day win streak came to an end as London's FTSE 100 slid 0.20% to 4722.20, Germany's DAX tumbled 0.75% to 5418.12 and France's CAC 40 fell 0.47% to 3504.54.

Asian markets soared overnight. Japan's Nikkei 225 jumped 1.08% to 10524.26 and Hong Kong's Hang Seng soared 2.72% to 20929.52.

Oil prices settle slightly lower at US$70
Oil prices dipped toward US$70 a barrel on Monday, tracking modest Wall Street losses on the eve of a meeting of the U.S. Federal Reserve, and after OPEC's president said current prices are "not bad."

U.S. crude fell 33 cents to settle at US$70.60 a barrel after spending much of the day in positive territory. London Brent crude eased 9 cents to US$73.50.

The petroleum markets continue to lack a clear price direction as traders are seemingly waiting for trends in the recently correlated U.S. dollar and equity markets to become clear.

Wall Street stocks were slightly weaker on profit-taking, while the dollar higher against other currencies. Over the past several months, oil prices have tended to track equities markets while moving opposite the greenback.