ZLBT Chats

Friday, February 26, 2010

Resilient Dow Par Losses After Early Data Plunge

Come Back Bulls Slash Opening Triple Digit Losses
Bears took the reins bright and early at the opening bell, as an unexpected surge in jobless claims sparked a fresh round of economic hand-wringing. The Labor Department announced that initial filings for unemployment benefits rose by 22,000 last week to arrive at 496,000, defying economists' expectations for a weekly decline.
Meanwhile, both Standard & Poor's and Moody's have now warned that Greece's long-term credit ratings are in danger of being slashed, reigniting concerns about the country's fiscal health. As if that weren't enough uncertainty to send the broad-market indexes reeling, traders also took note of a brewing partisan battle on Capitol Hill, with Democrats and Republicans slugging it out at a six-hour health care summit.

Stocks attempted to bounce back in afternoon trading, but succeeded only in paring the worst of their losses.

The Dow Jones Industrial Average (DJIA – 10,321.03) was sitting on a loss of 188 points at its intraday nadir, but managed to finish on a much slimmer deficit of 53.13 points, or 0.5%. Only five of the 30 blue chips managed to close higher, with Alcoa (AA) and Bank of America (BAC) leading the gainers. Home Depot (HD) shares finished flat for the day, while Coca-Cola (KO) paced the 24 declining issues after announcing a deal to acquire the North American bottling operations of Coca-Cola Enterprises (CCE).

The Dow bounced back today after finding support at its 20-day moving average, and notched its eighth consecutive close atop its 10-day trendline.

In similar fashion, the S&P 500 Index (SPX – 1,102.94) caught a lift from its 20-day moving average, and settled on a decline of just 2.3 points, or 0.2%. Tomorrow, the SPX will attempt to complete a second consecutive weekly finish above its 10-week moving average. Meanwhile, the Nasdaq Composite (COMP – 2,234.22) spent a brief moment in positive territory this afternoon, but eventually wrapped up the day on a dip of 1.7 points, or less than 0.1%. Like its broad-market peers, the COMP settled comfortably above its 10-day and 20-day moving averages.

As mentioned in yesterday's Dow report, whipsaw reactions have dominated the week and the afternoon reversal just continues that theme. So far, the yo-yo-like action has the indexes at mild losses on the week. The daily charts just continue to show more of the same.

As I have been saying, the longer-term uptrends are still intact but the near-term action is very noisy. The various headlines are driving the frenetic reactions but I think that the lack of near-term levels exacerbates the potential for whipsaw moves.
In other words, there is little for short-term traders to key off of so you end up in a situation akin to drunken fisherman standing in a small boat. Each wave generates a reaction that causes everyone to lean the same way. The combined leaning is too much and results in an over-correction. The back-and-forth plays out until everyone sits down. (Or until my buddy CJ falls out of the boat but that is a different shark story.)
So, while wish I had something more exciting and insightful to say, I am left simply reiterating my thoughts from last night - "patience" remains the name of the game.

And that is where I will pick up next week.
Have a nice weekend & happy holidays.

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