This week saw Fox News make a foray into the business news world with the "Fox Business Channel". From my read they are attempting to "demystify" the market. Time will tell whether they are successful or not. However, I personally find it telling that in the week they debuted the markets tanked hard.
Last week's decline was blamed on a spectacular -- and some say momentary -- spike of crude oil above $90 a barrel. Disappointing earnings reported by big banks like Citigroup (ticker: C) and Bank of America (BAC) also rankled, as did the failure of economic bellwethers like 3M (MMM), Honeywell (HON) and Caterpillar (CAT) to deliver earnings that met increasingly high hopes.
A willingness to hope for the best is a defining trait of optimism, and it has guided trading since investors caught the first whiff, back in mid-August, of the government's willingness to cut borrowing costs to jumpstart the economy. But a rapid 10% rally later, with stocks once again pushing new records, looking on the bright side can start to seem a little like denial.
So a sudden spike in weekly unemployment claims -- the admittedly volatile data's largest rise since early February -- spooked those already fretting about slower hiring. New-home construction slid in September to a 14-year low, and fears about housing deterioration and weaker consumer spending flared again. Even the sight of stocks perched near record highs was enough to trigger a little buyers' remorse.
Last quarter earnings surprised on the upside. This gave traders confidence that the any signs of economic stress in the US economy were not flowing through to the bottom line. This quarter has been different. First, the financial sector is taking a big hit from the mortgage and credit market problems. In addition, several companies have stated that problems will persist into the fourth quarter. Financial stocks comprise the largest part of the S&P 500 -- about 20%. So other sectors will have to pick-up the slack to make-up for this short fall.
Here's how Bloomberg reported the news:
More than one-third of the 92 financial companies in the S&P 500 have reported third-quarter results. Their 17 percent average profit drop is the biggest since Bloomberg began tracking quarterly earnings growth in the third quarter of 1997.
.....
Profit at the five biggest U.S. banks totaled $18.7 billion for the quarter, the lowest in almost four years, as demand for securities linked to mortgages and leveraged loans dried up.
....
S&P 500 companies have posted an average profit decline of 0.6 percent in the third quarter, the first drop since 2002, according to Bloomberg data. Twenty-seven percent of the 132 companies in the index that have reported results so far have trailed analysts' estimates, compared with 21 percent in the second quarter.
While this trend in lower earnings can always change, the news so far has been negative enough to wonder whether that is possible this quarter.
This is what a bearish chart looks like. The market gapped down on the open on heavy volume, steadied a bit, than continued dropping in the afternoon on heavy volume. The market closed near lows of the day. Traders obviously didn't want to hold anything over the weekend for fear that some news item would come out over the next two days.
This is a 10-day 5 minute chart. Notice that the SPYs have had 5 big sell-offs on heavy volume since last Thursday. That is not a very good sign at all. The SPYs have a clear downward bias right now.
Here is the daily chart of the SPYs. Notice the average is now right at the 50 day SMA after having blown through the 10 and 20 day SMA in quick succession. And yes -- the SPYs have formed a double top (which I have been on the lookout for over the last wee). Notice that today's action occurred on higher volume, indicating the selling momentum is increasing.
The 10-day QQQQ chart shows a different story than the SPYs. The QQQQs have had four large sell-offs on large volume -- two of which occurred today. The sell-off in red didn't have a huge volume spike. In addition, the QQQQs have traded in a range. However, the QQQQs closed below that range today. They have done this over the last 10 days, however, so today's move is not a guarantee of a further drop. Also remember that tech is the market's golden child right now.
However, on the QQQQs daily chart we see a clear trend break. The close moved through the 10-day SMA and is now resting at the 20 day SMA. Plus we had heavy selling as indicated by the high volume.
I don't get the Fox Business Channel, but am dying to see how they cover this story.
In case you are interested, I highly recommend Bloomberg as the financial channel to watch.
Stay tuned to the Bonddad Blog for more information about the markets.