Market Snapshot for September 22, 2011 (12:32 am ET):
- Closing Prices: DOW 10,733.83 (-391.01, -3.51%),S&P 500 1,129.56 (-37.20, -3.19%), NASDAQ 2,455.67 (-82.52, -3.25%), Nikkei 225 8,560.26 (-180.90, -2.07), DAX 5,164.21 (-269.59, -4.96%), FTSE 5,041.61 (-246.80, -4.67%)
- OIL 80.70, GOLD 1,742.20, SILVER 36.11
- EURO 1.3476, YEN 76.31, BRITISH POUND 1.5361, U.S. DOLLAR INDEX 79.10
Commodities Collapse While Indexes Plummet
There were very few pockets of strength in Thursday's session and most bulls came away from the day sorely disappointed (assuming there are any bulls left given the grim forecasts plastered everywhere you turn). The U.S. dollar, however, was one of those pockets. The market was already weakening once again as the two-day FOMC meeting kicked off on Tuesday, but the selling didn't hit full force until following the Fed's afternoon policy statement on Wednesday.
Most notable in the Fed's statement was its plan to keep interest rates low for "an extended period" due to continued "significant downside risk" for the economy, in addition to "strains in the global financial markets". The statement hit hard as a Fed downgrade on the economy with a far-reaching impact on the markets.
Dubbed "Operation Twist", the Fed's plan aimed at spurring growth in housing and other areas of the economy entails buying $400 billion in Treasuries with long-term maturities while selling $400 billion in those with short-term ones. The 10-year Treasury yield fell from 1.875% on Wednesday to 1.715%. Meanwhile, the 30-year Treasury yield dipped below 3% for the first time. Mortgage rates have also continued to fall and are hovering at 60-year lows just shy of 4% for a 30-year fixed-rate with speculation of even further downside. Demand, however, remains elusive and qualifying for those mortgages is increasingly difficult.
Dow Jones Industrial Average (Figure 1)
In recent years, gold has strengthened as the market weakened, but this relationship falls apart when concerns of global weakness spread and investors turn to cash. The U.S. dollar climbed to 7-month highs, while gold accelerated its pullback off all-time highs. Gold for December delivery fell $66.40 and settled at $1,741.70 an ounce on the Comex at the New York Mercantile Exchange. Silver also took a pounding, plummeting nearly 10% to $36.58 an ounce. The U.S. dollar index rose 0.8%.
As I wrote yesterday's column, the pace of the selling afterhours had slowed compared to the immediate aftermath of the Fed news. This created potential for some upside recovery into Thursday, but at the time there was no setup for such a move developing and the door remained open for further downside, albeit at a slower pace than late Wednesday afternoon. As Thursday began, we had yet to see any setup development for recovery action. Instead, the 15 minute 20 period moving average continued to hold and the index futures continued to sell off. As anticipated, the pace of this selling was slower than the previous afternoon, however, the magnitude was much greater. The indices skidded down the 15 minute 20 sma, but the selloff left the Dow down more than 500 points by late afternoon. It was only profit-taking and repositioning in the final thirty minutes of the day (the final correction period) that saved it from such a fate at the closing bell.
The index futures continued to recoup some of the day's losses afterhours, although the pace has been slow to begin with. On the 30 minute charts, however, the indices are still oversold and have room to continue to recover at least some of the week's losses prior to the weekend kick-off. Expect any upside action on this time frame to be more gradual than the selloff this week.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Thursday with a loss of 391.01 points, or 3.51%, and closed at 10,733.83.All of the Dow's thirty index components posted a loss. Verizon (VZ) was the only one that did not post a loss over 1%. The top decliners were United Technologies (UTX) (-8.76%), Caterpillar Inc. (CAT) (-6.88%), Alcoa (AA) (-6.73%), and DuPont (DD) (-6.64%). Hewlett Packard (HPQ) CEO Leo Apotheker was ousted on Thursday, replaced by former eBay CEO Meg Whitman. Despite gains on Wednesday on speculation of the news, shares were lower by nearly 5% of the day and slipped further afterhours.
The S&P 500 ($SPX) loss of 37.20 points, or 3.19%, and closed at 1,129.56. The top percentage performers in the index were Goodrich Corp. (GR) (+10.15%), Dean Foods (DF) (+4.00%), Red Hat (RHT) (+2.98%), and General Mills (GIS) (+2.76%). Nike (NKE), which has also taken a hit this week, jumped 6% afterhours on news that it topped fiscal-first-quarter earnings estimates. The weakest performers in the index for the day were Allegheny Tech. (ATI) (-13.04%), Franklin Res. (BEN) (-12.54%), AK Steel Holding (AKS) (-11.43%), and United States Steel (X) (-11.26%).
The Nasdaq Composite ($COMPX) ended the session lower by 82.52 points, or 3.25%, on Thursday and it closed at 2,455.67. The only gainers in the Nasdaq-100 ($NDX) were Illumina (ILMN) (+1.85%), Bed Bath & Beyond (BBBY) (+0.63%), Yahoo (YHOO) (+0.21%), and Netflix (NFLX) (+0.02%). The biggest decliners were Baidu Inc. (BIDU) (-10.95%), Joy Global (JOYG) (-9.41%), First Solar (FSLR) (-9.07%), and NII Holdings (NIHD) (-8.89%).
Nasdaq Composite (Figure 3)
Unless otherwise stated, the index action described in this article relates to the E-mini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.
Toni Hansen is president and co-founder of the Bastiat Group Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.