Tuesday's action marked the second straight session that the market showed resilience leading into the close. It's heartening to see stocks shake off big losses. At the same time, big-money investors have shown very little conviction lately. Stocks stalled after the Nasdaq's Feb. 13 follow-through, then sank below recent lows on Friday. It has been stop-and-go action for leading stocks, with little sustained strength. Only a few leaders have broken out of bases. Most of those breakouts have stalled or failed, with the exception of a few top-rated commodities stocks and a handful of others. Avoid new buys until you see the market show that sustained, consistent strength. Otherwise, you run the risk of accruing some quick, frustrating losses.
Citigroup's stock continued its free fall, weighing on the financial sector. Mortgage lenders also deepened their losses. Elsewhere, Intel fell hard early in the session, but clawed all the way back by day's end. Late Monday, the chip giant cut its first-quarter gross margin forecast due to lower-than-expected flash memory prices. Meanwhile, Cisco Systems and Amazon.com execs backed growth targets for their respective companies. Those reports buoyed the tech sector, leading the Nasdaq to outpace the NYSE indexes. Oil prices fell almost $3 a barrel, triggering a drop in several highly rated energy stocks. However, in a choppy market, even top-rated stocks in highly-ranked groups are vulnerable to losses.
Earlier, several Federal Reserve officials weighed in with dour views on the economy. Dallas Fed Bank President Richard Fisher said inflation is now a greater threat than slowing economic growth. Fed Gov. Frederic Mishkin said the economy could face weakness due to the housing market's woes. Fed chief Ben Bernanke said foreclosures and mortgage delinquencies are likely to keep rising. The central bank is widely expected to slash its key fed funds rate by three-quarters of a point at the next meeting, slated for March 18.
Stocks closed higher Wednesday, giving back some earlier gains amid skyrocketing oil prices and more sluggish reports on the economy. The Nasdaq sat with a 1.3% gain around midday. But the technology-laden index gave back more than half those gains, closing up 0.6%. Lighter volume lessened the impact of the day's gains. Indeed, trading levels remained lower throughout the day, including early on, when the major indexes ran out to their biggest gains. A sizable price advance usually doesn't mean much if it's not backed by a corresponding burst of volume. If anything, it means that big-money institutional investors are not rushing in to buy shares.
Wednesday's action was the mirror image of that seen Monday and Tuesday. During those sessions, stocks started lower then pared their losses late. The broader trend has been up-and-down action, with the market failing to chart a clear course one way or another. That's a tough environment for growth investors hoping to buy top stocks as they break out and ride them to big gains. Commodities prices continued to soar, including oil and precious metals. Investors often seek out gold as a safe haven when the stock market turns jittery, making rising gold prices, at times, a contrarian indicator for stocks. Some market watchers have fretted over rising energy and food prices. The Federal Reserve faces the threat of inflation with the economy's slowing growth when it next meets on interest rates March 18. The Fed released its beige book reading on the economy Wednesday. The report showed that most of the nation's 12 districts reported a slowdown in economic activity since the beginning of the year, while others saw "subdued, slow or modest growth."
Meanwhile, Wall Street kept a close eye on troubled bond insurer Ambac Financial Group. The company didn't announce the expected plan Wednesday, instead saying it plans to raise $1.5 billion through a common stock offering. It also set a restructuring of its business. Trading in Ambac shares halted ahead of the news. The stock then dived 19%. On the technical side, the major market indexes have often approached key moving averages lately, only to run into resistance, a negative sign. The Nasdaq's advance-decline line slid to new-low territory, suggesting broader weakness. Leading stocks didn't show much in the way of enticing action either. Breakouts and new highs remained scarce overall among top-rated issues.
Stocks plunged Thursday, with lighter volume the only consolation. The Nasdaq led the carnage among major indexes, with a steady decline all day. It finished down 2.3%, and less than 1% above its Jan. 23 low. The other major indexes hardly fared better. The large-cap S&P 500 and the NYSE composite each shed 2.2% while the blue-chip Dow lost 1.8%. Midcaps and small caps also took hard hits. The midcap S&P 400 slid 2.7% and the 600 fell 2.5%. Volume dipped slightly, most likely as big investors girded themselves for Friday's employment report.
Troubling financial news set the tone for the session, shoving aside less pessimistic reports on initial jobless claims and February sales results from Wal-Mart that surpassed expectations. The subprime fallout has dogged the market since the fall rally ended more than four months ago. Gold slipped in trading Thursday, but remained about $20 shy of $1,000 an ounce. Oil settled at a record $105.47 a barrel, up 95 cents. The dayâs weakness came across in the marketâs breadth, as declining stocks topped advancers by nearly 8-to-1 on the NYSE. On the Nasdaq, the ratio was a bit better, about 13-to-3 as the Nasdaq neared its Jan.23 low.
Week in Review: Market Analysis (cont.)
A troubling jobs report shook the stock market Friday, sending the Nasdaq to a new low for the current correction. A worse-than-expected loss of 63,000 jobs in February elevated fears of a U.S. recession. It was the biggest monthly job decline in almost five years. Wall Street â already skittish after weak economic data earlier in the week â wasted no time sending stocks lower at the opening bell. The major indexes rebounded and even made momentary gains at midmorning. But buyers soon got pushed out of the way. The market weakened until a late rebound trimmed losses. The NYSE composite closed 1% lower, the S&P 500 gave up 0.8% and the Nasdaq eased 0.4%. The Dow tumbled 1.2%. Volume rose on the NYSE and Nasdaq, pointing to selling by institutional investors.
Credit difficulties remain a worry on Wall Street. On Friday, the Fed set new measures to ease liquidity pressures. The central bank increased the size of its term auction facility. It also plans $100 billion in some 28-day repurchase operations designed to swap cash for assets, including mortgage debt. Economic concerns also hammered foreign stocks. If the market's direction was uncertain before, it has taken on a bearish tone the past few sessions. The Nasdaq took a glancing pass below its Jan. 23 low, effectively erasing its gains from its latest rally attempt. At its lowest point on Friday, the Nasdaq was about 24% off its Oct. 31 peak. That's the deepest decline in the composite since the bear market of 2000-02. The NYSE's advance/decline line is near a new low. The Nasdaq's own gauge of advancers vs. decliners is already at new lows.
For investors focused on the price and volume action of stocks, cash remains the preferred position. The indexes have undercut their Jan. 22-23 lows from six weeks ago. Former leaders have been swatted: Baidu is 43% off its high, Google 42% and Apple 39%. Intuitive Surgical, while only 26% off, may be forming a bearish head-and-shoulders pattern. A few stocks such as Potash are up year-to-date. But they're showing the action of survivors, not leaders. Investors need to take an extremely cautious approach to this market. Those who have taken test positions in recent weeks should keep their exit strategy in mind. With no upside leadership and the possibility of a third down leg developing and financials crowding out any good news, there's no reason to open new positions in growth stocks.
