Dow 11431.43 (-224.64) -1.93%
S&P 1266.06 (-23.13) -1.79%
Comp 2355.73 (-22.64) -0.95%
RUT 713.41 (-12.49) -1.72%
Among the causes for the tumble are:
1) A trouble-laden financial sector:
- Dow component AIG fell 18% to $23.84 after reporting a monumental loss in its credit default swaps portfolio and other investments. AIG was the steepest decliner among companies that made up the DOW list.
- Citigroup fell 6.2% after it was required by regulators to repurchase $7 billion in auction-rate securities and pay a fine of $100 mil for having sold the auction-rate securities. It was reported also that it faces the threat of being charged for destroying key documents.
- Tension in the credit market has made it difficult for companies to discharge and value mortgages, and bad debts are filling companies' balance sheets.
2)The number of newly laid off people claiming jobless benefits last week skyrocketed and hit its highest level in more than six years.
3)A weak retail sales figure renewed concerns about the health of the economy.
4)OIL REBOUNDED: light sweet crude rose $1.44 to close at $120.02 per barrel on the NYME
Before market nose-dived into its session low in the 2nd part of the trading session, stocks were seen rallying briefly following positive report on pending home sales figure. While consensus was -1%, the result was a surprising +5.3%.
However, somber news on 1) to 4) above quickly reversed sentiments, and the market headed south all the way to 15 minutes before market closed. I find this hardly surprising - in an atmosphere of uncertainty, it's easier, and definitely safer, to take the side of the bears.
But that's yesterday. And it's gone. I'm more interested in where we are heading today.
- This is the first day of the Olympics game and the Asian market has seen a down day.
- Other bad news for the day include Disney's closing of 3 Macdonalds' restaurants (both are DOW components, so, go figure...), Boeing and Airbus facing delays due to shortages in parts, Google reported its stake in AOL may be worth less than the $1 bil it paid for in 2006, and other bad news from the financial sector
- Crude oil is down $1.50 for now - and it might just stay down due to lower demand (summer travels ending, slow economy) and short contracts. If what the market is expecting is declining oil prices, I reckon oil will move market only if it were to go up.
DOW Daily Chart shows that rally might be coming to an end and DOW seems unlikely to reach 61.8% fib retracement level:
Things I see that reinforce my view that DOW's primary trend is DOWN are:
1) 2 bearish candlestick patterns - 1 on 24 Jul; the other, yesterday.
2) Bearish divergence for the period Aug 6 to Aug 7
3) Bear wedge
4) Lower than average volume after the first 3 days of the rally
Having said the above, I notice that the bearish engulfing pattern formed on 24 July has failed to bring DOW all the way down. What it tells me is that market looks like it wants to go up for a while more. Positive economic data (refer to details on Productivity and Cost Data below) today might just give it a little more boost and it's possible we could see DOW ending the week in positive territory.
S&P daily chart looks almost identical to DOW's, without the bearish divergence.
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On today's economic calendar are:
1) 830am EST: Productivity and Cost data for Q2 - Consensus 2.5%
Productivity and cost data measures changes in the efficiency of workers who produce goods and services. The following extracted from "The Secrets of Economic Indicators" by Bernard Baumohl explains why the data is significant:
Productivity is by far the most important determinant in the long-term health and prosperity of an economy.
Here’s why: Labor costs account for some 70% of all business expenses, so if companies are not using workers efficiently, it’s an enormous waste of resources.
With a productive workforce, however, an economy can produce enough supplies to meet the demands of consumers and businesses without causing shortages and higher prices.
In addition, if workers produce more each hour, companies can increase sales and generate greater revenues. That will boost profits, which, in turn, can be used to distribute bigger dividends to shareholders, stimulate more business investment spending,or lead to greater pay for workers. Indeed, you might even be able do all three at the same time.
On the other hand, poor productivity growth is a recipe for economic stagnation. It invites inflation, higher unemployment, weaker growth, and little or no gains in real income.
2)1000am: EST Wholesale Inventories for June - Consensus 0.6%; Prev 0.6%
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