Today was a very sound technical day until the last few minutes of trading. For the S&P 500, 1,330.00 had been a level of resistance, but after last week’s “break out” thanks to the Fed’s bailout, 1,330.00 has become a major support level. At 9:30am we tested 1,330.00 and bounced nicely, and then we tested again at 1:00pm and bounced again. However, at the end of the day late selling pressure pushed the S&P below 1,330.00 causing many to believe 1,330.00 has now become resistance. The market closed the day on its lows.
I’m not one to follow technicals or trade stocks off technical analysis because you never know what surprising piece of news will be released tomorrow to move the stock market one way or another. As they like to say, “Technicals are always right until they are wrong.” Recently, CNBC has talked so much about technical levels because the fundamentals are so difficult to measure. Therefore, you almost are forced to follow the markets using technical analysis. My warning to you…proceed at your own risk. Warren Buffett is exactly the opposite of a technical trader and he has made billions over the years. You can choose which investing/trading style suits you better.
The market was lower thanks to a sub-par earnings report from Oracle (reported yesterday after the close) and weakness in the financial sector. One interesting piece of information to note, though, is that the VIX (measure of volatility or fear) was actually down all day.
In Oracle’s conference call, the company’s CFO said that “Customers got a little more cautious at the end of the quarter, given what was going on in the financial market” (Source: Bloomberg.com). Shares of Oracle finished the day down 7% and large-cap tech stocks were the relative laggard.
Oppenheimer’s financial analyst Meredith Whitney was in the news again today after she lowered earnings estimates for Merrill Lynch and UBS. She said “Merrill Lynch may post a loss of $3 per share and write down $6B of assets…UBS will lose $2.75 per share after writing down about $11B” (Source: Bloomberg.com). This news weighed on all the financial names causing the XLF (financial ETF) to finish the day down 1.5%.
The energy and agriculture names were the relative winners on the day thanks to another rally in crude oil prices for the second consecutive day. Crude rose above $107/barrel on news that a pipeline in southern
The Fed has been throwing exorbitant amounts of money into the financial markets to help with liquidity issues. Data was released today regarding investment banks using the discount window, a new tool recently implemented by the Fed. “Firms averaged $32.9B in daily borrowing over the past week from the new lending facility, compared with $14.3B the previous week…On Wednesday alone, lending reached $37B.” The big investment banks pay 2.5% (the discount rate) in interest for these overnight loans. Today was the first Term Securities Lending Facility where the Fed auctioned $75B. “Bidders paid an interest rate of 0.330%. The Fed received bids of $86.1B worth of securities” (Source: CNBC.com). The 0.330% is actually the spread investment banks had to pay above the discount rate. Since only $86.1B in bids was received, CNBC called the demand only “moderate” from government Treasuries.
DJIA 12,302.46 -120.40 (-0.97%)
Nasdaq 2,280.83 -43.53 (-1.87%)
S&P 500 1,325.66 -15.47 (-1.15%)
NYSE Volume 4,007,359,000
2-Yr Bond 1.73% +0.02
10-Yr Bond 3.56% +0.05
30-Yr Bond 4.38% +0.05
Crude Oil (May) 107.58 +1.68
Nat Gas (May) 9.687 +0.002
Gold (Apr) 948.80 -0.40
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