STTG Market Recap Oct 11, 2012

Stocks finished near the flat line Thursday but frankly it was a disappointing session.  Wednesday after the closing bell Spain’s credit rating was downgraded two notches by the rating agency, S&P.  This put it just above junk status.  Initially U.S. futures sold off but by this morning they were up sharply on the thought process that this downgrade would force the hand of Spain to accept aid from the European Central Bank.  Spain has been dragging its feet on this end, in a political ploy – the assumption is to win some better terms.  However, in the end they will accept a bailout, but the ECB says it won’t help until the formal request happens.  So in a “George Costanza” (Seinfeld reference) sort of way the downgrade was seen as “good”.

Then this morning a strange weekly jobless claim figures (a drop of some 30,000!) helped to stoke markets futher and we saw a big gap up in the major indexes.  After some progress in the morning the rest of the day was a slow erosion of gains hour by hour until at the closing bell we had the S&P 500 up only fractionally and the NASDAQ actually down 0.08%.  In the end, all today did was help work off part of the oversold conditions that were reaching extremes yesterday.

The S&P 500 is now nearing a test of the 50 day moving average.

The NASDAQ is stuck in this head and shoulders pattern with potential to 3000; it has now tested the lower end of the base it broke out of in late August two days in a row.

After a respite from selling yesterday, Apple (AAPL) continues its recent woeful performance putting in another 2% loss.

The bright spot of the day were the coal stocks, some examples are Peabody Energy (BTU) and Arch Coal (ACI).  The catalyst here was an analyst report that speculated that there might be an increased demand for the type of coal that goes into steel.  As these were beaten down stocks it led to a sharp reversal.  Also as Romney improves in the polls the belief is his presidency would be a benefit to the energy industry – note how these stocks have not sold off sharply since last week’s debate, despite a bad market.

We also saw this type of action in the steel sector, as we can see with U.S. Steel (X).

Outside of these resource type of stocks the only real broad strength was in the financials ahead of very closely watched earning reports from JPMorgan (JPM) and Wells Fargo (WFC) tomorrow.

What is becoming more prevalent in the market are failed breakouts; that is stocks whose charts look positive and a move to new highs, but rather than stick and hold, are immediately reversed.  A good example is Costco (COST) which opened in good fashion off its earning report, the day after a break to new highs on big volume – only to crush any new buyers today.  This is the type of move which signals poor action under the surface of the indexes.


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