After the Big Monday, Stocks Retreat as Technology and Energy Rollover

Published on Friday, 20 November 2009 22:18 Written by Flowtrades Blog

Weston, Nov 20 (FlowTrades.com) – The majority of stocks fell for the week, with only the Dow posting a gain after surging to new highs on better than expected economic news overseas and a pledge by the APEC to maintain economic stimulus measures. The Dollar rebounded from a 15-month low against the euro, sending energy stocks lower as crude oil tumbled. Technology lost the leadership as cloudy outlooks and earning misses weighed in the sector.

For the week, the Dow still gained 0.46%. The S&P 500 fell 0.19% posting its first weekly decline since October, while the NASDAQ lost 1.01%.

At the start of the week, stocks rallied with the S&P 500 surging past 1,100. Stocks received a boost from strong economic growth from Japan and an increase on October’s retail sales, as auto demand rebounded. The move higher was a continuation of a global rally after the 21 member Asia-Pacific Economic Cooperation pledge to maintain stimulus measures to help shore up the member’s economies.

Retail sales rose 1.4% in October, which followed a 2.3% drop in September. The increase came amid a jump in auto sales, as automobile dealerships and parts stores reported a jump of 7.4% in sales after a 14% plunge the prior month that was larger than previously estimated.

Also on Monday, Chairman Ben Bernanke said that economic headwinds of reduced bank lending and a weak labor market will probably restrain the pace of U.S. economic recovery, warranting low interest rates. In the speech the Fed Chairman made a rare comment on the Dollar, commenting that the Fed is attentive to the Dollar weakness and will help ensure that the greenback is strong.

The Dollar traded close to a 15 month low as traders questioned the Fed’s pledge of support for the greenback.

The energy sector advanced the most with a 2.5% gain, as crude oil jumped, boosted by the weak Dollar. The strong economic output from Japan in conjunction with an increase in retail sales increased speculation that fuel demand will recover as the global economic recovery gains momentum.

On Tuesday, the market traded with choppiness, as stocks recovered from early losses and eked a gain, closing at 13-month highs for the second day in a row. Strength in commodity-linked shares overcame weakness in the retail sector. Microsoft (NASDAQ:MSFT) led the Dow to post modest gains as several analysts had positive comments about the company.

On economic news, producer prices rose 0.3% in October, with the core rate dropping 0.6%. Economists were looking for an increase of 0.5% and a drop of 0.1%, respectively. And industrial production climbed 0.1% last month, less than the 0.4% gain expected.

Financials continued to drag the market, as they trade on a very tight range dealing with their 50 day moving averages. Goldman Sachs (NYSE:GS) the bellwether of the sector was still trading just below its 50MA, showing continuing weakness.

The next day the market opened lower and struggled for most of the day before moving off the session lows in the last 30 minutes of trading to post a modest lost.

A drop in new home construction raised jitters in the market. Housing starts unexpectedly fell 10.6% to their lowest level in six months, weighed down by a sharp decline in construction activity for both single-family and multi-family dwellings.

Technology, which has been a leader in the recent run-up, was weak after software maker Autodesk (NASDAQ:ADSK) delivered a weaker than expected outlook and customer relations software firm Salesforce.com (NYSE:CRM) reported a slowdown in new business.

The Dollar continued its slide after Federal Reserve Bank of St. Louis President said past experience indicates policy makers may not start to raise interest rates until early 2012. The comments came after the Fed’s Chairman helped the Dollar earlier in the week. Gold and copper climbed, with gold reaching another record, as the weakening greenback boosted the appeal of alternative assets.

Crude oil rose after the Energy Department reported that U.S. crude and fuel stockpiles dropped along with refinery production and imports. The data showed that there were draws in crude oil, gasoline and distillates giving traders a bullish signal.

On Thursday stocks plunged, extending a global slump. Techs were lower as their outlook turned cloudy. The Dollar gained, crude oil tumbled and Treasury three-month bills turned negative for the first time since financial markets froze last year.

Intel (NASDAQ:INTC) was the biggest drag in the Dow, after Bank of America-Merrill Lynch slashed its 2010 growth forecast for the global chip industry. The analyst said the supply of chips is growing faster than demand putting earnings at risk. The downgrade was the latest blow to investors betting on tech at this stage of the recovery.

On economic news, the Labor Department released its weekly report on initial jobless claims, showing that the number of claims was unchanged from the prior week.

Commodity-related stocks took a hit as the Dollar rose against both the yen and euro. Shares of energy producers like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) were undermined, as oil slumped. The drop came amid a stronger Dollar and concerns that fuel demand will rebound at a slower pace. The contract for December delivery tumbled 2.7% to settle at $77.46 a barrel. Gold prices recovered from earlier losses to close at a fresh all-time high.

Treasury 3-month bill rates turned negative on concern that the rally in higher-yielding assets had outpaced the prospects for economic growth. Investors were willing to pay the government to hold their money as stocks slid.

At the end of the week stocks finished lower as global stocks were weaker. Weak earnings from Dell (NASDAQ:DELL) and D.R. Horton (NYSE:DHI) weighed down the market. Dell (NASDAQ:DELL) reported weak third-quarter results, Thursday after the close, on lower market share and higher component costs. D.R. Horton (NYSE:DHI) posted a larger-than-expected quarterly loss and said conditions in the industry remain challenging, pushing homebuilder stocks down.

The market received downward pressure from overseas as European Bank Chief Trichet said the ECB will remove liquidity in order to ensure the bank doesn’t fuel inflation.

The Dollar rose against most of its major counterparts and climbed for a second day against the euro as investors sold shares to reduce the chance of losses before the end of the year, discouraging the demand for higher risk assets.

Energy companies fell again as crude oil retreated. Merck (NYSE:MRK) and Pfizer (NYSE:PFE) led health-care sector to a 0.6% gain, the biggest of the key S&P 500 sectors.

Technically the market was able to hold support at the 14 day moving average at 1,088; however this is not a strong support area. Going into next week, the S&P 500 might be looking to test the 50MA around the 1,070 area.

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