Stocks Post Worst Weekly Decline since Last March

Published on Saturday, 23 January 2010 10:30 Written by TradersHuddle Staff

Weston, Jan 23^rd (Tradershuddle.com) – Stocks posted their worst weekly decline since March, after President Obama,, with his proposed plan to limit risk taking in financial institutions, and China rattled the markets. Overall earnings were decent, as many companies beat analyst estimates; however investors set the bar to high for some, as they sold heavily after the reports.

For the week, the Dow lost 4.12%, while the S&P 500 index fell 3.90% and the NASDAQ slid 3.61%.

On Tuesday, stocks rallied at the start of the shortened trading week, with the Dow posting a triple digit gain. Investors shrug off Citigroup’s (NYSE:C) disappointing results and bid up the healthcare sector helping the broad market higher, as they eyed the Massachusetts special election, and a possible Republican win.

The market started with weakness as Citigroup (NYSE:C)  reported a loss that was in line with analyst estimates but with weaker than expected revenue. Investors quickly shrug off the news, as they focused on the positives of the report, like net credit losses that fell by about $800 million from the third quarter to $7.1 billion, the second straight quarter of improvement.

Healthcare companies rallied with medical devices, insurers, and drug makers leading the way. The special election in Massachusetts for the late Ted Kennedy’s seat, where Republican Scott Brown has very good chances of pulling a shocking victory, was perceived as a positive by investors. A victory for the Republican might stop the healthcare overhaul in Congress, which was set to impact the healthcare industry.

Technology also rallied with Apple (NASDAQ:AAPL) leading the way, as shares of the maker of iPhones and iPods rallied 4.42% to $215.04. The company said it will host a special event on Jan. 27, which is expected to be a new tablet-style computer. Some speculated that the tablet could launch in June for $999. Additionally Apple is said to be in talks with HarperCollins about making e-books specifically for the Apple tablet, which some are calling iPad.



Also in the technology sector, IBM (NYSE:IBM) helped pushed the Dow to a triple digit gain as investors placed a bid on Big Blue ahead of its earnings report.

The Dollar gained versus the euro and the yen. The greenback appreciated against most of its major counterparts as the outlook for Europe’s economy discouraged demand for risk.

Mid week, the market started under pressure as China curbed lending, sparking concerns that the global economy will slowdown. Earnings from IBM (NYSE:IBM) and Bank of America (NYSE:BAC) disappointed investors and added to the bearish sentiment.

Demand for safe haven assets, like the yen and the dollar was buoyed after China’s chief banking regulator, said some banks were asked to reduce lending after a record 9.59 trillion yuan ($1.4 trillion) in new loans last year. The euro weakened further on Greece’s budget deficit woes, as Greek bonds tumbled.

Banks and trusts were the biggest gainers in the S&P 500 index, as custodial banks reported better than expected results on better asset valuations. The strength in the banking sector, helped stocks like Bank of America (NYSE:BAC) which climbed 1.04% to $16.49, posting the biggest gain in the Dow Jones Industrial Average, even after the bank reported a wider loss than anticipated.

The Dollar gained versus the euro and the yen, from early on and it held its gains even after the Commerce Department said housing starts unexpectedly fell 4 percent to a seasonally adjusted annual rate of 557,000 units, as unusually cold weather hit most of the nation. Applications for new building permits, a gauge of future activity, rose 11% a far stronger showing than economists had expected and the highest level of activity since October 2008.

Crude oil slid as the dollar climbed against the euro after China took steps to curb lending and as Greece’s debt woes continued. Traders speculated that tightening credit will slow the fastest growing economy limiting demand gains, also prices were under pressure as speculation mounted that tomorrow’s government report will show a third consecutive gain in crude stockpiles. The contract for February delivery fell $1.40 to $77.62 a barrel.
Treasuries rose as disappointing corporate earnings and concerns that the global economic growth may not be as robust as anticipated, increased demand for the relative safety of the U.S. government debt. Yields of the benchmark 10-year note traded near their lowest levels in a month settling at 3.66%.

On Thursday, stocks tumbled led by financials after President Obama rattled Wall Street with proposed new regulations limiting risk taking at the biggest banks. The market was already on shaky ground as economic concerns outweighed better than expected corporate earnings results, increasing demand for the Dollar.

The market had a shaky start as major indexes fluctuated since overall good corporate earnings reports from eBay (NASDAQ:EBAY) and Goldman Sachs (NYSE:GS) were unable to offset economic concerns. A spike in weekly jobless claims and China’s possible monetary tightening spurred investors’ jitters and demand for safe haven assets.

China reported that growth accelerated to the fastest pace since 2007 in the fourth quarter. Gross domestic product rose 10.7% from a year before, more than the expected 10.5%. The fast pace of expansion, together with yesterday’s curbs in lending bolstered speculation that the central bank will start raising interest rates, to prevent a massive asset bubble.

Banks tumbled after President Obama took aim at Wall Street. The President proposed limits on risk taking, specifically on proprietary trading, at big financial firms. The new offensive can be seen as a way of appeasing public anger over the surprisingly strong recovery of Wall Street and the return of lavish bonuses. Big Banks were crushed by Obama’s remarks. The overall market was dragged down and losses accelerated.

Regional banks, which wouldn't really be affected by the new proposed rules, continued to shine after some encouraging earnings reports, posting the best gains in the S&P 500.

The sell-off was broad based with 28 of the 30 Dow components posting declines.

At the end of the week, stocks sink again.  Despite better than expected corporate earnings reports from Dow components General Electric (NYSE:GE) and McDonald’s (NYSE:MCD), the market started under pressure as global economic and Washington involvement jitters hit investor sentiment. For most of the day losses were not as severe with many headliner stocks like Apple (NASDAQ:AAPL) holding to their support, but a late session push by the bears broke support of stocks like Apple, sinking the overall market.

Investors remained focused on President Obama’s proposal to limit risk taking in the financial industry. Obama’s proposal has kept sending ripples through the market, as it will change the landscape in the market and potentially make big U.S. financial firms less competitive against their smallest regional rivals and in a global basis.

Volatility spiked as the market does not like the uncertainty of a changing landscape from new regulations, which may shrink the size of the commodities and equity markets, a possible monetary tightening in China and continued earnings worries during this reporting period. Adding to the uncertainty, rumblings from Congress that the Senate vote to confirm Ben Bernanke as Fed Chairman will be very tight as the deadline for his confirmation is fast approaching.

Overall the earnings season has been decent, with close to a quarter of S&P 500 companies reporting and about 80% beating expectations. However they are not beating by as much disappointing investors, which have been quick at the sell trigger at any signs that the results were not as good as they expected.

The Dollar fell from almost the highest level against the euro since July and dropped against the yen on speculation President Obama’s proposal to rein in trading by financial institutions will reduce investment in U.S. assets.

Crude oil fell to a one-month low trading under $75 a barrel, after equities fell and speculation China will raise interest rates. The contract for March delivery fell $1.54 to $74.54 a barrel.

Closing at the sessions lows and on a Friday, is a bad sign for the market as it sliced through the 1,110, which was the 61.2% retracement level of the 1,150 that was placed on January 19th.

A great number of long chart patterns are now busted; therefore the market will need to enter a rest or consolidation period to develop some base that the bulls can take to look for a bounce. All break outs retest prior trend lines, so be on alert for a bounce and a retest of the 1,128 – 1,130 area, which represents the trend from July.

In this market, investors seeking returns, and ways to beat the market, need to enter investments with defined entry and exit points. FlowTrades.com scans the market every day for the best trading opportunities. Let FlowTrades.com assist you in removing emotions from your trades.

Get started with our free trial by visiting http://www.flowtrades.com and learn about our plans for less than $1 USD per day.

FlowTrades is an online newsletter for informational purposes only. The service should not be considered as investment advice, endorsement of any security, or as an offer to buy or sell any security. FlowTrades.com is not a registered investment advisor, and doesn't provide individual investment advice.