Stocks Stumble; Banks Slammed Again (AAPL, ANR, BAC, BTU, C, DO, FSLR, MRO, MS, PTEN, WINN, XLF, XLNX)

Published on Monday, 19 December 2011 17:58 Written by Christopher Lynn

New York, December 19^th (TradersHuddle.com) – Stocks closed with a sharp loss, as banking stocks got hammered once again, dragging the overall marker lower. Concern over capital requirements in Basel III amid a speech from the ECB President Mario Draghi, which failed to provide much support to address the debt crisis weighed on the sector and broad market sentiment. Jitters over uncertainty in North Korea following the death of their troubled leader also weighed.

The Dow Jones Industrial Average fell 100.13 points, or 0.84%. The S&P 500 index lost 14.31 points, or 1.17%, while the NASDAQ dropped 32.19 points, or 1.26%.

The market started with modest gains amid mixed overseas performance, with mainly weakness around Asia following the death of North Korea’s leader. Participants were shrugging off early on a Fitch warning of a possible downgrade of euro zone countries, including France, Spain, and Italy and a Moody’s downgrade to Belgium’s credit rating by two notches. M&A was once again in focus in the early going following the announcement that BI-LO and Winn Dixie Stores (NASDAQ:WINN) will merge to create a grocery chain of about 690 stores.

Winn Dixie’s shareholders will receive $9.50 per share on an all cash transaction, a 75% premium over the stock closing price last Friday.

In Europe, equity markets turned negative, closing slightly negative, on jitters over credit rating downgrades and after ECB President Mario Draghi gave a speech before the European Parliament, with out giving hint or details about a bond-buying program. The ECB President also stressed the high costs of a euro breakdown, saying that he sees the single currency as irreversible. Since the early going, defensive plays have been the best performers, while cyclicals were under pressure.

Stocks traded with modest losses up to the start of the afternoon, however the downward pressure in financials and the lack of conviction from buyers, led for losses to accelerate. Most S&P 500 key select sectors and most of the Dow components closed in negative territory. Financials, materials, and energy posted the biggest declines, under performing the broad market index. Meanwhile, healthcare closed unchanged, while consumer staples ended with a modest loss.

The Financial Sector SPDR (NYSE:XLF) tumbled more than 2%, as big banks were hit hard amid the jitters from Europe, Basel III capital requirements worries, and mortgage woes. Bank of America (NYSE:BAC), the largest U.S. lender, tumbled 4.13% to $4.98, after posting a new multiyear of $4.92. The stock broke below the 5-handle; the level in which some funds might have limitations owning the stock. Concern over Europe coupled with ongoing worries over stage of the housing market in the U.S. spurred traders to move against the troubled sector and the bank.

Nomura trimmed its target price on Bank of America to $7, while it also cut its target price on Morgan Stanley (NYSE:MS) by 10% to $18. Shares of the operator of a global securities business tumbled 5.47% to $14.16, posting one of the biggest declines in the S&P 500, after trading as low as $14.03.

News of investors scrutinizing their holdings of JPMorgan mortgages also spurred the selloff in the sector, as participants were concern that JPMorgan will soon join Bank of America in the courts with a large putback mortgage liability. Shares of JPMorgan (NYSE:JPM) tumbled 3.73% to $30.70, breaking below calculated support at $30.83 and after trading as low as 30.42.

Both Bank of America and JPMorgan led the decline in the Dow Jones Industrial Average. Citigroup (NYSE:C), the third largest U.S. lender, also slumped hard. Citi fell 4.65% to $24.82, after trading as low as $24.40. Citigroup has lost 9.6% so far this month.

Both energy and materials fell despite some modest gains in crude oil and gold ending flat for the day. In the energy complex, natural gas resumed its downward trend, falling another 1%. The high beta name, Alpha Natural Resources (NYSE:ANR) led the declines in the sector. The stock was tumbled 7.24% to $18.20, breaking below calculated support at $19.17 and posting one of the biggest declines in the S&P 500.

Peabody Energy (NYSE:BTU), the coal producer with worldwide operations, was also among the biggest decliners in the sector. The stock lost 5% to $31.33. Last week, the company said it started production from Wilpinjong and Millennium mine expansions in Australia.

Marathon Oil (NYSE:MRO), the crude oil and natural gas exploration and production Company, tumbled 3.40% to $26.45, breaking below calculated support at $26.58. The stock formed a bullish engulfing candle on Friday’s price action that in this case signaled continuation of the weak trend.

Another notable mover in the energy sector was Diamond Offshore (NYSE:DO), the deep-water oil and natural gas driller, was falling 0.88% to $53.81 after it was downgraded to Underweight from Equal Weight at Barclays. And Patterson-UTI Energy (NASDAQ:PTEN), the provider of onshore contract drilling and pressure pumping services to oil and natural gas industry, fell 2.17% to $18.48 despite being upgraded to Overweight from Equal Weight at Barclays.

Technology also closed lower, largely inline with the broad market. Apple (NASDAQ:AAPL) was among the gainers in the sector amid on going analyst chatter regarding the need for Apple to start paying a dividend to spark momentum to the stock, which will attract value oriented investors. Shares added 0.31% to $382.21 as analysts have been making the case that Apple could easily afford to pay a 4 to 5% dividend yield without compromising cash flow to direct to R&D and other acquisitions. The cash balance is seen getting to a whopping $100 billion some time in the first of second quarter next year, with some speculating that it might be perhaps the milestone that could give management also some cover to announce the dividend. Last week the stock fell 3.2% despite more brokerage houses issuing bullish reports, like Morgan Stanley naming the stock a Long Research Tactical Idea and Ticonderoga saying that Apple had its best November on record, according to its internal sales barometer.

Semiconductors were under pressure after Xilinx (NASDAQ:XLNX), the advanced integrated circuits maker, lowered its third quarter revenue guidance below consensus. Shares lost 1.92% to $30.61 despite the company raising its gross margin guidance.

Advanced Micro Devices (NYSE:AMD), the world’s second largest chipmaker, tumbled 5.3% to $4.86 after trading as low as $4.82. AMD broke below calculated support at $5.01.

And First Solar (NASDAQ:FSLR), the largest maker of thin film solar modules in the world, was under pressure in the session once again, tumbling 4.42% to $30.50 after posting a new multiyear low of $29.87. The company announced that it would focus on large scale utility projects, as it named a new head for European sales.