Another ugly day on the street, and the major indices don’t do a very good job of showing just how ugly it was. Here are the headline numbers: Dow Industrials down 52 points (-0.5%) to 10558, S&P 500 down 9 points (-0.8%) to 1226 and the Nasdaq down 13 points (-0.6%) to 2178. But the Russell 2000 fell much farther for the second day in a row, down 9 points (-1.4%) as the broader market gives up more ground. The Dow Transports dropped another 0.9% and the Utilities tumbled 1.7% as the bond market pushed interest rates up yet again, the 5-year yield reaching 4.23% and the 10-year 4.39%.
The market internals were gross, the only good news being that volume lightened up a tad from yesterday. Advances/declines were worse than 1/3 on the NYSE and worse than 1/2 on the Nasdaq. Up/down volume wasn’t any better, at slightly better than 1/4 on the NYSE and worse than 1/2 on the Nasdaq. New highs have now pulled in considerably, with the highs/lows figures coming in at 79/35 on the NYSE and 66/31 on the Nasdaq.
The selling was across the board, with no sectors in the green. Getting the worst of it were the REITs (-3.4%), housing stocks (-3.1%), utilities (-1.8%), HMOs (-1.6%), airlines (-1.5%), steel stocks (-1.5%), disk drives (-1.4%), broker/dealers (-1.2%), retailers (-1.1%), banks (-1.1%), insurers (-1.1%), natural gas stocks (-1.0%) and oil services (-1.0%).
Crude oil prices closed well above the $62 mark at $62.31. The dollar got back 0.3% against other major currencies, pushing the dollar index up to 88.06, and the price of gold dropped to just below $437.
Ok, listen up. Here’s the deal: On a day when CNBC can talk about nothing but the Baidu.com IPO closing up 368%, you need to ignore the hype and pay close attention to what’s really going on in the market. The market has weakened considerably over the past few days, and at best looks like it has entered a pullback phase. For traders, caution is advised: I’d be taking profits and tightening stops. For investors, you should be keeping an eye on your longer term trends, and deciding what you plan to do if this turns into anything more than a pullback. Maybe you want to move into more cash with stocks struggling and rates moving up, that’s up to you. Just don’t ignore the fact that this rally has lost its steam, at least in the short term.
Here’s a quote from Larry McMillan’s Option Strategist Weekly Updater (this weekly email update is free, sign up here): keep in mind, this was written before today’s market decline:
The first cracks in the bullish dam are beginning to show. As a result, the correction that we’ve spoken about for some time is upon us. Whether it proves to be a sharp, but short-lived correction (such as the 30-point $SPX correction in June) or something more permanent, remains to be seen. But, for now, caution is warranted for bullish investors, while aggressive investors can take bearish positions understanding that they may have to exit quickly.