Bears Get Clean Sweep
The bears came out of hibernation and did some damage on Tuesday as they cracked near-term support that had served as prior resistance. The losses were less than 1%, on average, and were a minor pullback following last week and Monday's rise to new all-time highs. We said yesterday 1 day doesn't make a trend but it was the second-straight session with lower or mixed action.
The Financial stocks were weak and Tech slipped along with the small-caps which have been the bull market leaders. We also mentioned there would be some Fed talk late in the day and the 2 zombies that spoke have been hawkish on the stimulus package Ben Bernanke is running. No need to bring up their taper talk comments but their gibberish held back the bulls from rallying off the lows.
The Dow fell 93 points, or 0.6%, to settle at 15,518. The blue-chips came close to losing triple-digits for the first time since late June after falling to a low of 15,473 but kept their streak alive at 26-straight sessions without a 100-point loss. International Business Machines (IBM, $190.99, down $4.51) slipped 2% following another analyst downgrade and accounted for 34 red points, or nearly a third of the losses. Support is at 15,400 with resistance up at 15,600.
The S&P 500 declined nearly 10 points, or 0.6%, to close at 1,697. The index kissed 1,693 shortly after the open and was unable to clear and hold 1,700 again by the close. There is additional help at 1,685 but a break below 1,675 would be extremely bearish.
The Nasdaq gave back 27 points, or 0.4%, to settle at 3,665. Tech slipped below support at 3,675 but held the second wave at 3,650 as the low checked-in at 3,654. A break below the latter would be bearish while a close above 3,700 would signal the next leg higher.
The Russell 2000 dropped 11 points, or 1%, to finish at 1,052. The hit to the small-caps was more significant than the ones to the other indexes but 1,050 held as the low checked-in at 1,050.08. A significant breakdown could occur if the bulls fail to hold 1,040 but there is backup support at 1,025 before 1,000 comes into play. A 5% pullback at current level would put the Russell 2000 right at 1,000 while a 5% move higher would trigger 1,100.
The S&P 500 Volatility Index ($VIX, 12.72, up 0.88) jumped 7% but held 13.50 following a test to 12.93. Don't flinch until 15 trips.
We got some more great earnings news after the close last night as Live Nation Entertainment (LYV, $16.32, down $0.31) waxed Wall Street's estimates by a mile. More in the Midday update but let's set limit prices to maximize our gains.
As we head to press, futures look like this: Dow (-47); S&P 500 (-5); Nasdaq (-6). Subscribers, hit the Members Area for the updates.