Wednesday, October 28, 2009

Both the SPX and E-Mini closed below the 50 DMA

5,071 million shares were traded on the S&P 500 today. This volume production exceeds the index's average daily volume output over the past three months by 19%.

Today's sell-off was broad-based with nine of 10 S&P 500 sectors in the red. It occurred in the face of a number of better-than-anticipated earnings releases, for instance from Visa which was one of the few companies to buck the downtrend today (its stock closed up 3.6%). Oil major ConocoPhillips also reported better-than-expected earnings; however, the company (as well as the entire energy sector) suffered from the fact that the US dollar gained ground for a fifth consecutive session. Crude oil prices slipped to just below $77.50 per barrel following today's gasoline inventory data.

Today's release of new home sales data was considered a strong disappointment. Whereas expectations had been for 440,000 new units, the Commerce Department reported that new home sales in September came in at only 402,000 units, off 3.6% month-over-month (unit numbers are annualized). Meanwhile, durable goods orders were reported to be up 1% in September, matching expectations; however, the market focused on the surprisingly weak home sales data.

Market analysts comment that the recent batch of better-than-expected earnings releases have not really inspired investors, as the entire earnings season has more or less resulted in a sell-the-news scenario. Only a handful of truly outstanding earnings releases led to notable upside (two good examples are Google and Apple). At this time, the market is also grappling with end-of-season tax loss selling for mutual funds.

Market observers believe another test lies just ahead for the market: The US third quarter gross domestic production (GDP) reading, scheduled for release on a Thursday morning. Analysts expect that the US economy grew at an annualized 3.3% in the third quarter of this year; it would be the first quarter of growth after a record-setting four consecutive quarters of economic contraction.

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