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Daily Blog -01/26/09- 2:42 P.M.

Morning Bounce is Dead

The market's morning bounce has died. The Dow Industrials managed to breakout above its short-term trend of lower highs and it looked like we were set up for a bullish day. Sadly the rally failed at the DJIA's simple 10-dma. The NASDAQ and S&P 500 produced similar moves.

Chart of the DJIA:

The theme today was job cuts. There was a wave of job cuts and workforce reductions this morning. Home Depot is cutting 7,000 jobs. GM is cutting 2,000 jobs. CAT is slashing 18% of its workforce or 20,000 jobs. Even drug giant Pfizer, who just bought rival Wyeth for $68 billion, will reduce its new workforce by 19,000 jobs. YTD 2009 there has been more than 128,000 job cuts announced. Estimates are quickly rising for job losses in January to exceeded 500,000 in the U.S.

We're still in the middle of earnings season. Dow-component Caterpillar (CAT) reported earnings this morning with a terrible miss. Wall Street was expecting a profit of $1.31 a share. CAT delivered $1.08. Management said sales could fall 25% and that business was facing "very uncertain times".

CAT guided their 2009 earnings estimates down to $2.50 a share versus analysts' estimates of $4.35. The stock plunged 10% and is trading near $32.00. Over the weekend in my play editor's note I told readers to watch for a drop toward support near $32.00. The stock is hitting that level and if it holds then aggressive traders might want to buy the dip with a very tight stop loss. Rival equipment maker Deere (DE) is down 4% in sympathy with CAT.

Overall trading was mixed. Homebuilders, healthcare, and energy stocks were up. Insurance and financials were the worst performers. Some of the commodities continue to show strength. Gold continue to rally after Friday's bullish breakout. Gold futures added $13.00 and closed above $900.00 an ounce. Silver followed suit and added 0.6% on the SLV ETF. Copper was a big winner with a 7.8% gain. Boosting the metals was a 0.9% drop in the U.S. dollar.

I am concerned by the weakness shown in the transportation index (TRAN). It is slipping under last week's consolidation and support. A breakdown from here would be very bearish for the market.

Chart of the DJ Transportation Index:

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