Summary
A single day a trend does not make. However, when you consider the current dynamics underpinning the stock market, each day might now count for more than is generally realized.
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Indeed, a day a trend does not make, nor might it even make for a reversal that lasts very long, either. But 2005's first trading day possessed some intriguing characteristics. Thus the days that will immediately follow bear close watching.
A repeat of an excerpt from the missive dated 12/20 ("The Stock Market's 'Front-Run' Top?"):
"I'll soon have an initial outlook for 2005 in place. However, one of the elements it will contain is the view that some of the bad things not happening to the equity market in 2004 have merely been postponed, not canceled. It is becoming easier to envision an early year 2005 sell-off that could be rather pronounced.
"...At present, stocks are in a world of utter technical euphoria, one suggesting no problems of a serious magnitude are anywhere in sight. The mission of this very short missive is to opine -- invoking some of my 'old-days' technical measures, that the stock market appears to be in a major topping process, in preparation for a significant pullback/downturn...There are only nine trading days left in 2004...Thus, the stock market sell-off that approaches will probably await 2005."
Entering yesterday's trading session as well as during yesterday's trading session, the stock market appeared to have a lot going for it. A sampling:
(1) Pre-opening Dow, S&P and NASDAQ futures were sharply higher, and they held most of their gains into the opening of cash trading.
(2) The dollar was reasonably strong.
(3) Oil and other energy prices were down again.
(4) On the stronger dollar, gold opened soft, on the way to getting whacked almost nine dollars on the day.
(5) On balance, interest rates were not hostile -- up a little at the very short end of the Treasury curve, down a little at the long end of it.
(6) The Institute for Supply Management released a decent report on December manufacturing. (As usual, though, the CNBC crowd quickly attempted to bull the report into something considerably better than it was.)
On the negative side, the Commerce Department released a report on construction spending that was mildly disappointing. In the recent climate, however, even really bad news has been ignored by the equity market.
Yesterday's opening went well -- actually, very well. Not long into the session, the NDX was up a strong 14 points. The DJIA was up a solid 84, while the S&P 500 was up a respectable six. A bit later, the gains began throttling back, and by the close, all the gains and a good deal more were gone.
Here's a summary of how things ended, using my seven-measure tracking group as the proxy.
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SELECTED STOCK-MARKET RETURNS
(Ranked by 12/31 to 01/03 Change)
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01/03 Cl From
01/03 01/03 12/31 -------------
2005 2005 2004 12/31 01/03
Close High Close Close High
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DJIA 10729 10867 10783 -0.5% -1.3%
S&P 500 1202 1218 1212 -0.8% -1.3%
NYSE Comp. 7180 7268 7250 -1.0% -1.2%
Wil. 5000 11855 12024 11971 -1.0% -1.4%
NASDAQ 100 1604 1635 1621 -1.1% -1.9%
Value Line 398 406 404 -1.5% -2.0%
Russ. 2000 640 654 652 -1.7% -2.1%
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Average -1.1% -1.6%
Median -1.0% -1.4%
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So, very solid early gains turned into some substantial losses by session's end. And once the downside reversal set in, it certainly took breadth with it.
There were well over 2,000 NYSE declines, with advancing issues equal to a mere 23% of total advances and declines. Moreover, advancing volume on the NYSE was equal to a paltry 22% of total volume. As for volume itself, it approached a large 1.9 billion shares.
Does yesterday mean anything? Not yet, it doesn't. But any meaningful follow-through lasting even a few days could change the situation materially. If last year's fourth-quarter hot-money crowd should have an abrupt change of heart and head for the hills at the same time, who will take the other side of the trade?
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