Monday, May 11, 2009

Profit-Takers Dictate The Day

Although they tried a few times today, the troops were never really able to get anything going to the upside. Given the big gains we saw last week, a little weakness here really shouldn’t have been all that surprising, but that doesn’t mean that there was still some good action to be found under the surface. Despite poor action in energy and financial stocks (which saw some big moves to the upside last week), tech (which has been lagging lately) and biotech showed good relative strength.

The fact that market players continue to root around for pockets of activity even with the major indices struggling is a good sign. We’ll have to wait to see if the frothiness that we been seeing lately cools off a bit as we move forward, but so far momentum traders look to be interested in staying active.

Going into more detail, profit-takers dictated the tone today. Declining issues outnumbered advancers by 4-to-1 in the S&P 500 as profit-takers pressured stocks for the entire session. Financials felt the brunt of the selling effort, but strength in large-cap tech helped the Nasdaq outperform its counterparts... There weren't any major earnings announcements or economic reports to act as positive catalysts for the stock market Monday. The dearth of data seemed to encourage a round of profit taking by participants who had watched stocks climb nearly 6% last week... As has been the recent trend, financials were the best performers last week, which made them an easy target for sellers looking to lock in gains. In turn, the financial sector shed 6.8%, cutting into last week's 23% gain... Diversified banks slipped 6.7% and regional banks dropped 8.5% after several companies announced plans to raise capital... In a common equity offering, WFC announced it raised $8.6 billion, which is more than it originally set out to raise. The bank was told by regulators last week that it needs to come up with $13.7 billion in capital. Wells Fargo indicated future earnings will help plug the company's capital shortfall... Meanwhile, BAC was told last week that it needs more Tier 1 capital, but the company didn't offer any immediate plans to satisfy the measure during a conference call today... Despite the weakness in bank stocks, multiline insurers (-7.5%) and life and health insurers (-10.5%) saw some of the steepest losses. Their weakness comes as debate over health care reform is set to intensify during coming days. The threat of reform also weighed on managed health care providers, which finished 4.7% lower... Pushed on by the usual crazy etf action, sellers intensified their efforts against the financial sector into the close, which exacerbated weakness in the broader market and caused the S&P 500 to finish near session lows... The Nasdaq was able to limit its losses, thanks to the relative strength of large-cap tech stocks. Large-cap tech rebounded from hefty losses in the early going as participants considered the early gap down to be an opportunity to rotate into the sector, which didn't see the trend chasing that financials saw the week before... Despite the strength of large-cap tech, the broader tech sector finished just above the unchanged mark... Telecom was the only sector to log a respectable gain, thanks to leadership from T, which will pay VZ $2.35 billion for certain wireless assets. Meanwhile, AT&T has also agreed to sell certain wireless assets to Verizon for $240 million... With equities under pressure, Treasuries were able to snap back after contending with weakness last week. The benchmark 10-year Note regained a full point, which lowered its yield to 3.17%... There are only a few earnings announcements scheduled for Tuesday morning, none of which are expected to act as catalysts for the broader market. In terms of tomorrow's economic data, the March trade balance (8:30 AM ET) is expected to show continued contraction as countries contend with ongoing economic headwinds. The Treasury's budget statement for April is due is expected to be released later.

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