Tuesday, May 12, 2009

Stocks Fight Through Profit-Taking; Plus, Maybe Some Options Expiration Machinations?

I was looking for the final hour spike-up to fail. We faded some, but the bulls managed to hold onto some of the move and we closed well off the lows.

It was pretty dismal trading for most of the day with the DJIA covering up some weak action under the surface. A lot of small-cap momentum plays failed and gold led for most of the day. Defensive plays have been showing more life lately, making me question how much steam the bulls have left. Oil and biotechnology recovered by financials and retailers were the main drag. Technology stocks have been losing their luster, but there were some positive comments from INTC on the wires that are giving QQQQ an after-hours boost.

The market seems to be getting a bit tired, but I'm wondering if that's just options expiration weighing the market down.

Going into more detail, profit-takers sold early gains and sent the major indices markedly lower for most of the session, but stocks were able to battle back in the second half and finish in mixed fashion despite a lack of positive catalysts... Out of favor for the second straight session, financials fell 1.8%. Financials were actually up more than 1% in the early going, but sellers pounced on the sector, focusing their efforts on regional banks (-5.6%) and diversified banks (-3.2%)... BAC was a primary laggard in the financial sector. Investors were unimpressed by news that the company is selling a partial stake in China Construction Bank for $7.3 billion to a consortium of buyers... BK also traded with weakness. It was the latest financial outfit to announce a secondary common stock offering...F also fell out of favor after it announced a common stock offering that will raise funds for general purposes and help provide for certain union obligations, but the offering is also expected to dilute existing shareholders... GM was dogged as investors become increasingly concerned about whether the company will have a restructuring plan ready for government review by June. Yesterday GM's management indicated that it is more probable that GM will need to accomplish its goals through bankruptcy. Shares of the Dow component are at their lowest level in many decades...Fellow Dow component MSFT will issue $3.75 billion of senior unsecured notes to help fund working capital requirements, capital expenditures, or share repurchases. Microsoft was a primary leader among tech stocks (-0.6%), which actually underperformed the broader market... Participants also rotated out of early cycle stocks in favor of defensive-oriented holdings. As such, industrials fell 1.2% and consumer discretionary stocks slid 2.2% as shares of retailers surrendered 0.9%. Retailers will come into sharper focus tomorrow, when the Advance April Retail Sales data is unveiled (8:30 AM ET)... Meanwhile, consumer staples stocks climbed 1.3%, health care advanced 1.4%, telecom tacked on 1.1%, and utilities closed 0.6% higher. Gold gained 1.1% to settle pit trading at $923.90 per ounce... There weren't any major earnings announcements this session. In terms of economic data, the U.S. trade deficit widened to $27.6 billion in March, which is the first time in eight months that the deficit widened. However, the increase comes off of February's $26.1 billion deficit, which was the narrowest deficit since 1999... Additionally, the March reading is an improvement from the first quarter average through February, so it should factor favorably into the revised first quarter GDP reading. The latter point aside, the March trade balance report serves as another reminder that global trade continues to contract as countries around the globe grapple with the effects of the current economic situation.

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