Stocks Drop on the Day, Muscle Higher for the Week

Dow violates 10-day moving average but ends the week in positive territory

by 12/21/2012 4:17:55 PM
Stocks quoted in this article:

All eyes were on Washington today, as budget talks hit another obstacle, and President Obama took time out from the fiscal-cliff wrangling to nominate Senator (and former presidential candidate) John Kerry, D-Mass., as secretary of state. Meanwhile, sellers were in control, sending the Dow Jones Industrial Average (DJI) into the red by a healthy margin. While there were several economic data points hitting the newswires, "Although markers quickly rebounded from what looked to be a massive hit, they were still firmly in the red from the open and drifted lower for much of the day," remarked Schaeffer's Senior Equity Analyst Joe Bell.

Continue reading for more on today's market, including:

  • Baidu (NASDAQ:BIDU) is poised to move lower despite recent gains, according to Senior Options Strategist Tony Venosa, CMT.
  • "Why Listening to Price is the Only Way to Go," and other words of wisdom culled from Senior Technical Strategist Ryan Detrick, CMT.
  • Schaeffer's contributor Adam Warner has a "permanent complaint" about the IntercontinentalExchange's (NYSE:ICE) buyout of the Big Board.
plus...
  • Government leaders assigning blame, Ford Motor (NYSE:F) seeing bullish speculation, and a good rhetorical question in our Tweet of the day.

The Dow Jones Industrial Average (DJIA) started and ended the day in the red, but the plunge out of the gate never really intensified. In fact, the worst it got was shortly before noon, when the index was off 189 points at 13,122.53. The Dow did settle below its 10-day moving average for the first time since Nov. 16, however, and closed with a loss of 121 points, or 0.9%. Just two names among the Dow 30 -- American Express (NYSE:AXP) and McDonald's (NYSE:MCD) -- managed to peek into the black, up 0.4% and 0.2%, respectively, while Bank of America (NYSE:BAC) paced the declining majority, losing 2% on the day. For the week, the Dow was 0.4% higher.

The S&P 500 Index (SPX) danced back south of the 1,440 level, shedding 13.5 points, or 0.9%, to bring its weekly gain down to 1.2%. Turning to tech, the Nasdaq Composite (COMP) fell 29 points, or 1%, but settled up 1.7% for the week.

The CBOE Market Volatility Index (VIX) had a wild day, trading in a range from 17.76 to 19.93 before ultimately closing up just 0.9%, or 0.17 point. This week, the VIX tacked on 4.9% amid rising uncertainty as the end of the year looms.

CLOSING SUMMARY  INDICES

CLOSING SUMMARY  NYSE AND NASDAQ

A Trader's Take:

"Markets don't like uncertainty, and it's anyone's guess how this whole fiscal-cliff negotiation will end," stated Bell. "But given the overnight price action and the 'mini flash crash' last night, the fact that the Dow dropped less than 150 points felt like a small victory. It was also encouraging," he added, "that small-caps and mid-caps continue to take a leadership role, even on tough days like today."

3 Things to Know About Today's Market:

  • The so-called "Plan B" budget proposal, propelled to a House vote by House Speaker John Boehner, R-Ohio, died before it hit the floor as it failed to have the support needed to pass. This latest setback in the fiscal-cliff negotiations caused a ripple in global markets, as stocks sold off on the news. Meanwhile, Senate Majority Leader Harry Reid, D-Nev., accused Boehner of wasting a week's worth of time and stated the obvious: "The only way to avoid the cliff altogether is for Speaker Boehner to return to negotiations, and work with President Obama and the Senate to forge a bipartisan deal."
  • Durable goods orders rose 0.7% in November, strongly exceeding economists' predicted drop of 0.1%. Elsewhere, personal spending edged 0.4% higher last month, while personal income advanced 0.6%. Expectations called for a 0.3% increase in spending and a 0.4% rise in income. Finally, consumer expectations deteriorated in December amid fiscal-cliff worries. The Thomson-Reuters/University of Michigan consumer sentiment index dropped to 72.9 over the past two weeks from 74.5 mid-month, falling short of the consensus estimate of 75.0.
  • Massive conglomerate General Electric (NYSE:GE) is about to get a little bigger, as it committed $4.3 billion to buy the aviation arm of Italy-based Avio. GE hopes the deal will help grow its supply chain and expand its jet propulsion business.

Plus ... as the era of paperless journalism continues its approach, Spin magazine announced plans to convert to an all-digital format, after 27 years on the nation's newsstands. The publication -- which originally debuted as a more "alternative," well, alternative to Rolling Stone -- recently underwent steep layoffs and began publishing on a bimonthly basis versus monthly.

Today's Top Tweet:

"Who did a worse job at negotiating, Boehner or the NHL owners?"
@LDrogen, 1:59 p.m.

5 Stocks We Were Watching Today:

  1. Ford Motor (NYSE:F) option bulls purchased a longer-term block of calls.
  2. Cisco Systems (NASDAQ:CSCO) traders forecast very limited upside through the end of next week.
  3. Long-term bears continued to bet against Nokia (NYSE:NOK).
  4. Groupon (NASDAQ:GRPN) bulls got creative ahead of options expiration.
  5. Bearish option traders in search of their next trading idea should look at Activision Blizzard (NASDAQ:ATVI).
STOCKS  EARNINGS

Question of the Day:

Q: What are the current "circuit breakers" on the Dow?
A: Every quarter, the NYSE establishes three "circuit breakers," defining levels on the Dow Jones Industrial Average (DJI) at which trading will be halted on a decline. As of the fourth quarter of 2012, these levels on the Dow were 10%, 20%, and 30% lower, or drops of roughly 1,350, 2,700, and 4,050 points.

A 30% drop precipitates an automatic close of the market for the remainder of the day, regardless of when the drop occurs. A decline of 20% before 1:00 p.m. Eastern prompts a two-hour halt; a 20% pullback at or after 2:00 p.m. results in closure for the remainder of the day (a drop of 20% between 1:00 and 2:00 p.m. leads to a one-hour halt). Finally, a 10% drop before 2:00 p.m. results in a one-hour closure, and between 2:00 and 2:30 p.m. prompts a half-hour halt. Any time after 2:30 p.m., the market will remain open on a 10% drop (barring a drop of 20% or more).

For a look at today's options movers and commodities activity, head to page 2.

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