Stock markets around the world are seeing investors take profits. The weakness began in Asia with many market watchers blaming the worse than expected U.S. consumer sentiment data from Friday as the catalyst for selling in Chinese stocks. Throw in some disappointing earnings data from Lowes (LOW), a worse than expected GDP report from Japan, and a rise in the dollar that's pressuring commodities and we have a widespread decline. The bears have broken out the old battle cry of "too far too fast".
Asian markets were weak across the board. Japan made headlines as investors eagerly anticipated the country's second-quarter GDP number. The country's economy grew +0.9% quarter over quarter for an annual pace of +3.7%. Estimates had pegged it at +3.9%. Last week France and Germany reported positive GDP numbers. This makes Japan the third country in the G7 to actually see positive GDP growth and officially end their recession. Yet the Japanese NIKKEI index lost 3.1%. Is this a case of investors selling the news? Or is it just another case of investors worried about the lack of consumer spending?
The Chinese markets were also hit hard. The Hong Kong Hang Seng fell 3.6%, posting its biggest one-day drop in over four months. The Chinese Shanghai index plunged 5.79%, which is on top of Friday's 2.89% decline. This is a two-month low for the Shanghai and the index has broken down under its simple 50-dma. European markets were down but the drop was not quite as steep. Financials led the decline with the English FTSE falling 1.4%. The German DAX lost 2.0%. The French CAC-40 gave up 2.1%.
Here at home the focused remained on the weak consumer thanks to worse than expected earnings out of Lowe's and rising credit card defaults. The master-trust data came out today and in it Bank of America said their net charge-off rate rose from 13.81% in June to 13.82 in July. It doesn't seem like much but it's still going the wrong direction. Capital One Financial (COF) also reported a small increase in charge-offs for July after four months of declining charge offs. Shares of BAC are down 3.7% at $16.73. COF is down 1.2% at $34.64.
The country's second largest home improvement retailer Lowe's Cos. (LOW) is down 9.6% at $20.65 this morning after disappointing Wall Street. Analysts were expecting the company to report a profit of .54 per share. LOW delivered 51 cents with revenues significantly below expectations. Management issued an earnings warning for the third quarter and the full year and forecasted that same-store sales for the third quarter would likely fall 6-to-10%. Larger rival Home Depot (HD), which hit new 11-month highs last week, is due to report earnings tomorrow. Wall Street estimates for HD are at 59 cents a share.
Over the weekend it seems that the Obama administration has backed away from its government healthcare option on health reform and that's driving gains for the healthcare sector. The HMO healthcare index is the only sector index in positive territory with a 3.4% gain today. Stocks like AET, CI, CVH, UNH and WLP are leading the advance.
Meanwhile a run for safety is seeing money flow into bonds and the U.S. dollar. Unfortunately the rise in the dollar is pushing commodities lower and that's affecting all the commodity and building material stocks. Gold is down. Silver and copper are down. Oil is off another 3% following Friday's 4% sell-off.
Currently the S&P 500 index is down 2.2% at 981.00 and breaking support in the 992-990 zone. We can look for potential support in the 970-960 zone and then again in the 950 region. The NASDAQ composite is really getting hit hard today with a gap down at the open and a 2.6% decline. The Dow Industrials have broken support at the 9200 level with its 1.8% pull back. The small cap Russell 2000 index is down 2.6% and testing the 550 level.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Looking for movers on the OptionInvestor.com play list I see that CHRW has hit our relatively tight stop loss. The weakness in the oil service stocks has pushed DO lower. The market's weakness has pushed FLR low enough to hit our trigger to buy calls at $51.00 today. The FXE euro ETF has broken support at its 50-dma. Readers may want to make an early exit in the FXE trade. Strength in the dollar has pushed gold lower and the GDX gold miner index has hit our new stop loss. MBT has also hit our stop loss. Glancing over the put plays I see that FSLR has broken support at $140.00 and surpassed our trigger to buy puts. GMCR has hit our first target near $60.00. IBB has hit our target near $75.00. ICE has finally broken support near $90.00. MVL has hit our trigger to buy puts under $38.00. Shares of SNDA has hit new four-month lows near its rising exponential 200-dma.