The stock market has finally hit some profit taking after an almost non-stop two-week rally. Disappointing earnings results from Bank of America (BAC) and General Electric (GE) overshadowed positive reports from Google (GOOG) and IBM last night. Worse than expected consumer sentiment data also throws some cold water on the rally. The U.S. dollar is up, crude oil is down, and gold is bouncing a bit after yesterday's decline. Aside from the morning spike lower it's been a mild options expiration Friday.
Asian markets were mixed. The Japanese NIKKEI continues to climb with a +0.18 gain after the index broke out over the 10,000 level yesterday. The Hong Kong Hang Seng lost 0.3% ending a three-day winning streak. The Chinese Shanghai index was off 0.11%. Both of the Chinese markets remain just under round-number resistance. Their European rivals fared even worse. Profit taking seems to be accelerating. The German DAX lost 1.5%. The French CAC-40 gave up 1.45%. The English FTSE closed down 0.6%.
Bank of America (BAC) was the big story today. After JPM's amazing results two days ago investors have had high expectations for the banks. Analysts were expecting BAC to report a loss of 21 cents. BAC delivered a loss of 26 cents. Revenues were up better than 32% to $26.04 billion but that wasn't enough to hit Wall Street's estimates at $27.6 billion. Analysts remain concerned about BAC's credit losses. The company set aside $11.7 billion in the third quarter for credit losses compared to the $6.4 billion they set aside a year ago. Actual credit losses for the third quarter came in at $9.6 billion versus $4.4 billion a year ago. The stock is down 4.1% near $17.35 after hitting new one-year highs earlier this week. The BKX banking index is off 2.8% while the BIX index is down 3.2%.
General Electric (GE), one of the largest companies on the planet, managed to beat Wall Street's estimates by 2 cents with a profit of 22 cents per share. The company's revenues were down about 20% to $37.8 billion for the quarter. The company is seeing some improvement in a few of its industrial divisions but the market was focused on its GE Capital arm, the company's finance division. All but one of GE Capital's business managed to eke out a profit but the commercial real estate division lost $538 million in the third quarter. Investors are taking profits with the stock down about 4% near $16.
Consumer sentiment was another downer for the market today. The Reuters/University of Michigan preliminary index of consumer sentiment sank from 73.5 in September to 69.4 in October. Economists were looking for a very mild dip to 73.3. Looking inside the numbers the survey's current conditions component fell from 73.4 to 72.1. Consumer's expectations for six months from now sank from 73.5 to 67.6.
The major indices are down but they're starting to recover from their lows as traders buy the dip. The S&P 500 index is bouncing from the 1080 zone, which as previous resistance should be short-term support. The NASDAQ has pretty much filled the gap from Wednesday morning. The Dow Industrials is nearing the 10,000 level again as stocks rebound. The small cap Russell 2000 index has also come close to filling the gap from Wednesday morning.
While I'm still hearing calls for the S&P 500 to reach 1100 to 1125 there are traders that feel the market is getting frothy here and could be forming a top. Art Cashin, director of floor operations at UBS Financial Services and one of the most respected market observers due to his many long years on the floor of the NYSE, offered cautious comments this morning. Art is concerned that a lot of this move has been short covering and short positions are drying up. He's also concerned that volume hasn't been very strong on this rally and we're seeing too much divergence between advance declines and up volume versus down volume to put a lot of faith in this rally.
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:
Scanning the OptionInvestor.com play list for movement I see that AMZN is bouncing near its 10-dma and shares are paring their losses. AVB is under performing with a 2.6% decline. DRQ, an oil stock, is also bouncing from its short-term trend of higher lows but still down 1.6%. ESRX has pulled back to test short-term support near $80.00. This might be a new entry point for ESRX. MBT is showing relative strength with a 0.7% gain.