Stocks lost their footing again as investors sold the morning bounce. Traders were digesting some mixed economic news. Consumer confidence suffered while home values appear to be improving. The DJIA is out performing its peers thanks in part to IBM, who raised their stock buy back program. Meanwhile the U.S. dollar is rebounding for the third day in a row. Gold is off about $6 to $1,036 an ounce. Oil is trading sideways just under $79 a barrel.
Foreign markets were mixed. The trend was down in Asia as investors reacted to yesterday's decline in the U.S. Chinese stocks suffered the most with the Shanghai index losing 2.8% in a drop toward the 3,000 level. The Hong Kong Hang Seng lost 1.8%. The Japanese NIKKEI index gave up 1.4%. It was a volatile day in Europe as well. Stocks were higher mid session and then suddenly all the major averages plunged sharply on the disappointing consumer confidence data. European markets managed to rebound off their lows and closed relatively flat. The German DAX lost 0.13%. The French CAC-40 lost 0.01%. The English FTSE closed up 0.18%.
The real estate market remains front and center as investors hope for a bounce in the economy. We will get the third quarter GDP numbers on Thursday morning. A positive development is a bounce in home values with the Case-Shiller home price index rising 1% in August. Home values are down about 30% from their 2006 highs and they're still down more than 11% from August a year ago. Yet this latest gain is the third monthly gain in a row. The Case-Shiller index measures the top 20 metropolitan areas. Not all areas are bouncing. Las Vegas home values continue to fall.
A bigger concern over the economic rebound is consumer spending. A confident consumer spends more while a nervous consumer keeps the purse strings tight. This morning's consumer confidence numbers were a big disappointment and echo the consumer sentiment data we saw a week ago. The Conference Board said their consumer confidence index fell from 53.4 in September to 47.7 in October. Economists were expecting a small decline to 53.1. This doesn't bode well for Halloween shopping and definitely doesn't bode well for the holiday shopping season. Two weeks ago there was a big survey that showed consumers plan to spent 20% less on Halloween that a year ago. Currently economists are predicting that holiday shopping will come in about flat with last year. Of course last year was one of the worst years in several decades for the Christmas season.
In other news IBM and CIT made headlines. IBM, a Dow component, rallied this morning on news that the company would increase its stock buy back program by $5 billion to $9.2 billion. CIT Group made headlines as the company desperately tries to avoid bankruptcy again. This time Carl Icahn is involved. He's offering bondholders 60 cents on the dollar for their debt if they will reject CIT's current debt exchange offer. Should CIT file for bankruptcy it could be a major stumbling block for the economy. The company is a major lender for nearly 2,000 merchants who supply goods to almost 300,000 retail outlets.
The bond market is doing well. Bonds were in rally mode ahead of a record breaking $44 billion auction of two-year notes this afternoon. The rally continued after the auction finished. Demand for short-term bonds was a lot stronger than expected. The bid-to-cover is normally about 2.77 and today's auction saw a bid-to-cover of 3.63. Bloomberg had a quote from PIMCO's Bill Gross, who believes this big demand for safety doesn't bode well for the stock market. Mr. Gross suggested that the market's rally is at "its pinnacle".
Currently the S&P 500 and the NASDAQ are in negative territory but they're bouncing off their lows. The S&P 500 index had fallen toward the 1060 level and its long-term trendline of support off the March lows. It looks like the NASDAQ may have pierced its trendline of support. Meanwhile the small cap Russell 2000 index is breaking down under its simple 50-dma.
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:
Chart of the U.S. dollar ETF (UUP):
A quick scan of the OptionInvestor.com play list reveals that FLS hit our new stop loss this morning. The volatility index is still rising with a 1.9% gain today. FUQI has broken support near $25.00 and is dropping fast. The stock is off 12% today. The stock hit our trigger to buy puts at $24.75. NTES is down 4.2% and nearing our target at $35.25. PSYS is seeing an oversold bounce after yesterday's steep decline.