After surging to new five-month highs on Wednesday the market has taken a moment to pause. Investors have chosen to focus on the banks and this country's foreclosure mess sending financial stocks sharply lower on Thursday. In economic news the weekly jobless claims numbers were higher than expected while the PPI came in above expectations. The U.S. trade deficit also jumped more than expected. Overall stocks are seeing a very widespread decline with every sector in negative territory. Even the bond market is seeing some profit taking, pushing the yield on the 10-year treasury to 2.474%. Meanwhile the U.S. dollar continues to sink, which has pushed gold prices to a new all-time high of $1,388.10 intraday. Crude oil is relatively flat and trading near $82.94 a barrel.
Foreign markets were mixed. The rally continued in Asia with the Chinese Shanghai index up +0.6%. Hong Kong rallied +1.6%, on top of yesterday's +1.5% gain, pushing the Heng Seng index to another two-year high. This morning the U.S. trade data showed an unexpected jump in August with our trade imbalance hitting $46.4 billion. China's portion of that was $28.0 billion, a new all-time record. These numbers are fueling fears we could see a "currency war" with China if the Chinese don't let the yuan appreciate faster. The Japanese market continued to rally with the NIKKEI index rising +1.9%. This is somewhat surprising since the yen rallied to a new 15-year high against the U.S. dollar. There were some concerns that the Bank of Japan might step in again and intervene by selling yen like we saw a few weeks ago. In Europe stocks were hit with some profit taking and the English FTSE lost -0.3% while the German DAX managed to eke out a +0.3% gain.
This morning the Labor Department said weekly initial jobless claims rose +13,000 to 462,000 last week. Economists had been expecting a drop to 444,000. Unemployment remains stubbornly high and initial claims can't seem to break below the 450K level. In a separate report the Labor Department said the Producer Price Index, a measure of inflation at the wholesale level, came in at +0.4% in September. Analysts were only expecting a +0.2% gain. Excluding the more volatile food and energy costs the core-PPI only rose +0.1%, which was in-line with expectations.
The big story today seems to be foreclosures. Banks are plunging on foreclosure worries with JPM down -3.1%, BAC down -5.3%. The BKX and BIX banking indices are both off more than -3.4%. RealtyTrac reported this morning that foreclosures in September surged to a new all-time high surpassing 100,000 for the month. JPM and BAC are two of the biggest banks that have temporarily suspended foreclosures as they review their foreclosure process. Adding to concerns was news that the National Association of Attorney Generals said all 50 states are working together to investigate any potential fraud in how banks processed foreclosures.
In other news shares of Apple Inc. (AAPL) managed to tag another new all-time high, trading over $302.00 this morning. Speculation that AAPL will introduce a new iPhone for Verizon's network just got hotter since Verizon Wireless said they will start selling AAPL's iPad in a couple of weeks. Tech stocks EMC (+4.3%) and YHOO (+4.1%) are showing relative strength as rumors swirl that both companies are takeover targets. Today's rumor for EMC suggests Oracle (ORCL) might be a buyer but then ORCL is a popular topic for the M&A crowd. A few weeks ago there was rampant speculation that ORCL would buy a semiconductor company (like NVDA).
Overall the profit taking has been pretty mild. The S&P 500 (-0.5%) has not even dipped low enough to hit its rising 10-dma yet, which should offer some very short-term support near 1161. If the pullback continues I would look for the S&P 500 to find support near broken resistance at 1150. Profit taking in the NASDAQ composite (-0.4%) has yet to fill the gap from Wednesday morning. If this pullback continues look for short-term support near 2400 and its rising 10-dma. The small cap Russell 2000 index (-0.3%) is holding up very well. The Russell 2000 remains very overbought and due for a correction but on a short-term basis I would look for support near 690 and then at the 670 levels.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Russell 2000 index:
Chart of the U.S. dollar ETF (UUP):