The worldwide rally in stocks has finally stalled at least for the moment. There was plenty of economic news to digest with the factory orders, ISM services index, and the ADP employment report. Thus far the sell-off in equities is pretty mild. The U.S. dollar continues to slide but its weakness isn't helping commodities today, which have been caught in the market-wide profit taking.
The stock market weakness began in Asia. There are renewed concerns that the Chinese government might try to reign in liquidity and cool the markets. It was this fear that sparked a 5% sell-off in the Shanghai market last week that has since been erased. Chinese newspapers are speculating that the government might ask banks to raise their capital adequacy ratios from 8% to 12%. The Chinese Shanghai index lost 1.2% today. The Hong Kong Hang Seng gave up 1.45%. The Japanese NIKKEI lost 0.28%. European markets were also lower across the board. Profit taking in commodities and metals fueled the decline. The French CAC-40 and English FTSE both gave up about 0.5%. The German DAX lost 1.18%.
This morning was full of slightly disappointing economic data here in the states. The Commerce Department released the latest factory orders data. June's reading came in with a 0.4% rise, which follows a 1.1% jump in May. The trend is higher but economists were expecting a 1.0% rise. The Institute for Supply Management released their services index data, which fell from 47.0 in June to 46.4 in July. Readings under 50 are negative and July marked the 10th month of declines. The private sector ADP employment report for July came out today. Economists were expecting the ADP number to come in at -345,000 jobs. ADP said the economy lost 371,000 in July and revised their June reading higher from -473,000 to -463,000. The slight disappointment may have blunted some of the enthusiasm for the upcoming non-farm payrolls report due out on Friday. Hopes have been rising that the jobs report would come in better than expected and keep this market rally going. Currently estimates for the official jobs report are coming in around -320,00 for July, which would be a strong improvement from the -467,000 in June.
In other news today mortgage applications have been rising thanks to rates for 30-year fixed mortgages falling to 5.17% last week. Refinance applications soared 7.2%. Another hot topic today is still the cash-for-clunkers program. Congress is still wrangling over a $2 billion extension for the program. There have been some arguments that the government's plan is too wasteful as car dealers must actually destroy the engines for those clunkers turned in under the program. While I'm talking about the government the U.S. Postal Service made news today. The USPS said it lost $2.4 billion in the second quarter and was on track to lose around $7 billion for the year. Businesses have cut back on advertising through the mail during the recession and more and more consumers are using email for correspondence the Internet for online bill payments. Snail mail volume fell 9.5 billion to 203 billion pieces in 2008 and the USPS expects 2009 volume to fall to 175 billion.
Currently the S&P 500 index is off single digits and hovering just under the 1,000 level. The NASDAQ composite is off about 23 points around 1988 and testing its simple 10-dma. If the NASDAQ closes near current levels it will have produced a bearish engulfing (reversal) candlestick pattern. The Dow Industrials are off about 55 points near 9265 but it's bouncing from the lows near 9200 this morning. The small cap Russell 2000 index is off less than 10 points at 563.
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 I see that IDXX is breaking out past the $51.00 level. JCP is bouncing from a test of short-term support near $30.00 and its 10-dma. GENZ, a put play, is sinking toward new lows. The IBB biotech ETF is producing a bearish engulfing candlestick pattern. With the NASDAQ rolling over the QLD is down 2%. This might be a new entry point for puts on the QLD.