Disappointing durable goods orders and lackluster new home sales figures added further fuel to the market's sell-off. News that Iran has been building a secret nuclear fuel plant only fanned the flames for traders to take profits ahead of the weekend. Last night's negative earnings report from Research In Motion (RIMM) produced a 17% plunge in the stock, which weighed heavily on the tech sector and investor sentiment. The U.S. dollar's bounce has stalled but commodities failed to benefit from it. The S&P 500 has fallen more than two percent this week marking one of its worst performances in months.
Foreign markets were mostly lower. In Asia the Japanese NIKKEI led the decline with a sharp 2.6% sell-off. The Chinese Shanghai lost 0.5%. The Hong Kong Hang Seng slid about 0.13%. The German DAX lost 0.4% and the French CAC-40 dropped 0.5%. Together the CAC-40 and DAX are down 5 out of the last 6 days. The English FTSE managed a very minor +0.06% gain.
Economists were expecting durable goods orders to rise 0.5%. The Commerce Department said durable goods orders actually fell 2.4% in August following a 4.8% gain in July. This report measures production for goods expected to last more than three years and the drop in August casts doubt on the strength of any economic rebound.
Yesterday the market was disappointed with the drop in existing home sales. That disappointment continued on Friday as the Commerce Department reported that the pace of new home sales in August rose a meager 0.7% to 429,000. July's numbers were originally 433,000 and revised down to 426,000 in today's report. Declaring August's numbers a gain is a little generous. Economists were expecting the pace of new home sales to reach 440,000. Sales of new homes have rallied more than 30% from the lows last winter but the price of homes is still falling. This last month saw a surge in low-priced homes, which pulled the median price down from $215,600 in July to $195,200 in August. It was the biggest monthly decline in price since records began back in 1963. The DJUSHB home construction index plunged again falling 2.4% on Friday. This index is down 13% from its high two weeks ago.
Not all the news was bad today. The Reuters/University of Michigan consumer sentiment survey came in positive. This was the final read for consumer sentiment in September coming in at 73.5 up from 65.7 in August. This was above analysts' expectations and the highest reading in nearly two years.
Casting a shadow across the markets are the rising tensions between Iran and the West. It has been discovered that Iran has been building another secret underground facility to enrich uranium. President Obama said the scope of the project was not consistent with peaceful motives for nuclear energy but suggested it was built with more nefarious designs. President Obama, French President Nicolas Sarkozy, and British Prime Minister Gordon Brown all stood together condemning Iran's actions and suggested there would be consequences. Iran will face the five permanent members of the U.N. security council (U.S. Britian, China, France, and Russia) along with Germany when they meet for talks in Geneva on October 1st.
Iran has the potential to cause a lot of trouble if they choose to grow more belligerent. At least 40% of the world's oil supply is shipped by tanker through the Straits of Hormuz along Iran's southern border. Any military action against Iran could suddenly see this waterway shutdown, which would immediately spike the price of oil. Speaking of crude oil I am surprised that oil didn't bounce much today. This Iran news and the pause in the dollar did not have much affect. Crude is trading sideways around $66.75 a barrel after falling about $6 in the last couple of days.
The S&P 500 index is down about four points at 1046 but off its worst levels of the session. The 1040 level looks like potential support and the low today was 1041. The NASDAQ composite is off about 13 points and trading under the 2100 mark. The Dow Industrials are off less than 20 points at 9688. The small cap Russell 2000 index is down about three points and flirting with a close under the 600 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:
I am not seeing a lot of movement on the OptionInvestor.com play list. GWW did breakdown under short-term support and hit our stop loss. IBM is bouncing from a dip near $120 as we expected. MTD broke support and hit our stop loss.