Global markets pulled back sharply on Thursday. Commodity names suffered the most thanks to a bounce in the U.S. dollar. Crude oil was off more than 2.4%, which pushed the energy sector to similar declines. Gold is managing to ignore any dollar strength today but the mining stocks are lower. Semiconductor stocks were some of the worst performers thanks to bearish analyst comments. The LEI data was positive but not quite as strong as expected. Meanwhile there is growing concern about the pace of foreclosures in the U.S.
The worldwide sell-off started in Asia. The Japanese NIKKEI fell 1.3% to set new multi-month lows on big volume. Optimists are hoping the NIKKEI finds some technical support at its 200-dma soon. The Hong Kong Hang Seng also added to its declines this week with a 0.8% loss. The Chinese Shanghai index is bucking the trend with a 0.5% gain and its fifth gain in a row.
The trading action was worse in Europe. All the major markets fell throughout the session. The dollar bounce weighed heavily on the commodity names. The English FTSE lost 1.39%. The German DAX gave up 1.48%. The French CAC-40 plunged 1.77%.
The U.S. dollar is once again one of the major stories. A minor rebound sparked a sell-off across the commodity sector. Metals were hit hard with aluminum, copper, lead, nickel, and tin all sliding. Gold was clinging to its recent gains near $1,140 an ounce (-0.02% on the day). Crude oil fell 2.4% toward $77.60 a barrel. The OIX oil index lost 2.3% and the OSX oil services are down about 3.5%. CNBC provided a quote from Bill Gross at PIMCO, who believes the dollar will not get any help from rising interest rates. Quoting Mr. Gross from his newsletter,
"...raise interest rates with 15 million jobless and 25 million part-time workers all because gold is above $1100 an ounce? You must be joking or smoking something. We will need another 12 months of 4-to-5% nominal GDP growth before Bernanke and company dare lift their heads out of the zero-percent fox hole, mini-bubbles or not."
Economic data out today was mixed. The Conference Board issued their index of leading economic indicators (LEI) that are supposed to forecast economic activity for the next six months. The index saw a 0.3% rise to 5.0% in October. Economists were expecting a 0.5% rise. While the gain was less than expected it's still the seventh monthly gain in a row.
The Thursday weekly jobless claims data was a non-event. New weekly jobless claims were in-line with expectations around 500,000. A bigger scare is the rise in foreclosures. The Mortgage Bankers Association said more than 14% of American homeowners are either in foreclosure or behind on their mortgage. That's about 4 million homeowners that are more than three months late on their mortgage payments. Furthermore the number of foreclosures coming from folks with good credit and fixed mortgages is rising sharply. The MBA also voiced concerns that mortgages back by the Federal Housing Administration are souring fast with more than 18% of FHA loans delinquent.
Overall the market is sinking today and the bullish breakout from Monday appears to be forgotten. The S&P 500 index is off 1.5% and trading near 1093. The Dow Industrials are off 1.1% with a drop toward the 10,300 level. The small cap Russell 2000 index is down 2.5% and back under its 50-dma. The tech-heavy NASDAQ actually gapped down and is currently off about 1.7% thanks to weakness in semiconductors. A Bank of America analyst downgraded Intel and Texas Instruments from a "buy" to "neutral" and downgraded the entire chip sector from "positive" to "negative" over concerns that inventories were growing faster than demand. The SOX semiconductor index is off 3.4% on the session.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
A quick scan of the OptionInvestor.com play list reveals that CAT and CNQ are under performing with a 2% decline. Luxury goods retailer COH has hit our stop loss at $33.75. CVX is breaking the short-term trend of higher lows. ESS has broken support near $80.00 and hit our stop loss. ROP has also hit our stop loss. GMCR, a new put play, has broken support and hit our trigger to buy puts. NTRS, a regional bank, has sunk to new relative lows. RIMM is off another 2.5%.