Monday is usually a pretty reliable day of the week for U.S. stocks, reliable in the sense that stocks usually go up on the first day of the week. That is what makes today's trade one part concerning and one part disappointing. After moving higher on 10 of the past 12 Monday, stocks traded lower today with the Dow Jones Industrial Average erasing Friday's gains, losing 127 points, or 1.24%, to settle at 10066.57. The S&P 500 could not keep its head above water at 1085, tumbling 14 points, or 1.3%, to close at 1073.65 while the Nasdaq lost 15.5 points to finish the day at 2213.55. Small-caps did not help the cause either with the Russell 2000 shedding 8 points, or 1.24%, to finish at 641.21.
Most of the losses were accumulated in another one of those infamous late day-sell offs as the Dow shed roughly 80 points in the last 30 minutes of trading. On the other hand, consider that Chinese stocks were up overnight, oil finally traded higher and there was really no news, good or bad, out of Europe and the fact that U.S. equities could not build on Friday's gains might highlight the point that the path of least resistance is down.
I mentioned in the weekend wrap that perhaps the only reason to explain the bullish trade in financials on Friday was news that Congress is inching closer to passing the financial regulatory reform bill. I stated that while I was personally surprised this sector moved higher on Friday, it may have been a case of the banks at least knowing what they have to contend with now that passage of the reform bill is imminent.
Well, that trend was short-lived as financials were the biggest losers among the 10 industry groups tracked by the S&P 500. Bank of America (BAC) and JPMorgan Chase (JPM), the two largest U.S. banks, dragged the Dow lower, losing 3.69% and 3.57%, respectively. Those losses pale in comparison to the punished dealt out to Wells Fargo (WFC). California-based Wells Fargo traded lower by 4.65% after Goldman Sachs trimmed its rating on the bank to ''neutral'' from ''buy.''
Wells closed just below its 200-day moving average and it looks there might be several more dollars on the downside to be had here. Goldman cited valuation as the reason for the downgrade, noting that it sees more value in Bank of America, JPMorgan and Citigroup (C) than it does in Wells.
Wells Fargo Chart
It was a disappointing weekend at the box office, at least for one entertainment company that failed to meet expectations with the latest edition of a popular film franchise.
That is right, the fourth installment of the popular Shrek franchise, ''Shrek Forever After,'' made its debut this weekend grossing $70.8 million, beating ''Iron Man 2'' by a wide margin. I do not have kids, but I do not live in a cave either, so I have heard how popular the Shrek movies are with children and the new film was being shown in 3-D in select markets. That allowed some theaters to charge as much as $20 per ticket.
Shares of DreamWorks (DWA), the film's producer, were hammered on news that the weekend's receipts fell short of Paramount's $80 million estimate. Paramount, a unit of Viacom (VIA), distributes the Shrek films. Dreamworks traded lower by as much as 13% before closing down 11%. The stock was already showing considerable weakness, trading below its 50- and 200-day lines going into the weekend and news that this version of Shrek significantly lagged the last two installments in terms of opening weekend receipts had the bears in prime position to punish the stock. Volume was more than six times the daily average.
Last week, Thomas Weisel analyst Benjamin Mogil lowered his rating on DreamWorks in anticipation of a rough opening weekend for Shrek and that sent the stock tumbling. On Monday, he lowered his revenue expectations for the film to $260 million from $315 million and cut his price target on the stock to $34 from $38. Ouch.
Even so-called defensive names are offering little in the way of protection. The Utilities Select SPDR ETF (XLU) was down almost 1% today and individual defensive names like Coca-Cola (KO), Johnson & Johnson (JNJ) and Procter & Gamble (PG) all weighed on the Dow today. Campbell Soup (CPB), the epitome of a defensive stock, was down fractionally today on almost double the average daily volume after the company delivered its fiscal third-quarter earnings.
Campbell said it earned $168 million, or 49 cents a share, for the quarter ended May 2, compared with $174 million, or 49 cents a share, a year earlier. Excluding items, the company earned 54 cents, beating the consensus estimate of 51 cents a share. Revenue did rise almost 7% to $1.8 billion from $1.69 billion, but the revenue increase was merely inline with analysts' forecasts.
Campbell Soup Chart
One stock that bucked the negative trend today was Sprint-Nextel (S). The telecom sector is another defensive realm, but Dow components AT&T (T) and Verizon (VZ) are basically flat in the past three months. For ages, Sprint was kind of the laughing stock of telecom stocks, but the company deserves some credit as its shares are up more than 40% in the past three months.
The bullishness continued on Monday as Sprint gained almost 9% on nearly twice its average daily volume on the back of a bullish write up in Barron's over the weekend and a Goldman Sachs upgrade. Goldman upgraded Sprint to ''buy'' from ''neutral'' while Citigroup reiterated its ''buy'' rating on the stock.
Sprint is gaining traction as the first mobile phone provider to offer 4G service, which can deliver speeds up to 10 times faster than existing 3G wireless networks, according to Barron's. Sprint currently offers its 4G service to 40 million people in 32 cities with aim of boosting that total to 100 million by the end of this year with new coverage in cities such as Boston, Los Angeles, New York, San Francisco and Washington, Barron's reported.
Looking at the charts, 10,000 is once again back in play on the Dow and as I have been saying, if 10,000 does not hold, 9850-9875 would be the next stopping point. From there, 9500 could become an issue.
I have been keeping my eye on 1065 on the S&P 500 and while that level was not breached today, the index closed less than nine points that area. Assuming the S&P 500 cannot find support there or at 1050-1055, a return to 975 could become an unfortunate reality.
S&P 500 Chart
The Nasdaq reclaimed its 200-day line on Friday only to fall below it again today. I mentioned 2185 as a support area to watch on the downside and if that number is violated a return to the February low of 2100.17 is likely.
The 650 range is looking like new resistance for the Russell 2000 and the index only briefly traded above that level on Monday. Worse yet, the Russell 2000 closed barely above its low of the day. If the 200-day moving average at 629 does not prop up the Russell 2000, a move to the low 600 area could be in the offing.
Russell 2000 Chart
Stocks moved higher on Friday thanks in large part to a 20-minute rally into the close. On Monday, it was a 20- or 30-minute sell-off into the close that multiplied the losses. Wipe out those two days, which essentially result in a draw, and we are basically back to where we were on Thursday and that is not an alluring proposition.
Even worse regarding Monday's trade was Chinese stocks could not help their U.S. counterparts move higher and the downdraft was back for high-beta fare like energy, financials and materials names. I still see more downside before stocks resume their bullish ways.