We have one of the biggest prize-fights of the decade happening right now. It’s a battle between the bears and the bulls. They are slugging it out: right punches and left hooks are flying. Sometimes the bulls get knocked down. Sometimes the bears fall. Today, the bulls are down for the count. We know that they will get up, shake off the punches, and go charging right back into center ring. But, on Tuesday, January 15th, the referee is standing over them and counting. The bulls need to get back up on their feet. But it probably won’t happen in this market session. Let’s take a quick look around the global markets.
The bears seem to be winning the golden glove around the world on Tuesday, January 15, 2008. The Asian indexes are trading down across the board. The Hang Seng lost 2.3 percent. Japan’s Nikkei fell nearly a percentage point and India’s BSE Sensex fell 0.48 percent. The only winner in this bout was the Shanghai index, which gained 0.24 percent. Knowing the big moves that this index can make, this gain can be considered rather hollow and tenuous. We can point our fingers at the financial crunch as the culprit giving the bears an edge in this bout. However, the strong yen trading at 30-month high levels is also hurting exports and that is definitely affecting the Nikkei as well as other Asian markets.
There is red across the board on the European continent. The European Big Four group is trading significantly downward on Tuesday, January 15, 2008. Switzerland’s SMI index led the group downwards, losing more than four percent. London’s FTSE plummeted more than three percent while the Dax lost 2.1 percent and the Cac lost 2.8 percent. European shares touched 16-month lows by the end of the trading day. Ooh, that hurts! The pharmaceutical index led the losing sectors. However, British supermarket giant, Tesco, took a nosedive to lose more than 3 percent.
In the US, the markets have been up and down. Triple-digit moves have been the name of the game for the past week. Friday, January 11th had the Dow ($INDU) trading up more than 100 points. Monday, January 14th saw a 175-point gain. But Tuesday, January 15th is a different game. The bulls made made their one-two punch. They hit the bears in the jaw and they stumbled. But the bears shaken off those gains and have stepped back into the ring to fight. In the final hour of trading, the Dow is down 265 points. That’s enough to knock the socks off anyone! Let’s turn to the economic data and see what’s going on in this market ring.
Economic Reports
The economic reports are big and market-moving this week. The theme for this second full week of the new year is inflation. You see why the market is moving now?! Inflation makes everything move, not only prices. The bears love inflation because it gives them renewed energy and strength to step back in the ring. The bulls run like the wind at the first sign of inflation. And that could be what is happening today. The Producer Price Index was released on Tuesday, January 15th. It measures business inflation and offers a sneak peek into the market-moving Consumer Price Index, which incidentally will be released on Wednesday, January 16th. Let’s look at the figures. The Producer Price Index was predicted show that prices had fallen from 3.2 percent to 0.1 percent. But it actually fell even farther. The PPI for December lost 0.1 percent. This weak figure hurt the stock, bond, and currencies markets. The Consumer Price Index is expected to show a decline from 0.3 percent to 0.2 percent. The Fed must be dancing in the streets with these inflation figures. The stock market should have been tip-toeing through the tulips as well. But it isn’t. So what has happened?
The Retail Sales report was released at the same time as the PPI. It was a very disappointing report. It fell from 1.0 percent to lose 0.4 percent. It was expected to show a decline, but the fall was much farther than expected. Did I mention that this was the December retail sales figure?! The stores obviously did not have a good Christmas. So the market, which was struggling anyway, took a left-hook in the face from the December retail sales figure. And that is why the market is down for the count right now. A sharply declining retail sales figure shows that the economy is slowing down, perhaps even approaching a recession. The stock market does not like a slow economy because business sales will slow down and this will be reflected in stock prices. The US Dollar also doesn’t like a weak retail sales figure because investors will not want to purchase the USD if the economy appears weak. The only winner in this scenario would be the bond market, which likes a slower economy because it increases the value of fixed-income securities.
Let’s see if next week can bring us hope for a quick recovery. There is only one major report coming next week and it does not bode for a quick recovery. On Thursday, January 17th, the Existing Home Sales report will be released. In my opinion, the housing sector can barely save itself let alone the struggling stock market. So the market might be down for a while, but it is rarely out.
So much for the economic data. Let’s take a look at the company reports and some technical data. There must be some bull news in the area.
Company News
Beginning the last thirty minutes of trading, the Dow is trading down 220 points. This is a slight retracement from thirty minutes ago. Maybe the bulls are ready to get back up on their feet. It’s doubtful, but prize fighters always have their eyes on the prize. But there have been a few large downturns in this market.
The biggest market-mover or loser today was Citigroup, Inc. (C). It lost an incredible 8 percent on Tuesday, January 15th. Hasn’t this company taken enough?! But it does take a licking but keep on ticking. It took a major licking today. Citigroup has been taking on some quiet partners and securing financing from around the global in recent times. It has been getting the money it seeks, but in the meantime the financial giant is not looking very good. In fact, it is looking quite weak and frail. Perhaps the money will help to get it back up on its feet so it can back in the ring. With its new CEO, the company has a strong chance of succeeding. But at what price? Let’s look at the chart.
Figure 1: Citigroup, Inc. (C) Daily Chart. Okay, it is not exactly the portrait of a bullish chart. In fact, it is just the opposite. But let’s take a look at the smaller picture. In the past 5 trading days, the financial icon has pushed up through its 5-day moving average (red) line. It has even turned the red line upwards. It was meeting resistance at the 20-day moving average (blue) line until Tuesday, January 15th. This date is not shown in the chart. But Citigroup lost 7.6 percent (or $2.22) to trade at $26.87. The struggle continues. Can this company get back into the ring and fight its way back up through the red and blue lines? The oscillators show that the strength of the bears is weakening, but we don’t yet know if the bulls have the strength to turn this company’s share price around.
Lest you are wondering, Citigroup is not the only financial institution that has gone treasure hunting. Merrill Lynch & Co., Inc. (MER) has also taken out its treasure map and spy glass in the hopes of finding money for its ailing company. It needs to hurry because this financial institution lost 4.3 percent on Tuesday, January 15th. There’s no time to lose. The referee is counting. The room is spinning. And the bell is about to ring with the Dow down 243 points.
Market Moves Wisdom of the Week
Get back in the ring! Every trader will take a licking. That is, every trader will experience losses, bad trades, terrible predictions, and simply bad judgment. And these will hurt. But it is important to learn from these mistakes and losses. Think about them. Examine them. Learn from them. Then move on to the next trade. So the Market Moves Wisdom of the Week is to take your knocks and become a stronger trader. Learning from your mistakes and having the courage to get back in the ring will make you a stronger and wiser trader. And your trading account could take home the gold!
Robin Lofton
Staff Writer and Trading Strategist
ProfitStrategies.com
