May 13, 2009 (FinancialWire) (By Dr. Joe Duarte) The Dow Jones Industrial Average (DJI) moved higher, on the strength of companies like Chevron (NYSE: CVX) and Dupont (NYSE: DD), but the Nasdaq Composite (COMPQ) and the S&P 500 (SPX) were lower and flat respectively. Also troubling was the markets breadth on a day when the industries recovered but the broader market did not. This, then, is what technicians call a negative divergence. And in this case its a sign of weakness.
There are two ways for this market to go from here, if it is to correct. One is sideways. That would be the best of worlds, as it would mean that a correction would be measured in time. The other possibility is for prices to fall, which would mean a correction measured in price.
The S&P 500 has support at the 850-900 area. Any big moves below this range would likely lead to lower prices for some time, as investors panic.
Also consider this. The markets recent engines, the financial stocks, are starting to struggle. One example is XLF, an ETF chock full of banking and brokerage names, and a pretty good benchmark for investor sentiment on the financial sector.
XLF has more than doubled since it bottomed out in March, and is now running into price resistance near its December price range. In December lots of folks bought XLF, thinking that was the bottom. Those people lost big bucks, especially if they hung on until March.
That means that there is lots of pent-up selling at these levels, as those who are back to even are wanting out. The news on the financial sector has clearly improved, although the banks and brokers are not completely out of the woods.
The stress test results have given the banks the ability to raise capital, and many are taking advantage of it. Mergers, acquisitions, and asset sales are either ongoing, or have already taken place.
In other words, lots of good news is factored into the financial sector, especially if you consider the fact that XLF has doubled in price.
What to do? Its time to be very careful. If you own XLF, this is a great time to take a few profits or consider closing out positions.
The Investrend Earnings Calendar features American Science & Eng. (NASDAQ: ASEI), expected at $1.04 a year ago versus $0.3 a year ago; CPI International (NASDAQ: CPII), expected at $0.21 versus $0.35 a year ago; Dr. Pepper Snapple (NYSE: DPS), expected at $0.29 versus $0.40 a year ago; Jack in the Box (NASDAQ: JACK), expected at $0.44 versus $0.44 a year ago.
The Investrend Economics Calendar lists Retail Sales for April (8:30 a.m.), Import/Export Prices for April (8:30 a.m.), Business Inventories for March (10 p.m.), EIA Petroleum Inventories (10:30 a.m.).
The Investrend Events Calendar showcases BAX, AFFX at Bank of America Securities Healthcare Conference; BMO Capital Markets 2009 Agriculture, Protein & Fertilizer Conference; ESRX, HSP, AMED, ENDP at Bank of America Securities Healthcare Conference; FO, CELG, CAKE, VFC at Robert W. Baird Growth Stock Conference; HOS, WTI, EGY, KEG at Al Petrie Investor and Media Relations Louisiana Energy Conference; IBM Investor Briefing Analyst Meeting; MA Investor Community Meeting; SKH, APOL, APEI, CECO at Bank of America and Merrill Lynch Education & Business Services One-on-One Forum; SLF, MET, NYX, AMP at UBS Global Financial Services Conference; TSN, SAFM, SFD, ADM at BMO Capital Markets Agriculture, Protein & Fertilizer Conference.
The Investrend Money Index is an indicator of the depth of market direction or indirection. While not always including the same stocks, the NYSE/NASDAQ 50 Most Actives indicate the direction in which the mass of money is flowing. Last sessions trading showed 13 advancers versus 37 decliners. There were no significant advancers. Decliners followed Gen Motors (NYSE: GM) down 20.14%, Ford Motor Co (NYSE: F) down 17.60%, Cell Therapeutics, Inc. (NASDAQ: CTIC) down 14.20%, E*Trade Financial Corporation (NASDAQ: ETFC) down 10.67%, Huntington Bancshares Incorpora (NASDAQ: HBAN) down 9.28%, Anadarko Petroleum (NYSE: APC) down 6.00%.
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