Tuesday, May 30, 2006

Dow Tanks For Fourth Time This Month

How low can the markets go?

NEW YORK (Reuters) - U.S stocks tumbled on Tuesday as higher crude oil prices and a disappointing sales report from Wal-Mart Stores Inc. stirred worries about a potential slowdown in consumer spending.

Wal-Mart, the world's largest retailer, blamed higher gasoline prices and rising utility costs for holding back spending by its customers in May.

Its stock fell 2.7 percent and weighed heavily on both the Dow average and the Standard & Poor's 500 Index. All 30 components of the Dow Jones industrial average finished lower for the first time since late September 2004, according to Dow Jones Indexes.

Investors also feared that the dollar's slide could fan inflation as its weakness against other major currencies pushes up the cost of imported goods.

The dollar staged its biggest one-day drop in six months against a basket of major currencies after the Conference Board said its U.S. consumer confidence index hit a three-month low in May.

"There are some worries that this could go throughout the economy," said Evan Olsen, head of equity trading at Stephens Inc. in Little Rock, Arkansas, referring to the impact of higher gasoline prices on Wal-Mart's sales. "The tone is still somewhat negative, and on top of that, we had a consumer confidence number that was little disappointing."

With just one trading day left in May, the S&P 500 was down 3.9 percent and on track to have its worst month in 3-1/2 years. The Nasdaq was down 6.8 percent for May so far, putting it on course to register its worst month in almost 2 years. The Dow has fallen 2.4 percent so far in May.

Decliners beat advancers on the NYSE by 7 to 2. On the Nasdaq, decliners beat advancers 3 to 1.

Oil's over $72 a barrel, the dollar's tanking, inflation jitters remain, another interest rate increase looms at the end of June - you'd have to say market volatility is going to be with us for awhile.

In the short term, how does the situation get better? Between summer driving season and hurricane season, we're probably looking at $80 dollar oil by the end of the summer. I bet $80 dollar oil won't be good for either consumer confidence or corporate profits.

Dow still hasn't hit last wednesday's low though.

Expect a slight rebound today.
Yes, I see the slight rebound today. Let's see what happens after the Fed minutes get released.
Well it dropped quickly evaporating the bounce, but it bounced back off that. Dow is up 40 points with 90 minutes to go.

The minutes were read as undecisive. I think we will see 5.25% at the next meeting.

Technically speeking, if you look at the 30 day chart you can see that the down trend is starting to take shape. A consolidation move this week up to 11,200 could hit stiff resistance and the downward trend would continue.

It looks like a reversal has happened. Also, a head and shoulders patter could develop if the Dow hangs on for another month around 11,200 and 11,500. Then we would see a big drop in July.
I agree that 5.25% is coming at the next meeting.

Here's question I have. How serious does the trading get over the summer? If the market does tank in July but the volume is fairly low, is it as serious as tanking in say October?

I look forward to your Friday economic post. I'm watching the markets and the economic news much more closely these days trying to figure out what's coming down the pike.
Good point about summer doldrums. We may have already seen the bulk of the blood-letting for now as the "Sell in May and Go Away" adage is in play.

In my mind, if losses are heavy on light volume, that only highlights how robust the selling is.

I am just getting into following the stock market on a technical level latey. My specialty is currencies, but I am trying to take a more holistic approach.

Friday should be interesting.
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