After dancing higher for the past nine trading days, yesterday's day of rest was to be expected and certainly well earned. After all, the S&P had rallied 7.7% in less than two weeks, the Dow had tacked on 511 points, and the NASDAQ managed to gain +8.4% -- all since September 3rd.
Although logic would dictate that a pullback should commence any time now and the bears will likely disagree, yesterday appeared to be more of a brief respite than the start of something nasty. The bulls even had an opportunity to keep the dance going as we saw another batch of the type of news that has helped propel stocks skyward lately. However, with the move starting to look a little parabolic on the charts, even the bulls will admit that a pause in the action is probably a good thing.
As the opening bell rang, it looked like it was business as usual for the bull camp as traders used the early economic data to push the Dow up another 40 points or so. Specifically, a report out of China, which quoted a senior government economists as saying China's GDP would return to double-digit growth in the fourth quarter, definitely helped the global recovery theme. And while the pre-market data here in the U.S. was a little on the weak side, the headline from the Philly Fed report appeared to get traders fired up.
The Philadelphia Fed Index rose to 14.1 in September, which represented quite a jump from the reading of 4.2 seen in August. It was the highest level for the index since June 2007 and well ahead of the consensus estimate for a reading of 8.0. But, unfortunately, the underlying components of the report did not support the early dancing in the street. For example, the New Orders fell to 3.3 from 4.2 in August, the Delivery index slid to -8.9 from -7.0, employment fell to -14.3 from -12.9, and there were some problems in the area of corporate margins.
Although the downside action wasn't exactly fierce, the day definitely went downhill in a hurry as the inputs for the remainder of the session were less than inspiring. FedEx (FDX) and Oracle (ORCL) spoke of weaker sales, which led to concerns about the potential for disappointment in terms of top line growth during the upcoming earnings season. Bespoke spooked traders with report noting that the S&P had closed more than 20% above its 200-day moving average for the first time since 1983. And Standard & Poors said that it may downgrade up to $578 billion of corporate CDO (Collateralized Debt Obligations) tranches.
All of which led to a whopping decline of 8 points on the Dow.
