Sterling Market Commentary for Thursday October 11th, 2012

Sterling Market Commentary for Thursday October 11th, 2012

A Look at Wednesday’s Market:  The overall market move sharply lower in a broad based move that saw nearly every sector index I track move lower on the day  as well.  The weakest sectors were the High Tech,  Oil Services, Retailers, Biotech, Chemicals, Natural Gas, Airlines, Cyclicals, Commodities, and Healthcare related indices.  There was strength in the Gold/Silver, and Banking indices. The weakness in the market was sparked by a weakness in corporate earnings, which is a further sign of a weakening U.S. economy.  In the commodities markets, Oil was lower by $1.14 to $91.25 per barrel, and Gold was higher by $0.10 to $1,765.10 per ounce.  In the grain markets,  Wheat was higher by $0.054 to $8.696 per bushel, and Corn was lower by $0.052 to $7.366 per bushel, while Soybeans were lower by $0.266 to $15.252 per bushel.

A Few Thoughts on Thursday’s Market:  In looking at the charts from yesterday’s trading activity, I noticed continued weakness in the vast majority of the indices I track.  The Dow Jones Industrial Average, Philly Semiconductor Index ‘SOX’, the S&P 100 ‘OEX’, S&P 500 ‘SPX’, the S&P Retail Index ‘RLX’, the M.S. Cyclicals ‘CYC’, and Amex Biotech ‘BTK’ indices all either hit or move lower through their 40 day moving averages.  Again,  this is generally considered a negative trading signal for the market.  While the computers may initially move the market higher this morning due to the initial jobless claims numbers,  I do not think they are going to overcome a slowing economy.  Let us not forget that initial jobless claims,  and the unemployment rate are lagging indicators.  This means that they are providing us with a picture of what has already happened.  They are not forward looking looking indicators which will provide you with an indication of what may be happening now or in the future.  The initial jobless claims and the unemployment numbers are not providing us with a picture of an improving economy,  they are confirming that the economy improved in the past.  The forward looking indicators are showing a slowing economy.  Economic conditions around the world are contracting, the world economy is slowing, and there is a good chance the U.S. economy will drop back into a recession in the next 6 months.  This is not a recipe for a rising market with interest rates already at record levels.

The Dow Jones Industrial Average: The Dow Jones Industrial Average closed at 13,344.97 With yesterday’s move the Dow Jones Industrial Average broke through 2 supporting trendlines and closed below our previous support level of 13,406.91  I am now looking at upside resistance on the Dow Jones Industrial Average at 13,406.91 on a closing basis.  I now see downside support coming in at 13,273.32 and then  13,000.71 on a closing basis.  Current Expectations:  I think we are starting a new trend lower in the Dow.  I am expecting the Dow Jones Industrial Average to continue to move lower and test 13,373.32 on a closing basis.

Dow Jones Transportation Average:  The Dow Jones Transportation Average closed at 5,006.09.  I see upside resistance on the the Dow Transportation Average at 5,215.97 and downside support at 4,873.76  and then at 4,795.28.  Current Expectations:  I think the Dow Transports are going to track sideways between support and resistance for the foreseeable future.

The Bottom Line:  I think the market will continue to trend sideways to lower for the next few trading sessions.