The market extended its losing streak to four days Wednesday, but this time it was the Dow, rather than the Nasdaq, that led the decline. The blue chip index fell 0.95%, while its tech-heavy counterpart lost 0.43%. The catalyst for today's losses were two early earnings reports that don't bode well for the rest of this season.
Alcoa (AA) posted a 4.6% loss on the day after the aluminum producer cut its production forecast based on slowing demand, especially in China. The company actually topped the Street's estimates, but the warning spooked investors, who unloaded the stock during the session. After only a small gap down this morning, AA fell down into its 100-day MA around $8.70.
Chevron (CVX) also played a big role in the Dow's ~1% decline. The oil company warned last night that falling crude prices and reduced production would result in substantially lower earnings. Adding to its woes, the Supreme Court declined to intervene on a $19 billion judgement against the company that was handed down in Ecuadorian courts for polluting the Amazon. The stock opened lower and continued to fall during the session, piercing the 50-day moving average on its way to a 4.18% loss.
Despite the market's weakness today, there were some reasons for optimism. Wal-Mart (WMT), my retail stock pick of 2012 from CNBC, made new highs in the morning after the discount retailer said it would add US stores following a very strong back-to-school season. WMT did pare most of those gains in the afternoon putting in a somewhat bearish candle, but in a very bearish stretch for the market, it's hard to find fault with a stock making new highs. Candlesticks cannot be judged on a standalone basis, a concept we teach in our Active Trading Course. WMT finished the day up 1.73%.
Yum! Brands (YUM) and Costco (COST) ensured that the start to earnings season wasn't all negative. YUM, the owner of the KFC and Taco Bell fast food chains among other brands, saw its profit jump 23%. The stock jumped 8.04%. Costco, like fellow discount retailer Wal-Mart, surged to new highs before giving back most of its gains, but still posted a 1.92% gain on the day after earnings. It will be important to see what today's candle leads to, as it could go both ways here.
Tech leaders Apple (AAPL) and Google (GOOG) also held up well today and finished positive in a down market, which is a healthy sign. GOOG has been the star of the stock market, and is still above its 21-day MA. AAPL looks like it has found support at its 50-day and is on the road back to redemption after a precipitous fall from above $700.
The S&P still has room to fall into its 50-day MA, but we are getting oversold readings on the trading oscillator and could be see a short term bounce before that level. Be prepared for each scenario regarding the 50-day MA: if we come up short of it, kiss it and bounce, or over-shoot it. On the T3Live Virtual Trading Floor we will be monitoring the action closely over the next few days in anticipation of a buying opportunity.
*DISCLOSURES: Scott Redler is long SPY