Stocks Play Coy While Bonds Go Wild

Tuesday's session demonstrated that the stock market is vulnerable, as a much weaker-than-expected consumer confidence report sent major averages sharply lower midmorning. But the session also demonstrated that equities are resilient, as traders eagerly bought the intraday dip, even if buying power waned as the afternoon progressed.

After trading as low as 9168.26 at around 10:45 a.m. EDT, the Dow Jones Industrial Average got back above break-even at around 2 p.m., before declining again and closing down 0.7% to 9204.46. Following similar patterns, the S&P 500 closed down 0.7% to 989.28 vs. its intraday high of 998.64 and low of 984.15, while the Nasdaq Composite dipped 0.2% to 1731.37 vs. its apex of 1744.60 and nadir of 1713.20.

Strength in McDonald's (MCD Quote - Cramer on MCD - Stock Picks) helped the Dow and S&P avoid wider losses, while weakness in big drugmakers weighed on blue-chip proxies. Amid rumors it will acquire Forest Labs (FRX Quote - Cramer on FRX - Stock Picks), Johnson & Johnson fell 1.7%, while Merck (MRK Quote - Cramer on MRK - Stock Picks) (rumored to be a potential buyer of other firms) shed 2.5%; the Amex Pharmaceutical Index lost 1%.

Although major averages finished lower, bulls could take some solace that the declines were fairly tame despite July consumer confidence dropping to 76.6, its lowest level in four months and far below expectations, as well as another rout in Treasuries. The price of the benchmark 10-year note fell 1 6/32 to 93 19/32, its yield rising to 4.44%, the highest level since July 31, 2002.

Meanwhile, the dollar initially weakened after the data but recovered to trade higher vs. both the euro and yen. Conversely, gold ended down a fraction amid a sense its recent rally may have stalled Monday at resistance in the $367-$368 per ounce range.

Back to stocks, bears were heartened that the session was uniformly negative and that the market's midday bounce proved ephemeral. However, volume was in line with recent levels and, somewhat appropriately, breadth provided a mixed message as it favored decliners by 5 to 3 in Big Board trading but was essentially even in over-the-counter activity.

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