acted, the financial markets continued their recent pattern of failing to conform with what would be considered normal patterns. But this market may be the last place to look for rationality.
Early in the day, the Economic Cycle Research Institute declared
the recovery is at hand, and the advanced report on fourth-quarter GDP was positive at 0.2% vs. expectations for a 1.1% decline. In reaction, stocks fell and the bond market rallied.
Then the Federal Reserve left interest rates unchanged, a decision it justified by commenting that "the outlook for economic recovery has become more promising." The Fed also said "the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future," but the financial market's reaction to the end of the yearlong easing campaign seemed rational -- at least on the surface.
Stocks initially weakened after the
Fed's announcement around 2:15 p.m. EST, then rallied while the bond market regurgitated much of its intraday gains.
At day's end, the
Dow Jones Industrial Average
was up 1.5% to 9762.86 after having traded as low as 9529.46. The
rose 1.2% to 1113.57 after trading as low as 1081.66, while the
rose 1.1% to 1913.44 vs. its nadir of 1851.40.
After trading as high as 100 14/32, the benchmark 10-year Treasury ended down 18/32 to 99 29/32, its yield rising to 5.01%.
With the understanding that concerns about accounting-related issues remain --
American International Group
AOL Time Warner
being today's culprits -- and a sense that
the market isn't rational, I thought it might be interesting to look at the technical aspects of today's session. (Also, every other press report is going to talk about the fundamentals, and we like going against the grain when possible.)
Today's intraday lows were the lowest since Nov. 12 for the Dow and Nasdaq, and the lowest since Nov. 2 for the S&P.
But today's lows aren't terribly significant, "except that
they're a temporary low," according to Jonathan Dodd, technical strategist at Morgan Stanley.
Rather than hitting any significant point of technical resistance, the averages reversed today "because you got some concentrated selling in the last few days and it's temporarily exhausted," Dodd said. "The give-up selling allows for some relief if you will."
(Meanwhile, Kirlin Securities' Tony Dwyer suggested the reversal today was due to the buyback announcement by
executives. The news doused accounting concerns dogging that firm, at least for now, the strategist and
At 1.97 billion shares, activity on the
New York Stock Exchange
was up 11.9% from yesterday's level. Similarly, over-the-counter volume rose 11.4% from yesterday's total to 2.05 billion. Advancing stocks bested declining issues by 3 to 2 in Big Board trading and 19 to 16 in Nasdaq activity.
Such improvements, particularly on breadth, aren't sufficient enough to suggest a reversal day occurred.
"You can get some rally even as you weaken, but what's more key is how rallies unfold," Dodd said. He is convinced the selling and the lows are temporary, because "every time
the market has rallied, it has done so on less momentum."
The technician suggested near-term resistance targets for the major averages of 9200 for the Dow, 1040-1060 for the S&P and 1880-1890 for the Comp, which is in the best technical shape of the three but is in a "questionable position."
In addition to the fact that the major indices have fallen below their 200-day and 50-day moving averages, the major proxies each recently violated their December lows.
As reported elsewhere, Raymond James chief equity strategist Jeffrey Saut recently reminded Wall Street of an indicator credited to Lucien Hooper back in the 1970s: If the low from December is violated in the first quarter, the ensuing year is likely to be another nasty one for stocks.
Since 1950, this "December Low Indicator" has given 24 warning signals and proved correct 50% of the time, according to a recent report by J. Taylor Brown at
Stock Trader's Almanac
. Of those 24 occurrences, 17 transpired in January, and the Dow had nine down years and three "lackluster" years in those instances.
The December Low Indicator is "even more valuable" when used in conjunction with the so-called January Barometer, Brown notes, which states that the S&P 500's performance in January is a harbinger of the full year's performance. The January Barometer has worked every year since 1950, save for six.
After today, the S&P 500 is down 3.1% in January and would need to rally by more than 34.50 points tomorrow to get to break-even for the month.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.