Wall Street Wrap – Wednesday July 21 – Market Cracks on Bernanke Comments

At 2 p.m. today Federal Reserve Chairman Ben Bernanke testified in Washington D.C. and made comments about the economic outlook ("unusually uncertain") and job growth that is now projected to be less than his previous forecast.  This caused the Dow Jones Industrial Average to drop from 10,240 to as low as 10,072 in one hour before bouncing back to close at 10,120 for a loss on the day of 109 points (-1.06%).  The DJIA is now below both its 50 and 200 day exponential moving averages.

The S&P 500 dropped 13.89 points to 1069.59 (-1.28%) and the Nasdaq 100 dropped 35.16 to 2187.33 (-1.58%) and was weakest major index as technology got hit hard.  The bond market was strong with yields dropping to 15 month lows.  As yields on bonds drop their prices go up and there are three bond ETF’s you should know about.  The iShares Barclay’s 20+ year Treasury ETF (NYSE: TLT) is now at its 52 week high as is the iShares iBoxx Investment Grade Corporate Bond Index (NYSE: LQD) and the Vanguard Total Bond Market Index (NYSE: BND).  The best portfolio is a diversified portfolio and if you do not have any of your assets in fixed income you might consider buying these ETF’s.  All three spiked on Bernanke’s less optimistic words on the economy going forward.

Deere and Co. (NYSE: DE) was trading a 52 week high when Bernanke began his testimony but dropped back when the market pulled back.  Caterpillar (NYSE: CAT), which is a DJIA component was also strong and one of 4 out of 30 stocks in the DJIA that finished up on the day.  My trading screen was mostly green until Bernanke began speaking but ended up with about 5 in 6 stocks down on the day.

For those that like trading sideways trend channels Cummins Inc. (NYSE: CMI) traded to its upper band before selling off today.  This stock has been going back and forth between $75.23 and $63.36 since April 5th.

I have written about Cramer’s CANDIES stocks a few times and today I noticed that Intuitive Surgical (NSDQ: ISRG) is starting to look very weak.  The stock dropped $9.99 today to $316.10.  The stock is beginning to form a bearish descending triangle pattern with the lower limit at just above its 200 day EMA.  The 200 is currently at $310.17 and if the descending triangle, which is a measuring pattern, drops below this 200 EMA, the pattern is targeting a move lower of over 50 to 80 points.  (For more information about how to identify these money making patterns visit www.StockTradingCards.com).  This is a very high priced stock so many investors would not be into a short at this dollar price but buying a far out of the money put may be a huge winner.  The October 250’s are now trading $5.60 by $6.40 (don’t forget options trade in 100 share denominations so 1 option is 100 shares or $640 on the offer) and if the stock drops to $280 or so, these puts could easily double.  Options can go to zero so this trade would only be for the risk takers.

I recommended Priceline in the past down at $183 and after a run up of over $35 it is time to sell.  The stock looks like it is headed lower.

Nymex Light crude dropped $1.13 or 1.45 % to $76.45 (4:19 p.m.) and New York Spot gold was off $7.30 or 0.61% to $1,184.90 (4:31 p.m.)  Copper was strong today with the iPath Dow Jones Copper ETF (NYSE: JJC) up 65 cents to $41.09 or 1.60%.  This is unusual as Bernanke spoke about continued economic weakness and copper usually follows the economy very closely.  Copper is a key material in the production of many goods from electronics to plumbing to air conditioners.

Going forward I see the market dropping lower as stated in my post from Tuesday morning.  Articles have been running all over the web about how the market is acting like it did after the crash in 1926.  Also, the major indices formed a sloppy head and shoulders pattern recently which is targeting a DJIA at 8,700 or so.  Here is a good article about how the DJIA is acting like it did in the Depression.  This article says the DJIA could go to 7,500 under certain conditions.

Tomorrow we have Jobless Claims before the bell and two hosing numbers and Leading Indicators at 10 a.m.  Call me bearish but I would bet that those housing numbers are going to come in lousy.  The 10 a.m. time does give you a half hour to adjust your portfolio though.

Good Luck

Wednesday, July 21, 2010 - 4:47 p.m.