US Stocks Trade Below 200-Day Averages, In Line For Correction
By Donna Kardos
NEW YORK (MarketWatch) — U.S. stocks tumbled Thursday as investors’ fears over euro-zone debt grew, pushing key market measures below their 200-day moving averages and on pace for technical corrections. The broad retreat came on mounting worries over Europe’s will to address its debt woes as unions went on strike in Greece and investors fretted that new trading regulations in Germany could spread. In the U.S., stocks linked to commodities and smaller companies bore the brunt of the selling.
“Fear is elevating at this point,” said Adam Sarhan, chief executive of Sarhan Capital. “A lot of people are concerned, if the European Union stepped up and gave $1 trillion, and it wasn’t enough, how much is?”
The Dow Jones Industrial Average was down 258 points, or 2.5%, to 10184, in recent trading, while the Standard & Poor’s 500 index dropped 31 points, or 2.8%, to 1085. The selling intensified after the measures broke below their 200-day moving averages, at 10258 and 1102, respectively. “The fact that they broke below them today after finding support there two weeks ago after the ‘flash crash’ suggests the bears are getting stronger,” Sarhan said.
In addition, 1100 was a key psychological level for the S&P 500, and traders said the drop below it fueled more selling. The S&P 500 was also on pace to post a correction of 10% from its 2010 high last month, along with the Nasdaq Composite, which was recently down 73 points, or 3.2%, at 2225. If the S&P 500 remains below 1096 through the close, and the Nasdaq is still below 2278 by the end of the session, the measures will be down more than 10% from their 52-week closing highs reached in late April.
The industrial, energy and materials sectors were getting hit the hardest Thursday, in what Sarhan described as a broad move “away from the pro-growth story.” The Dow’s leading decliners included Alcoa, which dropped 2.8%, Caterpillar, which fell 2.5%, and Boeing, which slid 4.4%. Reflecting the market’s heightened unease, the CBOE Market Volatility Index jumped to its highest point since April 2009, gaining 24% to reach an intraday high above 43.
Thursday’s U.S. economic data only added to the worries about the economy. In a troubling sign for the labor market, the Labor Department said Thursday that initial claims for jobless benefits rose by 25,000 to 471,000 in the week ended May 15. Economists had predicted claims would fall by 4,000. In addition, the Conference Board’s index of leading economic indicators fell in April for the first time since March 2009. “Now we’re starting to see a little bit of a change in the tenor of these economic figures,” Sarhan said. “If the U.S. is going to begin to slow down after such a strong rally, and Europe is slowing down, that begs the question who’s going to help us?”
The euro fell to $1.2347 from $1.2391 late Wednesday and the cost of insuring European corporate bonds against default rose sharply following comments by Jean-Claude Juncker, chairman of the Eurogroup forum of euro-zone finance ministers. He played down speculation that the authorities would intervene to arrest the euro’s decline, saying he doesn’t believe there is any need for immediate action. Rumors of possible intervention had prompted the euro to bounce off four-year lows Wednesday.
The euro was also weighed down by uncertainty over whether other euro-zone countries would follow Germany’s ban on naked short sales of certain investments. The European Commission, the European Union’s executive arm, suggested Germany acted peremptorily on an issue that would be discussed by all EU finance ministers on Friday.
Markets are also awaiting a crucial vote Friday in the German parliament over its contribution to the European Union/International Monetary Fund rescue package. The U.S. Dollar Index, reflecting the U.S. currency against a basket of six others, rose 0.1%. Treasurys also advanced, pushing the yield on the 10-year note down to 3.24%. Crude-oil futures fell, as did gold futures.
Copyright © 2010 MarketWatch, Inc. All rights reserved.