Manufacturing In Longest Slump Since The Great Depression

Stocks recovered Friday from early losses on news that manufacturing had entered its longest slump since the Great Depression.

Dell dropped during the day on a disappointing forecast, but stocks received some support from news that Osama bin Laden’s deputy had apparently been killed in U.S. bombing raids.

The ISDEX rose 1 to 178, and the Nasdaq lost 2 to 1898. The S&P 500 slipped 3 to 1138, and the Dow gave back 5 to 9866. Volume declined to 1.35 billion shares on the NYSE, and 1.71 billion on the Nasdaq. Advancers led 16 to 14 on the NYSE, and 19 to 16 on the Nasdaq.

Weaker-than-expected readings in industrial production and capacity utilization showed that the recession in manufacturing is now the longest since 1932, and suggested that the U.S. economy is still falling.

Dell fell 1.09 to 26.60 after beating earnings and revenue estimates, but its forward guidance could be construed as a slight revenue warning, and the company said the market could remain weak through mid-2002.

Intuit slipped on its earnings report, but Serena surged after topping estimates.

Telecom stocks were surprisingly strong. Among the winners were Tellabs , Corning and JDS Uniphase .

Intel slipped on rumors of layoffs, which caused some analysts to wonder if the company’s fourth-quarter improvement may be short-lived.

Yahoo rose after reaffirming estimates.

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Eight dojis in nine days on the major indexes; a lot of indecision the last two weeks. On the bearish side, today was the first decline in some time where the put-call ratio didn’t spike, so traders aren’t showing as much fear as they have in other recent declines. However, it was also an options expiration day, which could skew the picture; we’ll see what happens on Monday. In the longer-term sentiment picture, the Rydex numbers look bearish (sentiment too bullish) and the 21-day weighted equity-only put-call ratio is at its lowest level in more than a year, showing that options traders on individual stocks are very complacent, another bearish sign. The Dow and Nasdaq are at very important levels here. The Nasdaq (first chart) is just below the critical 1934 level, and has been turned back at 1922 twice now. 1882 provided support again today. If the Nasdaq manages to clear 1934, the 1940 level looks like it should cap the advance for now, based on that upper trendline. The Nasdaq also has support at 1867-1875, 1855, and 1840. The Dow (second and third chart) was turned back at 9908 today, just about at the 50% retracement level from its all-time high of 11,750. If it can clear that level with force, it could be headed for the critical resistance area of 10,093-10,120. To mention one possible Elliott Wave count on the Dow, if this rally is an A-B-C correction in a primary bear market, the C wave has met the minimum expected target, .618 of the A leg. Coming at this important level, with sentiment showing complacency, it’s certainly possible that a top could form here. First support is 9840, then 9700-9750. First resistance is 9903-9908. For the S&P (fourth chart), first support is 1130, first resistance is 1145-1155, and critical resistance is 1164-1173. Those pictures make the Dow and S&P look suspiciously like bearish rising wedges, don’t they? Two other issues: The bond market plunged again today – and very little of that money went into stocks. Bond traders don’t appear to be betting on an economic recovery here, unless that money begins to go into stocks soon. Some of that money may be going to corporate bonds, but it remains to be seen where the bulk of that money will go. And finally, a chart of Northern Trust’s Monetary Conditions index versus final sales to domestic purchasers (fifth chart). The troubling thing about that chart is that this is the first time in that 35-year chart that an upturn in final sales has failed to follow a sharp upturn in monetary conditions. Sure is one more sign that this time may be different, but not in the way we’d hope.

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