What was that all about? Chaos prevailed on world equity markets yesterday and it continued into overnight trading in Asia and Europe. The Dow Jones Industrial Average plunged 700 points in the 15 minute period after 2:40 PM EDT . Was it panic selling or a technology glitch? Probably both! Stop loss selling triggered an avalanche. The recovery was equally eerie. U.S. exchanges cancelled selected transactions between 2:40 PM and 3:00 PM where transactions either rose or fell by more than 60%. One thing is certain: Investor confidence in equity markets was significantly damaged. One of the best measures of the fall in confidence was technical action by the VIX Index. The spike in VIX suggests that confidence is unlikely to return to equity markets in the short term.
U.S. equity index futures continued to recover from a deep sell off. S&P 500 futures added 5 points in pre-opening trade despite overnight losses by equity markets in Asia and Europe. Citigroup gave European market a bearish start with a prediction that fears of sovereign debt contagion over Greece could trigger a near-term correction of up to 20%.
Interesting reactions to the U.S. April employment report released this morning at 8:30 AM EDT! Consensus was an increase in non-farm payrolls to 180,000 from 162,000 in March. Actual was an increase to 290,000. In addition, the March report was revised upward to 230,000. However, the rest of the report was less positive. Consensus for April Hourly Earnings was an increase of 0.1%. Actual was no change. Consensus for the April unemployment rate was unchanged at 9.7%. Actual was an increase to 9.9%. Initial reaction to the report by S&P 500 futures was a slight upward move to a gain of 10 points. However, profit taking quickly re-entered and futures moved lower.
Great news on employment in Canada! Canada added 108,700 jobs in April, the largest monthly gain since August 2002. Consensus was 24,000. Canada’s unemployment rate also slipped 0.1% to 8.1%. The Canadian Dollar immediately gained 1.00 U.S. cents on the news to 96.04 cents U.S. . The news raised speculation that the Bank of Canada will raise its overnight lending rate to major banks in June.
The London FT Index is mixed this morning following the election in the United Kingdom. The Tory party won the most seats, but do not have a majority. Negotiations between the three major parties will occur over the next week to determine who will govern.
Canadian investment dealers are not giving up on the Canadian energy sector. This morning TD Newcrest upgraded Canadian Natural Resources from Hold to Buy.
Alcoa added 2% after BMO Capital upgraded the stock from Market Perform to Outperform. Target price is $15.
EquityClock.com’s stock of the day
Technical analysis: A great gold stock – Great Basins Gold (GLG)
http://www.equityclock.com/2010/05/06/a-great-gold-stock-technical-analysis/
Weakness entered U.S. equity markets well before the computer generated meltdown at 2:40 PM EDT. The initial trigger was a break by major North American equity indices below their 50 day moving averages on Wednesday. The break prompted additional technical selling at the opening yesterday.
Charts published on equity chart services (e.g. www.stockcharts.com ) on individual equities are inaccurate due to the cancellation of trades. A full update on technical indicators will be offered in Monday’s Tech Talk after transaction adjustments have been completed.
……read more HERE (scroll down) for Brooke Thackray on BNN, EquityClock.com Reports Released Yesterday Market panics – Gold sought as safe haven: and Adrienne Toghraie’s “Traders Coach” column