Market Tone Has Shifted for the Short Term

The market was primed to sell off, and sell off it did.
The decline yesterday was not due to a change in any fundamentals. A weak dollar and Wal-Mart's disappointing November sales number can be called the catalysts for the move, but they weren't good reasons for the US equities market to lose 1 1/2% of its value.
The dollar has been weakening for a while even as stocks climbed, and is in any case a positive for US company profits. Wal-Mart's weakness appears company specific, as overall holiday sales are widely reported as strong.
The market rally simply petered out last week, and caved in yesterday. We had noted the possibility of a correction on Page One and in the November 20 Big Picture column. There may be more to come. Any time the S&P surges 14% in four months, it can also backtrack for a while.
Stock futures indicate a lower open again today. One reason is that October durable goods new orders plunged 8.3%. A large drop was expected because transportation (aircraft) orders had surged 30% the month before, and had to come down. But even excluding transportation, orders were down 1.7%. That was weaker than expected. The overall trend in orders is soft, and the year-over-year increase in total orders is now just 2.6%.
Business investment has been strong for several years, providing significant support to GDP growth. If it is now easing, as the orders data suggests, then real GDP forecasts for the fourth quarter and early 2007 may have to be revised down to below 2%. This is a negative for the stock market this morning.
Oil prices are also pushing up a bit and are now at $60.70 a barrel. That is also of slight concern. And with the shift in sentiment, the market doesn't need much negative news to sell off. At 10:00 ET existing home sales data will be out. At 12:30 ET Fed Chairman Bernanke is scheduled for a speech on the economy.
The tone has shifted for the short-term and might be negative for a while now. Buckle up. This is not at all surprising given the strong move that has occurred.
-- Dick Green, Briefing.com