Earnings Season Off on Wrong Foot

As mentioned yesterday, today was going to provide some fireworks and the indices took little time falling into the red right out of the gate. Most of the news of the day was on the negative side, especially Citigroup's announced restructuring, in which the company will shelve more than 17,000 employees worldwide. A rise in the price of crude (up 12 cents to $62.01) was probably more of an annoyance than a catalyst.

Dow 12,484.62 -89.23; NASDAQ 2,459.31 -18.30; S&P 500 1,438.87 -9.52; NYSE Composite 9,413.63 -55.07

The real blow came just after 2:00, when the minutes from the most recent Fed meeting showed that the FOMC governors were far from favoring a rate cut in the near future, something for which many ill-advised speculators had been hoping.

It's difficult to comprehend how people who are paid to be in touch with such things could be so far removed from reality. Inflationary pressures are everywhere, but some analysts still held to the belief that the Fed would cut rates within the next three to six months. With a fed funds rate at an historically moderate level of 5.25%, what exactly were they thinking? Was it all just a set-up by short-sellers in the know?

Upon release of the Fed's minutes the markets sank like they were loaded down with lead weights. False hope apparently dies hard.

Declining issues carried the day by a 2-1 margin over advancers.

New Highs: 290; New Lows: 101. This is the first session in at least the last 7 that there were less than 300 new highs, which is our benchmark. Expect the market to continue a downward trend until this is reversed.

After gaining for 8 consecutive sessions on relatively weak volume, the markets took a sudden, but hardly unexpected turn today, unofficially the first day of earnings season. Today's decline lopped off nearly a third of the gains made over that 8-day run. Since the indices never reached the previous highs, we are still technically in a downtrend.