Sam Collins

Give Us a Break

by Sam Collins   11/10/08

Despite election day's record stock market rally, stocks were dumped on Wednesday and Thursday, taking back not only Tuesday's gains but a lot more. On Friday, the markets rallied again, but for the week the Dow Jones Industrial Average fell (DJI) 4.1%.

On Friday, president-elect Barack Obama held his first press conference and during the Q&A session said that he will stand aside to let the current administration manage the financial crisis until the end of its term in office. He also urged the passage of another fiscal stimulus bill.

Apparently that wasn't what Wall Street wanted to hear, and the Dow fell 200 points. However, despite a nasty jobs report which showed that non-farm payrolls declined 240,000 versus an expected decline of 200,000, the Dow rallied again -- ending the session at close to the high of the day.

The unemployment rate rose to 6.5%, which was above expectations by 0.2%. There were losses in all sectors except education and health services.

But the market rallied on bad news, including earnings misses by some of the most stable U.S. companies such as Disney (DIS) and Qualcomm (QCOM). And there was more negative news from the U.S. auto industry, with both Ford (F) and General Motors (GM) reporting huge burns of cash -- and GM saying that it may not have enough cash to continue operating through the end of the year.

On Friday, the Dow Jones Industrial Average (DJI) rose 248 points to 8,944, the S&P 500 (SPX) gained 26 points to close at 931 and the Nasdaq (NASD) was up 39 points to 1,647.

The New York Stock Exchange traded just over 1.2 billion shares, with advancers ahead of decliners by a ratio of 2-to-1. On the Nasdaq, 804 million shares changed hands and breadth was in favor of the advancers by a ratio of 9-to-5.

For the week, the Dow fell 4.1%, the S&P 500 lost 3.9% and the Nasdaq fell 4.3%.

Crude Oil (December contract) rose 27 cents on Friday to $61.04 a barrel and the Amex Energy SPDR (XLE) gained $2.25 to close at $49.85.

The dollar slipped just a bit, and as a result, gold rose for the first time in three days. The December gold contract gained $2, closing at $734.20 per troy ounce. The PHLX Gold/Silver Index (XAU) rose $3.29 and closed at $85.16, up $3.29.

What the Markets Are Saying

On Thursday, Oct. 30, I issued a trading alert that said, "A trading opportunity is about to occur on the S&P 500 and the Dow if the indices close above S&P 985 and Dow 9,300."

That breakout occurred on election day and it quickly ran the Dow to 9,651 and the S&P 500 to 1,008 before reversing. In two days, it took back all of the election-day gains and more.

Wednesday's reversal and Thursday's follow-through were the products of a violent and unexpected round of profit-taking by traders and came perilously close to plowing through the important support at Dow 8,680 and S&P 905 -- both Fibonacci numbers. In fact, on Thursday the Dow closed at 8,695 and the S&P at 905.

But Friday opened higher and, by the close, the dangerous support level held -- at least for now.

There were several encouraging developments for the bulls: Bad news blasted the markets all week, ending with the lousy jobs numbers and an unemployment rate of 6.5% which was above the expected rate of 6.3%. And before that, some very disappointing retail sales numbers startled even the most negative analysts. But in the end, the markets held for a positive technical development.

Last week's activity established a broader trading range of Dow 8,175-9,625 and S&P 840-1,005 with immediate support at 8,680 and 905. A break of the broader trading zone should signal the market's next direction.

Today's Trading Landscape

Earnings to be reported include: 4Kids Entertainment (KDE), Abiomed (ABMD), Abraxas Petroleum (AXAS), Acusphere (ACUS), Advanced Photonix (API), Allianz SE (AZ), Allied Capital Corp (ALD), American Apparel (APP), American Defense Systems (EAG), American Int'l Group (AIG), American Oriental Bioengr (AOB), Anthracite Capital (AHR) and Arch Chemicals (ARJ).

Ballard Power Systems (BLDP), Bluegreen (BXG), BMB Munai (KAZ), Bowne & Co (BNE), Cameco (CCJ), Cano Petroleum (CFW), Cellcom Israel Ltd (CEL), Centerplate (CVP), CGI Group (GIB), Cinemark Holdings (CNK), Clear Channel Outdoor Holdings (CCO) and Crusader Energy Group (KRU).

Deerfield Capital Corp (DFR), DISH Network Corp (DISH), Emeritus Corp (ESC), Energy Conversion Devices (ENER), Energy Transfer Partners (ETP), Environmental Power (EPG), FirstCity Financial (FCFC), Force Protection (FRPT), Fuel Tech (FTEK), GeoMet (GMET) and GLG Partners (GLG).

Healthcare Realty Trust (HR), Hearusa (EAR), Hospitality Properties Trust (HPT), HSBC Finance Corp (HTB), Information Services Group (III), Intertape Polymer Group (ITP), Irwin Financial (IFC), Isis Pharmaceuticals (ISIS), Javelin Pharmaceuticals (JAV) and John Bean Technologies Corp (JBT).

KKR Financial Holdings LLC (KFN), Landry's Restaurants (LNY), Lions Gate Entertainment (LGF), Loral Space & Communications (LORL), Medicis (MRX), Midway Games (MWY), Mindray Medical Int'l Ltd (MR), NexMed (NEXM), Nortel Networks (NT), North American Palladium (PAL) and Northeast Utilities (NU).

Orbitz Worldwide (OWW), Parkervision (PRKR), PHH Corp (PHH), Regency Centers (REG), Rockwell Automation (ROK), San Juan Basin Royalty Trust (SJT), Sempra Energy (SRE), Sirius Satellite Radio (SIRI), Six Flags (SIX), Southern Union Co (SUG), SouthWest Water (SWWC) and Starbucks (SBUX).

TAM S.A. (TAM), Tandy Brands (TBAC), Titan Pharmaceuticals (TTP), Transmeridian Exploration (TMY), TravelCenters of America (TA), Trimas Corp (TRS), Tsakos Energy Navigation Ltd (TNP), Tucows (TCX), Tyson Foods (TSN), ULURU (ULU), Universal Insurance Holdings (UVE), Versar (VSR), Virgin Mobile USA (VM) and Westwood One (WON).

There are no economic indicators are due today.

AIG is the subject of a revised bailout package worth around $150 billion, replacing the old $123 billion plan. AIG reported a Q3 loss of $24.47 billion.

China has unveiled its own stimulus package worth more than $500 billion.

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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.