Sam Collins

Market Could Get the Holiday Blues

by Sam Collins   12/23/08

Two highly-regarded corporate giants bit the dust Monday with poor earnings, and the market reflected their fall.

Toyota Motor Corp. (TM) forecast an operating loss for the full year -- the first loss since the company emerged from the ashes of WWII. And Walgreen (WAG), long a favorite of Wall Street analysts, missed its forecast of 46 cents a share, reporting Q1 figures of 41 cents. Toyota fell 5.44% and Walgreen was off 4.22%.

In advance of Christmas, volume was low but the impact of the two big companies' problems had a broader impact on stocks. Of the Dow's (DJI) 30 components, 19 closed lower. The biggest loser of the Dow was General Motors (GM), off 21.6%, and one analyst opined that "if Toyota can't make a profit in this market nobody can."

The Nasdaq (NASD) was down more than 2%, as technology stocks were one of the hardest-hit groups. Major tech players Apple (AAPL) and Research In Motion (RIMM) fell 4.73% and 2.90%. But Palm Inc. (PALM) was up 22.5% on news that it would get an additional $100 million in private-equity investment.

Semiconductor equipment stocks took a hit after a JPMorgan (JPM) analyst warned that many chip tools could "negatively pre-announce or miss consensus estimates" as the industry confronts the impact of a recession. The Philly Semiconductor Index (SOX) fell 2.5%.

At the close, the Dow Jones Industrial Average (DJI) was down 59 points to 8,519, the S&P 500 (SPX) fell 16 points to 872 and the Nasdaq (NASD) was off 32 points, closing at 1,532.

On the New York Stock Exchange, 1.2 billion shares were exchanged, and on the Nasdaq more than 665 million shares traded, with decliners ahead of advancers by 2-to-1 on both.

Crude oil (February contract) tumbled again, this time by almost 6% to $39.91 a barrel, down $2.45 even in the face of a consideration by OPEC of further production cuts. The Amex Energy SPDR (XLE) fell $1.37 to $44.63.

Gold for February delivery rose $9.80 to $847.20, and the PHLX Gold/Silver Index (XAU) fell $2.92 to $109.83.

What the Markets Are Saying

Monday, both the Dow (DJI) and the S&P 500 (SPX) closed under their 20-day moving averages as momentum on both dipped into negative territory. And the stochastic indicators issued a chorus of sell signals following the indices' falls from their respective bearish resistance lines and double tops at Dow 9,000 and S&P 919.

This sets up the market for a test of the immediate support lines at Dow 8,176 and S&P 810. With volume declining as the Christmas holiday approaches, we could see a pick-up in volatility and, thus, a full test of the lows.

Today's Trading Landscape

Earnings to be reported include: American Greetings Corp. (AM), FSI International (FSII) and Micron Technology (MU).

Several economic reports are due today including: ICSC Chain Store Sales Index for De. 20, Q3 final GDP (the consensus expects negative 0.6%), Q3 revised corporate profits, Redbook Retail Sales Index for Dec. 20, End-December Reuters/University of Michigan Sentiment Index (the consensus expects 59.1), November existing home sales (the consensus expects a 1% loss), November new home sales (the consensus expects a 3% crop), November Richmond Fed Manufacturing Survey, and the ABC/Washington Post Consumer Confidence for Dec. 20.

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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.