by Sam Collins 05/01/08
Before the Federal Open Market Committee's (FOMC) meeting results were announced yesterday afternoon, most investors seemed to think that another 25-basis-point cut by the Fed would be a good thing.
So, the initial reaction of the market was to rally strongly -- rising to a new rally high at Dow (DJI) 13,010. But like the dog who caught the truck, when they got it they just couldn't seem to swallow it, and the Dow (DJI) and other key indices closed in the negative.
What seemed to bother most who read the Fed's statement following the cut was a possible tilt in policy toward fighting inflation rather than stimulating growth. Two of the Fed governors voted for doing nothing with rates, and a report from the Commerce Department early yesterday confirmed that, despite all of the talk of recession, the U.S. is still not in one.
GDP grew at 0.6% for the second-straight quarter. The normally accepted definition of a recession is a decline in GDP for two consecutive quarters.
But despite the lower close, several major members of the exclusive Dow 30 club had banner days led by General Motors (GM), up more than 9%, Procter & Gamble (PG), up 1.75%, Chevron (CVX), up 1.49%, and ExxonMobil (XOM), up 1.39%.
GM was the clear leader of the blue chips following its Q1earnings report, which showed a loss but beat analysts' estimates by a large margin. PG, too, was up based on earnings that topped forecasts.
Despite the gains for some stocks, the Dow Jones Industrial Average (DJI) closed at 12,820, down 12 points. The S&P 500 (SPX) fell five points to 1,386, and the Nasdaq (NASD) was hit for 13 points, closing at 2,413.
Volume was relatively light with 1.44 billion shares having traded on the New York Stock Exchange and breadth at a close 8-to-7 in favor of the buyers. On the Nasdaq (NASD), breadth was slightly negative with volume at 982 million shares traded.
Crude oil prices for June delivery fell to $113.46 a barrel, down $2.17, but the Amex Energy SPDR (XLE) rose 60 cents to $81.75 as it found support at its 20-day moving average.
June gold prices rose following the Fed's quarter-point cut in rates and closed at $880 per troy ounce, up $14.90. The PHLX Gold/Silver Index (XAU) rallied back up to its 200-day moving average closing at $171.23, up $5.22. But if XAU is to get back into an uptrend, it must conclusively close above the 200-day moving average or else face a further decline with the next support at the December reversal low of $166.
What the Markets Are Saying
Yesterday's response to the Fed's expected interest rate cut led to reversals in two key indices -- the Dow Industrials (DJI) and the S&P 500 (SPX) -- as well as tentative sell signals from our own indicator, the Collins Bollinger Reversal (CBR).
This is only the third time this year that we've had CBR signals on the Dow -- the first was a sell signal on Jan. 30, at 12,443 that led to a five-week sell-off that took the index to 11,740 on March 10. The second was a buy signal on March 20, and that was followed by a rally from 12,361 to yesterday's high of 13,010.
To fully confirm this latest signal, the Dow (DJI) must close under Tuesday's low of 12,805, and that would tell us that the Dow's next support is just under the 20-day moving average at 12,400. It could even lead to a test of the trendline off of the market lows at around 11,800.
The CBR signals on the S&P 500 (SPX) had a similar result, but the first signal was a buy signal at the exact low of the index at 1,270 on Jan. 23 that led to a seven-day rally that topped on Feb. 1 at 1,396 (a sell signal was generated on Jan. 30 at 1,355).
The new CBR sell is backed by similar signals from the slow and the fast stochastic. But please bear in mind that these are not major trend-changing alerts -- just trading signals. However, it is again time to become more defensive until this all works itself out.
Today's Trading Landscape
Earnings to be reported today include:
Abaxis (ABAX), Administaff (ASF), Advanced Medical Optics (EYE), Affiliated Computer Services (ACS), Agree Realty (ADC), Alliant Energy (LNT), Annaly Capital Management (NLY), Aon Corp. (AOC), Apache Corp. (APA), Appalachian Bancshares (APAB), Applied Micro Circuits Corp. (AMCC), Apria Healthcare Group (AHG), Assurant (AIZ), Atmos Energy (ATO), Automatic Data Processing (ADP), Avanex Corp. (AVNX) and Aventine Renewable Energy (AVR).
Bankrate (RATE), Bebe Stores (BEBE), BigBand Networks (BBND), Black Hills Corp. (BKH), Brookfield Homes Corp. (BHS) and Burger King (BKC).
Cabela's (CAB), California Micro Devices Corp. (CAMD), Callaway Golf (ELY), Cambrex (CBM), Camden Property Trust (CPT), Capella Education Co. (CPLA), Capstead Mortgage Corp. (CMO), Cardinal Health (CAH), Cell Genesys (CEGE), CenturyTel (CTL), Cephalon (CEPH), Chesapeake Energy Corp. (CHK), Chiquita Brands Int'l (CQB), Cigna (CI), Cirrus Logic (CRUS), Clorox (CLX), Coinstar (CSTR), Comcast Corp. (CMCSA), Comfort Systems USA (FIX), Commerce Group (CGI) and CVS Caremark Corp. (CVS).
Denbury Resources (DNR), Dentsply Int'l (XRAY), Digital River (DRIV), Dolby Laboratories (DLB), Dominion Resources (DOM), Dynamic Materials (BOOM), Eastman Kodak Co. (EK), Eldorado Gold Corp. (EGO), Endurance Specialty Holdings (ENH), EnPro Industries (NPO), Entravision Communications Corp. (EVC), Equitable Resources (EQT), ev3 (EVVV), Expedia (EXPE) and ExxonMobil Corp. (XOM).
Fairfax Financial Holdings (FFH), FirstEnergy (FE), FreightCar America (RAIL), Gentiva Health Services (GTIV), Getty Images (GYI), Greenhill & Co. (GHL), Green Mountain (GMCR), Haemonetics (HAE), Heartland Payment Systems (HPY), Helmerich & Payne (HP), Hercules Offshore (HERO), Highwoods Properties (HIW), Hologic (HOLX) and Hornbeck Offshore Services (HOS).
ICT Group (ICTG), Immersion Corp. (IMMR), ImmunoGen (IMGN), Imperial Oil Limited (IMO), Intermec (IN), International Flavors & Fragrances (IFF), Investment Technology Group (ITG), Iowa Telecommunications Services (IWA), Iron Mountain (IRM), Kaman Corp. (KAMN), Kimco Realty (KIM), KKR Financial Holdings (KFN) and Kookmin Bank (KB).
LaBarge (LB), LifePoint Hospitals (LPNT), LivePerson (LPSN), LKQ Corp. (LKQX), Lydall (LDL), Mack-Cali Realty Corp. (CLI), Magna Int'l (MGA), Marathon Oil Corp. (MRO), MarineMax (HZO), Markel Corp. (MKL), Maxim Integrated Products (MXIM), MetLife (MET), Mine Safety Appliances (MSA), Monogram Biosciences (MGRM), Monster Worldwide (MNST) and MWI Veterinary Supply (MWIV).
National Fuel Gas (NFG), National Retail Properties (NNN), NetSuite (N), Newpark Resources (NR), Nicor (GAS), Noble Energy (NBL), Northeast Utilities (NU), NRG Energy (NRG), NSTAR (NST), Nu Skin (NUS) and Nymex Holdings (NMX).
Odyssey Re Holdings Corp. (ORH), Oplink Communications (OPLK), Optelecom-NKF (OPTC), Oskkosh Corp. (OSK), OSI Systems (OSIS), Patterson-UTI Energy (PTEN), Peet's Coffee & Tea (PEET), Photon Dynamics (PHTN) and Pride International (PDE).
QLogic (QLGC), Radvision (RVSN), Rainmaker Systems (RMKR), Reliant Energy (RRI), ResMed (RMD), Revlon (REV), Rowan Companies (RDC), Royal Gold (RGLD) and Ruddick Corp. (RDK).
S1 Corp. (SONE), Safeguard Scientifics (SFE), Sonic Foundry (SOFO), St. Mary Land & Exploration (SM), Stantec (SXC), StarTek (SRT), Sun Healthcare Group (SUNH), Sun Microsystems (JAVA) and Superior Energy Services (SPN).
Tesco (TESO), The GEO Group (GEO), Theragenics Corp. (TGX), Third Wave Technologies (TWTI), Thomson Reuters Corp. (TRI), Tomkins Plc (TKS), Tumbleweed Communications (TMWD), Tyco Electronics (TEL) and Tyco International (TYC).
Ultralife Batteries (ULBI), Unifi (UFI), United Therapeutics (UTHR), Walter Industries (WLT), Waste Industries (AW), Watson Pharmaceuticals (WPI), West Pharmaceutical Services (WST), Westlake Chemical Corp. (WLK), Williams Companies (WMB), Wyndham Worldwide (WYN), Wynn Resorts Ltd. (WYNN) and Xcel Energy (XEL).
There are several economic reports due today including the initial jobless claims for the week of April 26 (the consensus expects an 18,000 increase), March Personal Income (the consensus expects positive 0.4%), March Personal Spending (the consensus expects positive 0.2%), April ISM Manufacturing Business Index (the consensus expects 47.5), March Construction Spending (the consensus expects negative 0.6%), and DJ-BTMU Business Barometer for April 12.
Today's jobless claims will be scrutinized but, as usual, the more-important unemployment numbers to be reported on Friday should have greater market impact.
P.S. I'll be vacationing until May 15, during which time the DMO will be provided by guest columnists Nick Atkeson and Andrew Houghton. Thanks to all of my readers for your helpful comments. I hope that this column has strengthened your portfolios in one of the most turbulent market and economic times in my 42 years in investments.
Sam
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