Sam Collins

Market Changing 'Channels'

by Sam Collins   01/09/09

Stocks overcame an early drubbing at the hands of Wal-Mart (WMT) Thursday, following the giant retailer's gloomy earnings forecast.

Wal-Mart fell 7.5% when the world's largest retailer said that December sales were far off of the mark previously forecasted. It went on to cut its Q4 earnings forecast from $1.03- $1.07 a share to 94 cents a share. The Wal-Mart announcement was closely followed by other retailers, including Gap, Inc. (GAP), Macy's (M), Limited Brands (LTD), and others with similar cuts in estimates.

It was a choppy market for most of the day, recovering just before the close on a proposal by Citigroup (C) to reduce home foreclosures.

The closing rally and breakthrough agreement that could help curtail foreclosures were cheered by The Street. The Senate's Democrats apparently reached an agreement with Citigroup that would give bankruptcy judges the authority to eliminate some mortgage debt and help reduce foreclosures. The Dems are reaching out to other financial institutions to get their support for the agreement, but there is no guarantee that the bill will be enacted.

At the close, the Dow (DJI) was down 27 points to 8,742. The S&P 500 (SPX) closed at 910, up three points, and the Nasdaq (NASD) rose 18 points to close at 1,617.

The NYSE traded 1.2 billion shares with advancers ahead of decliners by 3-to-2. Nasdaq crossed almost 754 million shares with advancers ahead by 8-to-5.

Crude oil (February contract) ended down 93 cents at $41.70 a barrel, and the Amex Energy SPDR (XLE) gained 64 cents to $50.33.

The February gold contract rose $12.80 to $854.50. The PHLX Gold/Silver Index (XAU) gained $6.12, closing at $117.41.

Today, the jobs report at 8:30 a.m. Eastern will undoubtedly impact trading.

What the Markets Are Saying

This week, the market took a plunge after the Automatic Data Processing (ADP) employment index showed that private-sector firms lost more jobs than anticipated, setting the stage for a nasty unemployment report today. And on the same day, technology stocks were slammed after giant Indian computer services Satyam Computer (SAY) revealed a massive fraud driving that stock from $10 to zero.

But Thursday, buyers again emerged despite early selling on downward-revised Q4 earnings estimates by Wal-Mart (WMT), and it is this sort of contra-reaction to bad news that has emboldened some bulls.

Trading has taken the form of a channel up consolidation. To the novice chart reader, this may look like a bullish formation, but veteran technicians know that a "channel up" following a new low is a bearish formation, with a high percentage of these patterns breaking to new lows.

There is another indicator, the stochastic, that tells us that stocks will probably head lower. It issued its third sell signal since mid-December.

How much more bad news can the markets take before they break?

Today's Trading Landscape

Earnings of note to be reported include: Audiovox Corp (VOXX), AZZ Corp. (AZZ), KB Homes (KBH), Material Sciences (MSC), MSCI Inc. (MXB), Northfield Labs (NFLD) and The Greenbrier Companies (GBX).

The following economic reports are due: December non-farm payrolls (the consensus expects a loss of 500,000), December Unemployment Rate (the consensus expects 7.0%), and November Wholesale Trade (the consensus expects negative 0.7%).

---

Get Sam Collins' Daily Trader's Alert e-mailed straight to your inbox each morning before the opening bell absolutely FREE!

In addition to getting instant access to his Daily Market Outlook, you'll also receive, in the same e-mail, his Trade of the Day so you can start your day off right by positioning yourself for profits!

Click here today to sign up today for Sam's FREE Daily Trader's Alert!

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.