Sam Collins

Traders and S&P Still Holding On

by Sam Collins   01/30/09

After four solid days of a rally, stocks succumbed to sobering economic data and mixed earnings from some key stocks that sent buyers to the sidelines Thursday.

The economic news was perhaps the most startling: December durable goods orders declined 2.6% for the fifth consecutive decline and December new home sales declined more than expected, falling almost 15% from November (especially disappointing following Tuesday's increase in the sale of occupied homes). And finally the Labor Department reported that continuing jobless claims rose by 159,000 last week to 4.78 million, the most since the reports began in 1967.

There were mixed earnings from many big-name stocks, with Exxon Mobil (XOM) beating estimates along with 3M (MMM), Eli Lilly (LLY), Colgate-Palmolive (CL), Dominion Resources (D) and American Electric Power (AEP). But Qualcomm (QCOM) missed its target as did Allstate (ALL).

At the close, the Dow (DJI) had fallen 226 points to 8,149, the S&P 500 (SPX) was off 29 points at 845 and the Nasdaq (NASD) lost 51 points to close at 1,508.

The New York Stock Exchange traded 1.4 billion shares, with decliners ahead by 12-to-1. On the Nasdaq just under over 9 million shares traded with decliners ahead by 8-to-1.

The March crude oil contract fell to $41.44 a barrel, down 72 cents, due to the gloomy economic forecasts, and the Amex Energy SPDR (XLE) lost $1.74, closing at $47.48.

The February gold contract gained $16.90 at $905.10 per troy ounce as fears of future inflation and the economic crisis gripped the financial world. The PHLX Gold/Silver Index (XAU) gained $4.97, closing at $125.49.

What the Markets Are Saying

On Thursday, the market had a normal correction following the best run in stocks since November but, again the press chimed in with more dire pronouncements of gloom: "Equities down again as economy rears its ugly head," and "Some project unemployment will hit 7.5% in January, and 9% in third quarter," from MarketWatch.com.

Doesn't anyone know that unemployment is a trailing indicator telling us that within 3-6 months earnings will probably turn higher?

Despite the predictions, stocks continue to hold at the vital S&P (SPX) 800-820 support zone and last week the tape action even produced a short-term buy signal from the stochastic indicator.

And this week, for at least one day, three of the major indices closed above the 20- and 50-day moving average lines. With fourth-quarter earnings now at the peak of the reporting season, it is important for stocks to hold onto the major support zones. And it seems that, despite the gloom painted by the press, investors are determined to hang tough.

Today's Trading Landscape

Earnings of note to be reported include: American Axle & Manufacturing Holdings (AXL), Arch Coal (ACI), Bridge Capital Holdings (BBNK), Capital Product Partners L.P. (CPLP), Chevron (CVX) and Delta Apparel (DLA).

Enbridge Energy Management (EEQ), Encore Bancshares (EBTX), ExxonMobil Corp (XOM), Fujifilm Holdings Corp (FUJI), Gannett (GCI), Graham (GHM), Harte-Hanks (HHS), Honda Motor Co (HMC), Honeywell (HON), Invesco Ltd (IVZ) and Johnson Outdoors (JOUT).

MB Financial (MBFI), Multi-Color Corp (LABL), Nara Bancorp (NARA), Overstock.com (OSTK), Procter & Gamble Co (PNG), RG Barry Corp (DFZ), Saia Inc. (SAI), Simon Property Group (SPG), State Bancorp (STBC), The Bancorp (TBBK) and Wilmington Trust (WL).

The following economic reports due: Q4 advance GDP estimates, Q4 Employment Cost Index, January Chicago Purchasing Managers' Index (PMI), the end-of-January Reuters/University of Michigan Sentiment Index.

Amazon.com (AMZN) easily beat Q4 estimates by reporting 48 cents versus an expected 36 cents. Honeywell (HON) met Q4 estimates and Procter & Gamble (PG) met its Q2 estimates.

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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.