by Sam Collins 07/02/08
U.S. markets opened sharply lower Tuesday following a sharp sell-off in European financial shares. This was led by a decline in UBS (UBS), as well a threat of war between Iran and Israel.
But stocks reversed following the Institute for Supply Management's index reporting 50.2%, up from 49.6% in May, and above the consensus estimate of 48.5%. The bump from that report also gave a nudge to the dollar.
But it was a volatile session of back-and-forth trading and just as it looked like stocks were about to fade, General Motors (GM) saved the day by announcing better-than-expected June sales.
Another Dow (DJI) component, American Express (AXP), rose 6.2% after being upgraded by UBS. Contrary to European financials, the U.S. banking stocks rallied -- led by Lehman Bros. (LEH), up 5.8%, following a Dow Jones story that the embattled investment banker's basic value was greater than some of its competitors.
At the close, the Dow Jones Industrial Average (DJI) rose 32 points to 11,382. The S&P 500 (SPX) was higher by five points at 1,285 and the Nasdaq (NASD) rose 12 points, closing at 2,305.
Volume rose to 1.6 billion shares on the New York Stock Exchange but decliners were ahead of advancers by 3-to-2. On the Nasdaq (NASD), 1.4 billion shares traded with decliners ahead there as well by 3-to-2.
August crude oil futures rose 97 cents to $140.97, off of an earlier high of $143.33. The Amex Energy SPDR (XLE) gained 37 cents to close at $88.85.
Gold for August delivery rose $16.20 to $944.50 per troy ounce due to further dollar weakness and higher oil prices. The PHLX Gold/Silver Index (XAU) rose to $197.54, up $2.20. The XAU is at a critical triple-top which connects its April, May and June highs, but a rally through $200 would make the next target the all-time high at just under $210.
What the Markets Are Saying
Jesse Livermore was once described by Time Magazine as "the most fabulous living stock trader."
Through much of Livermore's career, he was so secretive that interviews with him were rare and highly sought after by the financial press during his most active years -- 1920 to 1940. But using a pseudonym, Livermore did a series of interviews that were published as 'Reminiscences of a Stock Operator.'
Even now, Livermore's principles of trading are classics and suggested reading for anyone who is serious about investing in the stock market -- whether as a trader or long-term investor.
Livermore had some unbreakable rules that he applied and it helped him amass a fortune (after losing several fortunes). One of the rules was: "Co-ordinate your trading activity with 'pivot points'."
His purpose was to identify a new trend by analyzing and waiting for a turning point or reference point. Then he waited for volume to confirm that a new trend was underway. I've attempted to do the same with the Collins Bollinger Reversal (CBR) method.
Yesterday could have provided a pivot point as both the S&P 500 (SPX) and the Nasdaq (NASD) flashed a CBR buy signal and the Dow (DJI) flashed a reversal. And what is most interesting is that the signals triggered on the SPX were within just 10 points of the January low CBR at 1,270.05 and the March closing low of 1,273.37.
Livermore might have paid attention to these three "reversals" by focusing to see if volume builds on the upside during the next several days (confirming a new trend), or watching to see if within five days the CBR point is penetrated on the downside (which would trigger a sell signal). So should we.
If, like Jesse Livermore, you are to succeed in stock investing, you must have some unbreakable rules. The rule now is to not jump too quickly but to wait for the volume to rapidly increase as big buyers enter the market. If they arrive, yesterday's market may have put in place an important bottom.
Today's Trading Landscape
Earnings expected to be reported today include: A. Schulman (SHLM), Acuity Brands (AYI), Family Dollar (FDO), Isle of Capri Casinos (ISLE), Schawk (SGK), Spectrum Control (SPEC), UniFirst (UNF) and WD-40 Company (WDFC).
Two economic reports are also due today: the June American Data Processing (ADP) Employment Report (the consensus expects a 35,000 loss) and May Factory Orders (the consensus expects 0.6% growth).
Merrill Lynch (MER) cut General Motors (GM) to "underperform" with a price target of $7, down from $28. JPMorgan (JPM) raised BJ's Wholesale (BJ) to "overweight." Microsoft (MSFT) is positioning itself for a new run at Yahoo (YHOO), according to the Wall Street Journal. Some options traders are betting on $300 oil by the end of this year -- we may be close to a top.
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