by Sam Collins 07/22/08
There was no lack of news Monday, but good offset bad and a rally in oil kept stock buyers at bay.
Before the opening, Bank of America (BAC) posted a drop in earnings to 72 cents a share, but it beat Wall Street's estimates of 53 cents. The big bank rose $1.03 to $28.52 and led the financial sector to a quick gain of 2.8% within the first 15 minutes of trading. But later profit taking and cautious estimates of lower regional bank earnings cut the gains and the group closed lower by 0.9%.
Pharmaceutical giants Merck (MRK) and Schering-Plough (SGP) fell sharply due to concerns over their joint drug, Vytorin, and a delayed earnings announcement until after the close. But interest in the group was strong after European drug manufacturer Roche Holdings offered to buy the remainder of Genentech (DNA) for $89 in cash -- Roche already owns 54.9% of DNA.
The Conference Board's index of economic indicators declined 0.1% in June and May was revised slightly lower. But the index is a compilation of already released data and thus the "surprises" were anticipated.
The Dow (DJI) was off 29 points to 11,467, the S&P 500 (SPX) was slightly lower at 1,260 and the Nasdaq (NASD) fell three points to 2,280.
Volume on the NYSE was just over 1.2 billion shares, with advancers ahead of decliners by about 2-to-1, and on the Nasdaq more than 753 million shares traded with advancers ahead by 5-to-4.
The August crude oil contract, which expires today, was up 92 cents to $129.80 a barrel on fear of a new hurricane entering the Gulf of Mexico and also increased tensions with Iran. The Amex Energy SPDR (XLE) rose $2.30 to $79.20.
August gold prices rose $5.70 to $963.20, which was attributed to a bounce-back following a drop last week of $2.60 and a fall on Friday of $12.70. The PHLX Gold/Silver Index (XAU) gained $4.36, closing at $192.15.
What the Markets Are Saying
When determining whether a so-called "market capitulation" has occurred, most technicians rely on the CBOE Volatility Index (VIX).
The VIX measures market volatility based upon the prices of index options for the S&P 500 (SPX). It also measures the implied volatility of the nearest-month options with the expectation that if volatility rises so do options prices and stock prices fall.
Independent financial-advisory watch-dog Mark Hulbert released a study recently called "Putting on the VIX" that certainly puts a cloud on the notion that a VIX reading of over 30 is evidence of a final capitulation sell-off, and Mark has statistics to prove it.
But we've insisted that 30 is much too low and point to the intraday high readings of January (37.57) and March (35.60) as recent examples of readings that identified a market that was about to launch a major rally. Conclusion: July 15's VIX reading of 30.81 doesn't come close. In fact, it mirrors the high reading of Nov. 12, 2007, at 31.09 with a Dow at 12,987 -- within two months, the Dow had hit a low of 11,635.
With the current rally appearing to slow just a bit, no solid reading from the sentiment indicators and our internal indicators at close to overbought levels, it is time to again be cautious. Don't try and ride a bear thinking he's a bull -- he might just turn and bite, revealing his true identity.
Today's Trading Landscape
Earnings to be reported today include: Aaron Rents (RNT), Aehr Test Systems (AEHR), AK Steel Holding Corp (AKS), AmSurg (AMSG), Anadigics (ANAD), Anixter Int'l (AXE), Arbitron (ARB), Arlington Tankers Ltd (ATB), Autoliv (ALV), Avery Dennison Corp (AVY), Axsys Technologies (AXYS), Baker Hughes (BHI), Bank of Florida Corp (BOFL), Biogen Idec (BIIB), BJ Services Co (BJS), Boston Private Financial Holdings (BPFH), Boston Properties (BXP), Broadcom (BRCM) and BTU International (BTUI).
C.H. Robinson Worldwide (CHRW), Cadence Financial Corp (CADE), California Micro Devices Corp (CAMD), Canadian Pacific Railway (CP), Carlisle Companies (CSL), Cascade Financial (CASB), Caterpillar (CAT), Cavalier Homes (CAV), CEC Entertainment (CEC), Celanese Corp (CE), Centene Corp (CNC), Cerner Corp (CERN), Check Point Software Technologies (CHKP), Chicago Mercantile Exchange Holdings (CME), Commercial Vechicle Group (CVGI), Computer Task Group (CTGX), Corn Products Int'l (CPO), Cybex Int'l (CBYI), Delphi Financial Group (DFG), DiamondRock Hospitality Co (DRH), Domino's (DPZ), DST Systems (DST), DuPont (DD) and Dynex Capital (DX).
E*Trade Financial Corp (ETFC), Edwards Lifesciences (EW), Epiq Systems (EPIQ), Fifth Third Bancorp (FITB), First Busey Corp (BUSE), First Cash (FCFS), First Place Financial (FPFC), First Security Group (FSGI), FirstMerit (FMER), Forest Laboratories (FRX), Freeport-McMoRan Copper & Gold (FCX), Freescale Semiconductor (FSL), Frequency Electronics (FEIM), Frontier Financial (FTBK), Fulton Financial (FULT), Gentex (GNTX), S.A.B. de C.V. (ADR), Halliburton Co (HAL), Hancock Holding Co (HBHC), Harrington West Financial Group (HWFG), HealthStream (HSTM), Heritage Financial (HFWA), Hexcel Corp (HXL) and Horizon Financial (HRZB).
iBasis (IBAS), Iberiabank (IBKC), Icon (ICLR), Illumina (ILMN), Independent Bank Corp (INDB), Infinera Corp (INFN), Intuitive Surgical (ISRG), Jacobs Engineering Group (JEC), Jefferies (JEF), JetBlue Airways (JBLU), Journal Communications (JRN), KeyCorp (KEY), KVH Industries (KVHI), Lexmark Int'l (LXK), Linear Technology (LLTC), Lockheed Martin (LMT), LogicVision (LGVN), Manhattan Associates (MANH), Methanex (MEOH), Midwest Banc Holdings (MBHI), Millicom Int'l Cellular S.A. (MICC) and Montpelier Re Holdings Ltd (MRH).
Nabors Industries (NBR), Nanophase Technology (NANX), Nara Bancorp (NARA), Neogen (NEOG), Ninetowns Internet Technology Group (NINE), Norfolk Southern Corp (NSC), NVR (NVR), Omnicom Group (OMC), optionsXpress Holdings (OXOS), O'Reilly Automotive (ORLY), Paccar (PCAR), Pactiv (PTV), Panera Bread (PNRA), Parametric Technology Corp (PMTC), Pentair (PNR), PepsiAmericas (PAS), Pervasive Software (PVSW), Pharmaceutical Product Development (PPDI), Phoenix Technologies (PTEC), Plantronics (PLT), Platinum Underwriters Holdings Ltd (PTP), Precision Castparts (PCP) and Preferred Bank (PFBC).
Quest Diagnostics (DGX), Raymond James (RJF), Rayonier (RYN), Regions Financial Corp (RF), Rockwell Automation (ROK), Royal Caribbean Cruises Ltd (RCL), SeaBright Insurance Holdings (SEAB), Seattle Genetics (SGEN), Sigma-Aldrich Corp (SIGM), Sterling Bancshares (SBIB), Sterling Financial Corp (STSA), STMicroelectronics (STM), Supertex (SUPX) and Supervalu (SVU).
Telefonos De Mexico (TMX), Tellabs (TLAB), Tessco (TESS), The South Financial Group (TSFG), The Stanley Works (SWK), Trinity Biotech (TRIB), Trustmark Corp (TMRK), UAL Corp (UAL), UMB Financial (UMBF), United Parcel Service (UPS), UnitedHealth Group (UNH), US Airways (LCC), USANA Health Sciences (USNA), USG Corp (USG), VMware (VMW), Vocus (VOCS), Wachovia Corp (WB), Washington Mutual (WMU), Waste Connections (WCN), Waste Services (WSII), Waters Corp (WAT), Webster Financial Corp (WBS), Western Union (WU), Whitney Holding Corp (WTNY), XTO Energy (XTO), Yahoo (YHOO), Zenith National Insurance Corp (ZNT) and Zhone Technologies (ZHNE).
The following economic reports are due today: International Council of Shopping Centers (ICSC) Chain Store Sales Index for July 19, the Redbook Retail Sales Index for July 19, the July Richmond Fed Manufacturing Index and the ABC/Washington Post Consumer Confidence for July 20.
Yesterday, Merck (MRK) and Schering-Plough (SGP) delayed their earnings report until after normal trading hours due to rumors that their collaborative drug, Vytorin, didn't prevent worsening of heart-valve disease or lower the need for valve surgery.
And after the close, American Express (AXP) reported Q2 of 56 cents versus an expected 83 cents a share. Apple (AAPL) will be in focus today, after it fell 11% in after-hours trading to $147.94 following a forecast of lower sales in Q4.
Wachovia Bank (WB) missed earnings estimates by a large margin -- WB reported a loss of $1.27 versus an expected loss of 78 cents, a number that management said is "both disappointing and unacceptable." SunTrust (STI) also missed analysts' estimates of 64 cents, instead reporting 28 cents. Futures are indicating a lower opening.
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