by Sam Collins 07/23/08
Yesterday's opening was anything but encouraging, as stocks reeled from a big earnings miss by two major financial institutions and a shaky outlook from a premier technology icon.
Wachovia Bank (WB) reported a whopping $8.9 billion loss and a per-share loss of $1.27 versus an expected loss of 78 cents, and American Express (AXP) reported Q2 of 56 cents versus an expected 83 cents a share. Both stocks opened sharply lower.
Apple (AAPL) opened 10% lower following a forecast of lower sales in Q4 and it dragged the technology sector down along with it.
But by mid-afternoon, buyers took advantage of the bargain prices, rushing in to procure sagging financials and techs. WB was helped by the company's plan to raise $5 billion and an upgrade from Deutsche Bank (DB), and closed higher by more than 27%. Other banks like SunTrust (STI) exceeded forecasts and closed higher, and the financial sector surged to a gain of 6.6%.
The broader market advanced -- helped by a sharp drop in crude oil as a tropical storm missed crucial drilling rigs in the Gulf of Mexico. Some household names like Du Pont (DD) and Caterpillar (CAT) reported better-than-expected earnings.
At the close, the Dow (DJI) was up 135 points to 11,602, the S&P 500 (SPX) gained 17 points at 1,277 and the Nasdaq (NASD) rose more than 24 points and closed at 2,304.
The NYSE traded 1.6 billion shares, with advancers ahead by more than 2-to-1. On the Nasdaq (NASD), more than 1 billion shares crossed and it, too, had advancers ahead by more than 2-to-1.
The crude oil contract for September delivery fell more than $3.09 to $127.95 a barrel and at one point was down just north of $5. The Amex Energy SPDR (XLE) fell $2.63, closing at $76.57.
The August gold contract fell to $948.50 per troy ounce, down $15.20, and the PHLX Gold/Silver Index (XAU) fell $7.11, closing at $185.04.
What the Markets Are Saying
Yesterday's rally was focused primarily on the most sold-off group of stocks -- the financial sector -- which in just one week is up 31.5%. Meanwhile, the Dow Industrials (DJI) are up 7.1%, the S&P 500 (SPX) has gained 6.4% and the Nasdaq (NASD) is up 6.3% in that week.
As I've written before, it is normal for a bear market rally to rise more than 10% (some have risen to 15%) before reversing and succumbing to an avalanche of selling. And it is not at all unusual for one or more grossly sold-off sectors to have huge gains within the overall structure of the general market trend (and even establish a permanent uptrend) before others have found their bottom.
This is because, whether it is a bull or bear market, not all sectors and groups move together. Some bottom, top or lag based upon the economic and market factors peculiar to their situation.
The overall trend of the general market is down.
Two weeks ago, I identified the first level of resistance as Dow 11,440, S&P 500 1,278 and Nasdaq 2,320. Yesterday, the Dow closed at 11,602, the S&P 500 finished at 1,277 and the Nasdaq ended at 2,304.
In other words, two of the three major indices are now at their initial rally targets and the third and most focused, the Dow, has exceeded its target as a result of the influence of the financial stocks.
The highly respected Investors Intelligence report points to the record number of new lows (1,304 on the NSYE on Tuesday) that ended the week higher and thus could qualify as selling climaxes. And the report points out that 959 stocks ended the week higher after new 52-week lows–the second highest reading in their history.
And what was the first highest?
This is important -- second only to the reading for the week of Jan. 25, when 1,385 lows were counted. But what happened following the January sell-off?
The market rallied to resistance at 13,000 and fell to a new low at under 11,000 which firmly established a Dow bear market.
Conclusion: Trends are not identified solely by one indicator or another, but a confluence of evidence which is confirmed by the trends themselves. At present, the short-term trend is up but both the intermediate- and long-term trends are down.
Today's Trading Landscape
Earnings to be reported include: Advance America (AEA), Advanced Energy Industries (AEIS), Aetrium (ATRM), Affiliated Managers Group (AMG), Aflac (AFL), Agnico-Eagle Mines Ltd (AEM), Air Products and Chemicals (APD), Airgas (ARG), Alcon (ACL), Allegheny Technologies (ATI), Allegiant Travel Co (ALGT), Alliance Fiber Optic Products (AFOP), AllianceBernstein Holding (AB), AltiGen Communications (ATGN), Amazon.com (AMZN), Ambassadors Group (EPAX), Amdocs Ltd (DOX), Amerigroup Corp (AGP), Ameriprise Financial (AMP), Anheuser-Busch Companies (BUD), Appalachian Bancshares (APAB), Ariba (ARBA), Arkansas Best Corp (ABFS), Arrow Electronics (ARW), AT&T (T) and ATMI (ATMI).
Baidu (BIDU), BioSphere Medical (BSMD), C.R. Bard (BCR), Cabot (CBT), Cadence Design Systems (CDNS), Carter's (CRI), Celera (CRA), Ceva (CEVA), Chipotle Mexican Grill (CMG), Cirrus Logic (CRUS), Citrix Systems (CTXS), City Holding (CHCO), ClickSoftware Technologies Ltd (CKSW), CNH Global N.V. (CNH), Coachmen Industries (COA), CoBiz (COBZ), Cobra Electronics Corp (COBR), Coca-Cola Femsa S.A. de C.V. (KOF), Cohen & Steers (XRPFX), Columbia Bancorp (CBBO), Community Bank System (CBU), Compania de Telecomunicaciones de Chile S.A. (CTC), Complete Production Services (CPX), Compuware Corp (CPWR), Conceptus (CPTS), ConocoPhillips (COP), Convergys Corp (CVG), Con-Way (CNW), Core Laboratories (CLB), Corporate Executive Board Co (EXBD), Cullen/Frost Bankers (CFR) and CyberOptics (CYBE).
De Beers Consolidated Mines Ltd (DBCM), Deltic Timber (DEL), Digi International (DGII), Dime Community Bancshares (DCOM), Dover Corp (DOV), DPL (DPL), Dyax Corp (DYAX), EastGroup Properties (EGP), EMC Corporation (EMC), Encore Wire (WIRE), Energen (EGN), Equinix (EQIX) and Ethan Allen Interiors (ETH).
F5 Networks (FFIV), Fair Isaac Corp (FIC), FBR Capital Markets (FBCM), Fidelity National Financial (FNF), First Industrial Realty Trust (FR), First Merchants Corp (FRME), Fording Canadian Coal Trust (FDG), Gardner Denver (GDI), General Dynamics (GD), Genzyme Corp (GENZ), GlaxoSmithKline (GSK), Graco (GGG), Gramercy Cap Corp (GKK), Gruma S.A.B. de C.V. (GMK) and GSI Commerce (GSIC).
Hudson City Bancorp (HCBK), iGo (IGOI), Ikanos Communications (IKAN), Immucor (BLUD), Insignia Systems (ISIG), Interface (IFSIA), International Coal Group (ICO), Intersil Corp (ISIL), iParty Corp (IPT), iRobot Corp (IRBT), Jakks Pacific (JAKK), Kadant (KAI), Kirby (KEX) and Knight Transportation (KNX).
Lakeland Financial (LKFN), LaSalle Hotel Properties (LHO), Lennox Int'l (LII), Lincoln Electric Holdings (LECO), LSI Corp (LSI), MainSource Financial Group (MSFG), Marine Products Corp (MPX), Matrixx Initiatives (MTXX), Mattson Technology (MTSN), McDonald's Corp (MCD), McKesson Corp (MCK), Mellanox Technologies Ltd (MLNX), MEMC Electronic Materials (WFR), Merit Medical Systems (MMSI), Molina Healthcare (MOH), Monarch Casino & Resort (MCRI) and MTS Systems (MTSC).
Netgear (NTGR), New York Community Bancorp (NYB), NII Holdings (NIHD), Noble Corp (NBL), Northwest Airlines Corp (NWA), Northwest Pipe Co (NWPX), NutriSystem (NTRS), Nuvelo (NUVO), NVE Corp (NVEC), Omniture (OMTR) and OSI Pharmaceuticals (OSIP).
P.F. Chang's China Bistro (PFCB), Pacific Capital Bancorp (PCBC), Peabody Energy Corp (BTU), Penson Worldwide (PNSN), PepsiCo (PEP), Pfizer (PFE), Praxair (PX), Precision Drilling Trust (PDS), Prosperity Bancshares (PRSP), PSS World Medical (PSSI), Pulte Homes (PHM), Qualcomm (QCOM), QuickLogic Corp (QUIK) and Quidel Corp (QDEL).
Radware (RDWR), Range Resources (RRC), Rewards Network (DINE), Rimage Corp (RIMG), Robert Half Int'l (RHI), Rollins (ROL), RPC (RES), Rush Enterprises (RUSHB), Ryder System (R), Ryland Group (RYL), Sangamo BioSciences (SGMO), Sanmina-SCI Corp (SANM), SEI (SEIC), Select Comfort Corp (SCSS), Sierra Wireless (SWIR), Silgan Holdings (SLGN), SJW (SJW), SK Telecom (SKM), Skechers USA (SKX), SLM Corp (SLM), Sovereign Bancorp (SOV), Stamps.com (STMP), Sunoco Logistics Partners L.P. (SXL), SurModics (SRDX), Susquehanna Bancshares (SUSQ) and Sybase (SY).
TCF Financial Corp (TCB), Team (TEAM), Telmex Internacional SAB de CV (TII), Teradyne (TER), Terex Corp (TEX), The Allstate Corp (ALL), The Boeing Co (BA), The Hershey Co (HSY), The Inventure Group (SNAK), The Medicines Co (MDCO), The New York Times Co (NYT), The Travelers Companies (TRV), Thomas & Betts (TNB), Tollgrade Communications (TLGD), Tompkins Financial Corp (TMP), Torchmark (TMK), Tractor Supply Co (TSCO), Trico Marine Services (TRMA), TriQuint Semiconductor (TQNT) and Tupperware Brands (TUP).
Unisys (UIS), Varian Medical Systems (VAR), Vascular Solutions (VASC), Vitran Corp (VTNC), WellPoint (WLP), Wesbanco (WSBC), Westell Technologies (WSTL), Westwood Holdings Group (WHG), Whirlpool Corp (WHR), Wintrust Financial Corp (WTFC), Wyeth (WYE) and Zarlink (ZL).
There are no economic reports scheduled for today.
Costco (COST) said Q4 EPS will be below estimates, Pfizer (PFE) beat estimates by a penny, Wyeth (WYE) reported 91 cents versus estimates of 87 cents, PepsiCo (PEP) reported $1.05 versus estimates of $1.02, and Boeing (BA) reported $1.16 versus estimates of $1.23. Crude oil prices are lower again this morning.
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Sam Collins can be reached directly at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
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