On the Up and Up
by Sam Collins 06/24/08
Like a semi-conscious fighter bouncing from the ropes following a pounding, the stock market staggered for most of the day and seemed pleased to end it all when the bell finally rang. Higher crude oil prices and sustained weakness in the financials continued to pressure stocks.
Further, news that Citigroup (C) and Goldman Sachs (GS) would be laying off thousands of investment banking employees led to weakness in the financial group.
The blue chips of the group were hit hard again with Citigroup off 6.4%, American International (AIG) down 5.6%, JPMorgan off 2.6%, Bank of America (BAC) down 4.5% and American Express (AXP) falling 0.7%. And brokers UBS AG (UBS) and Merrill Lynch (MER) were hit following earnings estimate cuts by Bank of America Securities.
Energy stocks were one of the few bright spots in the day, up 3.7% as a sector, with all 39 stocks in the group posting gains.
However, stocks related to the price of gasoline were hit hard. General Motors (GM) fell to $12.91, off 6.4%, and Ford (F) fell 9.12% to $5.28 a share as slow truck sales continue to cut into profits. Monday night, GM said it will cut production and offer rebates on many 2008 models.
At the close, the Dow (DOW) was down less than a point at 11,842, the S&P 500 (SPX) broke even at 1,318 and the Nasdaq (NASD) fell to 2,386, down 20 points.
Volume retreated to less-than-normal levels following Friday's heavy options activity, with 1 billion shares trading on the New York Stock Exchange. Breadth on the Big Board was negative by a factor of 2-to-1. On the Nasdaq (NASD), 786 million shares crossed and decliners were ahead by a ratio of 3-to-1.
Saudi Arabia agreed to increase oil production by 200,000 barrels a day, but the market is not looking for the Saudis' heavy oil since it is more expensive to refine.
Instead light, sweet crude is in demand and the supplies of that are tight. August crude oil prices gained $1.38, closing at $136.74, and the Amex Energy SPDR (XLE) was up $3.39 at $89.14.
The dollar was stronger and gold prices were lower with the August contract down $16.50 at $887.20 per troy ounce. The PHLX Gold/Silver Index (XAU) gained $1.93 to close at $180.53.
What the Markets Are Saying
Yesterday's tepid response to Friday's selling is a disappointment for the bulls. The only solace that they can possibly have is the contraction in volume -- and its significance is also questionable. A drive lower on light volume tells us that it is likely the prior lows will hold. But low volume on a day of very narrow trading tells us little except that the big boys are out of the game.
The real game in town is still the energy group. There, all 39 stocks in the S&P energy sector were up yesterday, with the big-cap names in the lead. The basic materials group also did well yesterday with the specialty chemicals sector still performing well, as it has all year. So far this year, these are the only major stock groups that are in the black.
The oil and gas sector is up 9.91% with the exploration companies up 24.11% and oil equipment and services up 21.37%. In the basic materials sector (up 14.58%), the specialty chemicals sub-sector is up 16.67%, while the iron and steel sector is up 34.36%.
Coal mining is up 71.66%, and platinum and precious metals is up 28.14%. There are some surprises, though, such as the transportation group, in which railroads are up 31.38%, transportation services gained 32.13% and trucking is up 18.76%.
To be successful in a market where most stocks are down you must stick with the winning groups.
Today's Trading Landscape
The earnings expected to be reported today are: 3Com Corp. (COMS), AeroVironment (AVAV), Apogee Enterprises (APOG), Darden Restaurants (DRI), FSI International (FSII), H.B. Fuller Co. (FUL), Jabil Circuit (JBL), Sonic Corp. (SONC), Symmetry Medical (SMA) and Kroger Co. (KR).
Several economic reports are due today including: the International Council of Shopping Centers (ICSC) Chain Store Sales Index for June 21, the Redbook Retail Sales Index for June 21, the Standard & Poor's /Case Shiller Home Price Index, the June Conference Board Consumer Confidence, the June Richmond Fed Manufacturing Index and the ABC/Washington Post Consumer Confidence for June 22.
The markets are headed for a lower opening in advance of the Federal Reserve's meetings scheduled for today and tomorrow. The central bankers' decision on interest rates will be announced at 2:15 p.m. Eastern Wednesday. United Parcel Service (UPS) said that high fuel costs caused it to cut Q2 earnings estimate from 97 cents to 83 to 88 cents.
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