by Sam Collins 05/19/08
Crude oil prices hit another new high on Friday, and since two of the big winners of the day were Dow (DJI) components ExxonMobil (XOM), up 1.5%, and Chevron (CVX), up 1.92%, the widely-followed index barely indicated any investors' concern. What's more, a lower-than-expected consumer sentiment number (the lowest in 28 years) was offset by an upbeat housing report.
On Friday, the Commerce Department reported that April housing starts rose 8.2% to a seasonally adjusted annual rate of 1.032 million. Economists estimated starts of 954,000 for March and 939,000 for April. It was the third increase in four months and supports the opinion of some housing analysts that a bottom in housing starts has either occurred or is close to occurring.
A late rally following an intraday decline of more than 100 points left the Dow Jones Industrial Average (DJI) down just six points at 12,987, the S&P 500 (NASD) gained two points closing at 1,425 and the Nasdaq (NASD) fell five points to 2,529.
The New York Stock Exchange traded 1.3 billion shares, with decliners in the lead by 8-to-7, and the Nasdaq (NASD) traded 989 million shares with decliners there outnumbering advancers by about 4-to-3.
Despite Friday's lackluster trading, last week was a winner for the stock market, with retail sales up, weekly jobless claims down, and the consumer price index and housing starts better than expected. Tuesday's retail sales report set the tone for the week as the Commerce Department reported sales that rose 0.5% in April (excluding autos).
For the week, the Dow (DOW) was up 1.9%, the S&P 500 (SPX) gained 2.7% and the Nasdaq (NASD) was up 3.4%. For the year, the DJIA is off 2.1%, the S&P 500 is down 2.9% and the Nasdaq is off 4.7%.
On Friday, crude oil prices for June delivery rose $1.57 to $125.80 a barrel making a new intraday high of $126.98, and the Amex Energy SPDR (XLE) jumped $3.13 to a new closing high of $88.95. Gold (June contract) gained $19.90 to $899.90 per troy ounce as inflation concerns resulting from sharply accelerating energy prices drove investors to gold as a traditional vehicle for an inflation hedge.
What the Markets Are Saying
Investors are focusing on the good reports and ignoring the bad, despite the fact that last week there was some nasty news like record high oil prices, new concerns over the bond insurers and a decline in April industrial production. That reaction is very good for the stock market because sentiment has shifted sharply to the positive side in the last month -- especially as investors look to future earnings and the impact of the first round of the Fed's rate cuts.
Seven interest rate cuts have been made since September 2007, and those, along with the arrival of tax-rebate checks, have apparently tipped the scales in favor of the bulls.
Technically, the two major indices that I consider most important, the S&P 500 (SPX) and the NYSE Composite (NYA), have both successfully tested their recent breakouts.
On Friday, both the S&P and NYSE closed at new highs in the current uptrend which began on March 19. The NYSE has not only made new highs but, following a reversal down from its 200-day moving average last week, reversed up through it for a very bullish near-term signal. The S&P reversed to a new high, but has yet to close above the 200-day moving average. Trading targets are for the S&P at 1,525 and 10,300 for the NYSE.
And here's another bullish indicator from our friends at Dorsey Wright Associates: They note that their money market index has turned negative after six months of advances. That means that some of the $4.5 trillion in money-market funds is shifting to the stock market.
Today's Trading Landscape
Earnings to be reported include: Arotech (ARTX), BMP Sunstone (BJGP), Campbell Soup (CBP), DryShips (DRYS), Echelon (ELON), Elron Electronic Industries (ELRN), Excel Maritime Carriers (EXM), Longtop Financial Technologies (LFT), Loral Space & Communications (LORL), Lowe's Companies (LOW), Pacific Ethanol (PEIX) and Perfect World (PWRD).
The only economic report due today is the April Conference Board Leading Indicators (consensus expects 0.1% growth).
In company news, Lowe's (LOW) Q1 profit fell by almost 18% and Microsoft (MSFT) and Yahoo! (YHOO) appear to be talking again of a buyout by Mr. Softie.
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A surprising shortfall in crude oil inventories led to a rally in the sector, putting pressure on stocks.
Watch the DJU index for a possible future signal.
Looking at Dow Theory can reveal what's going on beyond our usual internal indicators, sentiment numbers, etc.
CHK's recent new low does not alter its outlook; use it to buy shares at a discount.
The time-tested Moving Average Convergence/Divergence generated bearish indicators for the DJI, the SPX and the NYA.
