by Sam Collins 05/20/08
A forecast for "soft U.S. retail sales" by a key technology company knocked out a good portion of yesterday's early gains on the Dow (DJI) and the S&P 500 (SPX). The tech-heavy Nasdaq (NASD) closed lower as a result of the dour sales outlook advanced from SanDisk (SNDK), one of the world's largest manufacturers of flash-memory devices.
Even an upgrade of Amazon.com (AMZN) by Goldman Sachs (GS), along with an upgrade of the overall U.S. semiconductor sector, failed to turn around a market that was focusing on consumer sentiment and the high price of energy. Microsoft (MSFT) fell 1.8% following an early morning report that a new offer for Yahoo! (YHOO) may be coming, but it will only be for a portion of YHOO, rather than the entire company.
A small gain in the Conference Board's index of leading economic indicators, the second in as many months, was accepted as good news. But the gain was a mere 0.1% and after falling for five prior months, it is doubtful that it can shake many buyers from their money-market positions.
At the close, the Dow Jones Industrial Average (DJI) was up 41 points, closing at 13,026. The S&P 500 (SPX) gained a point at 1,427, and the Nasdaq (NASD) fell 13 points to close at 2,516.
Light volume of just 1.1 billion shares traded on the New York Stock Exchange, with breadth a positive 16-to-15. On the Nasdaq (NASD), 931 million shares traded and breadth was more positive at 16-to-12.
Most stock traders' again focused on oil, and crude oil prices were taken higher for the third successive day. The June contract closed at $127.05 a barrel, up 76 cents, on increased demand from China resulting from recent earthquake damage. The Amex Energy SPDR (XLE) gained 55 cents to close at another record high of $89.50.
In sympathy with oil, the June gold contract traded higher again. This contract gained $5.90 and closed at $905.80 per troy ounce. The PHLX Gold/Silver Index (XAU) closed at $188.95, a gain of $1.08.
What the Markets Are Saying
Some technicians are pointing to the widely-followed market history showing that in 20 of the past 21 presidential election years, the market has fallen less than 2% between May and election day. And it may hold onto that record and even close on the positive side in the next six months.
But in order to achieve that level of performance, it must plough through some enormous overhead, while overcoming increasing energy prices and the threat of inflation -- and all of this in the face of a mild recession.
Can the market do it? Yes, I believe that it can, but the wind is not at its back, so my bet is that we will be faced with some negative days which will be offset by many positive days. In the end, we will more than likely achieve the technical targets for the year that I outlined several weeks ago: Dow (DJI) 13,800, S&P 500 (SPX) 1,535, Nasdaq (NASD) 2,670 and NYSE Composite (NYA) 10,300.
Currently, however, stocks appear to be slowing down as they dig into the overhead that began forming in February 2007. And despite the positive implications of investors buying stocks in the face of negative news, recent sentiment indicators say that the market is due for a rest.
The American Association of Individual Investors' (AAII) recent survey of bulls versus bears showed that its members are now 45.16% bullish and 29.68% bearish. They have been bullish for the past three weeks -- an indication that a correction is about to occur.
But a study of the index for this year shows that the mildest of corrections turns the AAII's respondents bearish and shortly following that, the market resumes its move higher. So, the message is this: The stock market is headed higher, but the future advance may be a lot slower. Therefore, traders and investors alike should buy on pullbacks, being very careful to buy only those stocks that have proven records of success.
Today's Trading Landscape
Today's anticipated earnings reports include: Analog Devices (ADI), AutoZone (AZO), Dr. Reddy's Labs (RDY), DRS Technologies (DRS), Dycom Industries (DY), Hewlett-Packard (HPQ), Intuit (INTU), Medtronic (MDT), Saks (SKS), Staples (SPLS), Target (TGT) and United Natural Foods (UNFI).
Only one economic report is due, April Producer Prices. The consensus expects 0.4% month-over-month and 6.7% year-over-year; in terms of core PPI, economists estimate 0.2% month-over-month and 2.9% year-over-year.
Home Depot (HD) reported 21 cents a share versus expectations of 37 cents a share -- a 66% drop in fiscal-year Q1 net income. AutoZone (AZO) Q3 reported $2.49 versus expected $2.43, and Staples (SPLS) reported 30 cents for Q1 which met estimates, but the company said it looks for lower growth for the remainder of the year. This morning, crude oil prices hit more than $127 a barrel.
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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.
