Comtex SmarTrend(R) Morning Call -- February 26, 2010
Fears over Greek fiscal strife and strikes, plus weak reports on durable goods and jobless claims, caused the market indices to plummet at open Thursday. The DJIA dropped nearly 200 points in early going, becoming acutely oversold, before bouncing back to close down 53 points for the day at 10,321. The expected multi-day rally appeared to have been derailed until noon when the market indices began to climb, based, in significant measure, by continuing lifting from some SmarTrend(R) indicators.
Some observers came to a late morning conclusion Thursday that the Greek fiscal crisis might be helpful to the U.S. economy and stock market; it could strengthen the dollar and make more money printing possible for economic stimuli this year without attendant concerns about inflation. This analysis, of course, needs to be discounted by the impact on many large U.S. companies whose future growth is tied to increasing foreign sales, and while short-term stimuli may be assisted by a strong dollar, the longer-term economic consequences could be adverse. Nonetheless, the current domestic economic recovery is seen as being tied to continuation of government stimuli and cheap Fed money policies. In the face of increased jobless claims and weak durable goods orders, the Greek strife-driven strong dollar theory may have been enough to help save the anticipated multi-day rally from derailment. The daily SmarTrend(R) uptrends to downtrends retreated to neutral at 23:26, consistent with the anticipated market dip, which, however, was also an overreaction. However, the retreat by the daily SmarTrend(R) uptrends to downtrends was not enough to stop the IBDI from rising, but did cause the Trend Ratio to move sideways. The intermediate-term uptrend continues to be ready to lift stock prices along with as yet unexhausted long-term uptrend, which together continue to produce a modestly favorable environment for long stock positions.
Lifting from the investing environment will be milder until the trading environment gets into full uptrend swing. All four near-term trend indicators have declined from their overbought zones but only two, the NBDV and NBDX, have retreated far enough to find footing from which to rally. Further, signs point to some more bottom feeling action at lower index levels before the rally can recommence. The DJIA is likely to struggle to hold its ground around 10,300 until the near-term trend indicators show clear signs of finding bottoms from which to rally, a process that could take until Wednesday of next week.
Between now and then the trade-term trend is likely to add spice to the equation that is likely to yield a sideways-moving choppy market, waiting to kick off a new rally. Investors' mood improved late yesterday and an intraday rally commenced, a rally that might carry through this morning until the DJIA climbs toward 10,350 before falling back again to bottom-search some more. Essentially, investors are waiting for some market-moving good news to come along and catalyze the multi-day rally. It is not clear what news that might be. Reports today on existing home sales, consumer confidence and the GDP are likely to be mixed and these items are discussed below. Any hopes pinned on health reform legislation, a stimulus package in disguise, are probably misplaced, although the President threatened plan opposition with a unilateral cram- down of the multi trillion dollar entitlement plan for 31 million uninsured if plan detractors did not accept the inevitable outcome he wanted. Mired in recurrent economic concerns, the majority of SmarTrend(R) trend indicators are holding firm, signaling the DJIA will still climb to 10,700 after finding footing over the next three days. To examine the complete list of stocks changing trends in the last week and/or hear a podcast of this report, please click on http://www.mysmartrend.com.
Equities are heading into the last trading day of the month with hopes of a follow-through to Thursday's late-session revival. Stocks gapped down in early morning trade on a rekindling of Greece's sovereign debt issues; however, a euro rally against the dollar at day's end restored risk sentiment, paring the DJIA's fall from more than 188 points in the early going to a 53 point loss at the close.
Markets awakened Thursday to credit downgrade talk from Standard & Poor's, later joined by Moody's. Today Greece's PM advised parliament the prior government had understated its budget deficit by half, following a visit by EU economic inspectors. There appeared no bandaid solution likely for Greece's difficulties: a populace increasingly resistant to budget cuts and maturing debt needs dependent on austerity reforms.
By the close, the DJIA's drop measured 0.5% to 10,321, the S&P500 a 0.2% decline, and the Nasdaq a 0.1% drop to 2,234. Coca-Cola (NYSE: KO) fell 3.7%, topping the list of DJIA decliners, on its deal to purchase most of its largest bottler, Coca-Cola Enterprises (NYSE: CCE) for an estimated $12-$13 billion. Apple (NASDAQ: AAPL) helped boost NASDAQ shares, climbing 0.7% on an unsubstantiated rumor of a four-for-one stock split.
As bearish bets against the euro began to unwind in afternoon trade, the US dollar ended the day with an 0.3% decline against a basket of currencies, helping boost bullish equity sentiment. Fed Chairman Bernanke's second day of semi-annual congressional testimony, while largely repetitive of the prior day's House comments, proved sufficiently uncertain on the economy to dampen expectations for building pressures to force interest rates higher any time soon.
The day's economic posts, largely negative in nature, also provided ammunition for an ongoing, dovish Fed. Before the open, markets received further news of soft employment numbers. Weekly jobless claims unexpectedly rose 22K to 496K, their highest in over three months. Continuing claims also disappointed; instead of a drop to 4.57 million, claims climbed to 4.62 million from 4.563 million prior.
And while a headline durable goods report revealed stronger-than-estimated 3.0% improvement, the figure without volatile transportation orders indicated its sharpest contraction in five months, down 0.6%. The component often used as an indicator of future investment, the non-defense capital goods excluding aircraft measure, unexpectedly fell 2.9%.
The FHFA housing price measure for December and 2009's final quarter showed a 1.6% MoM December drop, reversing prior months' gains. On Wednesday, the Commerce Department had reported new home sales fell 11.2% in January to their lowest in nearly fifty years.
The US economic data suggests both a struggling recovery and continuing pressures on the Fed to hold interest rates low. Yesterday, St Louis Fed President Bullard opined the US economy is "reasonably good;" most economists anticipate growth in fits and starts, likely adding to the market's volatility after last year's nearly straight run higher. Even so, the DJIA has managed a 2.5% increase during the month. And heading towards February's end, a New England blizzard serves as a windy reminder of tough comparisons ahead from the weather's impact.
Today's fourth quarter revised GDP figures are expected to prove positive, as a larger inventory boost than previously estimated generated an expected 5.9% annual rate of growth, up from 5.7% reported previously. While backwards-looking, the results point to US growth the fastest in six years, a strong measure against other nations' recoveries.
February Chicago Purchasing Managers Index is expected to show a downtick to 59.0 from January's 61.5. January's number had shown the fastest expansion in four years. The University of Michigan confidence gauge for February is likely to have remained above 70, with a modest uptick to 73.9 from 73.7. The day's key housing post, the existing home sales report, is expected to show January's pace up 0.9% from December's, which had fallen 16.7% after three straight monthly gains.
Fed-speak remains active, with speeches slated from Fed's Dudley, Kocherlakota, Tarulla and Evans.
According to our analytics team, although mired in recurrent economic concerns, the majority of SmarTrend(R) trend indicators are holding firm, signaling the DJIA will still climb to 10,700 after finding footing over the next three days. To examine the list of stocks changing trends in the last week, please click on http://www.mysmartrend.com.
In the corporate corner, AIG (NYSE: AIG) posted an $8.9 billion loss and said they may seek further US government support to meet obligations.
CKE Restaurants (NYSE: CKR) will be purchased by Thomas H Lee Partners for $928 million, or $11.05 per share.
Interpublic Group (NYSE: IPG) reported inline sales and earnings for its fourth quarter, with results of 24 cents on revenues of $1.8 billion.
Gap (NYSE: GPS) reported after Thursday close that its earnings topped estimates by a penny at 51 cents and revenues matched estimates at $4.24 billion.
Conseco (NYSE: CNO) reported earnings of 15 cents missing estimates of 20 cents on revenues of $1.06 billion, which fell short of projections at $1.11 billion.
Goldman Sachs (NYSE: GS) initiated coverage of JM Smucker (NYSE: SJM) with a rating of "neutral," and a $67 price target.
Goldman Sachs (NYSE: GS) upgraded shares of AstraZeneca (NYSE: ACN) and GlaxoSmithKline (NYSE: GSK) from "sell" to "neutral."
Deutsche Bank (NYSE: DB) upgraded both China Unicom (NYSE: CHU) and China Telecom (NYSE: CHA) to "buy" from "hold."
By Chip Brian, Editor-in-Chief, Comtex news Network
www.Comtex.com -- editor@mysmartrend.com
The following equities mentioned above include:
Comtex SmarTrend Alert
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Ticker Last Close Trend Direction Trend Price Trend Date
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CCE 25.48 Uptrend 25.45 2/25/2010
CHN 26.41 Downtrend 27.32 1/26/2010
CKR 8.91 Downtrend 9.43 10/21/2009
GPS 20.39 Downtrend 20.95 12/9/2009
IPG 6.75 Uptrend 6.71 11/10/2009
INX -- S&P 500: 1,103 Lo: 1,086 Hi: 1,104 Change: -2.31
http://www.mysmartrend.com/images/INX20100226.jpg
INDU -- DOW JONES: 10,321 Lo: 10,186 Hi: 10,367 Change: -53.13
http://www.mysmartrend.com/images/INDU20100226.jpg
QQQQ -- NASDAQ: 2,234 Lo: 2,199 Hi: 2,236 Change: -1.68
http://www.mysmartrend.com/images/QQQQ20100226.jpg
This report is divided into three sections. The first deals with our 5 proprietary market indicators, the second section examines important economic and business happenings which are expected to affect U.S. Stock market movements and the third section describes specific company announcement and earnings releases. Experience demonstrates that when these 5 indicators reach extremes they can shortly be expected to change direction and move in the opposite direction. When such happens in all or most of the 5 indicators, on or about the same time, followed by a move from below an extreme (oversold) to above that extreme (or vice versa for overbought), a change in market direction is very probable. The near term market moves are measured to identify the best possible returns for traders/investors. Daily price/volume examinations provide the best data upon which to base such forecasts. In this report though, intraday indicators are examined to improve the point of entry timing for the expected move.
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