Comtex SmarTrend(R) Morning Call -- March 2, 2010
Several positive news stories coincided yesterday with the expected mild rally. The DJIA climbed 78 points to close over 10,400. Several SmarTrend(R) indicators found the bases they had been seeking, and the run to DJIA 10,700 has started.
Good news came in several small packages yesterday regarding consumer spending, manufacturing, Greek debt, and a major acquisition, uncovering previous unrealized hidden value, that helped the seller, AIG (NYSE: AIG). Maybe most important was the absence of any bad news to halt the emerging rally before it could get started. The daily SmarTrend(R) uptrends to downtrends reflected rising investor optimism, registering a polarized to the upside 124:8. This strong showing caused the IBDI and Trend Ratio to jump, reconfirming the gathering upward momentum of the intermediate-term uptrend. Add that to the persistent long-term uptrend, and the right conditions exist for strong support for long stocks by the investing environment.
Finding footing has been the quest of the trading environment for the last week. Three near-term trend indicators rotated into place yesterday as anticipated, following the lead of the NBDX, which had started upward last Friday night. It was joined by the NBDI and Trend Ratio in trading Monday. The NBDV is expected to become the fourth indicator to join the climb today. It took a week of downward rotation for the near-term trend indicators to retreat from being overbought and to find bases near neutral from which to launch a near-term uptrend. During this time the DJIA dropped down from a close of 10,402 to a low close of 10,321, with even wider intraday swings. Yesterday's close at 10,403 was accomplished with room to spare for the near-term trend indicators to rally the DJIA on up to meet expected resistance at 10,700 over the next week.
First, the multi-day rally is expected to encounter some souring, trade-term trend news regarding the auto industry today. An adverse impact on Toyota's recent sales is anticipated, but its quantification and the resultant impacts on other auto companies will begin to become clear today. This and other important economic matters are discussed below. Although the news yesterday was made up of several upbeat stories, likely to continue to bolster investor confidence, the trade-term trend is always waiting for the next shoe to drop. Until the Chairman of the U.S. Senate Finance Committee announced on Sunday TV that there would be no up or down vote (i.e. 51% for or against) on the non-fiscal issues of health care reform, investors were wary that the Congress would try to vote through that undifferentiated and unbridled massive spending measure by the reconciliation process. Now it appears that a plan is being developed to pass some fiscally-related elements of the health care reform package so the proponents can claim some form of victory. From the stock market's point of view investors see politicians backing up from having headed the wrong way down a one-way street, and the completion of this process is expected to raise hopes that the wild spending of future dollars that fueled the fire of recession is finally being curtailed from non-productive uses. It won't be a smooth transition to fiscal responsibility, and the stock market, as soon as this morning, is expected to dip and then surge as the uncertainty waxes and wanes, but a multi-day uptrend is in progress and should resume in the absence of any catastrophic economic news. To look at the complete list of stocks changing trends recently and/or hear a podcast of this report, please click on http://www.mysmartrend.com.
A return of Monday deal-making reports, a positive outlook late Friday from SanDisk (NASDAQ: SNDK) on the semiconductor industry, and solid economic posts generated a broad-based rally, placing the indices in positive territory throughout the session. Monday's data brew proved a powerful risk elixir, moving both the S&P500 and NASDAQ fractionally above year-end levels. The DJIA remained at a 0.2% decline on the year.
The DJIA finished with all but four components higher, and a 79-point gain of 0.8% to close at 10,404; the S&P500 closed up 1.0%, just above its closely-watched 1115 level at 1,115.71, and the NASDAQ finished with a 1.6% rise to 2,274.
All ten S&P500 sectors moved higher during the session, led by basic material shares (+2.0%), which gained on copper strength amid supply concerns from Chile's earthquake. The gains came even as the US dollar climbed 0.46% from euro and sterling weakness and analysts' advise that Chilean copper production is unlikely to suffer long-term disruption. Technology shares jumped 1.5% on SanDisk's (NASDAQ: SNDK) report Friday that increased demand for memory chips would generate first quarter sales of $925 million to $1 billion, and advised the industry outlook in coming years is strong. Consumer service shares jumped 1.4% on economic data showing better-than-expected consumer spending during January.
The rankling problems with European fiscal matters appeared more quiescent Monday as a deal with Germany and France appeared in the works; however, yesterday the EU Monetary Affairs Commissioner admonished Greece it needs to try harder to put its financial problems in order. This morning's news the Reserve Bank of Australia upped interest rates to 4.0% was taken in stride, even as comments suggested an increasingly hawkish central bank in an economic reality dominated by China raw material demand, which many feel may be threatened by policy measures to rein in lending.
Monday's key economic numbers provided evidence of a mixed US recovery. Personal income growth of 0.1% fell below expectations of a 0.4% increase in January; however, the 0.5% jump in consumer spending was greater than the projected 0.4% gain, marking the fourth straight monthly climb. Core personal consumption expenditures, the Fed's well-regarded inflation measure, was reportedly benign and inline, holding steady with the previous month.
Consumer behavior remains central to assumptions for a recovery, which is sustainable beyond the fiscal and monetary stimuli measures of Washington. A key restraint to consumer sentiment has been job security, lending top billing to Friday's monthly nonfarm payrolls report. According to a Goldman Sachs (NYSE: GS) research note, "Our forecast of a decline of 100K payroll jobs assumes the February snowstorms will delay at least this many net hires. Assuming a return to more normal weather, March payrolls should post a substantial rebound." Jobs news may prove increasingly important over the week, with traders attempting to guess at the NFP numbers, looking at tomorrow's clues from the monthly ADP report, and Thursday's weekly jobless claims for jobs news without a storm in the mix. Therefore, investors' ability to look beyond the expected weak jobs results to its forward-looking job of anticipating a March upturn in hirings may prove vital to a ongoing rally in equities.
ISM manufacturing data came in mixed on Monday, increasing in February for the seventh straight month, albeit at a slower rate than during January and below estimates. The gauge posted at 56.5, down from January's 58.4 and below estimates of 57.5. January construction spending fell 0.6% in January from the prior month, as expected; however, the rate of descent narrowed from December's 1.2% drop.
Today's items of interest include a look at February car sales and the influence of a full month of Toyota's (NYSE: TM) temporary sales suspension to repair its pedal problems and the numerous snowstorms during the month. Analysts anticipate a disappointing drop to a 10.3 million unit seasonally adjusted annual rate, down from 10.82 million prior. Also of interest, Morgan Stanley's (NYSE: MS) technology conference offers presentations from Microsoft (NASDAQ: MSFT), IBM (NYSE: IBM) and AT&T (NYSE: T).
Fed-speak includes speeches from Kansas City Fed President Hoenig at 10 am on CNBC, and Minneapolis Fed President Kocherlakota at 1 pm. Earnings slated for release include: AutoZone (NYSE: AZO), Fresh Del Monte Produce (NYSE: FDP), Hovnanian (NYSE: HOV), and Staples (NASDAQ: SPLS).
According to our analytics team, yesterday's DJIA close at 10,403.79 was accomplished with room to spare for the near-term trend indicators to propel the DJIA to meet its expected resistance at 10,700 over the next week. However, the road will not be smooth, and as soon as this morning the market is expected to dip and then surge as risk sentiment waxes and wanes. Nevertheless, a multi-day uptrend is in progress and should resume in the absence of any catastrophic economic news. To examine the list of stocks changing trends in the last week, please click on http://www.mysmartrend.com.
In the corporate corner, Qualcomm (NASDAQ: QCOM) lifted its dividend 12% to 19 cents and announced plans to buy back $3 billion in shares.
Fresh Del Monte Produce (NYSE: FDP) topped estimates with fourth quarter earnings of 36 cents, two cents above projections, on $872.1 million in revenues, which topped consensus expectations of $829.5 million.
Staples's (NASDAQ: SPLS) fourth quarter earnings of 38 cents were in line with analysts' expectations, as were revenues of $6.41 billion. The company provided full-year earnings guidance of $1.23-$1.33; Street estimates were $1.30.
Tech Data (NASDAQ: TECD) announced fourth quarter earnings of $1.25, well above estimates of $1.01, on revenues of $6.28 billion, which bested estimates of $6.03 billion.
AutoZone (NYSE: AZO) reported fiscal second quarter numbers at $2.46, ahead of $2.34 earnings assumptions on inline revenues of $1.51 billion.
Goldman Sachs (NYSE: GS) downgraded Kimberly-Clark (NYSE: KMB) from "neutral" to "sell," with a price target lowered to $60 from $63.
UBS (NYSE: UBS) upgraded Dell (NASDAQ: DELL) from "neutral" to "buy."
General Motors (NYSE: GM) announced it is recalling 1.3 million compact cars sold in North America over the past five years due to problems with the power-steering mechanism. The firm anticipates a cost of only $100 million for the recall.
Wells Fargo (NYSE: WFC) upgraded Weststar Energy (NYSE: WR) to "outperform" from "market perform," taking the target range $3 higher to $24-$25.
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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AZO 166.00 Uptrend 146.16 11/11/2009
FDP 19.85 Downtrend 21.95 10/26/2009
IBM 128.57 Uptrend 128.15 3/1/2010
MS 28.19 Downtrend 29.39 1/21/2010
TECD 44.83 Uptrend 43.09 2/18/2010
INX -- S&P 500: 1,116 Lo: 1,105 Hi: 1,116 Change: +11.22
http://www.mysmartrend.com/images/INX20100302.jpg
INDU -- DOW JONES: 10,404 Lo: 10,326 Hi: 10,414 Change: +78.53
http://www.mysmartrend.com/images/INDU20100302.jpg
QQQQ -- NASDAQ: 2,274 Lo: 2,247 Hi: 2,274 Change: +35.31
http://www.mysmartrend.com/images/QQQQ20100302.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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