Comtex SmarTrend(R) Morning Call -- March 3, 2010
News was mixed yesterday and stocks gave up some early gains, yet continued to rise at close. The DJIA rose intraday above 10,450, but closed up only two points at 10,406. Still, the SmarTrend(R) indicators gained more ground despite the profit-taking in tech and bank stocks that sapped the day's index gains; the multi-day rally is expected to resume later today.
Much pondering of preliminary reports regarding the job market occupied the minds of investors, who late in the day began to book gains in tech and bank stocks, even though the mood of buyers had been boosted earlier in the day by signs of increasing M&A activity. Despite the afternoon give-back by the market indices, the daily SmarTrend(R) uptrends to downtrends turned in another strong day, polarized to the upside at 142:9. This strong showing caused the IBDI and Trend Ratio both to climb, a confirmatory sign that lift is coming from the intermediate-term uptrend, which is expected to continue for the next two weeks as none of the related trend indicators show any signs of uptrend fatigue for the intermediate or long-term uptrends. Both are boosting stock prices, together making the investing environment continue to be attractive for long stock positions.
The trading environment gained some ground yesterday also. Three of four near-term trend indicators moved upward, and only two have entered overbought territories, slightly ahead of the DJIA's expected climb to 10,700. There still appears overhead room for the DJIA to climb up to 10,700 in the next week where it is expected to run into to significant resistance.
The trade-term trend reacted as might have been expected yesterday afternoon to profit-taking in the tech and banking sectors. Today there will be reports about the level of layoffs and private sector employment, all preliminary to the end of this week report on unemployment, along with release of the Fed Beige book later today. All of these items could turn the direction of the trade-term trend and these issues are discussed below. The wild card of trend-catalyzing news today may be a press conference from the White House regarding health care reform legislation. An attempt to salvage a smidgeon of legislative victory by the White House by encouraging Congress to enact a few components of the 2,700-page health care reform bills was voted by the House and the Senate along strict party lines, even though the Senate Committee chairman, who voted for the Senate version of the bill, clearly stated twice on Sunday TV that the entire bill cannot be voted by way of the 51% majority reconciliation process. More signs of the desperate inability of the White House to resuscitate this massive spending stimulus, aka health care reform, is expected to stimulate buying of existing health care stocks. All this may be enough to trigger the run up by the DJIA to 10,700 over the next few days as the SmarTrend(R) indicators continue to point to such happening. To look at the complete list of stocks changing trends over the last week, please click on http://www.mysmartrend.com.
Most market watchers anticipate a cautious tone likely over the next three days of US labor market reports, which have been widely trumpeted as more than unlikely to reveal any recovery-based job additions. And so this morning's news of Greece's plan to help bridge its budget deficit by $5.4 billion, a key banking analyst's projection of 300-500 percent increases in sector net earnings, as well as the growing number of corporate takeovers have met with neutral responses in investor sentiment.
Nonetheless, optimism regarding the global recovery remained strong in Tuesday's trade. The Vix volatility measure fell 1.0% to 19.06; the DJ-UBS commodities index climbed 1.1%; both crude and gold prices ran to one-month highs during the day before paring gains for increases of 1.2% and 1.4%, respectively. Weighing in against the bullish tone were concerns of higher interest rates, as Kansas City Fed Chairman Hoenig, the lone dissenter in the Fed's decision to keep its language of "extended policy" for interest rates, warned the near-zero rates encouraged speculative activity, and suggested the Fed should initiate rate-raisings soon.
The net result was late-session selling, which pared DJIA gains from its perch above yearend levels, as the index finished up only 2 points, very nearly unchanged at 10,406; the NASDAQ managed 0.3% increases despite weakness in tech shares resulting from Microsoft's (NASDAQ: MSFT) comments on costs; and the S&P500 ended the day up 0.2% at 1,118.
Within the S&P500's ten sector groups, only two closed lower, technology (-0.1%) and consumer services (-0.1%). Weighing in on the upside, bullish sentiment regarding the global recovery drove basic material shares 1.5% higher on the heels of higher commodity prices, even as the US dollar eased 0.6% to 80.47 against a basket of currencies. Oil and gas shares also improved, up 0.8%, although an industry report, the API, noted after the close a 2.67 million barrel gain in crude stockpiles, well above Platt's estimates of a 1.1 million barrel build.
S&P500 sector action showed basic materials up 1.5%, oil and gas 0.8%, consumer goods and health care 0.5%, industrials, utilities, financials 0.3%, telecom 0.02%, as tech and consumer service shares fell 0.1%.
Microsoft (NASDAQ: MSFT) fell 1.9%, driving fellow tech shares IBM (NYSE: IBM) down 0.9%, and both Intel (NASDAQ: INTC) and Hewlett-Packard (NYSE: HPQ) 0.8% lower. The company's CFO warned of a 5% increase in operating expenses for its 2010-2011 fiscal year. Also a labor group reported IBM (NYSE: IBM) has laid off employees.
The increased merger and acquisition activity continued from earlier in the week when news included the AIG (NYSE: AIG) $35.5 billion sale of AIA to Prudential of UK as well as a MSCI (NYSE: MXB) $1.55 billion purchase of RiskMetrics and MercK KGaA's $7.2 billion bid for Millipore (NYSE: MIL), suggesting fertile ground for valuation buys in equity markets from firms laden with cash. Hedge fund, Elliot Associates, offered $5.75 per share for Novell (NASDAQ: NOVL). CF Industries (NYSE: CF) upped its bid for Terra Industries (NYSE: TRA).
Nevertheless, sentiment's headless horseman still rides, and Friday's monthly jobless numbers may remain on the backs of traders' willingness to push markets higher until the expected bad news is out of the way. However, markets may surprise, living up to their role as a forward-looking entity, and turn from the weather-impacted increase in unemployment to expectations of upcoming job additions. Nevertheless, today's ADP Employment numbers for February are expected to show 10K cuts, moderating from January's loss of 22K MoM, which was the best reading in over two years. The Challenger Job-Cut reading disappointed, however, with 71,482 job losses in January reported, the worst monthly report since August and above December's 45,094.
Besides the impending jobs numbers, expected to culminate in Friday's report of up to 100K cuts and an uptick in the unemployment rate to 9.8%, today's key releases include the ISM services index, expected to show a February improvement to 51.0 from 50.5, remaining in expansion territory. The morning news that Greece has come up with its third austerity plan in three months has been met with muted response; nevertheless, the motion toward some resolution ameliorates the threat of major euro zone fiscal imbalance, recently a forex trading volatily accelerator.
Today's calendar covers Fed speak from Rosengren and Lockhart, with the Beige Book Economic Report of regional economic activity also due. Earnings numbers have notably slowed; nevertheless, Costco (NASDAQ: COST) numbers are out, with Big Lots (NYSE: BIG) and Progressive (NYSE: PGR) also slated for release.
According to our analytics team, there still appears overhead room for the DJIA to climb up to 10,700 in the next week where it is expected to run into to significant resistance. To examine the list of stocks changing trends in the last week, please click on http://www.mysmartrend.com.
In the corporate corner, Costco (NASDAQ: COST) reported a two-cent miss for its fiscal second quarter, posting earnings of 70 cents, on revenues of $18.36 billion, which also missed analysts' projections of $18.53 billion.
Joy Global (NASDAQ: JOYG) reported better-than-expected earnings of 73 cents, up from estimates of 64 cents, on revenues which topped estimates at $729.2 million up from estimates of $663 million.
BJ's Wholesale (NYSE: BJ) reported fourth quarter results, which missed by a penny, coming in at 95 cents on inline revenues of $2.74 billion.
Goldman Sachs (NYSE: GS) added UPS (NYSE: UPS) to its Conviction Buy List with a $76 price target.
Goldman Sachs (NYSE: GS) removed Staples (NASDAQ: SPLS) from its Conviction Buy List, cutting its rating to "neutral," and dropping the price target from $27 to $26.
Bank of America (NYSE: BAC) upgraded Eaton (NYSE: ETN) to "buy" from "underperform," lifting the price target from $58 to $90.
Bank of America (NYSE: BAC) downgraded Netflix (NASDAQ: NFLX) to "underperform" from "buy."
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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BIG 33.94 Uptrend 27.41 12/4/2009
CF 106.42 Uptrend 85.36 11/18/2009
COST 61.38 Uptrend 61.02 2/17/2010
MXB 32.61 Uptrend 31.10 3/2/2010
TRA 45.60 Uptrend 40.51 2/16/2010
INX -- S&P 500: 1,118 Lo: 1,117 Hi: 1,123 Change: +2.60
http://www.mysmartrend.com/images/INX20100303.jpg
INDU -- DOW JONES: 10,406 Lo: 10,389 Hi: 10,457 Change: +2.19
http://www.mysmartrend.com/images/INDU20100303.jpg
QQQQ -- NASDAQ: 2,281 Lo: 2,275 Hi: 2,292 Change: +7.22
http://www.mysmartrend.com/images/QQQQ20100303.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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