Comtex SmarTrend(R) Morning Call -- March 11, 2010
Stocks edged up yesterday as bank and technology shares led the way higher on hopes that a revival in business demand will boost corporate profits. The DJIA, lagging the S&P500 index, climbed 3 points for the day to close at 10,567. Some SmarTrend Indicators climbed while others continued bouncing off overbought ceilings; nothing yesterday changed the outlook for the DJIA to grind on up to 10,700 before taking a rest next week.
When stock market indices approach tops and momentarily pause, they often struggle to gain more. It looks like choppiness at the time, but is really subtle selling pressure rising. At the time of index struggles to continue up at high altitude, the rally becomes a rally for individual stocks, not the market indices and that is what is going on now. This was reflected yesterday with the performance of the daily SmarTrend(R) uptrends to downtrends at 59:7. Not as robust as last week, but still the 18th day of 19 with upside bias. This caused the IBDI and Trend Ratio to rise; this IBDI still has room to the upside before becoming overbought, while the Trend Ratio has reached 77 and is expected to top out at 80. This means the intermediate-term uptrend is lifting in tandem with the long-term uptrend, creating a bullish investing environment. These two trends are expected to provide enough lift by Friday close to help the DJIA edge on up to 10,700 and the S&P500 index hit 1,150.
Soon thereafter these indices will take a rest for a week or more as the market tries to consolidate gains and moves down to lower support levels around DJIA 10,400 and S&P500 index at 1,125. A withdrawal of buying force for many stocks was noted yesterday as trading volume slackened. Much of the downward pressure for a dip next week will be supplied by the trading environment trends. All four near-term trend indicators are very high in their overbought zones, and once such extremes are reached, it is inevitable that a retreat will ensue. The expected indicators' pull-back from the outer reaches of their overbought zones is expected to be shallow, only taking the near-term trend indicators to the lower borders of their overbought ranges, mainly because the investing environment boosting uptrends will continue to support the trading term trends.
A choppy retreat from highs is expected to be driven by the trade-term trend, which at the moment is showing enough strength from yesterday's news to continue pushing the market indices' net north today and tomorrow. This trade-term trend rally is being led by tech shares and banks' shares rallying to their highest prices in a year on expectations that an improving economy will stimulate demand. The Commerce Department reported wholesale inventories fell 0.2% in January, after a 1% drop the month before, raising expectations that consumer demand is strengthening and inventories will soon need to be rebuilt, leading to more employment. Also the Labor Department indicated fewer states reported increases in unemployment in January. Thus, today investors await the jobless claims report, hoping for confirmation that economy-boosting, increased employment is occurring. These issues are discussed in the next section of this report along with other important economic items. It is probable that the many reports forthcoming today will be mixed, and investors' reactions will be just as mixed, leading to a continuation of the market for stocks edging the DJIA up to 10,700 before falling to rising selling pressure needed to cause many overbought SmarTrend(R) indicators to pause and retreat somewhat from their precarious perches. To examine the list of stocks changing trends in the last week and/or hear a podcast of this report, please click on http://www.mysmartrend.com.
Concerns that today's hot inflation post might force China policymakers to slow its current growth trajectory as well as news of more paralyzing strikes in Greece put the brakes on equity futures this morning; however, an indication of stabilizing jobs markets at home could add to current optimism regarding the US economy's recovery. This week's market action has reflected a lack of market-moving catalysts, although deal-making activity, financial and tech sector strength and a number of positive economic posts have allowed benchmark indices to continue inching higher, on broad-based, albeit modest, individual company share gains.
Wednesday's session sent the NASDAQ up 0.8% to 2,359, at more than an eighteen-month high. Of the NASDAQ-100, 84 shares closed higher on a session that marked the tenth anniversary of its all-time high of 5,048.62. Early-cycle, tech shares have been recent market winners, with the sector up 0.8% yesterday. Intel (NASDAQ: INTC) closed up 1.2%, while Cisco (NASDAQ: CSCO) finished off 1.0% on a sell-on-the-news philosophy after its new router announcement on Tuesday. Google (NASDAQ: GOOG) climbed 2.9% after opening an online apps store, the Google Apps Marketplace, and following reports its arguments with China may be nearing a solution.
On the S&P500 351 of its components ended the day higher, with only two sectors, consumer goods (-0.1%) and telecommunications (-0.04%) moving lower. Financial shares led on the upside with a 1.1% jump after positive comments from banking analyst Dick Bove, who opined bank dividend payouts will return to about 40% of earnings in 2-3 years. Reports also suggested Barclays (NYSE: BCS) is in the market for a sizeable retail bank purchase; firms considered likely include Fifth Third (NASDAQ: FITB), PNC (NYSE: PNC), Sun Trust (NYSE: STI), and Comerica (NYSE: CMA).
Citigroup (NYSE: C) shares continued active and strong, up 3.7%, after the launch of its $2 billion trust-preferred sale saw high volume, with orders said to be as high as $5+ billion. Rumors also noted Apollo Management may purchase its real estate unit. Finally, today CEO Pandit, according to the FT, will outline the company's core earnings potential, estimating earnings of about $20 billion by the end of 2012.
The economic reports of the day continue to point to an ongoing recovery. A Commerce Department report on wholesale inventories suggested strengthening consumer demand as inventories fell 0.2% in January while sales increased 1.3%. Economists expect firms may soon begin building inventories as levels continue lower, presaging future growth.
The Treasury Department reported a $42.6 billion shortfall brought the February budget deficit to a record $220.9 billion, up from $193.9 billion a year ago, and above estimates of $220 billion.
Yesterday's EIA report on crude stockpiles revealed a 1.4 million barrel build in supplies, less than Platt's estimates; late Tuesday the American Petroleum Institute reported a 6.5 million barrel rise. Crude prices gained 60 cents, closing at $82.09.
Today's calendar of events begins with weekly jobless claims, estimated to show a 9K drop to 460K. Continuing claims are estimated to hold steady at 4.5 million. The employment picture has mired the larger economic landscape, stifling consumer demand and undermining prospects for a recovery in housing. Last week's better-than-expected monthly jobs report offered some hope that layoffs are slowing, and hirings, normally a lagging indicator at best, are slowly gaining ground.
Also on the docket is January's trade balance, expected to show the deficit widened to $41.0 billion versus a $40.2 billion deficit in December. A Treasury auction of $13 billion in 30-years is scheduled for 1:00 PM.
Earnings reports are due from National Semiconductor (NYSE: NSM), Smithfield Foods (NYSE: SFD), Aeropostale (NYSE: ARO), Pall Crop (NYSE: PLL), and Pacific Sunwear of California (NASDAQ: PSUN).
News that China inflation rose to a 16-month high of 2.7% in February from a year ago, hotter than the 2.5% projected although under China's target of 3%, garnered speculation of another round of monetary tightening. Production surged 20.7% during the first two months of the year, the most in over five years. New loans also exceeded forecasts.
According to our analytics team, a choppy retreat from highs is expected to be driven by the trade-term trend, which at the moment is showing enough strength from yesterday's news to continue pushing the market indices' net north today and tomorrow. This trade-term trend rally is being led by tech shares and bank shares, which have rallied to their highest prices in a year on expectations that an improving economy will stimulate demand. To examine the list of stocks changing trends in the last week, please click on http://www.mysmartrend.com.
In the corporate corner, BP (NYSE: BP) plans to pay Devon Energy (NYSE: DVN) $7 billion for assets in Brazil, the Gulf of Mexico and Azerbaijan.
United Technologies (NYSE: UTX) announced its board has authorized buying back up to 60 million shares of its common, worth $3.4 billion at current levels.
Goldman Sachs (NYSE: GS) removed two firms from its Conviction Sell List: Sunoco (NYSE: SUN) and Hershey (NYSE: HSY).
Smithfield Foods (NYSE: SFD) posted better-than-expected fiscal third quarter results of 22 cents, topping projections of 18 cents versus 9 cents a year ago, on revenues of $2.88 billion.
FBR maintained its "outperform" rating on Goldman Sachs (NYSE: GS), with a price target of $190, reaffirming the firm as one of its Top Picks.
Jefferies (NYSE: JEF) downgraded Airgas (NYSE: ARG) to "hold" from "buy," with a price target of $60.
UBS (NYSE: UBS) upgraded Dr Pepper Snapple (NYSE: DPS) to "buy" from "neutral," with a price target of $42 up from $31.
Piper Jaffray (NYSE: PJC) maintained its "overweight" rating on eBay (NASDAQ: EBAY) with a $35 price target.
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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ARO 26.42 Uptrend 22.81 12/29/2009
BCS 20.67 Uptrend 19.77 2/22/2010
CMA 36.43 Uptrend 29.94 12/28/2009
PSUN 5.71 Uptrend 4.01 12/30/2009
STI 26.49 Uptrend 23.15 11/30/2009
INX -- S&P 500: 1,146 Lo: 1,140 Hi: 1,148 Change: +5.17
http://www.mysmartrend.com/images/INX20100311.jpg
INDU -- DOW JONES: 10,567 Lo: 10,527 Hi: 10,602 Change: +2.95
http://www.mysmartrend.com/images/INDU20100311.jpg
QQQQ -- NASDAQ: 2,359 Lo: 2,341 Hi: 2,362 Change: +18.27
http://www.mysmartrend.com/images/QQQQ20100311.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.
Comtex News Network, Inc. is not a registered investment advisor and does not provide investment advice. Investors bear complete responsibility for their own investment research and decisions and should seek the advice of a qualified investment professional prior to making investment decisions. SmarTrend is a registered trademark of Comtex News Network, Inc. Copyright, Comtex News Network, Inc. 2010
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