Comtex SmarTrend(R) Morning Call -- March 12, 2010
Stocks moved sideways most of the day Thursday until late in the session, when prospects for lighter than expected bank regulation legislation was reported and catalyzed a late-rally lead by bank stocks. The DJIA quickly gained 45 points to close at 10,612. Some of the SmarTrend(R) indicators began to retreat, as expected, a process that will lead to bouncing around today of the indices as the DJIA reaches for 10,700 before declining next week.
The best possible scenario for long stock holders is the continuation of the now 20 trading day old uptrend. An uptrend pause will be better than a shallow dip and a shallow dip will be better than a sharp correction downward. The SmarTrend(R) indicators point to the middle case, a shallow dip next week that will take the DJIA down to 10,400 before it attempts again to rally up over 11,000. Yesterday's daily SmarTrend(R) uptrends to downtrends corroborated this premise, coming in at 31:8, a somewhat diminished bias to the upside. This was a strong enough showing though to lift the IBDI and Trend Ratio higher, but both are now very close to becoming overbought; however, there is still enough momentum upward by the intermediate-term trend to cause stocks to climb more. With more than a little help from the long-term uptrend the favorable investing environment should be able to drive the DJIA up to 10,700 before the expected shallow dip occurs next week.
The shallowness of the dip next week is largely dependent on the depth of correction downward that occurs in the trading environment trends. Two of four near-term trend indicators are retreating from extreme overbought positions. The other two, the NBDI and NBDV, are decelerating upward in their overbought zones. To some degree the late day rally yesterday was a bullish sign that the near-term trend indicators could retreat from being extremely overbought at the same time the market indices were rising. However, it is more likely that a continuing downward correction of these indicators will be accompanied by a decline by the DJIA next week, thereby confirming the shallow dip notion instead of only an uptrend pause on the way to DJIA 11,000.
The reason the late day rally yesterday was only partially confirming of a continuing bull market with only a pause, not a dip, next week, is that the rally which began at 3PM was caused by the trade-term uptrend which was, in turn, nearly 100% catalyzed by reports of a legislative failure in D.C. regarding bank regulation. It is usually the case that trade-term trend rallies reactive to news are short in duration and signs are this morning that investors await the latest news on retail sales and consumer sentiment. These news items may turn out to be another catalyst for a trade-term trend rally, but any trade-term trend rally too will be short-lived. These economic issues are discussed below. It may be a trade-term trend rally, in response to news, that causes the DJIA to run into resistance at 10,700, but it is the correction process for the near and intermediate-term trend indicators that will determine the depth of the dip anticipated for next week and it is all these trends that will drive the DJIA up to 11,000 when it bottoms out week after next. To examine the continuously updated list of stocks changing trends over the last week and/or to download a podcast of this report, please click on http://www.mysmartrend.com.
As buyer interest waxed and waned during Thursday, investors took stock of potential China moves to quell inflationary pressures and loan growth, as well as crippling strikes on Greek streets, adding on US weekly jobless data that showed an uptick in continuing claims, even as weekly filings fell. As the day's session drew to a close, however, traders added to risk trades, betting on further indications of US economic strengthening as the consumer, even shuttered by last month's wintry blast, proves him/herself up to the task.
Today brings a week of limited event risk to a close, with Apple's (NASDAQ: AAPL) initial iPad order books open for business, and advance retail sales and a consumer confidence gauge due for release. Within the beltway, politicians appear stymied over both financial and health care reform packages; news of Bernanke-friendly Yellen's nomination to replace Kohn as Fed Vice Chairman adds ammunition to assumptions of continuing dovish policy measures.
Citigroup (NYSE: C) continued to pace a rally in financial shares yesterday, and health care stocks strengthened amid speculation that passage of Obama reforms is growing increasingly difficult. Stocks gained forward traction late in the session, sending benchmark indices to 18-month highs on the Nasdaq and S&P500, and 6-week highs on the DJIA. Technicians heralded the ability of the S&P500 to close above 1150 at last, hitting a new high for the year, and for many, signifying further mileage on the rally.
On the DJIA, 25 components moved higher, driving the index up 0.4% to 10,612. IBM (NYSE: IBM) and Merck (NYSE: MRK) topped the list of gainers, both up 1.6%, while 3M (NYSE: MMM) Coca-Cola (NYSE: KO) and General Electric (NYSE: GE) moved lower, down 0.4%, 0.3% and 0.2%, respectively.
On the S&P500, 335 stocks climbed, sending the index up 0.4% to crack 1,150, as it closed at 1,150.24. All ten sectors measured gains, led by financials (+0.9%), health care and telecommunications (+0.5%), tech and consumer services (+0.4%), basic materials and utilities (+0.3%), industrials (+0.2%), consumers goods (+0.1%), and oil and gas (+0.01%).
Of the Nasdaq-100, 63 shares ended the day higher, driving the index to an 18-month high of 2,368, a 0.4% rise. The US dollar dropped 0.3% against a basket of currencies on its ongoing inverse relationship to investors' willingness to assume risky bets. US Treasuries also declined, with the 10-year off 2/32 as its yield rose to 3.727%, with traders less interested in its safe-haven appeal. The Vix volatility measure eased 2.8% to 18.06, indicating a moderation of investor fears.
Economic input included a mixed employment report of a less-than-estimated 6K fall in jobless claims to 462K from a revised 468K prior, off estimates of 460K, but still showing a moderating pace of job losses. Continuing claims, however, rose 37K to 4.558 million. The January trade gap narrowed 6.6% to $37.3 billion as Americans imported the fewest barrels of crude in ten years. Foreclosure rates, up 6% in February YoY, still measured a 2% drop from January.
This morning's calendar brings to a close a generally event-light week. However, the morning data may influence sentiment, as an 8:30 report may show retailers' sales fell in February, as blizzards kept shoppers out of car showrooms and home from malls. Economists expect sales fell 0.2% during the month, reversing January's 0.5% increase, with sales less auto and gas expected up 0.3%, versus a 0.6% prior month rise. Whisper numbers, however, suggest better than expected returns likely from companies' recent anecdotal evidence.
The March University of Michigan preliminary consumer sentiment index is expected to show a gain to 74 from 73.6 in February. Business inventories are estimated up 0.1% during January after a 0.2% drop prior.
According to our analytics team, some of the SmarTrend(R) indicators began to retreat Thursday, as expected, a process that will lead to indices' bouncing around today as the DJIA reaches for 10,700 before declining next week. To examine the list of stocks changing trends in the last week, please click on http://www.mysmartrend.com.
In the corporate corner, Aeropostale (NYSE: ARO) posted fourth quarter earnings after the close, which topped estimates by 4 cents at 99 cents on a 16.1% rise in revenues to $801 million versus estimates of $798 million. The firm also announced a 3-for-2 stock split and an increase in fiscal first quarter guidance above consensus projections.
National Semiconductor (NYSE: NSM) reported a fiscal third quarter earnings and revenue beat after the close. Earnings of 22 cents topped Street estimates by 4 cents as a 24% revenue gain drove sales to $362 million versus estimates to $349 million.
Pall Corp (NYSE: PLL) posted a fiscal first quarter earnings miss after the close Thursday. Earnings of 42 cents missed by a nickel, as a 3.1% revenue gain to $560 million missed estimates of $589 million. The firm provided fiscal 2010 earnings guidance below consensus expectations.
Societe Generale started coverage of Goldman Sachs (NYSE: GS) at a buy and a $190 price target and Morgan Stanley (NYSE: MS) at a hold and a $32 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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AAPL 225.50 Uptrend 207.47 3/1/2010
C 4.18 Uptrend 3.70 3/9/2010
GE 16.48 Uptrend 16.48 1/8/2010
MS 30.02 Uptrend 28.84 3/4/2010
PLL 40.84 Uptrend 36.94 2/19/2010
INX -- S&P 500: 1,150 Lo: 1,139 Hi: 1,150 Change: +4.63
http://www.mysmartrend.com/images/INX20100312.jpg
INDU -- DOW JONES: 10,612 Lo: 10,507 Hi: 10,612 Change: +44.51
http://www.mysmartrend.com/images/INDU20100312.jpg
QQQQ -- NASDAQ: 2,368 Lo: 2,348 Hi: 2,368 Change: +9.51
http://www.mysmartrend.com/images/QQQQ20100312.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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