Comtex SmarTrend(R) Morning Call -- March 18, 2010
Stocks gained more Wednesday following a mild February inflation report, which was consistent with the Fed's reiterated pledge of continuing low interest rates. The DJIA climbed 44 points to close at 10,734, breaking above resistance at 10,724. Surpassing this recent high by the DJIA was confirmatory that the bull market persists, as signaled by the SmarTrend(R) indicators for the last six weeks, but the market indices became slightly overbought near the end of trading yesterday and that condition will need to be further corrected with an uptrend pause this morning.
The market indices have been, and continue to be in a grinding, upward, steady, multi-day rally, which dips and surges every few days; yesterday it reacted positively to a drop in the February PPI, further supporting the continuation of rock-bottom interest rates that have catalyzed the rally in equities since last summer. The daily SmarTrend(R) uptrends to downtrends again Wednesday were biased to the upside, coming in at 67:9; enabling the IBDI to pull back from an overbought state, but pushing the Trend Ratio upward further officially into overbought territory at 80. Now the intermediate-term uptrend finds itself in a position similar to the near-term trend indicators, the desirable state of being able to correct from being overbought by moving mainly sideways while the DJIA moves up. This state is advantageous, because the intermediate-term uptrend can follow this pattern for weeks, helping the long-term trend boost stock prices across the board, before a serious dip in the market indices will occur. The investing environment continues robustly positive for long stocks to push the DJIA up to 11,000 on the next try.
That try may have to wait, though, for another shallow correction downward in the trading environment, although it too is benefiting from being able to correct overbought indicators while the market indices rise. So far the NBDX and SmarTrend(R) Ratio have fallen from perches in their overbought zones to lower plateau levels from which to rally. On the other hand the continuing buying forces on stocks has steadily exceeded selling pressures to the point that despite only moderate trading volumes, the NBDI and NBDV have been pinned to their overbought ceilings.
The net bullish sentiment for stocks, as slow and steady as it has been, can from time to time lead to temporary trade-term trend overbought states, and the trade-term trend will correct the excesses. That is what happened yesterday late in the trading day; the DJIA dropped 60 points in an hour from its intraday high of 10,768, but then rebounded. The DJIA will have to work hard today to climb above 10,740, an intraday level of resistance. Today brings more news on the CPI, jobless claims and manufacturing plus leading economic indicators. These and other important economic issues are discussed below. Unless there is an unexpected negative surprise look for the DJIA to return to its slow upward grind after a momentary uptrend pause to finish correcting a momentary overbought condition. To examine the constantly updated list of stocks changing trends in the last few days and/or hear a podcast of this report, please click on http://www.mysmartrend.com .
Risk trade rose on Thursday as investors continued to applaud Bernanke & Co's low interest rate pledge, and wholesale inflation data pointed to the absence of pricing pressures on low-rate policies. Benchmark equities headed higher, and a key volatility measure lower, as the US dollar dropped against a basket of currencies, and the yield differential between short- and long-term Treasuries narrowed. Today's session may suffer an onset of profit-taking after the market's recent run, renewed Greece concerns, and after the S&P retreated at session's end upon nearing a key technical overhang of supply near 1170.
The DJIA tacked on 48 points for a 0.5% gain to 10,734, a 17-month high and the benchmark index' seventh straight advance. The NASDAQ increased 0.5% to close at 2,389, its highest since August 2008. The S&P500 rose 0.6% to finish at 1,166, its highest since November 30, 2008. The Vix volatility measure of investor fear moved under 17 for the first time since May, 2008, dropping 4.4% to 16.91. NYSE volume held at a modest 1.02 billion shares, as advancers outpaced decliners by a 7 to 3 margin. Risk-on investor sentiment worked against the US dollar trade, dropping the greenback 0.1% against a basket of currencies to 79.63, and driving the DJ-UBS, a broad-based index of commodities, up 1%.
The yield differential between Treasury's 2- and 10-years narrowed to their least in almost two weeks yesterday after government data pointed to tame wholesale inflation results in February. Headline numbers revealed a 0.6% decline, deeper than the expected 0.3% drop, and the most since July, 2009. Core PPI, exclusive of volatile food and energy prices, increased 0.1%; a 0.1% drop was expected. Today's inflation report on consumer prices is expected to show further tame data, with headline price increases of 0.1% versus a 0.2% advance in January, and core CPI up 0.1% versus last month's 0.1% decline.
Further fueling markets, the Senate passed a $17.6 billion jobs bill with tax incentives and highway project funding. The Bank of Japan doubled its lending program to $222 billion to help spur credit growth.
Twenty of the DJIA thirty moved higher on Wednesday, led by a 4.8% Alcoa (NYSE: AA) gain amid a metals rally and news its manufacturing dispute in Italy has been resolved. DuPont (NYSE: DD) shares climbed 1.5% following Deutsche Bank's (NYSE: DB) upgrade to "buy." ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) advanced 1.2% and 0.9%, respectively, on a 1.2% rise in crude prices to $82.93. OPEC ministers held output at current levels; US weekly crude inventory levels posted in line with expectations. Intel (NASDAQ: INTC) continued to tack on gains, up 1.1%, on hopes for current quarter profit gains. Bank of America (NYSE: BAC) and JP Morgan (NYSE: JPM) were up 1.4% and 1.3%, respectively, sharing the financial sector's rally on the Fed's ongoing easy-money policy.
As was the case on Tuesday, all ten S&P500 sectors rose in Wednesday's session, led by financials (+1.1%), oil and gas (+1.0%), consumer goods (+0.7%), telecommunications (+0.7%), basic materials (+0.6%), industrials (+0.5%), technology (+0.4%), utilities (+0.3%), consumer services (+0.3%), and health care (0.1%).
However, Greece still needs to borrow $72 billion this year in financial markets, and at a cost too dear without detailed support plans outside its ability to raise money from within, according to this morning's laments. And unless the EU's March 25 summit provides the schematic for a rescue package, Greece may be forced to seek IMF support over the Easter weekend. The news was enough to sour sentiment, perhaps already poised to trim recent sessions' gains. The Nikkei eased 1%, the Shanghai Composite 0.1% and the Hang Seng 0.3%.
And yet the day's data may contain some upside ammo for the bulls, with weekly jobless claims expected to show a drop to 455K from 462K prior, stoking hopes for the stabilization in employment numbers described by the FOMC report. The Conference Board's February leading economic indicators are also due, and expected to post a 0.1% increase after January's 0.3% gain. The Philly Fed manufacturing gauge is estimated to post at 18 in March, up from 17.6 in February.
Fed-speak include words from Hoeing, Pianalto and Lacker.
According to our analytics team, unless there is an unexpected negative surprise, look for the DJIA to return to its slow upward grind after a momentary uptrend pause to finish correcting a momentary overbought condition. To examine the list of stocks changing trends in the last week, please click on http://www.mysmartrend.com.
In the corporate corner, Citigroup (NYSE: C) downgraded financial shares from "overweight" to "neutral," warning that early-cycle gains in financial sector shares, up 63% over the past year, may fade heading into the bull market's second year.
After Wednesday's close Nike (NYSE: NKE) blew past estimates as higher US and China sales generated results of $1.01 versus 50 cents, on revenues of $4.73 billion, a 6.6% increase, and up from estimates of $4.6 billion.
Winnebago Industries (NYSE: WGO) reported better-than-expected fiscal second quarter earnings of 2 cents, 11 cents above projections, on revenues of $110.5 million, slightly below estimates of $112.68 million.
Deutsche Bank (NYSE: DB) maintained its "buy" on LSI Corp (NYSE: LSI) and raised its price target to $8.
Goldman Sachs (NYSE: GS) removed Advanced Micro Devices (NYSE: AMD) from the firm's Conviction Sell List, although keeping a "sell" rating on the shares; the price target is $5.50.
General Motors' (NYSE: GM) CFO noted a "reasonable chance" of 2010 profitability, the automaker's first profit in five years.
JP Morgan (NYSE: JPM) upgraded Energizer (NYSE: ENR) shares to "overweight."
Deutsche Bank (NYSE: DB) reiterated its "buy" on Conoco Phillips (NYSE: COP) with a price target of $60.
Goldman Sachs (NYSE: GS) upgraded Broadcom (NASDAQ: BRCM) shares to "buy" from "neutral" and lifted the price target to $40.
Deutsche Bank (NYSE: DB) upgraded Burger King (NYSE: BKC) to "buy" from "hold."
Teva Pharmaceutical Industries (NASDAQ: TEVA) bested Pfizer (NYSE: PFE) bid to acquire Ratiopharm with a $4.78 billion offer.
FedEx (NYSE: FDX) reported EPS of 76 cents, beating expectations of 72 cents during the fiscal third quarter, but shares were down 3% premarket.
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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AA 14.46 Uptrend 14.40 3/17/2010
CVX 74.67 Uptrend 73.80 2/19/2010
DB 75.32 Uptrend 66.53 3/3/2010
FDX 89.80 Uptrend 83.65 2/26/2010
NKE 70.88 Uptrend 67.04 2/26/2010
INX -- S&P 500: 1,166 Lo: 1,160 Hi: 1,170 Change: +6.75
http://www.mysmartrend.com/images/INX20100318.jpg
INDU -- DOW JONES: 10,734 Lo: 10,686 Hi: 10,768 Change: +47.69
http://www.mysmartrend.com/images/INDU20100318.jpg
QQQQ -- NASDAQ: 2,389 Lo: 2,381 Hi: 2,400 Change: +11.08
http://www.mysmartrend.com/images/QQQQ20100318.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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