Market Overview

Comtex SmarTrend(R) Morning Call -- October 21, 2010

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(via COMTEX News Network)--

Markets once again took their cue from resumed weakness in the U.S. dollar, as equities nearly erased all of the prior day's decline. The DJIA closed off of its best levels of the day, but still ended 129 points higher at 11,108. The SmarTrend(R) indicators, buoyed by the investment environment and flattened from their recent decline, are heading back toward their overbought zones.

As if the prior day did not even happen, the market was able to recover from Tuesday's drubbing and post a 129 point gain yesterday. The DJIA, which was up as much as 174 points during the day, got right back into the tight trading range between 11,000 and 11,150 where it had spent four out of the past five days. The market started out somewhat modestly after positive earnings from Wells Fargo (NYSE: WFC) gave investors comfort that the roof was not falling in (yet) from foreclosure issues. Then around mid-morning, the market's gains ramped up as the dollar sank, reaching a 15-year low versus the Japanese Yen. The CurrencyShares Japanese Yen Trust (NYSE: FXY) is an ETF that tracks the Yen's gain versus the U.S. Dollar. SmarTrend subscribers were alerted to this huge move in the US dollar when it issued an Uptrend alert on FXY back on May 6th at $109 for a respectable 12% gain. The dollar's drop was largely due to the belief that the Fed's Beige Book, which was released yesterday afternoon, would signal that the quantitative easing (QE) plans are nearing final form. The Fed did not disappoint as the report noted that the economy was improving only at a modest pace with little signs of accelerating. Not enough to deter Bernanke & Co. from turning on the printing presses likely next month. This led to a rally in commodities and an improvement in the SmarTrend(R) ratio which, although still slightly negative, registered an improved 18:28 Uptrends to Downtrends. The IBDI also improved and moved higher and the Trend Ratio flattened. Neither of these intermediate-trend indicators are overbought and so long as they chop around in their relatively high zones, the intermediate-trend will support the market and, as we have said for most of this week, encourage dip buying. The long-term trend also remains constructive toward long stock positions.

The trade-term trend indicators controlled much of the action yesterday. Having started out the day oversold, they were able to quickly move higher into more neutral zones. What was expected to be merely a compensatory bounce turned into something more sizable as the near-term trend was able to halt its decline sooner than expected as it was helped by the supportive investment environment trends discussed above. The trade-term trend indicators are not yet overbought, leaving some additional room to once again retest the upper end of the recent trading range.

As the current rally remains largely a story about anticipated quantitative easing and dollar debasement, the trade-term trend may very well remain highly correlated to moves in the foreign exchange markets. Should the Downtrend in the U.S. dollar continue, that may give investors all the reason they need to keep a bid under stocks. All is not roses, however. The market continues to struggle within this current trading range despite a weak dollar and relatively positive earnings from companies that have reported thus far. Some of those earnings results are discussed in the section below. With the mid-term elections right around the corner, and the market already having priced in a considerable change in the composition of the Congress, there is some "sell-the-news" risk and until the market can demonstrably break out of this range, caution is advised when buying into rallies. These days can be useful to prepare a list of long stock buys for when the market has its next pause or correction. To help build that list, look at the stocks entering new trends at http://www.mysmartrend.com.

US Treasury Secretary Geithner turned astrologer in an interview with the WSJ today, opining that currencies are "roughly in alignment now," with no need of further dollar declines against the euro and yen. Also looking forward to this weekend's G20 meeting of finance ministers, Mr. Geithner called on the ministers to agree to "norms" on exchange pricing. The dollar, which yesterday fell 1.3% against the euro and sank to its lowest in fifteen years against the yen, initially firmed after the remarks as short-interest covering ensued, before resuming its decline, almost 7% since early September, to approach Friday's 10-month low at 76.15.

The US dollar's recent slide has resulted from assumptions that the Fed will soon initiate further monetary easing measures to prop up an economic recovery faltering under the weight of high unemployment, and below-target core inflation levels. Investors currently appear confident that the Fed will announce plans to repurchase bonds as soon as its November 2-3 meeting. The how much/when/under what conditions details are less certain; many expect the Fed will avoid its previous "shock and awe" approach, and instead choose the steady, IV-drip of a month-by-month reaction to incoming data.

Yesterday's anecdotal regional evidence from the Fed's beige book reassured investors. The economy's modest rate of growth demonstrated housing, construction and jobs still weak. Therefore, expectations for additional easing measures went unchanged. Today's data on weekly jobless claims, leading economic indicators and the Philly Fed manufacturing index will be looked at for further proof for the Fed plans. Mediocre macro news becomes positive in this construct as further rationale for QEII.

Of late, the sinking USD dollar has provided the fuel for increased risk-taking, driving US equity markets sharply higher, for a 12.5% increase from late August. Risk-sentiment has increased as traders purchased commodity-linked shares and shares of industrial firms with heavy overseas exposure. Many believe the Fed's propelled dollar-dive has been priced into markets now, and so look for micro events to move investor sentiment. Yesterday, companies answered with resounding strength from such capital goods and aerospace firms as Boeing (NYSE: BA), United Technologies (NYSE: UTX), Eaton (NYSE: ETN) and Textron (NYSE: TXT). The industrial heavyweights provided strong forecasts. Boeing lifted its full-year guidance about 5%. United Tech also posted rising orders and lifted guidance to the top of its previous range. Eaton pushed its forecast for the year 10% higher and said that 2011 is expected to demonstrate strength across its business lines. Textron lifted its projections for underlying earnings from continuing operations. Among the airlines, Delta (NYSE: DAL) showed a recovery in business travel that generated estimate-topping sales and earnings for the quarter.

Positive earnings posts drove equities higher in Wednesday trade, nearly erasing losses in the prior session. The DJIA jumped 129 points for a 1.2% gain to 11,108, regaining its perch above 11,000. Boeing shares rose 3.4%, topping the list of gainers, on strong third quarter earnings, with the improved outlook for commercial aircraft causing higher guidance. Bank of America (NYSE: BAC) continued to weigh, off 0.4%, as investors fear the nation's largest mortgage servicer may prove susceptible to a multitude of lawsuits, creating a negative, litigant-label for the shares. The NASDAQ rose 0.8% to close at 2,457. The S&P500 ended the day up 1.1% at 1,178, with all ten industry groups showing gains, led by basic materials (+2.4%), telecom (+1.5%), oil and gas and industrials (+1.4%), consumer services (+1.3%), financials (+1.2%), tech and utilities (+0.8%), and consumer goods (+0.7%).

This morning's US futures suggest stocks will start the day in positive fashion, after the Chinese government reported growth, inflation and industrial output generally in line with expectations. China GDP rose 9.6% during the third quarter, its smallest growth in a year, following second quarter gains of 10.3% and the first quarter's 11.9%. Consumer prices hit a two-year high of 3.6% September growth, mainly due to higher food prices, and atop the nation's target for 3%. September's industrial output advanced 3%. The China growth engine has fueled investor confidence, and so the as-forecast results may limit fears of further reining-in moves from Beijing beyond Tuesday's surprise move to hike interest rates.

Macro data includes weekly jobless numbers, with economists expecting 455K claims, down from 462K prior. September Leading Economic Indicators are expected to have advanced 0.3% in September, matching the prior month's increase and showing the third straight monthly gain. The Philly Fed is expected to show October industrial activity rebounded to 2.0 from September's -0.7.

Equity trade may find its footing within the day's trend of quarterly posts and guidance. Such bellwethers as AT&T (NYSE: T), American Express (NYSE: AXP), Caterpillar (NYSE: CAT), Eli Lilly (NYSE: LLY), McDonald's (NYSE: MCD), UAL (NYSE: UAL), and UPS (NYSE: UPS) are due to release results today.

According to our analytics team, the SmarTrend(R) indicators, buoyed by the investment environment, flattened from their recent decline and are heading back toward their overbought zones. To examine the list of stocks changing trends in the last week, please visit http://www.mysmartrend.com.

In the corporate corner, AT&T (NYSE: T) reported in line third quarter interims of $0.55 on slightly better-than-expected revenues that advanced 2.8% to $31.58 billion.

UPS (NYSE: UPS) reported third quarter earnings a nickel above estimates at $0.93 on revenues up 9.3%, but just shy of Street estimates at $12.20 billion.

Caterpillar (NYSE: CAT) topped estimates with third quarter earnings of $1.22 versus estimates of $1.09 on revenues up 52.6% to $11.13 billion, above estimates of $10.65 billion. The firm issued upside full-year guidance of $3.80-$4.00, topping average estimates of $3.71.

McDonald's (NYSE: MCD) reported better-than-expected third quarter earnings of $1.29, up from estimates of $1.25 on revenues of $6.3 billion that topped estimates of $6.23 billion.

Union Pacific (NYSE: UNP) topped average Street estimates with earnings of $1.56, versus the $1.50 estimate, on revenues of $4.41 billion that bested estimates of $4.36 billion.

EBay (NASDAQ: EBAY) reported results of $0.40 after the close Wednesday, besting estimates of $0.37 on revenues of $2.25 billion, ahead of $2.18 billion estimates, and forecast stronger holiday earnings.

Netflix (NASDAQ: NFLX) reported results of $0.78 after the close yesterday, beating estimates of $0.71 on in line revenues of $553 million.

Travelers (NYSE: TRV) reported $1.81 third quarter earnings, beating consensus estimates of $1.51 on revenues of $5.46 billion, in line with estimates. Full-year guidance of $5.75-$5.95 topped consensus estimates of $5.64.

Eli Lilly (NYSE: LLY) reported third quarter earnings of $1.21, beating estimates of $1.15, on revenues of $5.66 billion, slightly off estimates of $5.79 billion. Full-year guidance of $4.65-$4.75 topped the Street consensus of $4.61.

By Chip Brian, Editor-in-Chief, Comtex news Network

www.Comtex.com -- editor@mysmartrend.com

The following equities mentioned above include:

                                    Comtex SmarTrend Alert
                        ----------------------------------------------
Ticker    Last Close    Trend Direction    Trend Price      Trend Date
----------------------------------------------------------------------
TRV        54.64         Uptrend             51.78          9/15/2010
LLY        36.01         Uptrend             35.36          9/10/2010
EBAY       25.66         Uptrend             22.18          8/9/2010
MCD        77.41         Uptrend             69.48          7/12/2010
CAT        80.32         Uptrend             70.07          9/3/2010
INX -- S&P 500: 1,178
Lo: 1,167 Hi: 1,183
Change: +12.27

http://www.mysmartrend.com/images/INX20101021.jpg

INDU -- DOW JONES: 11,108
Lo: 10,971 Hi: 11,153
Change: +129.35

http://www.mysmartrend.com/images/INDU20101021.jpg

QQQQ -- NASDAQ: 2,457
Lo: 2,441 Hi: 2,470
Change: +20.44

http://www.mysmartrend.com/images/QQQQ20101021.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

Comtex News Network, Inc. ("Comtex") obtains information from sources deemed to be reliable; however, Comtex does not guarantee the accuracy of any of the information or commentary provided. Comtex makes no warranties, expressed or implied, as to the fitness of the information for any purpose, or to results obtained by individuals using the information. In no event shall Comtex be liable for direct, indirect, or incidental damages resulting from the use of the information. Comtex shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to the information and its use. Comtex does not make specific trading recommendations or provide individualized market advice. The information contained in the Morning Call product is provided as an information service only.

To subscribe to this newsletter, please visit http://www.mysmartrend.com/newsletter . To learn more about SmarTrend, go to http://www.mysmartrend.com or call Comtex sales at (212) 688-6240.

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