Market Overview

Comtex SmarTrend(R) Morning Call -- November 26, 2010

Share:
(via COMTEX News Network)--

On Wednesday stocks regained their footing from which to launch the expected near-term rally as unemployment claims dropped and consumer buying increased. The DJIA was up 151 points to close at 11,187. The DJIA scrambled back over support at 11,100 as forecasted by the SmarTrend(R) proprietary market indicators, which signal more rallying is in store next week after a pullback today to support levels.

Investors mainly ignored reports Wednesday of a drop in durable goods orders and new home sales as initial claims for unemployment payments dropped to their lowest level in more than two years last week and consumer spending increased for a fourth straight month. The reports boosted enthusiasm in the already-outperforming consumer sector, creating high expectations for Black Friday retail sales today. Stock buying enthusiasm was reflected, albeit on light pre-holiday trading volume, as daily SmarTrend(R) uptrends to downtrends reversed from polarized-to-the-downside to biased-to-the-upside, at 34:14. Both the IBDI and Trend Ratio edged up, neutralizing the drag that the intermediate-term was applying to stock prices. The long-term uptrend continued its shallow upslope, with its indicators pointing to more long stock price lifting in the investing environment.

The trading environment trends for the last week have been choppily moving mainly sideways as they traversed their bottoms. On Tuesday, upward momentum was slowed and two of the four indicators dipped while two moved sideways. Three of four near-term trend indicators moved up Wednesday, now in upslopes substantially above their bases, which were established in their oversold zones. This movement, occurring at the same time the investing environment shallow upslope remains intact, provides sound evidence that the DJIA is likely to reach overhead resistance at 11,450 by Christmas.

The trade-term trend is likely to add bouncing up and down to the ride north by stocks and today's shortened session with fewer traders may accentuate the bouncing as the trade-term trend is poised for a pullback by the DJIA to 11,100. There are no expected economic reports due today, but other issues that are likely to influence stock prices are discussed below. Besides ongoing concerns about QE2 and sovereign debt levels in European countries, the chief issue on investors' minds is the labor market. Upbeat holiday season retail results are expected, and this phenomenon is an essential step to the investment cycle by businesses, which need evidence of growing markets for their products and services to justify expanding capacities to meet new demand, and in that process increasing new hires as well. Besides increases in retail sales during the holiday season, which usually account for half or more of annual retail sales, the Fed is aware that most economic recoveries start with increases in construction sector employment, much of this in new home construction. Thus, principal targets of QE2 are declines in home mortgage rates, thereby stimulating home sales and prices. The Fed is trying to buy time, counting on the cyclical recovery of employment to enter its natural upward rotation; to what extent the labor market has been structurally damaged and thereby creates a drag on new hires, also should become known. QE2 is being channeled through banks, so look for bank stocks to lead the next rally. To examine the complete list of stocks changing trends in the last week, please go to http://www.mysmartrend.com.

There was sufficient economic data on Wednesday to overcome the equity market's recent obsession with global news events. The result was a 151-point surge in the DJIA that erased Tuesday's 142-point loss. Reports Wednesday revealed strength in the consumer sector, where spending constitutes 70% of total US GDP. The weekly claims number surprised with a drop to levels believed capable of fostering sustainable employment growth; the final posting of a consumer sentiment gauge rose to its highest since June on the impetus of improved equity markets and employment numbers.

The result was a 1.4% rise in the DJIA to 11,187, a 1.9% jump in the NASDAQ to 2,543, and a 1.5% rise in the S&P500 to 1,198. Six of the DJIA thirty marked over 2% gains: Boeing (NYSE: BA) rose 2.8%, United Tech (NYSE: UTX) 2.6%, American Express (NYSE: AXP) and Caterpillar (NYSE: CAT) 2.5%, DuPont (NYSE: DD) 2.2% and Disney (NYSE: DIS) 2.1%.

All ten of the S&P500 industry sectors showed gains, led by industrials (+2.2%), basic materials (+2.0%), tech (+1.8%), financials (+1.7%), and oil and gas (+1.7%). Of note, the gains came amid a slow day of trading; only 830 million shares traded hands on the NYSE, even though advancers outgunned declining shares by a five-to-one measure.

However, turkey hangovers have left US futures soft, after Asian markets soured on further rumblings on the Korean Peninsula, profit-taking on the Nikkei, and weaker commodity prices following a hike in margin requirements by the Chinese. Traders appear uncomfortable holding onto positions in front of a weekend featuring US/South Korean naval exercises amid threats from the North Koreans. Fears for the China growth engine also mounted on news Beijing failed to generate sufficient demand for a planned auction of $3 billion in 3-month bills due to banks' liquidity shortfall from the recent hikes to reserve requirements. Furthermore, traders of late have shown caution over fears of weekend tightening measures from Beijing.

European markets turned lower and the euro fell to a nine-week low against the US dollar as the eurozone debt crisis continued to simmer, despite claims from officials that Portugal is now under pressure to accept a bailout to act as a firebreak precursor to bailout needs that might prove much larger from Spain.

Overseas markets showed Asian shares lower. The Nikkei closed down 0.4%, the Hang Seng 0.8% and the Shanghai Composite 0.9%. European bourses reflected ongoing contagion fears among eurozone's peripherals, weighing on banks' shares and risk trade. The DAX was recently trading off 1.3%, the CAC down 1.6% and the FTSE100 1.6% lower. Following the gains in safe-haven flows and drops in riskier asset holdings, US markets are indicating lower opens, with the DJIA pointing 0.9% lower, the NASDAQ 1.1% off and the S&P500 headed for a 1.3% lower open.

Odds are out on the 1:00 PM finale on today's holiday-shortened trade. Black Friday was initiated late last night, with no Pamplona-style trampling of eager consumers this year, but reports of heavy activity nonetheless. According to the National Federation of Retailers, total retail sales are projected to climb 2.3% this November and December, up from last year's 0.4% rise. Among recent rosy forecasts, Tiffany (NYSE: TIF) reported stronger-than-expected spending activity to date, and Coach (NYSE: COH) predicted double-digit percentage growth during the upcoming season. Guess (NYSE: GES) shares jumped over 10% Wednesday on its estimate-topping results from improving overseas sales.

Risk trade Wednesday lifted on several consumer-friendly macro posts. Importantly, the weekly jobless claims number plunged 37K to 407K from 441K prior, a drop that was not ascribed to seasonal factors. The continuing claims figure also contracted, down to 4.182 million from 4.323 million a week prior, lower for the third straight week.

The final post of Reuters/University of Michigan's consumer sentiment index revealed a steadily-improving tone to November. The 71.6 final reading was improved from 69.3 mid-month and up from 67.7 in October, to its highest since June.

October personal income and spending news showed personal income up 0.5%, besting economists' expectations for 0.4% growth, and following no change in September. Spending increased 0.4% during the month, up from September's 0.3% rise, but less that the expected 0.6% rise.

The report on durable goods orders manufactured a less-optimistic picture, although economists were quick to discount the returns as typical of the volatile series and consistent with recent showings of quickening early quarter growth and slowing at quarter's end. In any case, Wednesday's report showed a 3.3% decline after September's increase was revised higher to a 5.0% surge, outpacing estimates of a more-modest decline of 0.3%. The month's drop also surprised as more widespread than anticipated, and not only resulting from weakness in transportation orders. Exclusive of transportation, orders dropped 2.7% versus the expected 0.4% increase.

New home sales also disappointed, dropping 8.1% to a much less-than-projected, 283K annual pace, and more than offsetting the previous month's 12% rebound. Supply overhang increased to 8.6 months from 7.9, even as median prices fell 13.9% in October to $194,900, its lowest in seven years.

According to our analytics team, the DJIA scrambled back over support at 11,100, as forecasted by the SmarTrend(R) proprietary market indicators, and signaled more rallying is in store next week after a pullback today to support levels. To examine the list of stocks changing trends in the last week, please visit http://www.mysmartrend.com.

In the corporate corner, Boeing (NYSE: BA) announced plans for "minor design changes" to the electrical system of its troubled 787 Dreamliner, with another delivery schedule expected out in the next few weeks.

A buyout group led by KKR (NYSE:KKR) agreed to the purchase of Del Monte Foods (NYSE: DLM) for $19 per share, valuing the firm at about $5 billion including debt.

CPI International (NASDAQ: CPII) is to be purchased by Veritas Capital for $19.50 per share, or $525 million.

The head of Qatar Air criticized Boeing (NYSE: BA), noting "I was really taken aback by the (787) program. I never expected a program could be delayed so much with a company like Boeing, which has pride in its quality. They have very clearly failed." He threatened to move extra orders to Europe's Airbus.

Posco (NYSE: PKX) and KT Corp (NYSE:KT) reportedly entered a consortium with Woori Finance Holdings (NYSE: WF) to bid on South Korea's 57% Woori stake.

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
----------------------------------------------------------------------
BA         65.41         Downtrend           67.24          11/10/2010
UTX        76.09         Uptrend             68.85          9/9/2010
AXP        42.99         Uptrend             41.23          10/28/2010
CAT        84.69         Uptrend             70.07          9/3/2010
DD         47.06         Uptrend             42.05          9/2/2010
INX -- S&P 500: 1,198
Lo: 1,184 Hi: 1,199
Change: +17.62

http://www.mysmartrend.com/images/INX20101126.jpg

INDU -- DOW JONES: 11,187
Lo: 11,037 Hi: 11,196
Change: +150.91

http://www.mysmartrend.com/images/INDU20101126.jpg

QQQQ -- NASDAQ: 2,543
Lo: 2,520 Hi: 2,545
Change: +48.17

http://www.mysmartrend.com/images/QQQQ20101126.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.

View Comments and Join the Discussion!