Friday was a day of mixed and slower trading, partly the result of the May Day market holiday in Europe. Economic reports, rather than earnings, dominated the trading with reports of U.S. auto sales worse than expected in April. But several other reports showed that there is slow improvement going on.
The consumer sentiment got better in April, with the University of Michigan’s index for April reading 65.1 versus 61.9 in March. The Institute for Supply Management’s manufacturing index rose to 40.1 in April compared to 36.3 in March. But the Commerce Department said that factory orders in March fell 0.9% for the seventh month of declines.
The Fed said that the results of the bank stress-test will be delayed until Thursday. Then it will issue the long-awaited assessment of the nation’s 19 largest banks.
Apparently the reason for the delay is that two banks, Citigroup (C) and Bank of America (BAC), have challenged the report’s findings. In its weekend edition, The Wall Street Journal reported that Citigroup may need up to $10 billion in new capital, and late news this morning reported that Bank of America will also require over $10 billion of new capital.
On Friday, banks traded lower with the S&P’s financial sector down 1.6% and all four of the financial components of the Dow down. American Express (AXP) was off 3.69%, Bank of America (BAC) was down 2.58%, Citigroup was off 2.62%, and JPMorgan (JPM) fell 1.55%.
At the close, the Dow Jones Industrial Average (DJI) was up 44 points to 8,212, the S&P 500 (SPX) gained 5% at 878, and the Nasdaq (NASD) rose two points at 1,719.
On the New York Stock Exchange, 1.3 billion shares traded with advancers ahead of decliners by 9-to-5. The Nasdaq traded 696 million shares with advancers just slightly ahead of decliners.
For the month of April, the Dow gained 1.7% (down 6.4% year-to-date), the S&P 500 gained 1.3% (down 2.8% year-to-date), and the Nasdaq gained 1.5% (up 9.0% year-to-date).
On Friday, the June crude oil closed up $2.08 to $53.20 a barrel on the hope that the recent economic figures are showing that the worst of the global recession is over. The Amex Energy SPDR (XLE) rose $1.48 to $47.26.
Gold for June delivery fell $3 to $888.20 an ounce, and the PHLX Gold/Silver Index (XAU) was up 42 cents to $120.44.
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What the Markets Are Saying
Despite the impressive run of buying that sent the S&P 500 (SPX) to its greatest monthly gain since March 2000 and best two months since February 1975 on Thursday, the S&P almost succeeded in breaking out above the resistance at 875, but ultimately it failed. However, in a last-minute spurt on Friday, it finally closed 2.52 points above the barrier.
Some technicians, I believe, have placed too much importance on the S&P 875 level. In fact, 875 is just the beginning of serious resistance that runs all the way to 920.
However, if the S&P does close above 888.70, our own Collins-Bollinger Reversal, or CBR (which gave a sell signal on Thursday), will reverse this into a very powerful new buy signal. The next important target after 920 would be the Jan. 6 high of 944.
On Friday, the Moving Average Convergence/Divergence reversed slightly and issued a new buy signal after a sell signal only 10 days ago. The American Association of Individual Investors (AAII) number shows that the public is bearish for the third-successive week and insiders are still buying though at much-reduced volume.
What does it all mean?
The pace of buying as shown by our momentum indicator, which is now just one tick above zero, is dramatically slowing. And if it continues at this much-slower pace the chances of a correction increase.
Before investors make commitments on the long side, it is important for the markets to resolve the near-term overbought situation, so I think it important to only take new long positions in stocks that are dramatically undervalued with very high potential for success.
Today’s Trading Landscape
The following earnings are expected today: A.H. Belo, Administaff, Albany Int’l Corp, Alexander’s, Altra Holdings, American Financial Group, American Physicians Service Group, Astronics, ATS Medical, Banco Bradesco S.A., Barnes Group, Brookfield Homes Corp, Calgon Carbon Corp, Carmike Cinemas, Carrols Restaurant Group, Changyou.Com Ltd, Chesapeake Energy Corp, CNA Financial, Cognex, Comstock Resources, Corporate Executive Board Co., Crawford & Co. and Cutera.
Digimarc Corp, Discovery Communications, Drew Industries, DSP Group, Ducommun, Dupont Fabros Technology, Entergy, EOG Resources, Epicor Software, Extra Space Storage, Flanders, FMC Corp, Forest Oil Corp, Frozen Food Express Industries, Gladstone Commercial Corp, Global Crossing, Granite Construction, Greenlight Capital RE Ltd, Haemonetics Corp, Hain Celestial Group, Harmonic, Hawaiian Electric Industries, Health Care REIT, Henry Schein, Herbalife Ltd, HFF, HickoryTech, Hill-Rom Holdings and Hologic.
iMergent, Immersion Corp, Innophos, Integral Systems, INX, IPC the Hospitalist Co, John Bean Technologies Corp, Kindred Healthcare, LeapFrog Enterprises, Loews Corp, MannKind, Max Capital Group, McKesson Corp, Meadowbrook Insurance, Mercury Gen’l, MGM Mirage, Morgans Hotel Group, Myriad Genetics, Nash Finch Co, National Interstate Corp, NetSuite, Orbotech, OSG, OSG America LP, Portland General Electric Co, Post Properties, ProAssurance Corp and PS Business Parks.
Qiagen N.V., Radware, RG Barry Corp, Riverview Bancorp, Rogers Corp, SBA Communications, SOHU.com, Sprint Nextel Corp, St. Mary Land & Exploration, Standard Parking, Sun Hydraulics, Sykes Enterprises, SYSCO Corp, Tasty Baking Co, Technitrol, Ternium SA, Texas Roadhouse, The E.W. Scripps Co, The Estee Lauder Companies, The Principal Financial Group, Trico Marine Services, Tyson Foods, UniSource Energy, Validus Holdings Ltd, Vulcan Materials, and XATA.
Economic reports due: March Construction Spending (the consensus expects negative 1.3%) and March Pending Home Sales (the consensus expects negative 1.3%).
Sprint Nextel’s (S) loss widened in Q1 on charges.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
