On Tuesday, uncertainty about the results of stress tests of the major banks and the weekly initial jobless numbers, both coming later in the week, kept buyers away and counting their cash — this even though the stress test numbers have been, as the Wall Street Journal put it, “heavily foreshadowed.”
The Journal also reported on Tuesday that the government is “expected to direct 10 of the 19 financial institutions to boost their capital.” As the Gipper used to say, “Well, there they go again.”
So the information agency of the government, the WSJ, has again leaked the results of an announcement that was supposed to be made by official sources on Thursday after being postponed from yesterday. How many official leaks in the past two weeks is that on just the banking issue — four, five? I’ve lost count.
In a further leak to the WSJ this morning, Bank of America will be required to raise another $33.9 billion in capital. In another story the WSJ said that according to a source, as much as 30% of homeowners are “underwater.”
Fed Chairman Ben Bernanke appeared before Congress yesterday with another round of uplifting economic data. He offered much support for the notion that the economic downturn is at least slowing and is expected to bottom out and even turn up by the end of the year.
An unexpected gain in earnings from Kraft (KFT) was offset by a miss by Archer Daniels Midland (ADM), which reported less-than-expected earnings for its Q3. With the many cross-currents of the day the Dow Jones Industrial Average (DJI) pulled back just a bit.
The Dow Industrials were down 16 points and closed at 8,411, the S&P 500 (SXP) fell three points to 904, and the Nasdaq (NASD) fell nine points, closing at 1,754.
The New York Stock Exchange traded 1.5 billion shares and the Nasdaq traded 813 million shares, both with decliners ahead of advancers by 4-to-3.
The June crude oil contract fell 63 cents to $53.84 a barrel, and the Amex Energy SPDR (XLE) lost 66 cents to close at $48.49.
The June gold contract rose $2.10 to $904.30 as investors sought the safety of gold compared to the possible new worries associated with the banks. The PHLX Gold/Silver Index (XAU) rose 63 cents to $128.52.
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What the Markets Are Saying
Even though our internal indicator confirmed that the bottom at S&P 500 (SPX) 667 is most likely the bottom, that does not mean that we are totally out of the bear market. In fact, almost every indicator now says that following seven weeks of straight-up rallying, the stock market is grossly overbought and due for either an extended rest or pullback.
You might ask: “Then what difference does it make? You guys (technicians) always put so many contingencies on your statements that no one can say you were ever wrong.”
The difference is one of perspective. Before Monday, I was geared to sell into every rally — now I will buy into every decline. And on the next pullback we will close all of our short Exchange-Traded Fund (ETF) positions on the financials and prepare to load up on the long ETFs in both the broader market and the most attractive sectors — like technology, basic construction (including green), energy, and global economies.
This turnaround will not occur overnight. As ChangeWave’s Tobin Smith recently said, “Folks, realistically it will take years to return to 3%-plus GDP growth unless the government pulls off a miracle with its PPIP and TALF programs. Miracles as a general rule are few and far between, so in all likelihood this will be a slower and steadier economic expansion than we typically see.”
Yes, and it could also take years for investors to make back all that they lost in the last 18 months, but we can cut that time dramatically if we abide by a disciplined approach to investing. That means sticking with the right sectors, reducing risk through diversification, and buying long-term positions only on sharp pullbacks.
The ChangeWave Portfolio Buy List is a great place to get some of the best potential investments in the industries and groups described above. And you get that as a ChangeWave subscriber. Subscribe now and get a head start on the next bull market.
The best is yet to come.
Today’s Trading Landscape
Earnings to be reported include: AAON, ACCO Brands, ACI Worldwide, Acorda Therapeutics, Adept Technology, Advocat, Agrium, Albany Molecular Research, Almost Family, Alon USA Energy, Alpha Natural Resources, Alvarion, American Equity Investment Life Holding Co, American Railcar Industries, Anadarko Petroleum Corp, Andersons, Aqua America, Argon ST, Atwood Oceanics, Auxilium Pharmaceuticals and Avis Budget Group.
Ballantyne Omaha, Basic Energy Services, BGC Partners, Bio-Imaging Technologies, Biovail Corp, Blackboard, BlueLinx Holdings, Bofi Holding, Boston Beer Co, Boyd Gaming, Braskem S.A., Brink’s Home Security and Brookdale Senior Living.
California Micro Devices Corp, Calumet Specialty Products, Cardiovascular Systems, Career Education, Carriage Services, Celera, Central European Distribution, Central Garden & Pet Co, CGI Group, Churchill Downs, Cisco Systems, Citybank Lynnwood, Clean Harbors, Cleco Corp, ClickSoftware Technologies Ltd, Cogo Group, CombiMatrix Corp, Companhia Vale do Rio Doce, Concho Res, Consolidated Graphics, Cooper Tire & Rubber, Copa Holdings SA, Copano Energy LLC, Cossette Communications, Cross Country Healthcare, CSP and CVR Energy.
Devon Energy Corp, DexCom, Diana Shipping, Dollar Thrifty Automotive Group, Eagle Bulk Shipping, Ebix, Echelon Corp, Eclipsys, eLoyalty, Embarq Corp, Employers Holdings, Enbridge, Endurance Specialty Holdings, EnergySolutions, Enernoc, Entertainment Properties Trust, Entravision Communications Corp, Equity One, Exlservice Holdings, Expeditors Int’l WA and ExpressJet Holdings.
Federal Realty Investment Trust, FGX Int’l, Forestar Group, Fortress Investment Group LLC, Foster Wheeler AG, FPIC Insurance Group, Gaiam, Garmin Ltd, General Communication, Genesis Energy LP, Gibraltar Industries, Given Imaging Ltd, Global Cash Access, Globecomm Systems, Golden Star Resources Ltd, Goodrich Petroleum, Graphic Packaging Holding Co and Greatbatch.
H&E Equipment Services, Haverty Furniture, Hawk, Henkel, Hersha Hospitality Trust, Home Properties, Inergy LP, Infospace, Inland Real Estate Corp, Innospec, Integra LifeSciences Corp, InterDigital, ION Geophysical Corp, Kadant, Kendle, L-1 Identity Solutions, LeCroy Corp, Legacy Reserves LP, LHC Group, Ligand Pharmaceuticals, Limelight Networks, Lincoln Educational Services, LivePerson, Local.com Corp, Lodgian and Lumber Liquidators.
Macrovision, Magellan Midstream Partners LP, Magna Int’l, Mako Surgical Corp, Mannatech, Marchex, Marsh & McLennan Companies, Martin Midstream Partners, McCormick & Schmick’s Seafood Restaurants, Mercadolibre, Metabolix, MHI Hospitality Corp, Micromet, Miller Industries, Mobile Mini, Morton’s Restaurant Group, Murphy Oil Corp, Nabi Biopharmaceuticals, Nektar Therapeutics, NeuStar, News Corp, NewStar Financial and NVE Corp.
OGE Energy, ON Semiconductor Corp, Onyx Pharmaceuticals, Open Text, OraSure Technologies, Orbitz Worldwide, Orient-Express Hotels, Orkla ASA, Orthofix Int’l, Pacer Int’l, Paetec Holding Corp, Par Pharmaceutical Companies, Parker Drilling, PC Mall, PDI, Penn Virginia, Penn Virginia GP Holdings LP, Penn Virginia Resources, Pennantpark Investment Corp, Petrobras Energia Participaciones S.A., Petrohawk Energy Corp, PG&E Corp, Pinnacle Data Systems, Pioneer Natural Resources Co, Plains All American Pipeline, Polyone Corp, Polypore Int’l, Powell Industries, Primus Guaranty Ltd, Proliance Int’l, Providence Service Corp, Prudential Financial and PSS World Medical.
Quadramed Corp, Quanta Services, Quicksilver Gas Services LP, Quicksilver Resources, RAE Systems, RAIT Financial Trust, Red Lion Hotels Corp, Regal-Beloit Corp, Regency Centers, Relm Wireless Corp, Rex Energy Corp, RHI Entertainment, RR Donnelley, Savient Pharmaceuticals, Senior Housing Properties Trust, Senorx, SJW, SkyWest, Smith Micro Software, Solutia, Sovran Self Storage, Spectra Energy Partners LP, Spectranetics, Speedway Motorsports, Standard Motor Products, Strategic Hotels and Resorts, Sunoco, Superconductor Technologies, Supertex, SureWest Communications, Symantec, Symmetricom and Synchronoss Technologies.
TBS Int’l Ltd, Telephone Data, Tenaris S.A., Tesoro Corp, Tetra Technologies, Textainer Group Holdings Ltd, The Blackstone Group, THQ, Total, Transocean Ltd, TRC Companies, TriMas Corp, TRW Auto, USEC, Vital Images, Wells-Gardner Electronics Corp, Western Refining, Wilbros Group, and XTO Energy.
The lone economic report due today is the April Automatic Data Processing (ADP) Employment Survey.
Mortgage applications were up 3% last week. Disney (DIS) beat earning expectations of 40 cents for Q2 by 3 cents.
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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.
