A string of unfavorable earnings reports, along with a downbeat appraisal of the economy by the Fed, resulted in losses for U.S. stocks on Wednesday.
The Fed’s Beige Book report of economic conditions indicated that the economy is making only modest progress. Housing and construction remain weak, and much of that is the result of tight lending practices in the banking system.
Aetna Inc. (NYSE: AET) and WellPoint, Inc. (NYSE: WLP) produced better-than-expected earnings, but AET fell 2.9% and WLP was down 3.7%. The Boeing Company (NYSE: BA) was the biggest loser on the Dow, dropping 1.9% after reporting that Q2 earnings fell 21%. The results beat earnings estimates but missed on revenues.
The best-performing sector yesterday was telecom with a gain of 0.4%. Sprint Nextel Corporation (NYSE: S) was the leader of the group after it posted an upside earnings surprise. Verizon Communications Inc. (NYSE: VZ) rose 1.1%, leading the Dow components.
Durable goods orders for June fell 1% instead of an expected gain of 1%. Total orders less transportation for May was revised downward to reflect a 0.8% decrease.
The euro failed to hold the $1.30 level, falling to $1.2983 versus the U.S. dollar.
At the close, the Dow Jones Industrial Average fell 40 points to 10,498, the S&P 500 lost 8 points to 1,106, and the Nasdaq was off 24 points to 2,265.
The NYSE traded an annual low volume of 762 million shares with decliners over advancers by 2-to-1. Nasdaq volume totaled 455 million shares with decliners ahead by 2.33-to-1.
Crude oil for September delivery fell 51 cents to $76.99 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) dropped 12 cents to $53.87.
December gold rose 60 cents to $1,162.40 an ounce on bargain hunting following its recent decline. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 0.53 points, closing at 166.78.
What the Markets Are Saying
On Wednesday, stocks, led chiefly by the Nasdaq, turned down, and with that the S&P 500 again failed to penetrate its important overhead barriers. Several times I’ve mentioned the importance of the “500” in the overall picture, and yesterday I read that other widely published technicians are emphasizing this problem for the bulls.
It is now recognized that a failure of this key index to penetrate its 200-day moving average and the June 21 top at 1,108 is a serious impediment for the bulls. Its failure means that a “non-confirmation” may be at work and a double-top forming. Both would be bearish for the overall market and could extend sideways trading within the band of 1,020 to 1,120 for an indefinite period.
Yesterday we covered the condition of our internal indicators, which are now very overbought. Both the Moving Average Convergence-Divergence (MACD) and stochastic have issued sell signals, and momentum has turned against the bulls.
Sentiment numbers, too, are turning against the bulls with Investors Intelligence noting that for two successive weeks bullish letter writers have increased (a contra-indicator). But, in fairness, they note that on balance the bullish writers exceed the bearish ones only by a slim margin. The AAII Sentiment Survey showed a small drop in bulls and an increase in bears. Lately, the AAII numbers have lacked a trend with the bulls ahead one week and the bears the next.
The combined internal and sentiment indicators are somewhat inconclusive but tend to favor a more defensive posture. Perhaps they are telling us that a period of sideways trading is the most either side will achieve prior to September.
My guess is that as the November elections for Congress approach, the focus will be on the donkeys and elephants since they may determine the future course of the bulls and bears.
Today’s Trading Landscape
Earnings to be reported before the opening include: 3D Systems, Alexandria Real Estate, American Superconductor, American Commercial Lines, Anadys Pharmaceuticals, Arctic Cat, Art Technology, Artio Global Investors, Automatic Data, Avon Products, Ball Corp., Barrick Gold, Becton Dickinson, Belden, Benchmark Electronics, Brinks, Brunswick, Build-a-Bear Workshop, Bunge, Cabela’s, Carbo Ceramics, Carpenter Technology, Carter Holdings, CDC Software, CDI Corp., Celanese, Celgene, Chart Industries, Checkpoint Systems, Clearwater Paper, CME Group, Colgate-Palmolive, ComScore, Conmed, Consol Energy, Covidien, CryoLife, Dentsply, Diebold, DineEquity, Dover Downs Gaming, Dover Motorsports, Dr Pepper Snapple, DSP Group, Duff & Phelps, Eldorado Gold, EMC Insurance Group, EMCOR Group, EQT Corp., Exxon Mobil, EZchip, First Commonwealth, Forrester Research, Franklin Resources, Gentiva Health Services, Goodrich, Goodyear Tire & Rubber, GrafTech, Graham, Harsco, Harte-Hanks, HealthSpring, Helmerich & Payne, Holly Energy Partners, Hornbeck Offshore, Interpublic, Iron Mountain, Kaydon, KBR, KBW, Kellogg, Kennametal, Life Technologies, Linn Energy, LKQ Corp., Lubrizol, Mack-Cali Realty, Magellan Health, MarineMax, McClatchy, Mead Johnson Nutrition, Meredith, Moody’s, Motorola, MWI Veterinary Supply, National Oilwell Varco, Natus Medical, Navigant Consulting, Network Equipment Technologies, Neutral Tandem, NII Holdings, Noble Energy, Northrop Grumman, Novamed, Palomar Medical, Patterson-UTI, Penske Automotive, Pentair, Pinnacle, Potash, Potlatch, Pride International, RadioShack, Rayonier, Raytheon, Revlon, Royal Dutch Shell, Saia, Sally Beauty, SCANA Corp., Sonic Automotive, Sony, Southwest Airlines, StarTek, State Auto Financial, Steven Madden, Strayer Education, Taiwan Semiconductor, Talecris Biotherapeutics, Teledyne Technologies, Tennant, Tenneco, Thomson Reuters, Timken, Transcend Services, Tyco, Ultralife, Unifi, Valassis, Ventas, Waste Management, Williams Companies, Wisconsin Energy, Wynn Resorts, Xcel Energy and Zoll Medical.
Earnings to be reported after the close include: 3Par, Abaxis, Acme Packet, Actel, Advisory Board, Amgen, Applied Micro Circuits, Ariba, Asset Acceptance Capital, Astronics, AuthenTec, AXT, Baldor Electric, Callidus Software, Camden Property, Cavium Networks, Chiquita Brands, Coherent, Coinstar, Companhia Vale do Rio, Computer Programs & Systems, Comverge, Curtiss-Wright, DDi Corp., Deltek, Dolby Labs, DTE Energy, Dun & Bradstreet, Dynamic Materials, Eastman Chemicals, Epicor Software, Exar, Exelixis, Expedia, First Solar, Genoptix, Gen-Probe, Genworth Financial, GSI Technology, Harmonic, Ingram Micro, Insulet, Intermec, Internet Brands, Ixys, KLA-Tencor, LaserCard, Lithia Motors, Maxim Integrated, Maxwell Technologies, McAfee, MEMC Electronics, MetLife, MicroStrategy, Minerals Technologies, Monster Worldwide, Newpark Resources, NutriSystem, Oclaro, On Assignment, Pactiv Corp., Power-One, Quest Software, Quidel, RealNetworks, Regal Entertainment, Republic Services, Rovi, Sierra Wireless, Silicon Motion, Simpson Manufacturing, SPS Commerce, Stamps.com, Standard Pacific, Sunoco, Synaptics, T-3 Energy Services, TeleCommunications Systems, Tessera Technologies, Thoratec, Town Sports International, United Stationers, Varian Semiconductor, Volcom and Washington REIT.
Economic reports due: jobless claims (the consensus expects 460,000), EIA natural gas report, Fed balance sheet and money supply.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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