Even better-than-expected earnings from the chip giant Intel Corporation (NASDAQ: INTC) failed to move investors to a more positive view of stocks yesterday. Instead they focused on economic data rather than earnings, and although the Dow Industrials and Nasdaq closed with small gains, the broad-based indices, the S&P 500 and the NYSE Composite, failed to respond.
Following Monday’s close, Intel reported Q2 earnings per share of 51 cents versus a consensus estimate of 43 cents. The report was enough of a catalyst to move the tech sector along, but instead of investors buying stocks, they seemed to prefer the safety of Treasurys and other guaranteed assets.
The FOMC minutes of June indicated that real GDP for 2010 is expected to range from 3% to 3.5%, which is down from the previous estimate of 3.2% to 3.7%. Unemployment is expected to range from 9.2% to 9.5%, up from an estimate of 9.1% to 9.5%. The expected rate of unemployment for 2011 was adjusted to 8.3% to 8.7%, up from 8% to 8.5%.
In other economic areas advance retail sales for June slipped 0.5%, and autos were down 0.1%. Both had been expected to be unchanged.
Financial stocks were the weakest sector with JPMorgan Chase & Co. (NYSE: JPM) off 0.7% and Bank of America Corporation (NYSE: BAC) down 0.3%. Technology stocks were the strongest.
At the close, the Dow Jones Industrial Average gained 4 points to 10,367, the S&P 500 fell slightly to 1,095, and the Nasdaq rose 8 points to 2,250.
The NYSE exchanged just over 1 billion shares with decliners over advancers by about 1.2-to-1. The Nasdaq traded 647 million shares with decliners ahead by 1.4-to-1.
Crude oil for August delivery gained $2.20, ending at $77.15 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell 6 cents to $53.05.
August gold fell $6.50 to $1,207 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 173.79, down 0.24 points.
What the Markets Are Saying
On Tuesday, following the market’s advance to major resistance zones, I concluded this section by saying this may be no market for the faint of heart, but for the bears now is the time to enter short sales. As for investors tired of the swings, selling now may be the solution to their recent frustrations.
Yesterday’s tape action supported that view as the major indices smacked into the wall of technical barriers noted on Monday, and stopped them dead in their tracks. That alone would be enough to rush to your technical analysis guide and the chapter titled “Market Tops” for guidance on short-selling.
But even more persuasive than the charts are the internal indicators. Moving average convergence/divergence (MACD), stochastics and momentum are each in an overbought condition and are now very sensitive to bad news. With that in mind, the unfavorable reaction to the economic news of the day, which offset the healthy earnings from Intel, was more than just a minor signal — it was a negative reaction to very good news. And that favors the bears.
If the market rolls over this week, the initial support is at the 20-day moving averages of the key indices (assuming that the 50-day averages would immediately give way). For the Dow that number is 10,140, for the S&P it is 1,070, and for the Nasdaq it’s 2,200. The next zones of support are the 50% and 61.8% Fibonacci numbers:
- Dow 10,000 to 9,930
- S&P 1,054 to 1,043
- Nasdaq 2,157 to 2,135
But these support numbers may prove to be no more than markers on the way to a new low, since a failure at the current resistance will create a series of lower highs and lower lows. Thus the consequence of a decline from the current levels raises the probability of a new low and confirmation of the bear market that I warned of on July 2.
Today’s Trading Landscape
Earnings to be reported before the opening: Commerce Bancshares, Fairchild Semiconductor, JPMorgan Chase, Nexen, Novartis AG, PPG Industries, TCF Financial, Wolverine World Wide and WW Grainger.
Earnings to be reported after the close include: Advanced Micro Devices, AngioDynamics, Cubist Pharmaceuticals, Google, Joe’s Jeans, People’s United Financial and Polycom.
Economic reports due: producer price index (the consensus expects -0.1%, ex-food and energy 0.1%), Empire State Manufacturing Survey (the consensus expects 18), jobless claims (the consensus expects 445,000), industrial production (the consensus expects -0.2%, capacity utilization rate 74%) Philadelphia Fed survey (the consensus expects 12), 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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