Monday’s euphoria turned to gloom as disappointing earnings and three lower-than-expected economic reports took center stage. So most of Monday’s gain disappeared with a fall in the major indices of about 0.5%.
The Dow Industrials fell due to weak economic readings on housing, consumer spending and factory orders. And Dow components The Procter & Gamble Company (NYSE: PG) and The Dow Chemical Company (NYSE: DOW) both were far short of expected earnings. PG was the worst Dow performer, off 3.45%. Pfizer Inc. (NYSE: PFE) was the best performer, up 5.6%.
Pending home sales for June fell 2.6%, a disappointment since many analysts had been looking for a gain. Factory orders for June fell 1.2% instead of an expected drop of 0.5%, and May orders were revised lower to -1.8%. Personal income, spending and core personal consumption were expected to rise slightly, but were flat.
Principal Financial Group, Inc. (NYSE: PFG) missed its earnings target, and that brought in sellers to the financial group, which ended off 1.1%. MasterCard Incorporated (NYSE: MA) reported better earnings, but fell anyway.
The takeover Genzyme Corporation (NASDAQ: GENZ) by Sanofi-Aventis SA (NYSE: SNY) is in doubt, according to reports that GENZ will not accept any less than $80 a share. GENZ fell on the news.
Auto sales for June improved for most producers. But the Wall Street Journal reported that investors were disappointed by the size of the gains, especially at Ford Motor Company (NYSE: F), which fell 2%.
At the end of the day, floor traders talked of a mixed economic picture. With the key jobs report on Friday, and the Federal Reserve meeting next week, there is much to be concerned about.
For the day, the Dow Jones Industrial Average fell 38 points, closing at 10,636, the S&P 500 was off 5 points at 1,120, and the Nasdaq fell 12 points, ending at 2,284.
The NYSE traded 1 billion shares with decliners leading advancers by about 1.5-to-1. On the Nasdaq, decliners were ahead by about 2-to-1 on volume of 538 million shares.
Crude oil for September delivery rose $2.39 to $81.34 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) gained 2 cents at $55.70.
December gold rose $1.50 to $1,185.40 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 170.25, up 0.6 points.
What the Markets Are Saying
The good news for the bulls is that even after yesterday’s minor scalping, each of the major indices is still above its 200-day moving average. The bad news is that each is just barely over it and achieved the move on very low volume. Another annoyance to the bulls is that they weren’t able to put together a follow-up rally — an event that almost always follows the break from a major barrier like the well-publicized 200-day moving average.
In his daily “Technical Indicator,” Michael Ashbaugh explains the struggle as follows:
“But as always, it’s not just what the markets do, it’s also how they do it.
“Starting with the bull case, the following points stand out:
- The S&P has cleared a three-month downtrend, establishing support at its 50-day moving average. Almost textbook bullish price action.
- The S&P has followed through this week, gapping atop its 200-day moving average.
- The U.S. markets’ underlying sector rotation remains constructive, as detailed over the past two weeks.
“Conversely, the bear case is more straightforward.
“Namely, Monday’s gap atop the 200-day moving average came on unusually light volume, suggesting a lack of conviction.
“So all told, Monday’s breakout screamed anything but ‘raging bull.’ It was technically unimpressive, raising questions regarding sustainability.”
Yesterday’s pullback left the S&P 500 vulnerable since its low of the day fell smack on top of its 200-day moving average with sellers on balance at yesterday’s close. But like previous sessions, today’s trading will no doubt be influenced more by the current earnings reports and economic data than expectations of solid growth.
A market that looks to the past rather than to the future for its direction is not technically or fundamentally strong. This could also be the reason why volume is so low — the only participants continue to be traders rather than investors. Thus, doubts grow as to the sustainability of the current rally.
Today’s Trading Landscape
Earnings to be reported before the opening include: Abiomed, Agrium, Albany Molecular, Allegheny Energy, Allete, Almost Family, Alpha Natural Resources, Amerigon, Ameristar Casinos, AOL, Arch Chemicals, Ariad Pharmaceuticals, ArQule, AtriCure, BGC Partners, Cameron, Capital Lease Funding, CenterPoint, CenturyTel, Cimarex, Cincinnati Bell, Clean Harbors, Consolidated Graphics, Dawson Geophysical, Devon Energy, DG FastChannel, Diamond Management, El Paso, El Paso Electric, El Paso Pipeline Partners, EMS Technologies, FLY Leasing, Frontier Communications, Fundtech, Fushi International, Garmin, Heartland Payment Systems, Hillenbrand, IntercontinentalExchange, Invesco Mortgage Capital, Kenneth Cole, Knology, Lionbridge Technologies, LoJack, Lumber Liquidators, National Retail Properties, NewStar Financial, NJ Resources, NW Natural Gas, O2 Micro, Owens Corning, Par Pharmaceutical, Penwest Pharmaceuticals, PG&E, Polo Ralph Lauren, Powell Industries, Pulte Homes, Quanta Services, Qwest, RADVision, RR Donnelley & Sons, RTI Biologics, Shire Plc, Sinclair Broadcast, Sirius XM Radio, SkyWest, Spectra Energy, Speedway Motorsports, SPX Corp., Time Warner, Triple-S Management, TRW Automotive, United Microelectronics and Warren Resources.
Earnings to be reported after the close include: 99 Cents Only, ADC Telecommunications, Allstate, Alnylam Pharmaceuticals, American Equity Investment Life, Amerisafe, Amkor, Anaren Microwave, Andersons, Atmel, Atmos Energy, Atwood Oceanics, Avis Budget, BigBand Networks, Brightpoint, Bristow Group, Cardtronics, Career Education, Caribou Coffee, Catalyst Health Solutions, China Integrated Energy, Churchill Downs, Clearwire, CLECO Corp., Cloud Peak Energy, Concho Resources, Continental Resources, Con-Way, Corrections Corp., Cott, Cross Country Healthcare, DivX, Eagle Bulk Shipping, EnerNOC, Equity One, Essex Property, Excel Maritime Carriers, ExlService, FARO Technologies, Federal Realty Investment Trust, Furniture Brands, Genomic Health, Gibraltar Industries, Global Cash Access, Global Industries, GMX Resources, Goodrich Petroleum, GT Solar, Hansen Medical, Hartford Financial, Haverty Furniture, Health Care REIT, Hersha Hospitality Trust, Hill International, Hypercom, Ikanos Communications, Insight Enterprises, Integrys Energy, InterNAP, Intrepid Potash, ION Geophysical, ISTA Pharmaceuticals, Jack in the Box, Kaman, Kendle, Kindred Healthcare, Kinross Gold, Kite Realty, LHC Group, LivePerson, MasTec, Measurement Specialties, MedAssets, MercadoLibre, MIPS Tech, Molina Healthcare, Murphy Oil, Natural Resource, Navigators Group, NCI, NPS Pharmaceuticals, ON Semiconductor, Onyx Pharmaceuticals, OraSure Technologies, Pacer International, PartnerRe, Penn Virginia, Plains All American Pipeline, Polypore International, ProAssurance, Providence Service Corp., Prudential, Psychiatric Solutions, Regency Centers, Roadrunner Transportation, S1 Corp., SandRidge Energy, Schawk, Sina, Smith Micro Software, Standard Parking, TeleTech, Tenaris, Terremark Worldwide, Transocean, Union Drilling, United Online, Verisk Analytics, Vital Images, WCA Waste, Westar Energy, Western Gas Partners, WGL Holdings and Yamana Gold.
Economic reports due: MBA purchase applications, Challenger job-cut report, ADP employment report, Treasury refunding announcement, ISM non-manufacturing index (the consensus expects 53), and EIA petroleum status report.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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