All three major indices opened sharply lower Monday, but those who were patient and held were rewarded as stocks moved higher by mid-session and, with the exception of the Nasdaq (NASD) and the tech stocks, closed only slightly lower.
Tech was the clear winner yesterday, but energy, industrials, and materials were lower. The technology leader, though, was Microsoft (MSFT), and Mr. Softie managed to pull the rest of group with it — MSFT gained 4.27%.
Humana (HUM) announced earnings that were in-line with expectations and the stock rose 5.8%. Mattel Inc. (MAT) missed its earnings estimate by a mile — reporting 49 cents a share versus an expected 72 cents, and the stock fell more than 16%.
The biggest drag on the Dow Industrials (DJI) was General Electric (GE), which fell 4.2%, making a 13-year low amidst concerns about the health of GE Capital despite the fact that it is the only AAA-rated company on the extensive list of financial stocks.
At the close, the Dow was down 64 points to 7,937, the S&P 500 (SPX) lost just below a point, closing at 825, and the Nasdaq (NASD) gained 18 points at 1,494.
The New York Stock Exchange traded 1.3 billion shares, with decliners ahead of advancers by 7-to-6. On the Nasdaq, 825 million shares were exchanged, with advancers ahead by 7-to-6.
The March crude oil contract lost $1.60, ending at $40.08 a barrel, and the Amex Energy SPDR (XLE) fell 75 cents to $46.17.
The February gold contract fell to $906.70, off $20.60, and the PHLX Gold/Silver Index (XAU) lost $4.29, closing at $119.72.
What the Markets Are Saying
I wrote yesterday about the current, relatively-low level of the CBOE Volatility Index (VIX), comparing it to the 2002 -2003 triple-bottom. I concluded that low levels after a bear market could indicate that a capitulation had occurred.
There was more evidence of that yesterday.
When the market opened sharply lower Tuesday, the VIX opened very close to its intra-day high but sharply reversed and closed the day just .68 higher at 45.52. And the Dow (DJI) and the S&P 500 (SPX) traded fractionally lower.
At the end of last week, about 40% of the S&P had reported, with earnings so far off 35% versus last year’s Q4.
This week should flush out most of any remaining bad earnings news with some very big names, such as Dow Chemical (DOW), Disney (DIS), Merck (MRK) and Motorola (MOT) reporting today.
Early reports indicate that Dow Chemical (DOW) reported Q4 of 62 cents versus an expected 6 cents. Schering-Plough (SGP) showed 39 cents versus a 30-cent estimate. Motorola (MOT) missed estimates by a penny and suspended its dividend. Archer Daniels Midland (ADM) quarterly report showed 91 cents versus an expected 68 cents and Avon Products (AVP) reported 54 cents versus an expected 59 cents.
On Wednesday Allegan (AGN), Clorox (CLX), Coherent (COHR), FMC Corp. (FMC), ITT Corp. (ITT), Kraft (KFT), PPL Corp. (PPL), Prudential (PRU) and Visa (V) report earnings, and on it goes with major economic reports almost every day.
The point is this: If the market can maintain the very tenacious support levels of the major indices through this week, then I will say that the chances of having reached a final significant bottom are very high.
Until then, we must be very flexible since both longs and shorts are now operating on a high-risk playing field.
Today’s Trading Landscape
Earnings of note to be reported include: ACE Limited, Actel, Advent Software, Alliance Data, AMSC, Archer Daniels Midland Co, Atmos Energy Corp, Automatic Data Processing, Avon Products, Bally Technologies, BP plc and Broadridge Financial Solutions.
Cameron, Celanese Corp, Centex Corp, Chicago Mercantile Exchange Holdings, Corinthian Colleges, Credit Acceptance, Cummins, D.R. Horton, Edwards Lifesciences, Electronic Arts, Emerson Electric and Entergy.
Genomic Health, Gladstone Capital Corp, HCA, Headwaters, Health Net, Holly Energy Partners L.P., IAC, Illumina, iMergent, Integral Systems, Intevac, Investors Bancorp, Jones Lang LaSalle, Landauer and Leggett & Platt.
Magellan Midstream Holdings, Magellan Midstream Partners L.P., Manpower, Marathon Oil Corp, MarineMax, Markel Corp, Massey Energy Co, MDU Resources, Mediware Information Systems, Merck & Co, MetLife, Mitsui & Co Ltd, Motorola, Mueller Water Products and Myriad Genetics.
Nalco Holding Co, National Retail Properties, NetLogic Microsystems, Neurocrine Biosciences, Newport Corp, Northrop Grumman, Orion Energy Systems, Pentair, Pericom Semiconductor, Perrigo, Pike Electric Corp, Pioneer Natural Resources Co and PNC Financial Services Group.
RadiSys Corp, Riverbed Technology, Rockwell Collins, RTI Int’l Metals, Schering-Plough, Silgan Holdings, Techne, Teppco, The Dow Chemical Co, The Pantry, The Scotts Miracle-Gro Co, TransCanada Corp, TransDigm Group, Travelzoo, Trimble Navigation and Tyco Int’l.
United Parcel Service, Universal Technical Institute, Unum Group, Uroplasty, Vascular Solutions, Vignette, Vocus, Walt Disney, Wisconsin Energy Corp, WSFS Financial, and Yum! Brands.
The following economic reports are due: International Council of Shopping Centers (ICSC) Chain Store Sales Index for Jan. 31, Redbook Retail Sales Index for Jan. 31, December Pending Home Sales (the consensus expects 0.0%), Jan. 30 API Oil Industry Report, and ABC/Washington Post Consumer Confidence for Jan. 31.
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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.
