Similar to Monday and Tuesday, stocks pulled back again yesterday, but this time all three of the major indices were in the red. Economic news seemed to trump earnings as traders were put off by news that durable goods orders for June had their worst drop since January by falling 2.5%. Orders less automobiles rose 1.1%, but that seemed to have little impact on trading despite the fact that this was the first consecutive increase in that category since early in 2008.
Yahoo (YHOO) and Microsoft (MFST) made news before the opening by announcing that Yahoo had agreed to partner for ad sales and search technology with Mr. Softie. But the deal had little impact on the broad market and Yahoo fell 12.08% while MFST rose 1.41%.
The Fed’s Beige Book showed that U.S. economic activity is still weak but that the decline is moderating. The New York Fed Bank President Dudley said, “The U.S. is likely to see moderate growth in the second half of 2009, but at a muted pace” (WSJ).
And with that, commodities, as measured by the CBR Commodity Index, fell 2.7% for the worst daily performance of that index in three months. The U.S. dollar had its strongest day in over a month by gaining 0.9% against a basket of major currencies.
At the close, the Dow Jones Industrial Average was off 26 points to 9,071, the S&P 500 fell 4 to 975, and Nasdaq lost 8 points closing at 1,968. The NYSE traded 1.25 billion shares with decliners ahead of advancers by 9-to-5. Nasdaq traded just 629 million shares with decliners there ahead by 8-to-5.
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September Crude Oil fell $3.88 to $63.35 a barrel as the U.S. reported a much higher-than-expected increase in crude inventories raising questions about demand. The report showed an increase of 4.1 million barrels vs. an expected build of 1.1 million barrels.
The Amex Energy SPDR (XLE) closed at $49.44, off $1.17. August Gold fell to $927.20, off $11.90, and the PHLX Gold/Silver Index (XAU) was down $3.95 to $138.97.
What the Markets Are Saying
All of the internal indicators of the market that I watch closely are now overbought, and the stochastic of the S&P 500 issued a sell, indicating that the market would likely sustain a moderate pullback. After an extended breakout like this, it is normal for the markets to take a breather and that gives bulls a chance to pick up stocks at lower prices.
This then builds zones of support that will have a better chance of holding back future corrections.
I noted yesterday that the first zone of support for the S&P 500 is the prior breakout level at 945 to 950. Assuming that this holds, the next rally should take the “500” to around 1,005 to 1,010 which was the high of last November.
But if the “500” falls under 930 watch out, because that sort of correction could negate the breakout and lead to something more serious than just a normal round of profit taking.
The message now is to buy on weakness down to the 945 to 950 area. Last week Dorsey Wright reported that the broad economic sectors that reversed up were Basic Materials, Consumer Cyclical, Healthcare, Industrial, Technology, Telecom, and Utilities.
We would therefore highlight those areas for stocks of interest to add to our portfolios.
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Today’s Trading Landscape
Earnings to be reported include: Abaxis, Acme Packet, AGL Resources, Airvana, Alaska Communications Systems Group, Alcatel-Lucent, AllianceBernstein Holding LP, AmeriSourceBergen, AMSC, Aon Corp, Apache Corp, APCapital, Applied Micro Circuits Corp, Arch Chemicals, Ariba, Armstrong World Industries, ARRIS Group, Art Technology Group, Asbury Automotive Group, Asset Acceptance Capital Corp, AstraZeneca PLC, Astronics, Atlantic Tele-Network, Automatic Data Processing, Avery Dennison Corp, Avon Products, Balchem, Baldor Electric, Bancorp Rhode Island, Bankrate, Barrick Gold, Beckman Coulter, Becton, Dickinson and Co, BioMarin Pharmaceutical, BioScrip, Blackbaud, Brasil Foods S.A., Brasil Telecom S.A., Brunswick Corp, Build A Bear Workshop, Cabela’s, Cablevision Systems Corp, Camden Property Trust, Canadian Pacific Railway, CARBO Ceramics, Carpenter Technology, Carriage Services, CDI Corp, CEC Entertainment, Cepheid, CGGVeritas, CH Energy Group, Chart Industries, Chemed Corp, Chordiant Software, Cigna, Cincinnati Financial Corp, Clearwater Paper Corp, CMS Energy Corp, Colgate-Palmolive, Comfort Systems USA, Community Health Systems, Comscore, Conmed, Consol Energy, Convergys Corp, Covidien Plc, CryoLife, Cummins, D&B, DDi Corp, Deltek, Depomed, Digital Realty Trust, Dolby Laboratories, Double Eagle Petroleum and Mining, Dover Downs Gaming and Entertainment, Dover Motorsports, Dresser-Rand Group, Drew Industries, DTE Energy Co, Duke Realty Corp, DXP Enterprises, Dynamic Materials, Eastman Kodak Co, Echelon Corp, EMCOR Group, Encore Capital Group, Endo Pharmaceuticals, Eni S.p.A., Entropic Communications, eResearch Technology, Expedia, Extreme Networks, ExxonMobil Corp, Fairfax Financial Holdings, Federal Signal, Federal-Mogul Corp, First Solar, Flanders, Forrester Research, France Telecom, Franklin Resources, Genesee & Wyoming, Genesis Lease Ltd, Genoptix, Gen-Probe, Gentiva Health Services, Genworth Financial, GFI Group, Gladstone Commercial Corp, Goldsmith Int’l Holdings, Goodyear Tire & Rubber, GrafTech Int’l Ltd, GSI Technology, Harleysville Group, Harmonic, Helmerich & Payne, HLTH Corp, Holly Energy Partners LP, Horace Mann Educators Corp, Hornbeck Offshore Services, Hugoton Royalty Trust, ICT Group, Incyte Corp, Ingram Micro, Interactive Intelligence, Intermec, International Paper Co, Internet Capital Group, Investment Technology Group, iPCS, IRIS Int’l, Iron Mountain, Isilon Systems, Kansas City Southern, KBR, KBW, Kellogg Co, Kennametal, Kimco Realty Corp, Kyocera Corp, Las Vegas Sands Corp, Lee Enterprises, Lithia Motors, Littelfuse, LKQ Corp, Local.com Corp, Lubrizol, M/I Homes, Mack-Cali Realty Corp, MarineMax, MasterCard, McAfee, MDC Partners, Medifast, Merge Healthcare, MetLife, Mizuho Financial Group, Modine Manufacturing Co, Mohawk Industries, Monolithic Power Systems, Monster Worldwide, Morningstar, Motorola, MWI Veterinary Supply, Mylan, Nanometrics, Natus Medical, NetSuite, NeuStar, Newell Rubbermaid, Newpark Resources, Noble Energy, Novamed, Novatel Wireless, NRG Energy, NTT DoCoMo, Nutraceutical Int’l, NYSE Euronext, Odyssey Re Holdings Corp, OfficeMax, Omega HealthCare Investors, Omnicare, Opnet Technologies, Oppenheimer Holdings, Orthofix Int’l, Oshkosh Corp, Palomar Medical Technologies, Parker Hannifin Corp, Patni Computer Systems, Patterson-UTI Energy, PC Connection, PDL BioPharma, PerkinElmer, Petro-Canada, Pitney Bowes, Power Integrations, Preferred Bank, Pride Int’l, Provident Financial Holdings, Quality Systems, Radiant Systems, Radvision, Rayonier, RealNetworks, Reed Elsevier Group PLC, Regal Entertainment Group, Reliv Int’l, Repsol YPF, Republic Airways Holdings, Republic Services, Revlon, Rex Energy Corp, Rochester Medical Corp, Rockwell Collins, Rodman & Renshaw Capital Group, Rosetta Stone, RSC Holdings, RTI Biologics, Sally Beauty Co, Sappi Ltd, SCANA Corp, Schiff Nutrition Int’l, Scientific Games Corp, Siemens AG, Silver Wheaton Corp, Smith & Nephew, Sony Corp, Sourcefire, Southwestern Energy, Spirit AeroSystems Holdings, Stamps.com, Steris, Steven Madden, Stewart Information Services, Stone Energy, Strayer Education, Synaptics, Synchronoss Technologies, Taiwan Semiconductor Manufacturing Co, Taleo Corp, Taylor Capital Group, TC PipeLines LP, Techwell, Tele Norte Celular Participacoes S.A., TeleCommunication Systems, Telefonica S.A., Telemar, Tennant Co, Tenneco, Teppco, The Brinks Co, The Dow Chemical Co, The First American Corp, The Hanover Insurance Group, The Travelers Companies, Tollgrade Communications, TranS1, Transalta Corp, TransCanada Corp, Tree.com, Tyco Int’l, Ultralife Corp, United Stationers, Valassis Communications, Vanguard Natural Resources, Varian Semiconductor Equipment Associates, Ventas, Virtusa Corp, Vistaprint, Volcom, WABCO Holdings, Walt Disney, Waste Management, Wayside Technology Group, Weingarten Realty Investors, West Bancorporation, West Marine.
Economic reports due: Jobless Claims (the consensus expects 585 K), and EIA Natural Gas Report.
Late News: Q2 earnings vs. est. — Cigna (CI) $1.24 vs. $0.96, Dow Chemical (DOW) $0.05 (ex. Items) vs. ($0.8), Newell Rubbermaid (NWL) $0.47 vs. $0.35, Mylan Labs (MYL) $0.32 vs. $0.29. Goldman Sachs raised General Electric to Buy. Support for the president’s health-care plan appears to be slipping (WSJ).
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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 his most recent market outlooks.
