Stocks ended the day yesterday much as they ended the day before — mixed with a somewhat positive tone. There was a bit more volatility yesterday with a lower low, but the highs were almost equal.
The Dow Jones Industrial Average (DJI) and the S&P 500 (SPX) closed fractionally lower, while the Nasdaq (NASD) gained again.
It was the 14th gain in 15 sessions for the Nasdaq. With all of the talk of an overextended market, yesterday was a solid winner.
When the opening bell sounded, stocks broke from the gate like the starting field of the Kentucky Derby. But a sagging consumer confidence report and lower oil prices slowed the pace, and by noon the broad market was at a minus.
Retail and energy stocks were a drag on the market, but health care stocks outperformed for the entire session.
Amgen (AMGN) reported better-than-expected earnings and rose 2.72%. Teva Pharmaceuticals (TEVA) gained 4.21% and hit a new high for the year on slightly better-than-expected earnings. Coventry Health Care (CVH) rose 13% after beating estimates and raising its annual forecast to $1.85-$1.95, up from $1.70-$1.90.
Treasuries gained slightly, but the early gains were cut following a record $42 billion auction of two-year notes. The yield for the auction was 1.08%.
At the close, the Dow was off 12 points to 9,097, the S&P 500 fell 3 points to 978, and the Nasdaq was up 8 points to 1,976.
The NYSE traded 1.2 billion shares with decliners ahead by only 112 stocks, while the Nasdaq traded 660 million shares with advancers ahead by just 211 stocks.
September crude oil dropped $1.15 to $67.33 a barrel, and the Energy Select Sector SPDR (XLE) fell 75 cents to $50.61.
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August gold fell $14.40 to $939.10 an ounce as regulators began hearings on limiting speculation in commodities trading. The PHLX Gold/Silver Index (XAU) fell $5.98 to $142.92, which is almost exactly at the midpoint of the bullish channel that began last December.
What the Markets Are Saying
Modest declines in stocks following an explosive breakout are usually an indication that prices will advance much further.
I’ve taken that view with targets of Dow 11,350 and S&P 1,245. But some are saying that the modest consolidation of the last three or four days, coupled with a CBOE Volatility Index (VIX) reading of 25, tells us that the markets are about to explode again and the targets taken from the recent breakouts are too modest.
That sort of talk worries me. I would much rather hear that traders are worrying about the validity of the breakout or that earnings can’t continue to beat expectations or that Bernanke slipped on a banana peel. Remember, “a bull market climbs a wall of worry.”
There is a lot of talk that the low VIX readings mean that the market is about to explode again. But one indicator’s reading means little, and the history of the VIX is peppered with inconsistencies.
However encouraging the modest pullbacks have been, the market has been supported by a raft of outstanding Q2 earnings. When that supporting prop is pulled, we will see if the earnings were the most important factor in the breakout.
The number of Q2 earnings should drop sharply by this time next week. By then we should know if there is enough internal strength left to break to new highs again, or if the market will languish until the next run of good news.
The broad indices are now very overbought and many of the internal indicators, like the stochastic, are within a day of giving a sell signal.
A pullback of modest proportions is now likely with the initial support for the Dow at 8,730 to 8,850 and 945 to 950 for the S&P 500.
If we get a modest pullback and consolidation, we will be buyers. And if we break out anew, we will be buyers, too.
What a relief that the bull is back.
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Today’s Trading Landscape
Earnings to be reported include: Acadia Realty Trust, Advance America Cash Advance, Advantest Corp., Affiliated Managers Group, Aflac, Agnico-Eagle Mines Ltd., Akamai Technologies, Alliance HealthCare Services, Alvarion, AMAG Pharmaceuticals, America Service Group, American Capital Agency Corp., American Safety Insurance, American Tower Corp., Amkor Technology, Anworth Mortgage Asset, ArcelorMittal, Arctic Cat, Arrow Electronics, AsiaInfo Holdings, ASM International N.V., Aspect Medical Systems, Aspen Insurance Holdings Ltd., Assurant, Avalonbay Communities, Banco Santander S.A., Banner Corp., Bare Escentuals, Basic Energy Services, Belden, Benchmark Electronics, BioMed Realty Trust, BioSphere Medical, BOK Financial, BorgWarner, Brookfield Homes Corp., Brookfield Properties Corp., Bruker Corp., Cabot, Cadbury plc, Cadence Design Systems, Cal Dive International, California Water Service Group, Callaway Golf, Capstead Mortgage Corp., Cathay General BanCorp, Cavco Industries, CB Richard Ellis Group, CBIZ, Cedar Shopping Centers, CEMEX S.A.B. de C.V., Central European Media Enterprises, Cerner Corp., CEVA, CGI Group, Choice Hotels International, Churchill Downs, Circor International, Cliffs Natural Resources, Coca-Cola Enterprises, CommScope, Compellent Technologies, COMSYS IT Partners, ConocoPhillips, Corporate Office Properties Trust, Covance, Crown Castle International, Cytokinetics, Daimler AG, Delphi Financial Group, Deltic Timber, Dentsply International, Dhofar Insurance Co., Digital Ally, Digital River, DPL, Dynamics Research Corp., EastGroup Properties, Electronics for Imaging, Empresa Nacional de Electricidad SA, Encore Energy Partners LP, Enersis SA ADS, EQT Corp., Equity One, Equity Residential, Euronet Services, Evercore Partners, Express Scripts, Famous Dave’s of America, FARO Technologies, FBR Capital Markets, First Potomac Realty Trust, FirstService, Fiserv, Flextronics, Flowserve Corp., FMC Corp., FormFactor, Genco Shipping & Trading Ltd., General Dynamics, General Maritime Corp., Global Crossing, GoldCorp., Granite Construction, Green Mountain Coffee Roasters, GSI Commerce, Hanesbrands, Hartford Financial Services, Hecla Mining, Helix Energy Solutions Group, Heritage Financial, Hess Corp., HickoryTech, Highwoods Properties, Honda Motor Co Ltd., Hospira, IAC, Intellon Corp., Interface, Internet Brands, Intertape Polymer Group, Iowa Telecommunications Services, ITC Holdings Corp., Itron, Jones Apparel Group, Kaiser Aluminum Corp., KB Financial Group, Kirby, Kulicke & Soffa, L-1 Identity Solutions, Ladish, Lam Research, Lazard Ltd., Legacy BanCorp, LeMaitre Vascular, Lender Processing Services, Lincoln National, LoopNet, LSI Corp., ManTech International Corp., Marine Products Corp., Martha Stewart Living Omnimedia, MasTec, MeadWestvaCo., Medco Health Solutions, Meredith Corp., Metabolix, Moody’s Corp., MPS Group, Navios Maritime Holdings, Ness Technologies, NetLogic Microsystems, Neurocrine Biosciences, New Jersey Resources, New York Community BanCorp, NICE Systems, Northwest Pipe Co., NorthWestern Corp., Nu Skin, NutriSystem, O2 Micro, Oceaneering International, O-I, Oil States International, Orchids Paper Products Co., O’Reilly Automotive, Osteotech, Park-Ohio Holdings Corp., Penn National Gaming, Pennsylvania Real Estate Investment Trust, Penske Automotive Group, Plexus, Portfolio Recovery Associates, Praxair, Quaker Chemical Corp., Questcor Pharmaceuticals, Qwest Communications, Realty Income Corp., Rewards Network, RightNow Technologies, Rockwood Holdings, Rollins, Royal Caribbean Cruises Ltd., RPC, Rubicon Technology, Ryland Group, Sangamo BioSciences, Sanofi-Aventis, SAP AG, Sauer-Danfoss, Savvis, Sealed Air, Selective Insurance Group, Shenandoah Telecommunications, Shinhan Financial Group Co Ltd., Shutterfly, Silicon Laboratories, Silicon Motion Technology Corp., Siliconware Precision Industries Co Ltd., SJW, Southern Co., Spherion Corp., Sprint Nextel Corp., SPX, Steiner Leisure, Stratasys, Sturm Ruger, SurModics, Symantec, Symyx Technologies, Syntel, Taser International, TeleTech Holdings, Teradyne, Tesoro Corp., Tetra Tech, The Medicines Co., The Scotts Miracle-Gro Co., The Timberland Co., The Timken Co., Thomas Weisel Partners, Tidewater, Time Warner Cable, Time Warner, Town Sports International Holdings, Transcend Services, Trex Co., Trico Marine Services, Trinity Industries, Triumph Group, TTM Technologies, Tyco Electronics, Tyler Technologies, UGI, Unifi, United Microelectronics Corp., United Rentals, Universal American, Universal Stainless & Alloy Products, USA Mobility, Vale S.A., Validus Holdings Ltd., Varian Medical Systems, Virage Logic Corp., ViroPharma, Visa, Voltaire, Watson Pharmaceuticals, WellPoint, Whiting Petroleum Corp., Willis Group Holdings Ltd., Wintrust Financial Corp., World Acceptance Corp., Wright Express Corp. and Wyndham Worldwide.
Economic reports due: MBA purchase applications, durable goods orders (the consensus expects -0.5%), EIA Petroleum Status Report and Beige Book.
Late News: FMC Technology (FTI) reported Q2 earnings per share of 84 cents versus an estimated 62 cents. Spring Nextel (S) reported 13 cents versus an estimated 2 cents. Qwest Communications (Q) reported 12 cents versus an estimated 10 cents. Moody’s (MCO) reported 43 cents versus an estimated 40 cents. Hess (HES) reported 31 cents versus an estimated 1 cent.
Mortgage applications are down 6.3%.
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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.
