With Q2 earnings mostly behind them, investors focused on several economic reports yesterday, and didn’t like what they saw.
The ADP Employment Report showed that the labor force was reduced by 371,000 jobs, which exceeded a forecast of 350,000 jobs. With that report on investors’ minds, stocks opened lower, and then held until the next bombshell.
The ISM Services Index for July unexpectedly slipped to 46.4 from 47 in June, and was expected to show 48. Anything under 50 for the ISM is considered to show a contracting economy. This was the 10th straight sub-50 report, and appeared to cancel out the factory orders report that showed an increase of 0.4% in June where a 0.8% dip was expected.
The poorer-than-expected economic reports dampened the broad market but failed to halt a run on the financial stocks. For the second day in a row, financials outperformed, and this time it was by a large margin.
American International Group (AIG) rose more than 62% on rumors of a sale of its aircraft leasing business and better results for its earnings report on Friday. CIT Group (CIT) rose 41%, and Fannie Mae (FNM) and Freddie Mac (FRE) gained 30%.
At the close, the Dow Jones Industrial Average (DJI) was off 39 points to 9,281, the S&P 500 (SPX) fell 3 points to 1,003, and the Nasdaq (NASD) lost 18 points, falling to 1,993.
The NYSE traded 1.88 billion shares with decliners ahead of advancers by 8-to-7. The Nasdaq crossed 717 million shares with decliners ahead by about 8-to-5.
Crude oil (September contract) settled at $71.97 a barrel, up 55 cents, and the Energy Select Sector SPDR (XLE) fell 52 cents to $51.35.
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December gold fell $3.30 to $964.20 an ounce despite a downtick in the U.S. dollar. The PHLX Gold/Silver Index (XAU) fell 58 cents to $153.13.
What the Markets Are Saying
The S&P 500 and its companion indices ran into the middle of the resistance at S&P 1,005 to 1,010 on Aug. 4, with a high on the S&P of 1,007.12.
With virtually every one of our internal indicators overbought and the sentiment readings at very bullish levels, the market appears vulnerable.
One of the internal measurements of momentum is the relative strength index (RSI).
It showed a high of 76 on Tuesday, and 74 yesterday. These are the highest reading for the RSI in three years.
Anything over 70 is considered overbought, but when the market gets heated it can get even higher. S&P points out that the RSI got to 79 in January 2004. The highest readings recorded were 85 in May 1995, and 83 in February 1991.
In March 2003, which is relationally where we are in this rally, the RSI reached 68, and in June 2003 it was over 75.
Does this mean that we’ve reached the top?
Hardly, but it could signal a slowdown or consolidation before moving higher. In March 2003, it signaled a seven-day pullback, but that was followed by a rush to buy that took the S&P from 848 to 1,015 in three months.
Unless you are a trader, hold your solid stocks. The best is yet to come.
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Today’s Trading Landscape
Earnings to be reported include: 51JOB, Abiomed, Abraxis BioScience, Accelrys, ACI Worldwide, AECOM, Aercap Holdings NV, Affiliated Computer Services, Air Methods, Aldila, Alexandria Real Estate, Alkermes, Alliant Energy, Alliant Techsystems, Allied World Assurance Co Holdings Ltd., Allion Healthcare, Alnylam Pharmaceuticals, Ameren Corp., American Italian Pasta Co., American Reprographics Co., American Science and Engineering, American States Water, American Vanguard, AMN Healthcare Services, Anaren, Angiotech Pharmaceuticals, Ansys, Apollo Investment Corp., Ares Capital Corp., Argon ST, ArQule, Assured Guaranty, Atlas Pipeline Partners, Auxilium Pharmaceuticals, Babcock & Brown Air Ltd., Banco Macro SA, BCE, Beazer Homes USA, Biovail Corp., Black Hills Corp., Blackrock Kelso Capital Corp., Blonder Tongue Laboratories, Blue Nile, BlueLinx Holdings, Brightpoint, Brinker International, Bristow Group, Brooks Automation, BRT Realty Trust, California Pizza Kitchen, Callon Petroleum, Canadian Solar, CapitalSource, CBS Corp., CECO Environmental, Celera, CenturyTel, Cenveo, Checkpoint Systems, China Digital TV Holding Co Ltd., China Information Security Technology, Chiquita Brands International, Citizens, Coeur d’Alene Mines, Cogdell Spencer, Cogo Group, Coleman Cable, Comcast Corp., Compton Petroleum, Computer Sciences Corp., Comverge, Consolidated Communications, Constant Contact, Continental Resources, Cooper Tire & Rubber, Cornell Companies, Cowen and Company LLC, Crocs, Dana Holding Corp., DCP Midstream Partners LP, DCT Industrial Trust, DealerTrack Holdings, Delek US Holdings, Deutsche Telekom, DG FastChannel, Diamond Management & Technology Consultants, Diana Shipping, Diodes, Dionex, Dollar Tree Stores, Dynex Capital, Eastern Insurance, Eclipsys, Einstein Noah Restaurant Group, El Paso Corp., El Paso Pipeline Partners LP, Emergent Biosolutions, Emeritus Corp., Employers Holdings, Emulex, Ener1, Energy Recovery, Enersys, EOG Resources, Eurand NV, Exlservice Holdings, Exterran Holdings, FBL Financial Group, Fifth Street Finance Corp., Fisher Communications, Frontier Oil, Frozen Food Express Industries, Fuel Systems Solutions, Fuqi International, G&K Services, Gastar Exploration Ltd., Genesis Energy LP, Gerdau AmeriSteel Corp., Gerdau S.A., GLG Partners, Global Partners LP, Gold Fields Ltd., Gramercy Capital Corp., Griffon, Grubb & Ellis, Gulfport Energy Corp., Hansen Natural, Hardinge, Hawaiian Electric Industries, Hawk, Haynes International, HealthTronics, Hellenic Telecommunications, Hercules Technology Growth Capital, Hiland Partners LP, Hill-Rom Holdings, Home Diagnostics, Home Properties, Horsehead Holding Corp., Hospitality Properties Trust, Hughes Communications, Huntsman Corp., i2 Technologies, Iam Gold Corp., Icahn Enterprises LP, ICF International, ICOP Digital, IDACORP., IMAX Corp., ImmunoGen, inContact, Infinity Property and Casualty Corp., Integra LifeSciences Corp., InterMune, Intrepid Potash, inVentiv Health, Invitel Holdings A/S, INX, iPass, IPC the Hospitalist Co., Isis Pharmaceuticals, Ixia, JMP Group, Kenneth Cole, Key Energy Services, Key Technology, King Pharmaceuticals, KKR Financial Holdings LLC, Kodiak Oil & Gas Corp., Koppers Holdings, K-Swiss, KT Corp., Kubota Corp., Lamar Advertising Co., Leap Wireless International, Lexington Realty Trust, Lifetime Brands, Limelight Networks, LIN TV Corp., Linn Energy LLC, Live Nation, LSB Industries, Luminex Corp., Macquarie Infrastructure Co., Macrovision, Main Street Capital Corp., Manulife Financial Corp., Mariner Energy, Markel Corp., Marlin Business Services Corp., Maxim Integrated Products, Maximus, McGrath RentCorp., Medcath Corp., Medical Action Industries, Medical Properties Trust, Melco Crown Entertainment Ltd., Memsic, Meridian Resource, MetroPCS Communications, MF Global, Michael Baker Corp., Microchip Technology, Micromet, Microvision, Micrus Endovascular, Mid-America Apartment Communities, Midas, Millipore Corp., Minefinders Ltd., Momenta Pharmaceuticals, MoneyGram International, Multifineline Electronix, National CineMedia, National Fuel Gas Co., Natural Gas Services Group, Natural Resource Partners LP, Neutral Tandem, New Gold, NIC, NPS Pharmaceuticals, Nuveen Investments, NVIDIA Corp., Obagi Medical Products, O’Charleys, OM Group, On2 Technologies, Online Resources Corp., OpenTV Corp., Oplink Communications, Orient-Express Hotels, Orion Marine Group, Orthovita, Osiris Therapeutics, Pengrowth Energy Trust, Pepco Holdings, Perma-Fix Environmental Services, Pinnacle Data Systems, Pioneer Drilling Co., Plains Exploration, Polyone Corp., PowerSecure International, Primedia, Princeton Review, Pros Holdings, Public Storage, Quadramed Corp., RAIT Financial Trust, Ralcorp Holdings, Raser Technologies, Rentrak Corp., Repligen Corp., ResCare, ResMed, Rofin-Sinar Technologies, Rudolph Technologies, Russ Berrie and Co., Saga Communications, SandRidge Energy, Sapient, Saul Centers, Schweitzer-Mauduit International, Scripps Networks Interactive, Sequenom, Silicon Graphics International Corp., Silver Standard Resources, Sirius Satellite Radio, SkyWest, Smart Balance, SMTC Corp., Sonic Solutions, South Jersey Industries, Southern Union Co., Specialty Underwriters’ Alliance, Speedway Motorsports, Stantec, Steinway Musical Instruments, Suburban Propane Partners, Sun Healthcare Group, Sun Life Financial, SunOpta, Sunrise Senior Living, SXC Health Solutions, Symmetry Medical, Targa Resources Partners LP, Telephone Data, Teradata, Tetra Technologies, The Blackstone Group, The DIRECTV Group, The Knot, The NASDAQ OMX Group, The Navigators Group, Theragenics Corp., Thomson Reuters Corp., TICC Capital Corp., Tier Technologies, TreeHouse Foods, Tutor Perini Corp., U.S. Auto Parts Network, U.S. Physical Therapy, Unilever PLC, United Western BanCorp., Universal Electronics, U-Store-It Trust, Valence Technology, VenoCo., Veolia Environnement SA, VeriSign, W.P. Carey & Co LLC, Weight Watchers International, Wendy’s/Arby’s Group, Westar Energy, Western Refining, Williams Companies, Williams Partners LP, Williams Pipeline Partners LP, Windstream Communications, Winthrop Realty Trust, World Fuel Services Corp. and World Wrestling Entertainment.
Economic reports due: retail chain store sales, jobless claims (the consensus expects 575,000), EIA natural gas report.
Late news: Cisco (CSCO) reported Q4 earnings per share of 31 cents versus a 29-cent estimate. Comcast (CMCSA) reported Q2 EPS of 33 cents versus a 26-cent estimate.
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