Before yesterday’s opening, both Deere (DE) and Hewlett-Packard (HPQ) reported better-than-expected earnings, but investors focused on Deere’s pessimistic outlook. As a result stocks opened not with a bang but a bust, falling over 80 points in the first minutes of trading.
HPQ managed to take back most of its early losses, but Deere’s poor opening was only partially overcome before another wave of selling engulfed the stock in the late afternoon, driving it to a loss of almost 3% by the closing bell.
The industrial sector closed lower, influenced by Deere’s problems, but
banks put in a poor showing, too.
The strongest sector was energy, and oil futures prices sprang on news that the U.S. Department of Energy said crude-oil inventories plunged last week by 8.4 million barrels. By the close, energy stocks were up 1.9% and the futures were higher by 4.64%.
In a New York Times article, Warren Buffett opined that the U.S. economy is on
a slow path to recovery. But The Oracle also warned that the government must get control of spending or pay the price at some time in the future with high inflation.
The only economic news came from the Mortgage Bankers Association. For the
week ending August 14 mortgage applications rose 6.9%, which was a reversal from the 7.2% drop the week before.
At the close the Dow Jones Industrial Average was up 61 points to 9,279, the
S&P 500 gained 7, rising to 996, and Nasdaq gained 42 points to 1,969.
Volume on both exchanges was again extremely low. The NYSE traded just 988
million shares, the second time this week it has traded under 1 billion shares, and Nasdaq crossed 593 million shares, also considered very low volume. On both exchanges advancers led decliners by about 5-to-3.
But the big movers yesterday were oil and gas and the associated stocks. The September Crude Oil contract rose $3.23 to $72.42 a barrel on the above-mentioned fall in inventories, but weak demand kept prices from rising even higher and many traders think that the move yesterday is not sustainable. The Amex Energy SPDR (XLE) closed at $50.48, up 92 cents. December Gold rose $5.60 to $944.80 due to stronger oil prices, a weak dollar, and speculative buying. The PHLX Gold/Silver Index (XAU) gained $1.66, closing at $142.88.
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What the Markets Are Saying
The bulls will no doubt be overjoyed with yesterday’s reversal in the Dow
Industrials and Nasdaq and the closing of the trading gap at 1,979 by The Naz. But even though the reversals triggered our own CBR (Collins/Bollinger Reversal) system to flash a buy signal, I remain a skeptic.
Volume on the NYSE and Nasdaq are far below normal — making the market
subject to wide swings. And the basis for yesterday’s rally was a questionable report of oil inventories falling sharply that will no doubt need some examination before it is fully accepted.
Standard & Poor’s technician Mark Arbeter points out that “Daily momentum
indicators cycled into overbought territory in early August and have traced out bearish divergences, suggesting that the current uptrend is in doubt.”
There was optimism among the public until last night’s report, which shows a
shift to more bears than bulls by AAII members, but the Equity Put/Call ratios that have fallen to their lowest levels since October 2007 appear to counter the AAII numbers. Since the AAII sentiment is longer term and the options ratios shorter term it could mean that the market will have difficulty breaking out of the current pattern but that the long-term trend is still up.
Unless buyers emerge soon, and lots of them, the markets will probably remain in a narrow but volatile trading range. The problem is determining exactly what that trading range is. We know where the tops are but the bottoms remain in doubt.
Today’s Trading Landscape
Earnings to be reported include: 1-800 Flowers.com, Aeropostale, Barnes & Noble, Brocade Communications Systems, Buckle, Children’s Place Retail Stores, Cost Plus, Dick’s Sporting Goods, Foot Locker, GameStop Corp, Gap, H.J. Heinz Co, Hibbett Sports, Hormel Foods Corp, Intuit, Navios Maritime Holdings, Nordson Corp, Open Text Corp, Pacific Sunwear of California, Patterson Dental, Regis Corp, Ross Stores, Salesforce.com, ScanSource, School Specialty, Sears Holdings Corp, Ship Finance Int’l Ltd, Shoe Carnival, SkillSoft PLC, Stage Stores, StealthGas, Suntech Power Holdings Co Ltd, Tech Data Corp, Toro Co, Verigy Ltd, and Wet Seal.
Economic reports due: Jobless Claims (the consensus expects 550 K), Leading Indicators (the consensus expects 0.7%), Philadelphia Fed Survey (the
consensus expects -1.0), and the EIA Natural Gas Report.
Late news: Sears Holdings (SHLD) Q2 ($0.17) vs. $0.35 est.
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