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Comtex SmarTrend(R) Morning Call -- November 3, 2009
Nov 03, 2009 (SmarTrend via COMTEX) --
Early on Monday stock indices climbed about 1% on stronger-than-expected manufacturing and pending home sales reports, soothing fears about sustainability of the economic recovery. Then a Fed official warned about rising bank loan losses and see-sawing set in; the DJIA bounced down 250 points from its intraday high to its low, but closed up 77 points at 9,789. The SmarTrend(R) indicators are likely to continue wallowing in oversold zones until the current market correction ends after the Fed report tomorrow.
The current market correction has more legs due to continuing anxiety over the fundamentals necessary for sustaining the current economic recovery. Today investors are anxious that yesterday's comments regarding bank loans at risk may presage the Fed policy statement due out tomorrow afternoon. In a Congressional hearing on Monday an associate director of the Fed said U.S. banks are at risk for sizable new loan losses, mainly on commercial property, and some banks may not have enough capital to fully cushion against these bad loans. These comments did not help the daily SmarTrend(R) uptrends to downtrends improve their heavily-biased, downtrend domination, reporting 14:259, the fifth day of polarization to the downside. This drove the IBDI and Trend Ratio deeper down to their oversold zones and more selling pressure is expected today. Even so, the intermediate-term trend has only been neutralized in this correction and the long-tem uptrend has been slowed in its continuing ascent, but the investing environment remains in a shallow uptrend favoring long stock positions. That could change, although that does not appear likely as the selling pressure in the market is expected to slack off starting tomorrow.
As for the trading term trend, investors continue to be advised to wait for it to turn up and signal a multi-day rally is commencing. That has been expected since last week to begin on Thursday of this week, although the start cannot occur until selling pressure fully abates and that may be delayed until next week. In any event, conservative, risk-averse, investors should wait for confirmation by the SmarTrend(R) near-term trend indicators that the rally is on, although a further sell-off in the market today and/or tomorrow morning may create speculative buying opportunities for some stocks which have recently sold off so fast and sharply as to create acute oversold situations that could lead to a rapid snap back in these stock prices. So far only one near-term trend indicator, NBDV, shows any sign of rallying. The confirmation that a multi-day rally has commenced will be accompanied by at least three near-term trend indicators rising from oversold sub-basements above 20.
The trade-term trend took its toll on the see-saw trading environment fray yesterday and may do more of that today. The sharp correction down in the market has created fertile ground for growing trade-term trend influence. Skittishness over the economic recovery was >http://www.mysmartrend.com.
Investors may be excused for suffering from bouts of seasickness in current market weather conditions. Monday trade saw equity prices oscillate within a 180-point range, as better-than-expected economic posts at first lured investors. Then concerns about banks' financial health drove them out, before stomachs settled and risk appetites rose once more, sending buyers back in, and allowing shares to recover nearly one-third of Friday's sharp losses. The Vix volatility measure continued above the 30 level for most of the day, before finishing off 3% at 29.78.
The DJIA closed nearly 77 points, or 0.8% higher, at 9789 Monday, with the S&P500 up 0.7% to 1042, and the NASDAQ up 0.2% to 2019. NYSE market breadth narrowed as advancing shares edged above decliners by an 8 to 7 margin, and volume hit a moderate 1.54 billion shares.
The US dollar traded lower Monday, off 0.1%, reversing last week's gains in front of today's start of the two-day Fed policy meeting. Most expect interest rates to be held steady at current levels, but anticipate some language shift is possible away from previous mentions of plans to maintain rates low for an "extended period." The change would permit policy adjustments to a less accommodative posture should the recovery begin to outrun current projections, but would also stoke fears premature exit strategies could stifle a nascent recovery before it has a chance to take hold.
The greenback's fall has traveled conjointly with equities' gains as investors seek improved returns on cash previously parked in low-yielding money market funds following the credit crisis. However, long-term inflation fears have lifted bond yields, causing the cost of insuring against a rise in the greenback to follow suit, along with the cost of holding short positions in the currency. Although the Fed's policy has suggested greater concerns with disinflation of late, an adjustment to its policy stance might well stoke the fires of a further dollar gain, sending commodities priced in the greenback as well as those firms deriving a large percentage of revenues overseas, considerably lower.
Such was not the case on Monday, when the dollar closed off 0.1% against a basket of currencies, with the DJ-UBS commodity index finishing up 1%. Crude prices gained $1.09 to close at $78.09; gold closed up $19.10 at $1059.50. Treasuries also finished lower, with the 10-year off 10/32 in price as its yield increased to 3.424%. Basic material sector shares closed up 1% leading the group gains, with industrials up 0.8% and oil and gas sector shares up 0.4%.
At the heart of investors' improved risk appetites was an early morning trifecta of better-than-expected economic posts. The ISM manufacturing survey, driven by "significant" gains in production and employment, came in at 55.7 in October, the highest in 3 1/2 years and up from September's 52.6 and estimates of 53.0. According to the release, the survey suggested that "overall it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode."
Construction spending also came in stronger than anticipated, up 0.8% in September, outshining an expected 0.2% decline. August's 0.8% increase, however, was revised lower to a 0.1% drop.
Meanwhile, pending home sales rallied 6.1% in September from the prior month, marking its eight straight increase. A flat reading had been expected following August's 6.4% rise. On a YoY basis, the 21.2% jump was the sharpest since records began in 2001.
Today's economic posts cover 10:00 ET release of factory orders and 2:00 ET posts on auto sales. Following August's 0.8% fall, factory orders are expected to climb 0.9% in September. Meanwhile, investors are expected to examine life after cash-for-clunkers, with some expecting aggressive incentives may have helped sales rebound last month from September's 9.2 million unit pace. At the peak of the stimulus program for trade-ins, sales in August peaked at 14.1 million units. A rebound in sales activity might provide support for assumptions of strength in fourth quarter consumer demand, which most consider essential to a sustainable recovery beyond current government stimulus efforts. Ford (NYSE:F) shares soared 8.3% Monday, following its release of a near- $1 billion profit, its first quarterly profit in over a year, as well as improved guidance for 2010.
Nearly tripping yesterday's gains, Jon Greenlee, associate director of the Fed's Division of Banking Supervision and Regulation, warned US banks face the risk of large additional loan losses, especially on soured commercial real estate loans, with some lacking adequate capital cushions to protect against the losses. Financials, initially hit by the report, managed to recover, closing up 0.7% on the session.
According to our analytics team, conservative, risk-averse, investors should wait for confirmation by the SmarTrend(R) near-term trend indicators that the rally is on, although a further sell-off in the market today and/or tomorrow morning may create speculative buying opportunities for some stocks which have recently sold off so fast and sharply as to create acute oversold situations that could lead to a rapid snap back in these stock prices. For a look at our more complete technical report on today's trading, as well as the stocks changing trends recently, please click on http://www.mysmartrend.com.
In the corporate corner, deal-making activity heated up with the mega-deal announcement from Berkshire Hathaway (NYSE:BRK.A) of its plans to acquire Burlington Northern (NYSE:BNI) for $100 per share in a deal valued at approximately $44 billion, the largest in Berkshire history.
Stanley Works (NYSE:SWK) announced plans to purchase Black & Decker (NYSE:BDK) in a deal valued at $4.5 billion.
Denbury Resources (NYSE:DNR) announced plans to acquire Encore Acquisition (NYSE:EAC) for $3.2 billion in cash and stock.
Ford (NYSE:F) said it wants to raise $2 billion through the sale of senior convertible notes due 2016, and $1 billion through common shares sold in private deals.
UBS (NYSE:UBS) noted "we do not expect an immediate recovery in client net new monthly flows," as it reported its fourth straight quarterly loss. The third quarter loss of $552.4 million was larger than anticipated.
Morgan Stanley (NYSE:MS) downgraded US semiconductor shares to "cautious" warning the industry is now in the final stages of the semiconductor cycle. Intel's (NASDAQ:INTC) rating was lowered to "equalweight" from "overweight," along with shares of Altera (NASDAQ:ALTR), Linear Tech (NASDAQ:LLTC), Xilinx (NASDAQ:XLNX) and Maxim (NASDAQ:MXIM).
During yesterday's session Citigroup's (NYSE:C) analyst slashed its rating on Research in Motion (NASDAQ:RIMM) to "sell" from "buy," also downgrading Palm (NASDAQ:PALM) to "sell" from "hold." Meanwhile, the firm upgraded Motorola (NYSE:MOT) shares to "buy" from "hold," noting positive surprises likely from new phone offerings based on Google's (NASDAQ:GOOG) Android operating system.
Archer Daniels Midland (NYSE:ADM-A) reported fiscal first quarter earnings of 77 cents per share on sales of $14.9 billion. According to the company, "Looking ahead, we see demand improving in some key markets, and we have the assets and acumen to capture value as the global economy resets."
American Tower (NYSE:AMT) reported inline third quarter results of 17 cents as revenues of $444.10 million topped estimates of $430.02 million. The firm reaffirmed its 2009 guidance.
By Chip Brian, Editor-in-Chief, Comtex news Network
www.Comtex.com -- editor@mysmartrend.com
The following equities mentioned above include:
Comtex SmarTrend Alert
----------------------------------------------
Ticker Last Close Trend Direction Trend Price Trend Date
----------------------------------------------------------------------
BDK 47.34 Uptrend 51.15 10/12/2009
BNI 76.07 Downtrend 80.22 10/23/2009
DNR 13.09 Downtrend 13.20 11/2/2009
F 7.58 Downtrend 6.84 9/21/2009
SWK 45.15 Uptrend 35.51 7/15/2009
INX -- S&P 500: 1,043
Lo: 1,029 Hi: 1,052
Change: +6.69
http://www.mysmartrend.com/images/INX20091103.jpg
INDU -- DOW JONES: 9,789
Lo: 9,679 Hi: 9,859
Change: +76.71
http://www.mysmartrend.com/images/INDU20091103.jpg
QQQQ -- NASDAQ: 2,049
Lo: 2,024 Hi: 2,069
Change: +4.09
http://www.mysmartrend.com/images/QQQQ20091103.jpg
This report is divided into three sections. The first deals with our 5 proprietary market indicators, the second section examines important economic and business happenings which are expected to affect U.S. Stock market movements and the third section describes specific company announcement and earnings releases. Experience demonstrates that when these 5 indicators reach extremes they can shortly be expected to change direction and move in the opposite direction. When such happens in all or most of the 5 indicators, on or about the same time, followed by a move from below an extreme (oversold) to above that extreme (or vice versa for overbought), a change in market direction is very probable. The near term market moves are measured to identify the best possible returns for traders/investors. Daily price/volume examinations provide the best data upon which to base such forecasts. In this report though, intraday indicators are examined to improve the point of entry timing for the expected move.
Comtex News Network, Inc. is not a registered investment advisor and does not provide investment advice. Investors bear complete responsibility for their own investment research and decisions and should seek the advice of a qualified investment professional prior to making investment decisions. SmarTrend is a registered trademark of Comtex News Network, Inc. Copyright, Comtex News Network, Inc. 2008
Comtex News Network, Inc. ("Comtex") obtains information from sources deemed to be reliable; however, Comtex does not guarantee the accuracy of any of the information or commentary provided. Comtex makes no warranties, expressed or implied, as to the fitness of the information for any purpose, or to results obtained by individuals using the information. In no event shall Comtex be liable for direct, indirect, or incidental damages resulting from the use of the information. Comtex shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to the information and its use. Comtex does not make specific trading recommendations or provide individualized market advice. The information contained in the Morning Call product is provided as an information service only.
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