5-9-2012

All the major indices recouped much of their morning losses and rallied strong into the close on heavier total volume.  The NASDAQ, S&P, and DOW finished down .39%, .43%, and .59% respectively.  But they all had been down between 1 1/2% to 2% in earlier trading.

However, the market internals were weaker than the price action implied.  Up Volume was only 27% on the NYSE and 32% on the NASDAQ.  Advancing issues were just 38% and 46% respectively.

The strong rally into the close was constructive, and kept us just above support levels which we had broken  through intraday.  On the S&P, support is at 1360 and resistance is just above at the 50 day moving average (50 DMA).  I have attached 2 graphs on the S&P 500.  The first is a one day chart demonstrating the strong reversal and the second is a YTD chart showing the possible Head and Shoulders bearish formation just below the 50 DMA resistance.

A short term bounce is now more likely.  But it still remains to be seen if we can get a follow through to the upside today.  And, the midterm trend is still to the downside.  Remain cautious and hold off on new buying.

In overnight trading (Tuesday 9:24 p.m. CST) the Asian markets are firmly in the red, not good.  Gold, silver, and oil are also in the red, but natural gas is in the green (1 1/2%).  The US dollar is stronger against the other major currencies.

Our US equity futures are down.  The DOW futures are down 28 points, the S&P futures are down 4 points, and the NASDAQ futures are down 8 points.  If nothing changes overnight, look for a weaker open.

Economic reports due out today include MBA Mortgage Applications, Wholesale Inventories, Import Prices, the US Treasury Federal Budget Statement, and Initial Jobless Claims.  I would focus on Initial Jobless Claims.

We have 7 companies reporting on the S&P 500.  They include:

Macy’s* (M)
Dean Foods* (DF)
News Corp (NWSA)
Priceline* (PLCN)
BMC Software* (BMC)
CenturyLink (CTL)
Cisco Systems* (CSC)

Some interesting companies reporting in the broader market include:

AOL (AOL)
Teva Pharmaceuticals* (TEVA)
Activision Blizzard* (ATVI)
Monster Beverage* (MNST)

5-8-2012

The markets opened lower  in early trading but shrugged off the Socialist trends in Europe and were in positive territory for much of the day.  However, they sold off late day and both the S&P and NASDAQ finished flat and the DOW closed down 1/4%.

Total volume was down on both major exchanges.  Up Volume was 54% on the NYSE and just 48% on the NASDAQ.  Advancing issues were also meek registering 52% on both exchanges.

Until we get some more clarity, it is better to be patient and wait for a breakout either to the upside or downside.  The market internals though have been weakening.  Probabilities suggest a move lower so you may want to hold off on any new buying.

On the economic front, Bernanke is worried the US labor market may get hysteresis soon if the economy doesn’t pick up steam.  What is hysteresis you might ask?  And why does it affect me?

When American workers are out of work for more than 6 months, their odds of finding a job decline.  Employers are hesitant to hire workers who have been unemployed for long periods.  The declining odds of employment due to being out of work for long periods of time may lead the permanently higher unemployment.  This permanently higher unemployment is known as hysteresis.

While Bernanke says it hasn’t occurred yet, our weak growth could create hysteresis.  This is why it is important to you.  Bernanke is building a case for more and extended monetary stimulus.

This will be good for precious metals and commodities.  Don’t go on a buying spree just yet, but have a list of commodity ETFs and commodity companies ready.   So when Bernanke announces more stimulus, you are ready and ahead of the game.  It is only a matter of time.

In overnight trading (Monday 10:05 p.m. CST) the Asian equity markets mixed but leaning in the green.  One notable exception being China.  The US dollar is up against the other major currencies.  Gold and silver are flat, and oil is down marginally to $97.85/barrel.  Natural gas is up and will be interesting to monitor as it could be finding a bottom.

Our US equity futures are in the red.  The DOW futures are down 18 points, the S&P futures are down 2 points, and the NASDAQ futures are down 3 points.  This could easily change overnight.

Economic reports due out today include the NFIB Small Business Optimism, IBD/TIPP (TechnoMetrica Market Intelligence) Economic Optimism, and the JOLTs Job Openings.  All 3 reports improved last month so it will be interesting to see if the trend continues or reverses.

We have 10 S&P 500 companies reporting earnings today.  They include:

International Flower & Fragrances (IFF – before market)
Molson Coors Brewing* (TAP – before market)
Tenet Healthcare* (THC – before market)
DirecTV * (DTV – before market)
Health Care REIT* (HCN – before market)
Fossil Inc* (FOSL – before market)
Discovery Communications (DISCA)
Perrigo (PRGO)
Walt Disney* (DIS)
XL Group (XL – after market)

Some interesting companies in the broader market reporting include:

Wendy’s* (WEN – before market)
Quicksilver* (KWK – before market)
TransDigm (TDG – before market)
Scotts Miracle-Gro* (SMG – before market)
Liberty Interactive (LINTA)
Solera Holdings* (SLH – after market)

5-7-2012

Socialist François Hollande  won the French Presidential election Sunday over incumbent Sarkozy.  Hollande wants to spend his way out of France’s problems and undue the already agreed upon terms with the European Union.  He promises to raise taxes on the rich and big corporations.  Wealthy French are already eyeing a move over to Britain.

To add insult to injury, the Greek elections followed France’s example.  Alexis Tsipras, leader of surprise 2nd place Syriza party, essentially told German Prime Minister Angela Merkel to get lost.  He stated “the people of Europe can no longer be reconciled with the bailouts of barbarism.”  And went on to say “European leaders, and especially Mrs. Merkel, should realize that her policies have undergone a crushing defeat.”  Tsipras wants to tax the rich and delay debt repayment.

These 2 elections combined will put the global markets in fear.  This is also why politics can be vital to understand the markets.

This can be seen in the Asian markets and our equity futures.  As I write this (Sunday 10:00 p.m. CST) the Asian markets are absolutely getting hammered.  Most of the Asian markets are down between 1 1/2% to 2 1/2%.  Our US equity futures are down as well.  The DOW futures are down 132 points, the S&P futures down 16 points, and the NASDAQ futures down 29 points.

The US dollar is up against the other major currencies, and, as I predicted, making a big move versus the Euro.  The dollar is up over 3/4% against the Euro, a big move in currencies.  Oil is down almost 2% to 96.57/barrel.  Until more stimulus is announced, it will put pressure on commodities and commodity related companies.

Gold is down a around 1/4% but has been firming up, and silver is down 3/4%.  But hold your positions in precious metals because as confidence wanes in paper currencies, precious metals will rise becoming the safe haven they always were.

Also hold your hedges in place until we get a bottoming.  This could last for just a few days or until stimulus is formally announced.  I believe the timetable has just been moved up.  Now is the time to be active and pay attention to what is going on in the world around you and the markets.  If you need help or simply want some advice, feel free to e-mail me at mailto:dstewart@noramassetmanagement.com and I would be happy to assist you.

The only major economic report due out today is Consumer Credit.  We have 9 companies reporting on the S&P 500 today.  They include:

Cognizant Technology Solutions*                                (CTSH – before market)
Tyson Foods*                                                                             (TSN before market)
Frontier Communications                                                (FTR)
Sysco*                                                                                             (SYY)
Wynn Resorts*                                                                         (WYNN)
Electronic Arts*                                                                                          (EA – after market)
Vornado Realty                                                                                          (VNO – after market)
Pitney Bowes                                                                             (PBI – after market)
Dun & Bradstreet                                                                   (DNB after market)

Some interesting companies reporting in the broader market include:

Allied Nevada Gold                                                                (ANV – before market)
Dish Network*                                                                          (DISH)
Dendreon Corp                                                                                           (DNDN – after market)
Rackspace Hosting*                                                              (RAX – after market)

5-4-2012

The markets sold off yesterday on slightly higher total volume than Wednesday; the good news.  Selling was, however, intense as Down Volume was 80% on the NYSE and 84% on the NASDAQ; the bad news.  And, advancing issues were represented only 28% of shares on the NYSE and 24% on the NASDAQ.

We hit resistance on the S&P and quickly pulled back and are resting on the 50 day moving average (50 DMA).  On the NASDAQ, we have just broken through the 50 DMA.  We are at key levels here and I have supplied graphs of each YTD so you can visualize.

S&P 500 YTD Bounced Off Resistance Resting on the 50 DMA - 5/3/2012

NASDAQ YTD Breaking Through 50 DMA - 5/3/2012

Both the short term and midterm market internals are now pointing to weakness rather than strength.  This is why I have been saying be cautious and patient throughout this past week.  Investors and traders alike are worried about all the pending employment reports and especially the Unemployment Rate due out today.

If the Unemployment Rate surprises to the upside (lower rate) or even comes in at expectations of 8.2%, the markets could rally.  However, if the rate comes in below expectations (higher rate) the market will almost certainly selloff.

Small and midcap stocks fared the worst.  My hedges on US small caps and Europe did what they were supposed to do.  We could be close to a turning point in the markets as earnings season comes to a close soon.  Investors will only be able to focus on the negative economic data.

LinkedIn (LNKD) surprised to the upside after the bell and was up almost 9% in after-hours trading.  This will help support technology but again could be trumped by the jobs data.  Today will be an important day.

If you are an active trader paying close attention to the markets, you may want to take advantage of the markets being ready to go long or short quickly.  If you are an investors, you will want to be holding some cash or hedges.

In overnight trading (Thursday 9:33 p.m. CST) the Asian equity markets are mixed, but China has just crossed over into the green.  Silver, gold, and oil are all slightly up.  The US dollar is weaker against the other major currencies.

Our US equity futures are essentially flat with the exception of the NASDAQ.  The DOW futures are up a point, the S&P is up fractionally, and the NASDAQ futures are up 3 points.  Investors will await the jobs data.

Economic reports due out today include Change in Private, Nonfarm, and Manufacturing Payrolls, Average Hourly Earnings and Average Weekly Hours, Change in Household Employment, and the 2 biggies – the Unemployment Rate and Underemployment Rate (U6).

There are 12 companies reporting on the S&P 500 today.   Some notables are:

Pepco Holdings                                                                        (POM – before market)
Spectra Energy                                                        (SE – before market)
PPL Corp                                                                      (PPL – before market)
Aon                                                                                 (AON – before market)
Duke Energy*                                                           (DUK)
Exelon                                                                           (EXC)
Titanium Metals                                                    (TIE)
Leucadia National                                               (LUK)
AES Corp                                                                      (AES)
Estee Lauder*                                                         (EL)
Ameren                                                                                          (AEE)
Berkshire Hathaway*                                        (BRK/A – after market)

Some other interesting companies reporting in the broader market include:

Alliant Energy                                                          (LNT – before market)
Madison Square Garden                                  (MSG – before market)
ITT Corp                                                                        (ITT)
Clear Channel Outdoors*                                (CCO)

5-3-2012

The bad news is the ADP Employment Change came in much weaker than expected.  Expectations were for 170k but registered only 119k, almost 50% less.  The European Union unemployment is the highest in almost 15 years.  In response, the pre-market futures fell and the markets started off the morning firmly in the red.

The good news is the markets rallied in the afternoon recouping most of their losses on the S&P and DOW.  The NASDAQ bucked the trend finishing in the green .3%.  Much of this was due to Apple (AAPL) being up 2/3%.

Up Volume was just 31% on the NYSE and 55% on the NASDAQ.  The advance decline picture doesn’t look positive either with breath narrowing and buyers becoming more selective.

The internals don’t look particularly positive but aren’t signaling a major selloff just yet.  These markets have been resilient in light of all the bad global economic data.

I expect volume to remain fairly mediocre until we get the numerous jobs reports due out on Friday.  Hold your positions but continue to monitor signs of weakness.  Be ready to sell weaker positions on Friday if the jobs numbers do come out dismal and the markets begin to selloff.

Hedging is another option to consider.  The way I am partially hedging is by shorting the European market (EPV) and small cap U.S. stocks (TZA).  The idea is that I am holding some of the best, large cap stocks in the world, while shorting the broad index of Europe, the weakest region by far.  U.S. small caps should also decline more in a pullback.

On a side note, credit default swaps (CDS) on German sovereign bonds, or bunds, are selling at a record pace.  German yields have hit an all time low, but traders believe Germany will bear the brunt of the hit on bailing out Europe.  They would be right and this will put pressure on German bunds.

In overnight trading (Wednesday 9:30 p.m. CST) the Asian equity markets are mixed.  Gold, silver, and oil are in the red.  The US dollar is stronger against the other major currencies.

Our US equity futures are moderately in the red.  The DOW futures are down 10 points, the S&P futures are down a point, and the NASDAQ futures are down 3 points.

Economic reports due out today include the Challenger Job Cuts, Initial Jobless Claims, Nonfarm Productivity, Unit Labor Costs, ISM Non-Manufacturing Composite, and the ICSC Chain Store Sales.  Of these, the employment reports should dominate.

We have 34 companies reporting on the S&P 500 today.  Some notables are:

Sara Lee*                                                       (SLE – before market)
Viacom                                                           (VIAB – before market)
El Paso Energy*                                            (EP – before market)
Pinnacle West Capital*                              (PNW – before market)
Alpha Natural Resources                           (ANR – before market)
Sealed Air*                                                   (SEE)
Apache*                                                         (APA)
Kraft Foods*                                                  (KFT)
Fluor*                                                             (FLR)
Wynn Resorts                                                           (WYNN)
CF Industries*                                                          (CF – after market)
First Solar                                                      (FSLR – after market)
AIG                                                                  (AIG – after market)

In the broader market, other interesting companies reporting include:

Royal Gold                                                    (RGLD- before market)
Sally Beauty Holdings*                                           (SBH – before market)
Level 3 Communications                            (LVLT – before market)
Ultra Petroleum*                                         (UPL – before market)
Plains Exploration & Production               (PXP – before market)
General Motors*                                          (GM – before market)
QLogic                                                                        (QLGC – after market)
LinkedIn*                                                      (LNKD – after market)

*Companies with asterisk are ones that I am watching and/or provide clues about the economic recovery.

5-2-2012

Yesterday the markets opened in the red.  Then after the 10:00 a.m EST strong manufacturing report came out, the markets popped, but then fizzled in late afternoon trading.  Both the S&P and DOW were up just over 1/2%, but the NASDAQ was only up marginally after all being up over 1%.

Total volume increased by double digit on both exchanges compared to Monday.  But Up Volume was only 60% on the NASDAQ and just over 70% on the NYSE.  Not exactly anything to write home about.

Advancers beat decliners by 62% to 34% on the NYSE, but on the NASDAQ, decliners beat advancers by 51% to 45%.  Therefore buying was selective and not broad based.  This is known as a “narrow” breadth.

The short term indicators are weakening slightly, and a pullback is at least a 50-50 proposition.  That said, we are still in a primary uptrend in a late stage bull market in lieu of more Quantitative Easing.

Now for a political and economic discussion that will be vital for your long term financial health. Europe and China are slowing.  There were large “May Day” demonstrations all across Europe.  The Unions and Socialists were out in full force.  The question is will the politicians in Europe have the courage to stick to their austerity guns or cave to public sentiment and start the printing presses.

Our U.S. demonstrations were much more muted as our debt crisis hasn’t reached critical mass yet, or so we are told.  We have not begun our austerity cuts yet and are fast approaching a point of no return.

The big question is whether we, as a people, and our politicians, will have the courage to take the road less traveled.  Will we have the fortitude and will to make the necessary, deep cuts to our budgets so our country can recover before it’s too late.  Or will we try to print our way out of the problem.  Remember, it is an election year.

Again, you need to ask this question for yourself for your own, longer term portfolio.  If you believe the FED will continue to print and Congress will continue to spend,  you need to own some physical precious metals, energy companies, commodities etc.. even if they are volatile.

Stocks will rise during the initial phase of stimulus and spending, but once inflation gets too high, even most stocks will selloff leaving only inflation hedge assets faring well.  Think of the 70s.

If, however, you believe we will take the road less traveled making the necessary, deep spending cuts, our economy will slow and go into recession or worse.  The US dollar will be strong as will bonds.  I would look toward intermediate, investment grade bonds.  Although paying a higher coupon, high yield, or junk bonds, will be riskier as there will be defaults.

I hate to be a Debbie Downer, but these questions need to be answered for the long term portion of your portfolio.  Will we take the  Road Less Traveled?

In overnight trading (Tuesday 10:56 p.m. CST) the Asian markets are all in the green on our positive manufacturing data.  Gold, silver, and oil are all slightly down.  The US dollar is up against the Yen and Euro, but down against the Pound.

Our US equity futures are in the green as well.  The DOW futures are up 14 points, the S&P futures are up 2 points, and the NASDAQ futures are up 6 points.

Economic reports due out today include MBA Mortgage Applications, ADP Employment Changes, Institute of Supply Management (ISM) New York Purchasing Managers Business Conditions, and Factory Orders.

We have 31 companies S&P 500 companies reporting today.  Some notables include:

Time Warner                                                 (TWX – before market)
CVS Caremark                                                            (CVS – before market)
Clorox                                                             (CLX)
Intercontinental Exchange*                                   (ICE)
Marathon Oil                                                            (MRO)
PG&E Corp                                                      (PCG)
MasterCard*                                                 (MA)
Murphy Oil                                                    (MUR)
Devon Energy                                                            (DEV)
JDS Uniphase                                                           (JDSU – after market)
Symantec                                                       (SYMC – after market)
Whole Foods*                                                          (WFM – after market)
Tesoro*                                                          (TSO – after market)
Visa*                                                              (V – after market)

Other interesting companies reporting include:

Energizer                                                       (ENR – before market)
Green Mountain Coffee*                            (GMCR – after market)
Atmos Energy                                                            (ATO – after market)
American Water Works*                             (AWK – after market)
Atmel                                                             (ATML – after market)
Concho Resources                                       (CXO – after market)