Good morning. Futrures are higher this morning. S&P futures up 3.30, Nasdaq futures up 5.50 and Dow futures up 33 points. The economic calendar brings just weekly jobless claims this morning and earnings are quiet.
Retailers are reporting numbers and - while mixed results seem to be the norm - those who were expected to have gains have met those expectations.
Oil is trading lower as inventory concerns continue. That said, the weather in the Midwest should help push demand a bit in the coming days.
Have a great day!
The first 3 days of January have seen a lot of selling pressure. At a sector level there has been extreme and intense selling in the Integrated Oils, Oil Services, Biotech, Large Cap Pharmaceuticals, Internets (HHH), Semiconductors (SMH),Housing, and NASDAQ 100 (QQQQ).
Often times the intense selling like this leads to the oversold bounce, but more often than not, it is signalling a change in market character, and the bounce should be sold.
As I have it, Integrated Oils have broken down below several months of support. Oil Services are hanging in there above support despite the second intense selling day in a month; I am still long GSF, RDC, SLB, and PDE.
The Internet ETF, HHH, is still above a trend line despite its second intense selling day in the last 2 weeks and after having gone 4 months without one. SMH has had its third intense selling day in 6 weeks and has broken down (which is probably a precursor to a bounce).
Some of the action may be just a wash out in those sectors still above trend lines (Internets, Housing, Drug), and these should be the sectors getting the nice lift. But more often then not intense selling like this leads to a change in character for the market.
With regards to the "bounce" that "everyone" is expecting, may be that is just the issue; there are too many people expecting that bounce.
The breadth indicators that I follow are flashing oversold (but at their lowest levels in months) and the sentiment indicators I follow are still showing complacency and an over exposed investor.
Initial jobless claims increased by 43,000 to 369,000 in the week that ended Jan. 1, much larger than the 5,000 forecast. It was the biggest weekly jump since March 2002, The four-week moving average increased to 333,000 from 332,250 but still remains below the psychological 350,000 threshold. Bonds have rallied on the data, yield on the 3 year is down five basis points to 3.16% and the 10-year is trading down just 2 basis points to 4.28%; it hit 4.32%, a two month high early in the week.
Expect bonds to hold firm and in a narrow range today as trader's preparing for tomorrow's monthly jobs report. Some ancillary employment data this week such as a weak new hires component in the ISM index and reports of more layoffs from the Challenger Gray survey, has people tempering their estimates; average estimate for new-non-farm payrolls is still around 175,000 but it's silently (shall we say the "whisper number") is slipping towards the 150,000 level, anything below that could send yield on the 10-year back below 4.10% as it will mean the Fed probably wont get too aggressive and that wage inflation should remain at bay.
Does this open feel like Monday, Tuesday, and Wednesday? I think there is a short term rally coming, but not with an open like this. Quantum Corp just closed a very important acquisition, of Certance. The deal is critical strategically and should be very accretive. Usually, these two are mutually exclusive. Also, the storage market appears to be firm in the fourth quarter. I still think this could be my best small cap idea for 2005.
For those looking for some specific guidance, Rick Bensignor, chief technician of Morgan Stanley made these comments before the open this a.m.: "We think we can get a small trading bounce off the 50-day moving average --1182 in [S&P] futures and 1180 in cash -- pushing the market back up to the 1200-1210 area. We would use this to lighten up prior longs. Ideally, we get a chance to buy this index in the 1130-40 range sometime in the next few months, where the risk/reward lines up best."
With regards to JJC's article to the right on the dollar and the stock market.....my concern here and for over a month now has been gold which broke down on Dec 7. As reflation proxy for the stock market, gold has led just about every stock market advance and decline over the past 3 years; first is was lower interest rates that took the market higher in 2002 and 2003 and then it has been the falling dollar in 2003 and 2004. All this has been tipped off by the action in gold.
So look at a chart of gold now; it doesn't look pretty. It hints of deflation- as in my stocks are deflating along with my portfolio. Thus my concern for the stock market.
My new PC arrived Dead on Arrival; My 40G iPod came without the ordered inscription; The rebate on our new cell phones - bought 8 months ago - finally arrived.
This made me curious: What sort of experiences have you had - both good and bad - with new goods or services?
I want to hear from RealMoney readers about their consumer purchases (not exclusively Tech). If you have a beef or a particularly good experience -- Send me an email with "Consumer Purchases" as the subject - and if I can construe any sort of pattern to what I learn (or even just something interesting), I'll write up my findings in a future column.
Intel has been trading in a range between just under 22.50 and the declining 200-day moving average for the last 20 days. Looking at the current situation, support remains near 22.40-22.50, while resistance shows its head near 23.85. My favorite time to trade the big names such as Intel is when they are trading near a key support level such as this. If you like to trade ranges instead of wait for stocks to exit them, keep your eyes on this one for the bounce. In this specific situation, a 1% should be considered.
You may also note that 22.50 proved to be resistance in August 2004, which could be another reason it is serving as support right now.
Microsoft (MSFT) Chairman Bill Gates was interviewed before his snafu-filled keynote at the CES show by CNET and, not surprisingly he came out all guns blazing for Google (GOOG), Apple (AAPL) and Yahoo (YHOO).
What's the state of the world according to Gates? Crummy. As in:
"Search is really crummy today."
" If you just think about meetings and the ability to record the video and the audio of the meeting--create a transcript, notify people, have them see the parts they care about--it's crummy today, and that's solvable."
"When people want to manage a project with many companies involved--keeping data confidential, tracking and knowing what's going on--that's very crummy today compared to what it can be."
Shares of Microsoft are about where they were three years ago, despite all Gates' efforts in video games, consumer entertainment, small business services, PDAs, music, messaging and search. And the percentage of the company's operating income from plain old Windows has actually increased since then, hitting almost 89% in fiscal 2004 from under 86% in fiscal 2002 (fiscal years end June 30). Maybe he should have added that the company's performance has been pretty crummy too.
Per TSC editorial policy, no positions in individual stocks
1) Regarding Jim's piece to the right, a number of RealMoney commentators have noted that a falling dollar often helps stocks. A commentator outside RealMoney, Morgan Stanley's Andy Xie, yesterday put out a note (which I got via e-mail) suggesting that a weak dollar is the linchpin of all speculative asset classes in the world. Paul McCulley of PIMCO, in a somewhat self-indulgent piece with his foil Morgan Le Fay, suggests much the same thing.
I don't think there are a lack of intelligent commentators noting the link between the dollar and the US equity market; they just aren't prominent as the media sees it. It's not an easy story to tell.
2) Regarding Peter's article on IAC/InterActiveCorp, under the relatively new accounting regsulations, SFAS 142, it is fairly difficult to impair goodwill. In short, to impair goodwill, one would have to say that the pretax profits arising from the business purchased by the goodwill over the entire remaining life of the business are less than the amount of the goodwill. With a squishy business model where profits could grow rapidly, high levels of goodwill can be kept on the balance sheet. I would not expect a writedown, unless management wants one.
3) Investment Grade US Dollar-denominated Corporate bond indexes are tighter than they were in 1998, pre-LTCM, if one excludes the effects of the deterioration of the US auto makers, and the general quality degradation of the indexes. The indexes contain about 10% more weight in BBBs today than they did seven years ago.
4) The news with ACE's has been received differently, depending on what analysts you talk to. A large component of ACE's plan is to sell three subsidiaries to a British company who would run them off (i.e., pay claims until completion). I would only note that it is very difficult to sell an insurance liability in entire. If the new insurance that the liability gets sold to fails, the claimants could have legal recourse against the company that sold the liability.
5) The Wall Street Journal had a piece on Equity Indexed Annuities [EIAs] today. I'm no bull on annuities, as longtime readers know, but I have a particular dislike for EIAs because of their complexity. It's like any other strategy of buying and holding options; you're going to hit a few, and have a lot of strikeouts. Having hedged these policies in a past life, I can tell you that on average, the policies aren't designed to earn more than a five-year Treasury yield. If that floats your boat, and you want illiquidity and lumpy returns (with a floor guarantee) then EIAs are for you. But I expect RealMoney readers are shooting for more.
At the thestreet.com conference back in October 04, I mentioned I liked an energy stock Interoil (IOC) in the mid $20s.
It has since traded up to $40, and now looks to be getting soft. The stock has had a great run, but it looks to be getting distributed on heavier than usual volume -- despite Oil being up $2 a barrell..
The chart still looks OK -- there is some support at $32-34ish -- but at this point, given the significant divergence with Crude, and the big move up, my enthusiasm has waned.
I am selling my position in IOC. I am now flat the stock -- neither long nor short.
It's become increasingly obvious over the past few days that the Fed has no intention of pausing its campaign of "measured" interest rate hikes. Real rates are still too low for Greenspan et al even without signs of inflation and they're more bullish than most on the economy. As a result of the wider awareness of higher rates coming down the pike in 2005, the dollar is rallying. Economic prospects in Japan and Europe don't appear to merit higher rates, rather lower rates may be in store, which puts downward pressure on their currencies.
Higher rates also are not good for stocks and the strongest bout of selling over the past three days came precisely after the Fed released its December minutes showing just how committed it was to higher rates.
In other words, stocks are falling for one of the same reasons that the dollar is rallying -- NOT BECAUSE THE DOLLAR IS RALLYING.
Aaron, there are plenty of examples of bull markets in rising rate environments. Last year was one of those as was that little rally stocks had in 1999. The Nazz's run from the August lows to the end of the year would have annualized out to something like a 75% return. Was that sustainable? No. Are people actually selling becuase the Fed indicated for the umpteenth time that they will probably continue to raise rates? Sure, some are. Is that why stocks are going down? I sure don't think so. 75% annualized returns need corrections and pauses. It's the way it works. And stocks have had plenty of sustainable bull/bear phases in the last 7 years while the dollar was rallying as well as while it's been declining. Are people buying the dollar off the Fed's comments? Sure, some are. Are those comments why the dollar's rallying? I sure don't think so. In other words, I'd hesitate assigning near term movements as due to single catalysts.
For what I think is a reasonably interesting discussion of the financing of the US current account deficit, I would draw your attention to this post in Brad Setser's economics blog. He uses my analogy that the current situation is a second "Bretton Woods" treaty, except that there isn't any gold as an anchor this time. Enjoy, if this is your cup of tea.
Cody, agreed there are many factors at work on both the dollar and the stock market, especially given how each market had run over the past few months. I just find the wave of commentary attributing the stock market's weakness of late to the dollar's strength to be misguided.
Over long periods of time, moves in the dollar and interest rates have had both positive and negative effects on stocks. Sometimes their moves were irrelevent. As you have noted on several occassions, speed matters as does context. Rates rising off historic lows well below the rate of inflation didn't have much "bite" in slowing the economy in 2004. As rates move higher this year, that may not be the case. The markets certainly had some crummy patches in '87 and '94 in part due to rapidly rising rates.
One last point on your 1999 example -- I think that's very telling. The Fed raised rates only three times in 1999 by a grand total of 75 basis points. They kept on hiking into 2000 another 100 basis points and we know what happened from there.
Every weak session at this point should increase the strength of the oversold bounce, when it comes. The selloff has also reduced the downside risk of holding long positions into tomorrow's labor report, regardless of the data's quality.
This isn't a call on the fundamentals. It's an observation of the current "stretch" in standard deviation on the indices. As others have noted, this isn't a bad time to start dipping in on the long side. Just be very selective.
We finally got the bounce. Tomorrow will be a very interesting day. Should the market gap on decent employment data but not hold, I would be concerned about next week. If it holds on weak or expected data, I would be encouraged. I remain concerned about investors being too long because of preinvested seasonal cash inflows and year end mark-ups.
Yesterday, after the gap up opening, the Nasdaq Composite pulled back to the support at 2098 and bounced. Then late in the day the thing fell apart (again) and the Nasdaq and everything else made new lows for the new year. The Composite though, at that point, was still holding the support at the 2090 level.
Then this morning, we were treated to another in a series of gap-up openings (the S&P Futures has gapped up every day this week), and then of course the market pulled back, though for a change, not completely filling the gap in the S&P.
Then, after a bit of a bounce, the next shoe fell and the Nasdaq Composite make even lower lows for the new year. This time, the Composite broke the 2090 support, but not by much, bottoming at 2088 prior to the rebound back above 2100. The S&P also pulled back into its gap but again didn't quite fill it and so it didn't make lower lows for the new year. That is a bit of a positive divergence.
Good News and Bad News
Perhaps more significant is that, as noted, the S&P left that downside gap as it bottomed at 1184.80 leaving a 1.60 gap still open down to 1183.20. That has both bullish and bearish implications. Bullish in that the market was unable to fill that gap. And bearish in that it now provides a downside target, and this gap like most gaps, will likely get filled -- and probably sooner rather than later.
Also of note, yesterday's McClellan Oscillator reading was a quite oversold -218.5. Of course, if the market holds onto its gains, the oscillator will be much less oversold at today's close. Accordingly, this bounce is taking care of things, so if, by chance, tomorrow's Unemployment Report is viewed negatively by the market, it won't have to rally just to work off the oversold condition. It is taking care of that today. So yes, it could sell off again tomorrow, if necessary.
long DJ calls and Russell 2000 (IWM) calls and Russell 2000 Funds
Wednesday, I suggested that if you missed the big bump in IAC/InterActiveCorp (IACI:Nasdaq) on the breakup, you could get back in now at $25.
Little did I know that not all are in agreement on this company. Our own Peter Eavis details a series of problems with the stock that he thinks leaves it with multiple Achilles heels. I can't rebut it point-by-point now, but I will next week.
I do want to point out, though, that I pushed as hard as I could to Mr. Diller that he should do the split-up because I thought the company was just too hard to understand, too dominated by travel. I sold IAC and bought Cendant (CD:NYSE) because I liked the profile of Cendant better.
But with this split, my worries are going away. It's easy to understand. Want travel? Buy Expedia. Want all of the other processing companies? Buy them.
To think that this breakup isn't creating value is to think that IAC was understandable as-is, and I never thought that. Never.
So I am thrilled that Diller's making this move. And I will refute more next week when I have a moment to breathe.
I keep getting asked what i expect the number to be tomorrow; Quite frankly, I haven't the slightest idea what it will be -- despite the mid-day DJ headline, cheerleading Fed's Hoenig -- "Dec Jobs Report Likely To Show More Growth."
Why discount Hoenig? He also said "I think a number in the order of two million net new jobs in 2005 is in the realm of possibility."
Of course, an alien invasion is also in the realm of possibility -- its just not the in the realm of likely outcomes. I am out of patience with that sort of linguistical garbage.
Instead, let's consider the most recent data points. They have all pointed towards a soft number tomorrow:
The Challenger layoff numbers were higher than expected;
The ISM employment data was worse than expected;
The new unemployment data was worse than expected;
Online job advertising giant Monster.com said its employment index eased, with online demand for workers decreasing in 19 out of 23 occupational categories in the month of December.
So if I was a gambling sort of fellow, I would take the under rather than the over.
My new PC arrived Dead on Arrival; My 40G iPod came without the ordered inscription; The rebate on our new cell phones - bought 8 months ago - finally arrived.
This made me curious: What sort of experiences have you had - both good and bad - with new goods or services?
I want to hear from RealMoney readers about their consumer purchases (not exclusively Tech). If you have a beef or a particularly good experience -- Send me an email with "Consumer Purchases" as the subject - and if I can construe any sort of pattern to what I learn (or even just something interesting), I'll write up my findings in a future column.
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