Stocks Miss M&A Signal

It's a huge day for deals, but the market just marks time.
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The stock market spent Monday digesting last week's run to new highs.

Absent any economic data, merger and acquisition activity and earnings held stock traders' attention. And though the news was largely bullish, stocks dropped modestly across the board. In the bond pits, the growth-scare scenario continued to drive yields lower.

The

Dow Jones Industrial Average

ended the day down 0.3%, closing at 12,919.40, while the

S&P 500

finished down 0.2% to close at 1480.93. The

Nasdaq Composite

finished Monday down 0.1% to close at 2523.67.

The Dow is fewer than 100 points away from its next milestone at 13,000. The blue-chip index came close intraday, marking a new record at 12,983.92 Monday. As much as investors are cheering the Dow's next milestone, the buzz on Wall Street is about when the S&P 500 will hit a new all-time high. The S&P 500 remains 47 points off its March 24, 2000, high of 1527.46.

John Roque, chief technical analyst at Natexis Bleichroeder, says "consolidating" may be a better word for Monday's stock market activity than many traders' term "digesting." Consolidation happens when stocks aren't making any progress, but they're not doing any damage either.

"It is sideways activity," he says.

By damage, Roque means breaking the broader trend -- in this case, the trend is up. He says the S&P 500 could fall to 1450, and it wouldn't damage last week's breakout in that index.

If the market weren't consolidating after a big run up, it would be giving signals of a top and a major reversal, says Philip Roth, chief technical analyst at Miller Tabak. Roth adds that volume is weak and breadth, the number of advancing vs. declining stocks, is flat. But "for now I give the benefit of the doubt to the market," that this is just a pause before another leg up.

"That's the macro story," says Roth. "The micro story going on is the earnings lottery. It's like Las Vegas with people betting on earnings beating or missing expectations."

Some of Monday's highlights include

Arch Coal

(ACI) - Get Report

beating analyst estimates, gaining 4.4% and bringing the rest of the coal stocks with it.

Hasbro

(HAS) - Get Report

jumped 7.7%, while

Kimberly Clark

(KMG)

fell 1.2% even though its earnings beat estimates.

Novartis

(NVS) - Get Report

slipped 0.7% despite beating analyst expectations and sticking with its sales forecast, and

L-3 Communications

(LLL) - Get Report

fell 1% despite a strong report and guidance.

Investors awoke to news of the latest giant merger between

Barclays Bank

and

ABN Amro

, though both stocks fell more than 2% Monday. Drugmaker

AstraZeneca

(AZN) - Get Report

announced plans to buy

MedImmune

(MEDI)

, and

Bank of America

(BAC) - Get Report

is on board to buy LaSalle Bank from ABN.

General Motors

(GM) - Get Report

pressured the Dow industrials Monday, falling 3.2% on reports that Vice Chairman Bob Lutz said the subprime mortgage meltdown is hitting sales.

Executive pessimism is not new in this earnings season, regardless of the substantial number of companies beating estimates and providing decent guidance. Business spending has slowed as fears about the economy continue to fester amid weak housing and manufacturing sectors. Last week, industrial giant

Caterpillar

(CAT) - Get Report

beat earnings expectations, but its

executives warned that they believe economic growth will be "below trend" this year.

The bond market must be lunching with corporate executives, as Treasury traders continue to reaffirm their belief that the economy's downward trend is slippery and bottomless. In contrast to the more optimistic stock market these days, Treasury yields are falling and rate-cut expectations increasing. The 10-year note ained 6/23 to yield 4.65% Monday.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

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