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Let the Economic Reports Begin

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At 8:30 ET, economic reports began flowing. Those reports included April import prices and retail sales. March import prices, ex-oil, had risen 0.9%, but the just-released April number showed a fall of 2.7%, with the ex-oil number showing a decrease of 0.9%. April export prices were due to be released at the same time, but I have not been able to locate that release after a search of multiple news sources. March export prices, ex-ag, had risen 0.3%.

Retail sales probably drew more attention, however, especially as they surprised to the downside, with a fall of 0.1% and an ex-autos fall of 0.9%. Projections were for increases of between 0.4-0.6%, with retail sales ex-auto projections for gains of 0.2-0.4%. March numbers had been risen 2.1% and 1.2%, respectively.

U.S. futures reacted by dipping slightly immediately after the report but then steadying. As of 8:40 ET, S&P futures were up 3.00 to 945.80, DJI futures were up 28 to 8695, and Nasdaq futures were up 4.50 to 1159. Overnight, the ES contract had been drifting slowly down, but the opening of the European markets saw the futures begin a steady climb toward a 948.25 high at 6:45 ET that slightly exceeded Monday and Tuesday highs. The Nikkei traded up, and European markets traded mostly flat or up, with both the FTSE 100 and CAC 40 reaching toward or achieving important psychological levels. Added to the reassurance engendered by the steady performances of the global markets was that created by the steadying and slight rise in the dollar.

The initial reaction to economic numbers may not be that seen in later trading, so it might be instructive to watch the retail index in particular today. In yesterday's trading, the retail index $RLX traded essentially flat, falling a minimal 0.76 or 0.24%. Giant retailer Wal-Mart (WMT), an $RLX component, fell 2.13%, however, on weaker-than-expected sales and rising inventories. Analysts fear a trickle-down effect on smaller retailers as those rising inventories force Wal-Mart to mark down merchandise in order to move it. Yesterday's fall dropped the retailer down to its rising 21-dma. Other than some brief dips below this moving average, WMT has found support from the 21-dma since the middle of March.

After reporting a 29% drop in earnings, retailer JC Penney (JCP) rose a whopping 4.5% yesterday after providing a bullish forecast for full-year sales and earnings potential . . . as long as the retail outlook improved. Huh? Although some worried about JC Penney's employment of the fabled second-half-recovery prediction, most were reassured by a quarter they had feared would be worse. They attribute yesterday's gains to that reassurance. This morning, however, Goldman Sachs cited several problems in JCP's report, including an "uncertain consumer outlook" in its downgrade of JCP to "underperform" from "in-line." Perhaps Goldman Sachs didn't buy the "as long as the retail outlook improves" story, either. In pre-market, JCP appears to be trading down, bid below $18 at 8:30 ET after closing yesterday at 18.85. Another retail stock in the news today was May Department Stores (MAY), downgraded to underperform by Bear Stearns.

Semis and semiconductor-related companies made news yesterday, with Merrill Lynch downgrading NVDA, SMTC, MXIM, ISIL, APOL, and ATYT and saying that the $SOX was overvalued by 20%, as Jim reported last night. AMAT's earnings release resulted in the stock trending down in afterhours yesterday, and today, pre-market trading shows AMAT bid at 15.20 at 8:30 ET after closing at 15.56 yesterday.

Other stocks in the news today include Millennium (MLNM) which received approval for its drug Velcade, Computer Sciences (CSC) upgraded to "outperform" from "in-line" by Goldman Sachs due to its improved risk profile, homebuilder and financial services company Hovnanian Enterprises (HOV) downgraded to "underperform" from "neutral" by Credit Suisse First Boston on valuation, and Sony (SNE, 25.52, up .40).

Sony has been trading up all this week on the Japanese market, recouping some of the massive losses since its disastrous April 24 earnings report. Today, investors found out why this week saw gains, as Sony announced that it would produce a handheld game machine to be called the PSP (for PlayStation Portable). This handheld will feature 3D graphics and sound and will include an USB port that will allow it to connect to the PlayStation as well as to other devices. As I mentioned on the OIN Options Monitor this morning, SNE is currently on a P&F sell signal and still faces multiple levels of overhead resistance before it will produce a buy signal with a trade at 39. Some analysts expect the handheld's release to benefit Sony and hurt Nintendo, but others question Sony's judgment of market trends, customer service record, and allocation of resources in the wake of its earnings report. So far this morning, market participants are cheered by the introduction of the handheld and ignoring the possible remaining problems, with SNE bidding above 26 at 8:30 ET.

Fair value for the S&P 500 today is $-.34. That price will not change during the session. HL Camp & Company set their computers for program buying at $0.48 and for program selling at $-1.82.

Linda Piazza

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