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Business Inventories rose 0.1% in April

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The last bit of economic data for traders to chew on was released at 10:00 AM EST and found the major indexes retreating from their best levels of the session as April business inventories rose a modest 0.1%, which was less than economists forecast for a 0.2% rise (a positive number compared to forecast, but still shows an inventory build as demand not enough to eat away inventory). March's business inventory was revised lower to +0.3% from +0.4%.

Today's April inventory report also showed that sales fell by 1.5%, the largest monthly decline since September 2001, after rising by 1.7% in the previous month.

As sales fell and inventories rose, the inventory-to-sales ratio rose to 1.4 in April from 1.38 in March. The inventory-to-sales ratio measures how long it would take in months for a business to sell its entire current inventory.

The rise in inventories was led by a 1.2% increase in auto inventories and a 1.0% increase in inventories at general merchandise stores. After gapping higher to $82.48 in today's session, shares of Autozone (NYSE:AZO) $8.45 +0.49% hold a 44- cent gain, while Wal-Mart (NYSE:WMT) $54.87 -0.93% trades down 52 cents. The S&P Retailing Index (RLX.X) 328.45 trades unchanged.

It is very difficult to say if traders responded negatively to the inventory data. While there may have been a "leak" of the number to floor traders, we noted a "sell program premium alert" right at S&P 500 Index (SPX.X) 1,000. The "sell program" alert came right where we thought first resistance in this morning's trade would be, and the "sell program" alert was generated at approximately 09:43 AM EST, which was roughly 15-minutes prior to the inventory data being released. The S&P 500 (SPX.X) then fell to 991.34, and has since recouped half of that decline to trade fractionally lower at 996.81 -0.06%.

When the "sell program" was triggered, the Biotechnology Index (BTK.X) 476.48 -1.07% seemed to be hardest hit of the sectors I was watching as the BTK.X fell rather quickly from 482 to a session low of 471 over the course of 20-minutes. The Semiconductor Index (SOX.X) 377.26 -0.93%, which got off to a lower start to begin today's trade, also saw a rather quick decline. My observations here are that these buy/sell programs often have some sectors/stocks more heavily weighted for program buying/selling, and my observation this morning is that we might be seeing both of these sectors currently weighted on the sell side.

Does this mean sell all of your biotech and semiconductor holdings? Not necessarily, but I would STRONGLY advise traders to be measuring downside risk to point and figure sell signals at this point, and try to select any bullish trades or holding, with stocks that have pulled back into some type of base, and try and avoid or limit exposure to those stocks that may look rather extended from a some type of consolidation area, where buyers would then be found.

The NASDAQ-100 Index Tracking Stocks (AMEX:QQQ) $30.57 +0.16% has seen some intra-morning volatility. After reaching a session high of $30.75, the QQQ did see selling back to its WEEKLY pivot of $30.30 and DAILY pivot of $30.32, which was our "first zone of intra-day support" identified in last night's index trader wrap. In this morning's market monitor, I suggested that shorter-term traders from my bullish profiled QQQ trade of $30.12 look to exit the QQQ on the break lower at $30.51 as the QQQ then fell to WEEKLY/DAILY pivot levels of support.

The Dow Industrials (INDU) 9,192 +0.09% currently shows a 9-point gain after reaching a morning high of 9,236 and then reversing to a session low of 9,116.86. Current trade is right back at its best levels of the session after the first "sell program premium alert" was generated right at its session highs.

I would have to currently say, that this morning's trade looks more like that of some profit taking in the early going than any type of "negative response" to today's economic data.

Jeff Bailey

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