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Holding the lows

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After reversing morning gains on the University of Michigan sentiment report, which showed a decline in consumer sentiment as the Iraq war becomes more distant in consumer's minds, the major indexes have shown some signs of firming at their session in the past couple of hours with the broader S&P 500 Index (SPX.X) trading down 10.6 points (-1.06%) at 987.85 after trading a session high of 1,000.92 earlier this morning.

The 87.2 reading for June sentiment was well below economists' forecast of 93.1 and showed consumer optimism slipping from the 92.1 reading in May. The weaker than expected reading has created concern that the continued weakness on the jobs front, has negated any boost for optimism that the stock market's rise from the March lows may have held.

The Dow Industrials (INDU) 9,106 -0.97 is lower by 90-points after an morning high of 9,222 was quickly reversed on the sentiment report. Dow breadth is negative at 27 to 3, with AT&T (NYSE:T) $20.74 -3.66% leading component declines and giving back the bulk of yesterday's gains after Jefferies downgraded AT&T to "underperform" from "hold" based on valuation and stock exceeding their bullish price objective of $18. Component General Motors (NYSE:GM) $36.09 -2.77% is lower after Moody's downgraded the company's debt rating to Baa1 from A3. Building products retailer Home Depot (NYSE:HD) $33.34 +1.24% bucks the trend, despite today's report of declining consumer sentiment.

Sector action is broadly negative with the Gold/Silver Index (XAU.X) 77.84 +1.51% continuing to build gains in today's session. This is a sector I've liked on a technical basis for several weeks, and today's economic report that showed falling producer prices and slipping consumer sentiment, most likely brings in some sector bulls on further thought of "deflation."

The Semiconductor Index (SOX.X) 362.12 -3.52% continues to lead sector decliners, with bellwether Intel (NASDAQ:INTC) $21.46 -3.11% lower on a valuation downgrade by Deutsche Securities.

The GSTI Software Index (GSO.X) 129.49 -1.64 is matching the NASDAQ-100 Index (NDX.X) 1,208.59 -1.68% declines, with Adobe Systems (NASDAQ:ADBE) $31.82 -11.54% at a session low after reporting Q2 earnings that beat estimates, but market participants seem to have priced in more bullish Q3 results than the company's inline with consensus guidance for Q3 revenue of $300-$315 million, when analysts' consensus was perhaps at the higher end of that guidance at $311 million. WR Hambrecht upgraded shares of ADBE to "buy" from "hold" on thought that the modest change in guidance reflects product timing, but not a change in fundamentals.

I looked at a Point and Figure chart of ADBE to see if there was a trade at hand, and this morning's gap lower just didn't look to me like a trade could be found. I tend to agree with WR Hambrecht at this point, but would much rather look for bullish entry on the stock at bullish support trend of $29.00. The reason I lean toward the bullish camp in ADBE, is that while the stock did get a little overextended ahead of the seasonally slow summer season, this stock had not generated a point and figure sell signal since triggering a triple-top buy signal in October at $22. When many technology stocks were generating sell signals in March, ADBE found plenty of support at $26, and I think buyers will be lurking near $29-$30, with thought that new product rollouts later this summer set up for a good latter part of the year.

Jeff Bailey

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