The stock market appears to be correcting a bit on worse than expected consumer sentiment numbers. Investors were also digesting the latest CPI data and industrial production report. The profit taking started overseas this morning. The U.S. dollar is bouncing, which is putting a little pressure on the commodity space. The worst performers today appear to be technology, cyclicals and oil services.
Asian markets were mixed. The Japanese NIKKEI continues to bounce and posted its fifth weekly gain in a row. Monday could be key for the Japanese market as traders get a look at the second-quarter GDP numbers. Analysts expect the Japanese economy to grow 1%. The NIKKEI gained 0.7% on Friday. The Chinese market suffered another sharp decline. Today's 2.8% drop in the Shanghai index puts its weekly loss at -6.6% and the market closed at six-week lows. The Hong Kong Hang Seng gained 0.15%. On the other side of the globe European stocks traded sideways but in positive territory for most of the session only to sell-off in the last couple of hours. The French CAC-40 index lost 0.8%. The English FTSE gave up 0.9%. The German DAX lost 1.79%.
Consumer spending accounts for about 70% of the U.S. economy and the stock market is sensitive to the consumer confidence number. A nervous consumer doesn't spend as much. The Reuters/University of Michigan index of consumer sentiment came in worse than expected at 63.2 in August. Economists were expecting it to rise from 66 in July to 69 this month. We've been worried about the back to school shopping season and this certainly doesn't bode well. If consumers remain nervous about their job security and falling real estate wealth they're going to cut back on their spending and this could short-circuit the economic recovery.
Echoing the decline in consumer sentiment were some lackluster earnings report from J.C.Penney (JCP) and Abercrombie and Fitch (ANF) this morning. ANF delivered a loss of 30 cents per share versus analysts' estimates of -7 cents per share. Revenues fell more than 23% and gross margins contracted. ANF's same-store sales fell about 30% in the quarter. JCP managed to beat Wall Street's estimates by a penny. Analysts were looking for a loss of 1 cent per share. JCP broke even on the quarter thanks to cost cutting. Management issued an earnings warning for the third quarter but raised their full year 2010 guidance. JCP's same-store sales fell 9.5% and they expect third-quarter same-store sales to fall about 6%. Shares of ANF are up 3.8% and trading at new 2009 highs. JCP is down 6.2% at $31.25. The RLX retail index is off almost 2% and about to break down under the 360 level.
There were two economic reports out today. The Labor Department said the consumer price index (CPI) came in flat for July compared to a 0.7% gain in June. The trend in prices is down with the CPI seeing its biggest one-year plunge in the last 60 years thanks in large part to the big drop in energy prices. Deflationary trends in Japan and Europe are starting to show up here in the states. Thus the Federal Reserve will probably keep monetary policy very accommodative for the foreseeable future. They'll do anything to avoid deflation. Speaking of the Fed, they released a report on industrial production this morning, which rose 0.5% in July. This was the first gain in nine months. Estimates were for a rise of +0.3%.
Currently the S&P 500 index is off about 16 points at 996. The NASDAQ composite is off more than 36 points at 1,972. The Dow Industrials are off 143 points at 9,254. The small cap Russell 2000 index is really under performing with a 15.7-point (-2.7%) drop to 559.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
A quick scan of the OptionInvestor.com play list reveals that CHRW is rolling over and back under resistance at $55.00. Yesterday's breakout in DO has reversed. The bounce in the gold miners is reversing. Our new call play on MBT hit our trigger and reversed. Readers may want to exit MBT early given the relative weakness! Our put plays are certainly looking stronger. GMCR is off 4% near $62.00 and testing its 50-dma. IBB is down 1.8% and hitting new relative lows. ICE is trading under support at the $90.00 level. This looks like another entry point for put positions.