Snoozing in Front of CSCO
Headline reads, "Today Cancelled Due to Lack of Interest". For those who missed today's market action, you did not really miss any market action at all. Stay on the beach. The world was waiting for Cisco (CSCO) to announce earnings. (see below)
Zzzzzzzzzzzzzzzz. . . .Oh, sorry. I must have fallen asleep at the keyboard. There was some economic news this morning. Though a non-event, it is worth noting that the productivity report came in at +2.5%, well above the estimate at +1.6%. However, as we might suspect there are two takes on the numbers.
The first is, "Whoopee! Productivity proves that workers are producing more, thus there must be demand for more goods! Please pass the chips and salsa!" Perennial bulls love this take and tried to talk the market into rallying, but did not even come close.
The second take is, "Oh boy, we have fired a bunch people but have produced the same amount of goods. Here comes an inventory problem, and we may need to fire more if demand does not pick up". Bears of course subscribe to this theory. No honey in that pot for them either. Tomorrow, we get a glimpse of inventories when the wholesale inventory figures are released. The market expects a flat report - no inventory gain at all.
Somewhere in the middle lies the truth as the tog-o-war goes on for tired performers under a mostly empty circus tent.
More interesting to me though is that consumer credit finally slowed. For the first time since 1997, it actually declined. While revolving credit still rose by $2.3 bln, non-revolving credit - the kind that buys cars, vacations, pays school tuition, etc. - shriveled in comparison by $3.8 bln, a strong contrast to $11.4 bln average monthly increase since the year began. Consumers may be signaling that they are pulling in their spending horns, which could be another blow to the already weakening economy.
That is it on the economic front. The rest of the day can be summarized as snippets of interest, but not really market-moving news.
First, the analyst war on chips goes on. CSFB downgraded a bunch of stocks in the chip sector from Buy to Hold. LSI, CY, ATML, AMCC, NVLS, KLAC, and AMAT were among the victims. The SOX fell over 6% to 614. Welcome to the party, boys. Where 'ya been?
Second, MSFT asked to have their case heard by the Supreme Court. MSFT was largely unchanged on the day.
Third. . .Zzzzzzzzzz. Woops! It happened again, and now the day is over. NASDAQ-100 down 6 to 1696 on 1.3 bln shares; Dow plus 57 to 10,458 with just 979 mln shares traded on the NYSE; S&P 500 up 3 to 1204.
Well, at least CSCO will provide some excitement! And the numbers just in. . .Shoot! Right as expected, a $0.02 pro-forma profit (translation: we ignore GAAP figures that would normally show a loss so we can fool you into believing we turned a profit), thus not much action. But on the conference, Super John (Chambers) finally uttered that he does not see a bottom, as Asia and Europe continue to deteriorate, and long-term visibility remains challenging. In the end, Chambers was forced to back off 30-50% growth figures, which he labeled as "a stretch" by noting that only time will tell if CSCO's revenues will grow 15-30% or 30-50%.
Lots of conviction missing from those statements for good reason. Chambers has much less now. CSCO drifted lower in heavy after hours volume and will likely trade in a range for a while.
Even though its P/E is still. . . oh wait. It has no earnings, thus no "E" in P/E. Dang, now I do not even have a standard to show you that it is still comparatively overvalued.
OK, enough about nothing and noise. Let us move on to the charts for perhaps real direction.
Dow Industrial chart (INDU):
Weekly chart is forming a neutral wedge with weekly stochastic pattern slowing its advance. The daily chart is still pointed down even though support just under 10,400 held. Meanwhile short- term 60/30 charts suggest INDU is already topping out on the latest cycle. With no catalyst to spur prices, the course of action throughout the week may be further down until the daily stochastic reverses. Support is around 10,200.
NASDAQ-100 chart (NDX):
NASDAQ, a mere shadow of its former self, is proving to be a lost sheep. The weekly candles show a bearish descending wedge in a very tight range, certainly not the markings of a leader. While the price is edging down, stochastic is edging up. If this is strength, I would hate to see weakness. Perhaps I spoke too soon as we now see a weak and declining daily stochastic. While the 60/30 oscillators have moved to the low side, there are no swing or long-term trades to be taken here, excepting perhaps December straddles on the QQQ.
S&P 500 chart (SPX) chart:
Mirroring the Dow (or does the Dow mirror the SPX?), the SPX is forming a neutral wedge, which has stalled out the rising stochastic. The daily chart, though once again finding support around the 1200 level (and barely budging today), is still pointed stochastically down, suggesting today was only a breather before SPX resumes its drowning exercise. 60/30 charts are of little help and do not show much conviction.
In summary of all the charts, we are beginning to see the makings of a protracted bear market with the possibility of re-testing old lows. But while the daily stochastics are pointed down, now is not the time to look for those lows. Odds will not be high, but calls could make a comeback next week that would take the daily stochastic back to overbought and ready for the next round of puts. For daily charts, the remainder of the week is likely to show further weakness, but a weaker cycle up to overbought would leave the weekly chart poised for and (perhaps already) rolling over for the next long-term down leg. In short, mostly down interspersed with a shorter-lived call opportunity.
As for the VIX, at 22.65 it tipping into the optimists' column, which also suggests further selling may not be far off. Is it not ironic that the market is failing to gain AND optimism is growing? What happens when optimism falls off? Any guess as to market direction then? (Do not answer until you own puts.)
As for tomorrow, not even chart action gives us much guidance. But if I had to throw a dart, I would guess that it hits the "pop and drop" part of the board, popping with the notion that CSCO news was already out and it really was not that bad, shortly followed by the reality that the previous notion is bunk and it IS really that bad. Just follow the daily stochastic for the general trend.
Tomorrow's economic news on inventories is the wild card and could sway the markets either way. Bigger than expected increases might add to the negativity. On the other hand, markets are very dull right now and drastic selling is just as unlikely. If there was ever a time to hit the beach and leave the markets for a while, this is it.
See you at the bell.