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Market Wrap

Consumer-Led Rally

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      11-14-2001          High     Low     Volume Advance/Decline
DJIA     9823.61 + 72.66  9859.38  9741.41 1.43 bln   1880/1229
NASDAQ   1903.19 + 11.08  1922.45  1875.27 2.14 bln   2060/1538
S&P 100   589.16 +  2.12   592.44   584.56   Totals   3940/2767
S&P 500  1141.21 +  2.12  1148.28  1132.87             
RUS 2000  452.82 +  4.48   452.82   448.29
DJ TRANS 2392.97 + 51.35  2395.84  2339.23
VIX        28.60 +  0.02    30.11    28.00 
VXN        56.38 +  0.44    58.48    55.85
TRIN        0.88 
Put/Call    0.53

Consumer-Led Rally

The Commerce Department has been using its current method of reporting retail sales figures for about 10 years. The jump in October was the largest on record. The Commerce Department reported retail sales rose by 7.1 percent in the month, much higher than economists had expected. Granted, a large portion of the jump was due to zero percent financing offered by auto dealers. However, minus the auto sales, retail sales grew by 1 percent during October, which was well above the consensus estimate of 0.3 percent growth.

The ex-auto sales figures rebounded back to where they were in August. While the 1 percent growth isn't considered that of an economic expansion, it did reveal that the U.S. consumer remained resilient during the month of October. Many economists had feared that the consumer would curb spending in the wake of the terrorist attacks and perpetuate the business-led slowdown in the economy. The October sales figures suggested otherwise.

It's early, but some economists suggested that the strong rebound in retail sales could actually move fourth-quarter gross domestic product (GDP) into positive territory and the economy back on the growth track. The bond market echoed those views Wednesday as yields sharply rallied, potentially discounting an economic recovery and the accompanying inflation.

The broader retail sector moved sharply higher following the report. The S&P Retail Sector Index (RLX.X) advanced past another resistance level, en route to climbing closer to its 52-week high at 937. The RLX.X is currently one of the strongest sectors of the market. It seems to me that this sector would be a good one to watch on any dip. Three of the stronger stocks within the group are Best Buy (NYSE:BBY), Kohls (NYSE:KSS), and AutoZone (NYSE:AZO).

The strength in the retail sector helped to offset weakness in the energy and healthcare sectors. Without the weakness in the latter two, the S&P 500 (SPX.X) would've finished much stronger Wednesday. Still, the index held above its breakout point yesterday at the 1130 level. With that level now below, the S&P doesn't have much resistance until the 1170 to 1175 area.

The Dow Jones Industrial Average ($INDU) broke above its resistance level at 9700 yesterday and continued higher today. The INDU doesn't have a lot of near-term congestion until 10,000. While support may now form around 9700.

INDU component Hewlett-Packard (NYSE:HWP) reported quarterly numbers this morning. HWP handily beat consensus estimates, which inspired buyers of its shares. The stock finished higher by 9 percent. Despite Hewlett's positive report, another INDU/hardware stock slid lower. IBM (NYSE:IBM) was under pressure ahead of its analyst meeting after the bell. Rumors were again flying ahead of the company's meeting. But the company didn't offer any financial guidance during its meeting. An IBM official did say that demand was returning for technology services, which may put the stock in play Thursday morning.

Applied Materials (NASDAQ:AMAT) was less positive. The chip equipment giant reported after the bell. Its numbers fell one penny short of consensus estimates. In addition, the company said that its business could continue worsening in the current quarter as its customers continue delaying orders. The stock was down almost $2 in the evening session.

The bad news from AMAT may already be discounted into the stock. I hate to put too much credence into the after hours session weakness. There was a similar reaction to QCOM's report a week ago, but the stock ended higher the following day. Nevertheless, it may pay to observe how the broader chip sector reacts to AMAT's guidance.

The Nasdaq-100 (NDX.X) worked its way through the resistance zone between 1575 and 1600 if you count the gap higher Tuesday morning. The index looks strong and could continue advancing up to the 1650 to 1700 area.

Dell (NASDAQ:DELL) is set to report after the bell tomorrow. Dell will impact the chip sector as well as the broader Nasdaq, so it will be one to watch Thursday and into Friday. In addition to the reception of the Dell report Friday morning, retail inflation figures are set for release. The wholesale figures recently reported revealed that inflation was a non-issue, so the CPI should reveal similar data.

Eric Utley
Option Investor

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