Dow Streak In Danger
The Dow's eight-week winning streak is in danger of coming to an end with the -273 point drop for the week as of today's close. Nobody should be surprised because streaks never last forever. The key point to remember was the cycle prior to this winning streak. The Dow was alternating 4-5 week streaks of gains and losses and the fear is not that the Dow took a week off but worries over that five weeks of alternating down trend returning.
Dow Chart - Daily
Nasdaq Chart - Daily
Stocks started off the morning with news of a 50-point rate cut by the ECB but the excitement lasted all of 10 min before the sell off began. A leading reason for the drop was the November Chain Store sales which came in at -0.1%. Not a rousing start for the holiday season! The strong sales for the two days after the Thanksgiving holiday were simply not enough to compensate for shrinking numbers earlier in the month. This was the lowest retail sales number in the last seven months and was a marked contrast to the +3.2% gains in October. The November numbers were hurt by the calendar with only two shopping days after Thanksgiving compared to an average of four days. Department stores dropped -6.7%, footwear -3.0%, furniture -0.5%. The biggest gain was in drug stores at +8.0%. Stocking up on aspirin and Alka Seltzer for the holidays? Analysts pointed to unemployment and high consumer debt levels as the drag on sales.
The October gains were enough to power Best Buy and Circuit City to claim better than expected results for their last quarter. They will announce actual earnings on Dec-17th and their guidance will be critical. This will be three weeks into the December holiday sales and it will be a real look inside the holiday economy.
Jobless Claims fell much more than expected to only 355,000 and about 20,000 below consensus. This was a 21 month low but was likely impacted by the short holiday week. There is no real evidence of any change in hiring on the national level. However, as I have noted in the Market Monitor, several readers have emailed me about the pickup in head hunter activity lately. Many highly qualified job hunters have been seeing a vast increase in the number of calls and interviews over the last 2-3 weeks. There has not been any new hiring trend developing from this activity and many feel that companies are just lining up prospects for an early January surge. No reason to bring them on before the holidays and incur that extra expense when little work gets done between now and January.
A bigger drag on the markets continued to be UAL and the impending bankruptcy. The government refused to give UAL the loan guarantee it needed saying the airline's plan was doomed to failure and presented too much risk for taxpayers. The stock was halted from trading until late in the afternoon when it lost two thirds of its value. Reporters claim that JPM, ONE, C and GE Capital are putting together a $1.5 billion debtor in possession loan. Once this loan is arranged the company is expected to make the filing. This prompted UAL to be dropped from the Dow Transportation index and they will be replaced by UPS. Nobody really expects UAL to quit flying but the number of flights and planes could drop significantly. This impacted all the feeder groups like Boeing, even after BA said it would not impact them, and travel groups like hotels and car rentals. If UAL suddenly flew 25% fewer flights the industry would pick up the slack but the uncertainty is the real problem.
The tech sector failed to hold to positive territory even after AMD raised its guidance for the fourth quarter. AMD said sales of microchips used in computers and flash memory products were better than expected. The company raised its sales estimates to $700 million and well above the $599 million consensus. You would have expected this news to rally the tech sector but there was considerable worry that Intel would spoil the party. This was another case of the bar for AMD being lowered too far and even a badly battered AMD was able to trip over it.
Helping to offset the AMD news was a warning from GTW that sales would fall short of expectations. The GTW CEO said last weekend's sales of computers were disappointing. He said the PC does not appear to be a holiday item this year. He did say they were selling more flat screen televisions than expected. He described the PC pricing environment as "brutal" and claimed entry level PC prices were now well below $399. He said they would need several weeks of "good" sales to even meet the bottom of their previous outlook. He said the "low end of the prior range was probably only a best case scenario". Thank you Ted for the encouraging words.
After the close Intel said slightly stronger sales in Asia, not the U.S., would push it to just slightly above its previous revenue guidance. INTC said it was raising guidance to $6.8-$7.0 billion from $6.5-$6.9 billion. They also said the gross margins had firmed to around 49% plus or minus a couple of points. They did say they would lose about twice as much as expected from investments but at -$90 million it is not relative to the bottom line. Most analysts feel this minor revenue improvement was already priced into the stock which rallied from $13 to $22 since the October lows. Several high profile analysts had recommended a sell on INTC at the +$20 level. INTC only rose +.50 cents in after hours.
In an unexpected turn of events a Federal judge said that Microsoft's behavior toward SUNW was like the 1994 knee-clubbing of Olympic skater Nancy Kerrigan. He went on to say that MSFT had stolen the game signals from the other team and was attempting to un-engineer that market. Just when MSFT thought the court problems were dwindling the judge appears to have taken up the fight for SUNW in the current Java trial in progress. In the last four days MSFT has been clubbed by the judge for a -$4 loss. Count on MSFT detractors to jump on these comments and attempt to get more sanctions against the giant.
The bottom line for Thursday's trading was concern over Intel, Iraq and Venezuela. The IRAQ deadline of Dec-8th is rapidly approaching and it is almost a sure thing that the U.S. will find something to fight about. Reports today indicated that up to 200,000 troops could be called up to fight the war. Oil shipments stopped in Venezuela amid strikes and violence and oil prices rose again on the open market. New terrorist attacks and fears of attacks made news and a fierce ice storm on the east coast knocked out power to as many as two million customers. All these factors kept traders on the sidelines and volume on both major exchanges was very low. The Nasdaq only traded 1.3 billion shares.
Friday's economic reports include the Jobs Report, Consumer Credit and Leading Indicators. The Jobs Report is the key and any positive numbers should bring life back into the market. A negative number could be shaken off as already priced in with traders focusing on AMD/INTC instead. Support on the major indexes is just below our closing numbers at Dow 8600, Nasdaq 1400, SPX 905, OEX 460. The path of least resistance has changed tonight from down to up. After five days of selling the markets are due for a bounce. Exactly where and when that bounce will occur is unknown. We are entering a level of heavy congestion but that does not guarantee an instant, strong or lasting response. It just means the odds of a continued drop on Friday have decreased. Shorts are likely to take some chips off the table and wait for a new entry point.
Enter Very Passively, Exit Very Aggressively!