The usual inexplicable rally on bad economic news at the preopen shocked bulls and bears alike when it reversed at 9:45, driving the indices to their day lows before attempting a weak bounce that created a trading range for the remainder of the session. The losses were minimal, no more than a "shake", as Alan likes to put it, but losses nonetheless.
Despite minimal losses, volume was respectable, with 1.71B shares traded on the NYSE and 1.78B shares on the Nasdaq.
Daily Chart of the INDU
Weekly Chart of the INDU
As discussed for weeks now, the current pattern is projecting to strong resistance at current levels, both for the INDU and the COMPX. A resolution is due at any time. The COMPX looks far more bullish than the INDU, but both indices are printing bearish formations on their daily charts, and look very toppy on that timeframe.
Daily Chart of the COMPX
Weekly Chart of the COMPX
Equities shrugged off disappointing retail sales and import numbers at 8:30, with the Commerce Department reporting that retail sales fell 0.1% in April following a revised 2.3% gain in March. Retail sales excluding automobiles fell -0.9% in April after rising a revised 1.5% in March. Expectations had been for retail sales to rise 0.4% and sales ex autos to rise 0.1%. The move was attributed to declining gasoline prices and weak sales at clothing and department stores which offset a surge in car buying in April. March import prices, excluding oil, were up 0.9%, but April brought a decline of -2.7%, the largest one month drop on record. April imports ex oil were down -0.9%. Immediately following the reports at 8:30, the US Dollar Index dipped, bonds rallied, and equity futures reached for their morning lows, but within minutes the slide was arrested, with equity futures actually bouncing to new highs and climbing until 9:45AM.
The Energy Department reported drop in crude oil inventories of - 2.7 million barrels for the week ended May 9, surprising analysts yet again on their expectations of a 2M barrel rise. Stocks were down -12.5% from 284.5 million barrels at this time last year. Gasoline inventories rose by 800,000 barrels to 208.6M barrels in this past week, bringing supplies to levels 4% lower than at this time last year. June crude was up 67 cents to close at $29.17 per barrel.
Chart of the US Dollar Index
The US Dollar Index touched the 95.00 level overnight and failed again, and got hit after the 8:30AM data. It sunk to near 2 year lows against the yen but gained slightly against the euro, as US treasuries rallied, bringing the thirty year yield to 45 year lows, a new bear market low. Traders watched incredulous as equities treaded water, containing their losses in the face of recent bear market lows in the US Dollar Index and treasury yields, both representing substantially larger pools of money than equities. My thinking continues to be that the fed's recent proclamations of its intent to do whatever it deems necessary to avoid "dis"inflation has resulted in a flood of US dollars hitting the markets, either from foreign sellers or from the fed itself. Either way, this supply is diminishing the price of dollars while chasing US denominated assets, be they treasury bonds, equities, commodities, and even precious metals, all of which have been rallying simultaneously.
Thinking a step further, one might wonder if the weaker dollar is not an excellent way to mitigate both the ballooning balance of trades deficit, as well as the national deficit. With an estimated 30% of US debt held by foreigners, and domestic savings at or near record lows, the devaluation of the US Dollar is an excellent way to reduce the real value of that debt while harming only the vast minority of Americans who are actually net savers. In light of Ben "The Terminator" Bernanke's statements about being able to print dollars out of thin air, it's no wonder that massive supplies of US Dollars are hitting the forex markets- if I owned US treasuries in a foreign land, I'd be dumping them too, which is no doubt the desired effect. But I digress. Treasuries finished the day off their highs but still well within breakout territory, with the TYX -10.6 basis points at 4.52%, TNX -8.6 basis points to 3.537% and the five year yield down 7.8 basis points to 2.49%.
Daily chart of the thirty year yield
Is there any fundamental or sentiment-based sign of this trend reversing? Apparently not, as this afternoon, Congressman Jim Saxton, R-N.J., vice chairman of the House-Senate Joint Economic Committee urged the fed to cut interest rates to hopefully firm up the economic "soft patch." He stated: "Given the lack of inflation, the fed should move soon to ease monetary policy and improve the economic outlook. By many measures, current domestic and international economic conditions still appear to be quite weak. Business investment during this expansion never fully recovered as many had expected, leaving the economy on a sub-par growth path. We still seem to be stuck in the 'soft patch' Chairman Greenspan described last November."
Given all of the foregoing, it's no wonder that big moves have been occurring over past weeks and months in equities and bonds, and the financial press was all abuzz today about reports from brokers and market makers showing a spike in retail investor activity. For example, NITE reported a 10.6% increase in equity trade volume in April. This data helped the Broker Dealer Index ($XBD) outperform the broader market today. However, a spike in retail investor activity hardly looks like a long term bullish indication to me, except perhaps as may regard this current quarter's results of XBD components for the profits no doubt being accumulated. Just as J.P. Morgan reputedly saved his fortune from the Great Crash when observing that the market was being overplayed (upon receiving a stock tip from a shoeshine boy), the increase of speculative retail activity is generally associated more with market tops than with bottoms.
Is there any sign of this trend reversing? Apparently not, as this afternoon, Congressman Jim Saxton, R-N.J., vice chairman of the House-Senate Joint Economic Committee urged the fed to cut interest rates to hopefully firm up the economic "soft patch." He stated: "Given the lack of inflation, the fed should move soon to ease monetary policy and improve the economic outlook. By many measures, current domestic and international economic conditions still appear to be quite weak. Business investment during this expansion never fully recovered as many had expected, leaving the economy on a sub-par growth path. We still seem to be stuck in the 'soft patch' Chairman Greenspan described last November."
The soft patch manifested itself in this morning's data, but equity markets were surprising impervious to the news, if the Teflon Market's disinterest in dismal economic and fundamental news can still be considered "surprising".
If the move higher in equities has been fueled by a massive supply of dollars hitting the bond and equity markets, then there's no fundamental reason why the rally has to end here. I personally believe that the top is close, if not already printed, but that's based on other technical and fundamental factors discussed in other articles and daily in the Market Monitor. The concerted inflation of the money supply, if my thinking here is correct, makes the bear in me very nervous indeed.
In corporate news, Federated Stores (FD) reported Q1 profits down 44%, with fiscal first-quarter net income of $46 million, or 24 cents a share, down from 43 cents a share in the year-earlier period, and beating estimates of 15 cents a share. Patting itself on the back, the company attributed the better than expected results to lower than anticipated store closings and consolidation costs. Investors somehow bid the stock up in the morning on this news, though it did trade lower throughout the session to close negative.
SIRI showed strength after reporting that the number of Q1 subscribers totaled 68,000, up 127% end-of-2002 figure. Net income for the Q1 was $51.9 million, or 16 cents per share, compared with a loss of $1.22 a share in Q1 2002.
GTW announced in its annual report that the SEC was opening a criminal investigation into its accounting practices, on the heels of an investigation for accounting irregularities dating back to the end of 2000.
CSC was up strongly today following its upside surprise announced yesterday after the bell, reporting Q1 earnings of $162.7 million or 93 cents per share, on revenue of $3.8B. The company had said that it sees "signs of demand stabilization in North America for consulting and systems integration services".
KDE, of Pokemon fame, was up sharply after announcing Q1 earnings of $3 million, or 21 cents per share, up from $1.6 million, or 11 cents per share for Q1 2002.
Despite RBC's and Smith Barney's recommendation to "sell it into strength", MOT was up over 10% on strong volume today as the company stated that it expects handset sales in India to exceed already explosive growth in the domestic mobile market over the next 2 years.
After the bell, BEAS met expectations for earnings and revenue, with earnings of 7 cents. The stock was slightly lower as of this writing. INTU was trading strongly after announcing earnings of $1.05 vs. estimates of $1.02. CA was up as well, beating estimates by 2 cents with earnings of 8 cents per share.
For tomorrow, we have the following data (from Yahoo.com):
Briefing Expected Prior Forecast May 15 8:30 AM Business Inventories Mar - 0.3% 0.2% 0.6% May 15 8:30 AM Core PPI Apr - 0.0% -0.1% 0.7% May 15 8:30 AM Initial Claims 05/10 - 440K 430K 425K May 15 8:30 AM PPI Apr - -0.9% -0.7% 1.5% May 15 9:15 AM Capacity Utilization Apr - 74.5% 74.5% 74.8% May 15 9:15 AM Industrial Production Apr - -0.3% -0.4% -0.5% May 15 12:00 PM Philadelphia Fed May - -4.0 -4.0 -8.8Given the April data we've seen so far this week, the anticipated pre-war, intra-war and post-war recoveries have yet to manifest themselves. The stage is set for a strong reaction to the plethora of reports due tomorrow morning. Given the narrowing of the ranges permitted by the converging trendlines on the chart patterns we've been watching in the index and futures wraps during the past weeks and months, tomorrow could well give us the anticipated break. Add to that the steady runup in the indices since last month with this being option expiration week for May contracts, and the stage is set for solid action heading into Friday. See you at the bell!