Today was a low-volume, indecisive session, with the expected early morning pop setting the high of the day, but an end of day bounce attempting to retake it. We've seen so many spike highs that it's impossible to get excited about the prospect of a possible reversal, particularly with the uptrend so firmly in place.
Daily Chart of the INDU
Today's Dow and Nasdaq closing prints are just stars, with an upper and lower spike, reflecting the lack of commitment to either direction. The indices closed nearer to their highs, leaving the markets with a bullish bias going into tomorrow.
Daily Chart of the COMPX
Daily chart of the Ten Year Treasury Yield
The ten year note printed a higher high today, with the ten year yield setting a new low but closing at 3.168%, near the middle of its intraday range.
The number of Americans filing new unemployment claims dropped 17,000 for the week ended June 7 to 430,000, meeting expectations. The 4 week moving average of initial claims rose 2,250 to 433,750. The total number of unemployed Americans rose to 3.8 million, which was reported to be the highest level since April of 1983.
HRB reported late yesterday that Q4 earnings came in light at 2.71 per share, less than 2.83 expected, which the company attributed to a reduction in tax filers due to the weak job market. The stock was down more than 2 percent in premarket trading, despite its concurrent announcement of a 20 million share buyback, equivalent to 11% of the outstanding stock.
The unemployment data failed to impact the market upon its release, presumably as it failed to diverge from analyst expectations. Initial claims remain well above the benchmark 400,000 level that most use to gauge the job market. As discussed in last night's market wrap, the persistent unemployment looks to me like a serious wrench in the Federal Reverve's aggressive inflation campaign. If the new liquidity it was creating were being reflected in falling unemployment, a case could be made for the success of that venture. So far, the fed has been harping on the absence of inflation risk, which is good, because as we saw in the early 1970s, unemployment + inflation = stagflation, as it was called, with its disastrous impact on the markets and the economy.
US import prices dropped .3% for the month of May, with non- petroleum prices falling .2%, which is the largest drop since December 2001. Capital goods prices dropped .4%, while import prices for the past year are up 1.5% . Non-agricultural export prices dropped .1% last month, while overall export prices rose .1%, the fourth increase in 5 months. This points to rising commodity export prices.
US retail sales roles .1% in May, following the downwardly revised .3% drop in April. The paltry rise was attributed to the sharp drop in gasoline prices, with gas station sales dropping 4.3% in May. Excluding gasoline sales, sales rose .4%. Auto sales were down .2%. Retail sales are up 5.1% for the past year.
At 10AM it was announced that inventories at automobile dealers rose by 1.2% in April, raising total inventories at U.S. firms by 0.1%. Inventories increased .3% in March. Sales at U.S. retailers, wholesalers and manufacturers dropped by 1.5% in April, which was the biggest decline since the September 2001 attacks. The inventory-to-sales ratio rose to 1.40, matching a 14-month high.
Crude and natural-gas futures were weaker today, with crude falling on news that Iraq was making its first oil shipment to the U.S. since the war. Natural-gas price was weaker following news that inventories had expanded by 125 million cubic feet last week, and closed lower by nearly 10% for the session.
In "international" news for those Canadians among us, the Bank of Canada's Governor David Dodge woke up and smelled the coffee this morning, following what I've referred to in the Market Monitor over months past as the most inexplicable rate hikes ever, executed by the BOC earlier this spring. "The magnitude and speed of the Canadian dollar's rise has been greater than anyone had anticipated, and will have a dampening influence on aggregate demand later this year and next. In setting monetary policy, we have to take this influence into account." This after unemployment has reached 7.8% on the heels of the said rate hikes and the consequent dollar rally which impeded the purchasing power of Canada's biggest export target, the US.
In corporate news, Steve Ballmer, MSFT's CEO and soon-to-become my new favorite market timer, filed with the SEC on Wednesday to sell almost 6.6M shares of MSFT. This will bring his reported sales of his company's stock to over $1B, as in billion US dollars, during the past month. No doubt trying to free up some cash for home renos, and maybe to pick up some IMCLE, ORCL for the personal port...
Big MO was weak today following a legal setback. The company announced that Illinois' highest court refused to accept a direct appeal of a $10.1 billion verdict against the company handed down in March. The company said it would present its arguments to the appellate court.
The perp show was in full effect, with Terry Davis, former vice president and controller of NET, pleading guilty to charges of securities fraud. Guidant (GDT) was halted on news that its subsidiary, EndoVascular Technologies, agreed to plead guilty to 10 felony counts related to problems with one of its aortic aneurysm products. There were nine charges for "shipping misbranded products" and one charge arising from a former employee making false statements to the government. The stock was smoked for more than 5% in today's session. Three former employees of DYN were charged with securities fraud by the SEC in connection with the company's "Project Alpha", and off-the-books entity allegedly used to the disguise the company's true financial condition. Bryan Williams, a former Mobil Oil Corp. senior executive, pleaded guilty to two felony counts in connection with evading taxes on more than $7 million in unreported income.
After the bell, the much anticipated earnings report from ORCL was released. The company announced Q4 earnings of $0.16 per share, beating expectations by 2 cents. Revenues rose 2.1% y-o-y to $2.83B from $2.74B, and the company announced Q4 margin of 45%, its best ever. The stock was up 30 cents to 13.58 as of this writing.
For tomorrow, we have the following economic data due:
Report Briefing Market Prior Expects Expects Jun 13 8:30 AM Core PPI May - 0.1% 0.1% -.9% Jun 13 8:30 AM PPI May - -0.5% -0.2% -1.9% Jun 13 8:30 AM Trade Balance Apr - -$41.5B -$42.0B -$43.5B Jun 13 9:45 AM Mich Sentiment-Prel. Jun -92.0 93.1 92.1Once again, particularly following today's light volume session, the stage is set for a big move, and the indices are again within gapping distance of a breakout. With indices so near the rally high and the bullish percents at the very high end of their ranges, there is great risk in going long from current levels. By the same token, picking a top is risky business for bears, particularly within a solid uptrend. Once again, let caution and conservative account management be your guide. See you at the bell!