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Market Wrap

Good Start to a Long Week

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     10-20-2003            High     Low     Volume Advance/Decline
DJIA     9777.94 + 56.15  9777.94  9705.57 1.43 bln   1572/1227
NASDAQ   1925.14 + 12.78  1925.16  1905.39 1.53 bln   1571/1511
S&P 100   521.43 +  3.31   521.43   516.94   Totals   3143/2738
S&P 500  1044.68 +  5.36  1044.69  1036.13
RUS 2000  521.44 +  0.10   523.34   521.44
DJ TRANS 2856.79 +  9.51  2860.53  2833.97
VIX        17.04 -  1.75    18.07    17.04
VXO        18.16 -  1.03    19.69    18.02
VXN        24.78 -  4.06    26.61    24.59
Total Volume 3,255M
Total UpVol  1,929M
Total DnVol  1,257M
52wk Highs     445
52wk Lows       21
TRIN          0.79
PUT/CALL      0.62

Good Start to a Long Week
By James Brown

The heaviest week for the Q3 earnings torrent is off to a good start. Among the hundreds of companies that will be announcing this week today's numbers from 3M, Citigroup, Lexmark and Texas Instruments are casting a positive glow for stocks. Thankfully, investors were paying more attention to the earnings numbers than the disappointing economic indicators unveiled today. The biggest winners were found in hardware, airlines, and semiconductors but the major indices all caught a second wind late in the session lifting them higher by the close.

Doing their best to provide a tailwind for U.S. indices were positive results from foreign exchanges. Asian exchanges were strongly higher. The Hang Seng jumped 103 points to close at 12,147. The Japanese NIKKEI rose 123 points or 1.12% to close at a 16-month high of 11,161. The rise was boosted by jump in the dollar against the yen thanks to comments from Treasury Secretary John Snow. European exchanges were also green. The British FTSE just barely added 3.5 points to close at 4347 and the German DAX added 1.2% to close at 3559. Meanwhile gold futures added $2.20 to close at $374.40/ounce. Crude oil futures dove $1.23 to $30.43 a barrel after Iran hinted it may choose to leave OPEC at some future undisclosed date.

Monday's session was mostly sideways as major averages traded in a tight range before the late day rally appeared. The positive earnings news seems to be soothing any bullish fears that the recovery may not occur instead of igniting any new rally momentum. We heard some talk last week and we're hearing it again today that the markets may have already "priced in" the strong earnings expectations. The market internals reflected the sideways action. Advancers beat decliners 15 to 12 on the NYSE while winners just barely outnumbered losers 1571 to 1511 on the NASDAQ. Up volume did out perform down volume but over all volume was modest.

Chart of the DJIA:

Chart of the COMPX:

The major economic report for the day and probably the week was the Leading Economic Indicator index (LEI) produced by the private research group, The Conference Board. The index of leading economic indicators fell 0.2 percent in September, a negative surprise to almost everyone. Most estimates had been for a result of unchanged after the index rose 0.4 percent in August. This was the first decline since March, which if you remember the nation was holding its breath for the start of the war in Iraq. The markets chose to ignore the negative surprise probably because the general trend is still bullish. Ken Goldstein, an economist with the Conference Board, suggested that we should only worry if the LEI continues to decline in October. For the full statement click here

Have you ever wondered what it would be like to have everyone analyzing your every word? Obviously President Bush and Alan Greenspan fall into this club but U.S. Treasury Secretary John Snow seems to be making a lot of headlines too. Today Snow's comments rippled across the financial markets again after the London-based Times newspaper published an interview with the secretary. Sending the dollar to its best one-day gain in months against the yen were Snow's comments that the recent G7 financial summit's agreement on flexible currencies was not a U.S. plan to weaken the dollar. As noted above the Japanese NIKKEI average enjoyed a strong session on the dollar's strength. Mr. Snow also remarked on his concern if U.S. interest rates did not begin to rise soon. Many economists believe rising interest rates are indicative of a stronger economy. Snow may get his wish pretty soon. If you look at the chart below you'll notice that the yield on the 10-year note looks ready to breakout to a new relative high above that multi-year trendline.

Chart of the 10-year bond yield:

One of the lead stories today was the Q3 earnings report from Dow component 3M (MMM). Investors doing their homework might be picking up some mixed messages. Consensus estimates were for 79 cents a share. MMM turned in 83 cents compared to 69 cents a year ago. According to the company overall sales reached an all- time high for the third quarter in a row. Furthermore the company raised their estimates for the fourth quarter to a range of 73 to 75 cents, compared with current estimates of 73 cents. MMM also raised their full year estimates to 3.05-3.07, above consensus of $3.01. The company attributed currency rates for a 3.9 percent gain in Q3 sales (Thank you, Mr. Snow). It certainly sounds like good news and the stock was the third biggest gainer in the DJIA behind Hewlett Packard (HPQ) and AT&T (T). However, it looks like everyone is choosing to ignore comments from MMM's own CFO who said the company "remains very cautious" for 2004 because they still aren't seeing much of a recovery in manufacturing. Hmm....that doesn't sound very bullish does it? It will be interested to see if any of the Wall Street analysts choose to follow up on this comment.

Markets were also interested to hear from financial services behemoth, Citigroup (C). Citigroup announced earnings this morning, which hit a new record. Q3 results beat estimates by a nickel with 90 cents a share and up 20 percent from a year ago. Unfortunately, analysts were disappointed with C's relatively flat revenue numbers. The stock lost ground but closed up off its lows, -26 cents to $48.12.

Lending strength to the hardware sector was a very strong earnings report from printer manufacturer Lexmark Intl (LXK). LXK beat estimates by a dime with 79 cents a share. The stock shot higher with a 10 percent gain to $74.00 with a rosy outlook for the fourth quarter. LXK now expects Q4 earnings to be in the 85 to 95 cent range compared to analysts' estimates of just 82 cents.

Announcing after the close tonight and potentially driving market direction was the earnings report from Texas Instruments (TXN). The chipmaker reported very strong results of 25 cents a share, beating estimates by 3 cents and more than doubling last year's result of 11 cents. More importantly revenues were up 13 percent to $2.53 billion compared to estimates for 2.4 billion. The world's largest mobile-phone chipmaker said gross margins jumped by 3.2 percent to 40.7 percent and overall orders rose 15 percent with chips orders growing by 21 percent. The stock was up 7 percent in after hours trading to $27.45 and might be able to lead the SOX index to a new high tomorrow. A strong SOX is exactly the kind of push the NASDAQ needs to reach the 2000 mark.

Tomorrow the markets will trade solely on earnings news without any economic reports on the calendar. The late afternoon bounce coupled with the TXN report above certainly paints a bullish picture for Tuesday. Keep in mind that tomorrow morning is crowded with more earning reports. Let's hope none of them implode with enough force to derail what could be a nice rally tomorrow. Just a few of the dozen to look for are Dow component SBC who announces before the opening bell. Later look for Amgen (AMGN) and Amazon.com (AMZN).


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