Markets Meander Midweek
Stocks seesawed sideways on Wednesday as the major averages tested support only to see the rebound fail in the afternoon hours. The Dow Industrials and the S&P 500 index both posted their fifth loss in a row while the NASDAQ managed to end its losing streak with a bounce in the semiconductor sector. Rotation seemed to be the agenda for the session as investors took money out of oil services, gold, natural gas and broker- dealers while buying semiconductors, software and hardware issues.
The more optimistic of the market pundits were calling for a bottom in the NASDAQ while the less sanguine commentators reduced today's bounce to nothing more than mild short covering. Wednesday's economic data was positive but it failed to produce any lasting results against the new backdrop of terrorism fears. This morning French police reported finding a bomb under the Paris to Basel, Switzerland railroad. Meanwhile in the Mid East the U.S. closed their embassy in the United Arab Emirates (UAE) under new threats of violence.
Global markets were mixed. The Japanese NIKKEI jumped nearly 84 points to 11,364 while the Chinese Hang Seng rallied almost 90 points to 12,678. European stocks were mostly down with the French CAC index suffering the worst declines compared to Germany and Britain. Commodities were making news as gold pulled back for the first time in eight sessions as the U.S. dollar turned in a strong day. Gold futures closed down $2.60 to $417.40 an ounce.
Crude oil was also a major story after both the American Petroleum Institute and the Department of Energy both reported a significant build up in oil supplies last week. Crude oil futures dropped 44 cents to $37.01 a barrel but well off its lows of the session at $36.65. The pull back had no affect on gasoline prices, which hit a new all-time (average) high of $1.74 a gallon. Some industry experts are predicting fuel prices near $3.00 a gallon as we approach the summer driving season. The pull back in oil fed the profit taking in the oil and oil service stocks but the trend is still up for crude oil futures. OPEC is still considering its previously announced April production cuts and talk is growing that we'll see $40-42 per barrel prices.
Looking more closely at the major averages you'll see the Dow, The S&P 500 and the NASDAQ Composite all churning sideways the last three sessions but with a trend of lower highs. Fortunately, the Dow is holding support at the 10,000 mark while the NASDAQ is holding support at the 1900 level. The bad news is that short-term technicals for both look weak again. Meanwhile the S&P 500 is churning sideways under old support at 1100 and the longer it stays here the more 1100 becomes resistance.
Chart of the Dow Industrials:
Chart of the NASDAQ Composite:
Chart of the S&P 500:
Some of the trader talk this morning was focused on concerns that the economic recovery was in jeopardy even though the Durable Goods order and the New Home Sales numbers were positive. Durable goods are products made to last at least three years. The Commerce Department reported that February's durable goods rose a better than expected 2.5% above estimates for 1.7%. This seemed especially bullish considering that January's numbers were revised lower to a 2.7% decline. Driving the gains were strong improvements in aircraft, computers and motor vehicles.
Homebuilders are living up to their word that business is good. The New Homes Sales numbers raced to a 5.8% gain in February to an annualized rate of 1.16 million units. This surpasses the old high of 1.09 million units. I suspect we'll see this number run even higher as the weather continues to improve. The good news here is that new homes are big boost to the economy as consumers buy new furnishings and appliances. The historically low interest and mortgage rates should keep this trend in place and underpin the economic rebound.
Speaking of a rebound we might see one in shares of Microsoft soon. As previously announced the EU antitrust commission officially declared its fine of $612 million against MSFT for its monopolistic-style of business. The $612 million or 497 million euro fine is less than the maximum the EU could have levied, which was just over $3 billion but still qualifies as the largest fine like this ever levied. MSFT plans to appeal the fine and the decision that would impose restrictions on how MSFT can do business in the EU including sharing their code so that rivals can make competing applications. Industry experts say the appeal will tie up the decision in the court system for four to five years. More importantly for investors analysts believe that MSFT, who has been sitting on close to $53 billion in cash and adding to its hoard at close to $1 billion per quarter, can finally make a decision about what to do with all that money. That's not to say that MSFT is out of the legal woods just yet but many are expecting MSFT to announce a major stock buyback and/or a huge one-time cash dividend. One of Goldman Sach's analysts speculated that MSFT could declare a one-time cash dividend in the $10 to $20 billion range. That's anywhere from 92 cents to $1.84 a share compared to the current dividend of 16 cents annually. Shares of MSFT, which have been weak for 9 weeks straight, bounced higher by more than 1 percent but remain in its current downtrend.
One of the most important developments on Wednesday occurred after the closing bell. Applied Materials (AMAT), the world's biggest producer of semiconductor equipment, held its annual meeting. AMAT's CFO told analysts that the chip sector recovery was still in the "early stages not the later stages" of development. AMAT said they see a huge opportunity in the flat- panel market for TV and monitor screens. This positive sentiment for the LCD market was echoed by Corning (GLW) earlier today. AMAT also announced a three-year $3 billion stock buy back program. This is great news that could really boost the nascent rebound in the chip stocks tomorrow. Today's bounce in the SOX back above the simple 200-dma is a good start but to see some follow through tomorrow would be pretty encouraging and lend some much needed strength to any NASDAQ rally attempt.
Micron Technology (MU), another chipmaker, announced its earnings after the close today. Analysts were looking for a loss of 6 cents a share compared to a loss of 64 cents a share last year. MU turned in a loss of 4 cents but fell short of consensus revenues estimates at $1 billion for the quarter. While the stock traded lower after hours we've come to expect a "sell the news" reaction. More importantly is MU's earnings performance, which might help set the mood for the April earnings season. We've already heard from dozens of companies that have pre- announced positive earnings but it may actually take the onset of earnings season to jog investors out of the current market malaise.
Tomorrow brings the weekly initial jobless claims data. Estimates are suggesting a small uptick in claims from last week's 336,000. We'll also hear the latest and final GDP revision for the fourth quarter but no one expects any change from the previous reading at 4.1%. Thursday morning also brings the February existing home sales numbers, which economists have predicted to rise to 6.12 million units. News junkies can also look for the Help Wanted index to be announced. I don't expect any of these to be market movers and Wall Street may continue to ignore all the economic data until the April 2nd non-farm payrolls job report a week from this Friday. However, I would keep my ears open for any positive comments from Nokia's annual shareholder meeting being held tomorrow after the close.