The markets were able to pull back from the brink of disaster powering higher in the last hour of trading to erase almost all of the day's earlier losses. The market is not sure where it wants to go and in the meantime it is making traders dizzy while it tries to figure it out.
A weak report on durable goods, a negative call on the technology sector and a run-up in oil prices started the day off with a bearish tone but traders turned bullish late in the day after major indexes failed to break through intraday lows reached Monday.
The Commerce Department released its June's orders for durable goods (products meant to last three years or longer) at 8:30 this morning. The number showed a rise of 0.7% to $191.7 billion last month but fell shy of economists' expectations for a 1.5-2.5 percent increase.
Morning trading was also affected by violence in Iraq and jitters over the supply of oil. A suicide attack in Iraq killed more than 60 people and wounded scores more. And on the other side of the world, Yukos, Russia's largest oil producer, may have to halt its main production units in days because of a court order stemming from its $3.4 billion tax bill. OPEC is pumping close to capacity so the prospect of losing nearly two million barrels a day, the amount Yukos's pumps a day, is critical. September crude Oil futures hit a high of $43.05 a barrel, an all time high.
Then to top it all off this morning UBS technology strategist Pip Coburn said the Nasdaq could sink as much as 20% in the next 12 months. Analysts were looking for a final and wonderful summer/fall rally inspired by improved IT spending, fostering investor visions of new technologies, upward growth rates and higher multiples but that dream is not materializing, according to Mr. Coburn.
The Beige Book, a summary of economic activity prepared for use at the central bank's next Federal Open Market Committee meeting on Aug. 10, was released at 2:00. It reported that the U.S. economy has cooled off in June and July as consumer spending, especially on autos, slowed significantly after a big surge in early spring.
The report showed 5 of the 12 Federal Reserve districts reported economic activity had "slowed somewhat," while growth rates in most other districts ranged from modest to solid. Slower growth was reported in the New York, Cleveland, Richmond, Kansas City and San Francisco districts.
On the earnings front, Time Warner's (TWX) profit fell 27%, due to large gains earlier in the year, however, revenue climbed and the company raised its outlook for the year.
Due to robust demand for its digital cable and high-speed Internet services, Comcast Corp (CMCSA), the largest U.S. cable operator, had a 2nd quarter profit and revenue growth of 10%.
The company that abandoned Seattle for Chicago, Boeing Co. (BA) saw a 2nd quarter profit and raised its forecasts for this year and next. This was due to defense orders continuing to cushion the aerospace giant from the slump in the commercial-aircraft market.
Conoco Phillips (COP) reported a 75% increase in profit in the 2nd quarter due to rising prices for oil and natural gas and improved margins at U.S. gasoline refineries.
On to the charts.
Although the morning started out what looked like another bearish day, the buyers appeared around 2:00ET and put on the rocket boosters. The markets gained back what they lost and then some.
Let's start with NYA.
Annotated Daily Chart of the NYA:
I think this is the most encouraging market of all because of the clearly formed reverse head and shoulders. The projected target is 7157. (Taking the low of the head, 6211 and a neckline at 6684. 6684-6211 = 473 then 473 + 6684 = 7157.)
Notice also the MACD is confirming the higher low that forms the right shoulder.
Annotated Daily Chart of the SOX:
This is probably the worst looking chart but we do have some things that will encourage the bulls. The regression channel I have drawn starting from the high of 560.60 has contained the SOX all year and with the bullishness we have seen the last couple of days I don't see any reason as to why it should not at least retest the channel highs at 467. If the SOX can overcome the last swing high at 430, which just happens to be the channel midpoint, the channel's high should be no problem.
Annotated Daily Chart of the Nasdaq:
This chart is not much better looking than the SOX chart and has not adhered to the channel as well as SOX as.
When the COMPX made a higher high and low at the end of June many were thinking yearly highs were the next stop just as long as the lows on June 14th held. But alas the June 14th lows did not hold and it has been almost a straight line down since June 30th. However, like the SOX this market is in for a bounce, at least, and the top of the channel is not out of the picture.
Annotated Daily Chart of the Russell 2000:
Since the last swing low is closer to the May 17th swing low I think we will have to call this a double bottom and not a reverse H&S like we have in the NYA. Do you see why I stated the NYA is the stronger market because this last swing low has retraced further than it has in the NYA.
Annotated Daily Chart of the Dow:
Here we have another reverse H&S with a projected target of 11222 (10537 - 9852 = 685. 10537 + 685 = 11222) and a MACD that supports the formation also.
Annotated Daily Chart of the SPX:
Although this chart is very similar to the NYA, RUT and the DOW there are subtle differences. Look at the MACD. In the SPX the MACD is making an equal low whereas the MACDs in the other three are making higher lows.
Express Scripts (ESRX) stumbled in after-hours after saying it is under probe by Vermont's attorney general and the state of New York. ESRX is currently down -12.00.
InfoSpace Inc. (INSP) jumped after reporting a quarterly profit, versus a loss in the same period a year ago. INSP is currently up +4.36.
JDS Uniphase Corp. (JDSU) rose, after it posted a smaller quarterly loss than a year ago. JDSU is currently up +0.20
Tomorrow's Earnings and Economic Releases
AT 8:30 tomorrow morning, the Department of Labor releases its usual initial claims number, this one for the week of 7/23. Last week's release saw a dip to 339K, and the expectations for this week aren't far off that number, at 340K. The Q2 Employment Cost Index will also be released at 8:30, with expectations for a 0.9 percent rise after the previous quarter's 1.1 percent rise. At 10:00, market watchers interested in the employment outlook will be scrutinizing June's help-wanted index, with the number expected to climb to 40 from May's 39.
More than 300 report Thursday, many of those capable of producing market-moving news. Some of the bigger names reporting Thursday are BOL, BMY, CCE,DCX, LTR, NOC, RTN and WMI.
The outlook going forward is definitely bullish in the short- term. Longer term the bulls have a lot to prove and a lot of resistance to overcome. Time will tell if the buyers out there have the commitment to take the market higher than just a short term burst. But for now that is all we have.