Although I will not belabor oil prices for I'm sure they will get a very good summary in the futures wrap I would like a minute to address some issues. Crude oil prices have surged about 30% in the past six weeks and stand about 50% higher than they were a year ago. The four major reasons for this surge are: higher demand, led mostly by increased consumption in China; low oil inventories world-wide; violence in Iraq and the ongoing problems of the Russian oil giant Yukos. The run-up in oil has taken its toll on stock prices and even the Federal Reserve jumped on the bandwagon when, last week, it blamed oil prices for slowing economic growth. Of course in the whole scheme of things, oil has a long way to go before it reaches its inflation-adjusted high of $80.00, the price, in today's dollars, it reached in 1980 after the Iranian revolution. September Crude Oil hit a high of $48.80 today.
In other news, Google (GOOG) set an IPO price far lower than it had anticipated to $85 a share, 37% lower than the top of the $108-to-$135 it had declared to regulators last month as the expected range. Because of a lower expected price, Google also announced they were more than halving the number of shares they planned to sell. GOOG actually hit the street at $100.00 today and ended the day at $100.36 with 22 million shares changing hands.
Amazon.com Inc. (AMZN) has agreed to buy Joyo.com Ltd., China's largest online retailer of books, music and videos, for $72 million. Joyo operates the Joyo.com Web sites in cooperation with Chinese subsidiaries and affiliates. AMZN ended the day down - 0.70 at $38.66.
Nortel Networks Corp. (NT) announced a restructuring plan that will cost $300 million to $400 million, which should result in annualized cost savings of about $450 million $500 million and reduce its work force by about 10%, or 3,500 jobs. The restructuring, effective Oct. 1, will combine its wireless, wireline and optical businesses into one carrier-networks organization. NT ended the day up +0.14 at 3.74.
The SEC has sent a warning to Freddie Mac (FRE) that the company is likely to face civil charges involving alleged violations of securities law stemming from its disclosure last year of accounting manipulation. FRE ended the day down -0.92 at $66.63.
Although economists predicted the Conference Board's composite index of leading indicator's July index would slide by 0.2% it actually fell by 0.3% to 116.0. June's index was also revised to a drop of 0.1%. Conference Board economist Ken Goldstein was quoted as saying, "The data for June and July reflect a slowing down of what had been a strong pace of economic activity through May." The Conference Board is painting a fairly bleak assessment of current circumstances because rising energy prices, rising interest rates, the end to tax-cut stimulus and terrorism threats are slowing the economy's forward momentum.
The Federal Reserve Bank of Philadelphia August's index, which measures activity in the region's manufacturing sector, slowed to 28.5 from July's 36.1 reading and fell short of the 30.3 predicted by economists. The reading indicates growth but at a slower pace relative to the prior month. Philadelphia-area manufacturers have seen expanding growth for the last 15 straight months.
The Labor Department's weekly Initial Claims showed initial jobless claims, for the week ending August 14, dropped for a third consecutive week to 331,000, marking the lowest level since the week of July 3. The four-week average declined for the second week in a row, falling 2,500 to 337,250.
Claire's Stores (CLE) and Limited Brands were the latest companies to offer 2nd quarter results that topped analyst estimates. Shares of Claire's Stores hit a 52-week high of 25.58 but ended the day up +1.47 at $24.62. Limited Brands (LTD) ended the day off -0.25 at $20.00.
Mainly due to a debt-redemption charge, the nation's largest book chain, Barnes & Noble Inc.(BKS), reported a 35% drop in second- quarter earnings. However, sales were lifted by sales of high profile titles and BKS was able to raise its full-year guidance. BKS ended the day down -0.34 at $34.65.
Despite reporting that its August sales are running at the low end of its earlier forecast, Hot Topic (HOTT) backed its previous earnings outlook for the second half of the year. HOTT ended the day up +1.41 at $15.90.
On to the charts.
Annotated Daily Chart of the NYA :
Here is a bullish chart. Support at 6215 (magenta line) has been successfully tested 6 times with MACD and CCI positive divergences all over the place. The only problem is the blue line joining the April lows with the August 2nd highs converges with the 200 and 50 MAs and could be an enormous hurdle to jump.
Annotated Daily Chart of the Russell 2000:
On this chart I have drawn the same blue line connecting the March lows with the August 2nd highs and as you can see RUT has the same hurdle to overcome as does the NYA; resistance culminating with the 200 and 50 MAs. The noticeable difference here, however, is the direction of the magenta arrow connecting the bottoms. The RUT is making a lower low and is therefore weaker than the NYA.
You can see the same larger MACD and CCI divergences but the smaller ones that show up on the NYA chart do not show up here.
Annotated Daily Chart of the SPX:
Things are not quite as clear here as they are in the NYA chart and a much less bullish picture. The May lows and the July lows (blue line) were a clear line of resistance that has been broken to the upside and should now become support and I think a very important support. The next resistance will be converging 200 and 50 MAs and a swing high at ~1108-1110. We are in an area of no- man's land and for the bulls to win they need to break above the "red box" and hold support at 1076-1078.
Annotated Daily Chart of the Dow:
Qcharts has a lot of missing data on the INDU chart so I am reverting to the DJX, which should give us the same general picture.
I see resistance at the August 2nd swing high that matches up with the converging 200 and 50 MAs. What bothers me the most about this chart is the longer term MACD divergence (magenta arrows) is suggesting that strength is returning but on the short-term those divergences do not show up. If strength indeed were returning to this market I would think the swing lows at July 26 and August 13 would be showing a very nice MACD divergence but they are not.
Annotated Daily Chart of the Nasdaq:
I don't see anything bullish about this chart at all. I see no MACD or CCI divergence to hint at strength, usually the first indication that strength is returning. I do see a clear resistance at ~1900 where the March lows and August highs line up with the 50 MA. 1900 is also the 50% retracement from June highs to August lows.
If the major indices can make it through all the "red boxes" I think we have a chance but until then I am keeping my powder dry. My bear claws are not as sharp as they were before but I sure don't have bull's horns growing yet.
There are no economic reports slated for tomorrow.