The indices opened lower and got slammed in the morning as oil reached a new record high. Bonds and gold were rallying, and it appeared that bull season was on. The moves did not stick, however, as all markets corrected their early morning extremes, moderating throughout the session. The indices closed fractionally negative.
Breadth was mixed, with declining volume leading advancing volume 1.08:1 on the NYSE, 1.85:1 on the Amex and advancing volume leading declining volume on the Nasdaq 1.18:1. Volatility rose for both the S&P and Nasdaq indices. Overall, it was a sideways day within a daily descending trend, with tension running much higher than actual price action.
Daily Dow Chart
The Dow dropped 7.82 points to close at 9750, a new closing low on the 6 month chart. The decline since the October high has been steady, with a consistent pattern of lower highs and lower lows. Today's rejection at the lows is potentially bullish, but only if bulls can build it into a successful attempt on upper resistance, first at 9800 and more importantly at 9900, above which a new daily cycle upphase should kick off.
Daily S&P 500 Chart
The SPX lost less than a point with the 1094.8 close, but it was enough to keep the daily candle from printing green. The daily cycle downphase continues here, and below 1103 resistance, this remains a bearish chart. The pattern appears to be a bullish descending wedge projecting to an implied target of 1142 on a break above the upper descending resistance line. However, 1103 and 113-15 are very stiff resistance, and bulls had their hands full merely trying to regain Friday's closing levels.
Daily Nasdaq Chart
The Nasdaq broke its rising support line off the August low on a closing basis, well behind the other indices. Nevertheless, the daily cycle downphase continues to suggest a slow rollover from the October highs, with bears eyeing the 1900 support level, below which 1875-1880 come into view. As noted below, the Nasdaq's 1 point loss comes despite an upgrade to the chip sector from Smith Barney, as well as a sizeable addition to dealer reserves from the Fed's open market desk. While the Nasdaq has been outperforming its peers for weeks, today's action showed that it is not immune to the broader market weakness.
Weekly TNX Chart
The ten year note yield (TNX) continued to respect its downtrend from the June high but continues to test support in the 3.9%- 3.95% area. TNX still has a ways to go before testing lower rising bear wedge support at 3.885%. The weekly cycle upphase trying to form has so far generated no traction in the TNX, and a failure at 3.885% would be very bullish for bonds, projection a test below 3.6% on the wave to a retest of the July 2003 lows for the TNX. For the day, the TNX closed lower by 1.2 bps at 3.972%.
Weekly chart of Crude oil
December crude oil futures reached a new high of 55.75 on the Nymex amid threats of a lockout by the Norwegian Shipowners Association ("NSA"). The NSA called for a lockout to take effect on November 8th if certain strike actions aren't terminated in the meantime. With supply as tight as its become in recent months, any threat of disruption is reflected in the price of front-month futures, which rose to a new high on the news. An hour later, it was announced that the Norwegian government would intervene to avert the oil workers' strike and the threatened lockout, helping prices ease off their highs. Nymex crude settled at 54.55 for its afternoon session, unchanged for the day.
There's little to add to the weekly 3 year chart of crude oil- the picture is far more eloquent than I.
Smith Barney was out this morning with bullish recommendations on chipmakers and citing the "onslaught" of negativism in the sector that contributes to a bullish risk/reward profile. Analyst Glen Yeung was recommending that investors be "overweight" the sector into 2005. Along with the comments, Smith Barney upgraded TXN, ALTR, IDTI, ADI and IRF from "hold" to "buy". The Philly Semiconductor Index (SOX) closed higher by .69% at 397.87.
UBS and Gallup reported that investor optimism reached a 12 month low in October on fears surrounding rising energy prices and the weak employment market. The UBS Index of Investor Optimism declined 12 points to 62, the lowest reading in a year and well below its 124 reading when established in 1996.
New home sales were released by the National Association of Realtors at 10AM today, the lone economic report for the day. New home sales exceeded expectations for a 6.51M unit rate, coming in at 6.75M units in September. This follows an upwardly revised 6.55M unit rate in August. The NAR attributed the buying to low mortgage rates. Homebuilder PHM was upgraded by CSFB to "outperform" from "neutral" based on analyst Ivy Zelman's opinion that the stock's valuation is too low. PHM closed higher by 8.51% at 51.50.
In corporate news, NYSE specialist firm LAB announced a loss of 1 cent per share for Q3, with revenue declining from 70.9M in Q3 2003 to 64.7M this quarter. The firm cited "lower principal trading revenues at the company's specialist subsidiary due to continued lower equity volumes and volatility." LAB finished the day down 1.46% at 7.40.
Heath and hygiene product maker KMB reported higher earnings for Q3 of 89 cents per share, up from 83 cents in Q3 2003, missing consensus estimates by a penny. Revenues were up 6.2% to 3.87B, in line with expectations. The company lowered expectations by 4-5 cents per share for Q4 to 89-91 cents per share. Analysts were projecting earnings of 95 cents for Q4. KMB lost 6.39% to close at 59.03.
Telecommunications provider BLS announced Q3 earnings of 46 cents per share, down 2 cents from Q3 2003's level. This included a 3 cent charge for hurricane-related expenses, which results in a 2 cent miss against analyst expectations. Revenue was lower by .9% in the quarter. BLS closed lower by .49% at 26.42.
Commercial leasing company R reported net income of 83 cents per share, up 45% from Q3 2003's 63 cents. These results beat estimates by 4 cents. R closed flat at 47.45.
Banker PFS reported a 64% increase in net income for Q3 of 13.3M or 19 cents per share, up from 16 cents or 8.1M in Q3 2003. This represents a 64% increase in net income, but a 1 cent miss against analyst expectations of 20 cents per share for the quarter. PFS gained 3.88% to close at 17.67.
AXP reported Q3 earnings of 69 cents or 879M, meeting expectations. This represented a 14% rise from Q3 2003's 59 cents of 770M net income. Revenue rose from 6.4B last year to 7.2B, also meeting expectations. AXP lost 1.12% to close at 51.15.
GOOG once again provided bears with a religious experience, surging to a new record of high of 194.43 and surpassing YHOO in market capitalization as reported by Marketwatch in the afternoon. At 188.40, GOOG is valued at 51.1B, while at 34.84 YHOO is valued at 47.4B. GOOG closed higher by 8.68% at 187.4.
Toyota Motor Credit Corp., a subsidiary of TM, announced its intention to restate earnings for 2003 and 2004 following a review of its accounting policies. The company noted that certain of its recognition of some costs and fees related to its acquisition of finance and lease contracts were not GAAP- compliant, but that it doesn't expect the restatement to affect previously stated cashflow. The company added that the restatement may result in higher financing revenue and net income. TM rose .19% to close at 75.39.
After the bell, FLEX announced earnings that met expectations at 16 cents per share but missed on revenues with 4.14B vs. 4.2B expected. The stock got smoked for 5.34%, trading 11.87 as of this writing.
For tomorrow, the earnings rush continues, with consumer confidence for October as the lone economic report for the day. With crude oil making record highs on a daily basis, election tensions running high and earnings being reported, there's little to suggest a serious test of the ongoing daily cycle downphase. Nevertheless, upside resistance is clear, and traders should remain mentally nimble in the event of an upside break. Until then, the daily cycle bears remain in control.