Thanksgiving week opened with a day light on U.S. economic releases, but heavy on global news that might impact our markets.
The only scheduled U.S. economic release was the 6:00 EST release of the SEMI Book-to-Bill number, but the weekend had been heavy with meetings among the world's political and economic leaders. Added to that mix were various global and analyst reports. Those included an International Monetary Fund report that lowered the IMF's forecast for the globe's 2005 economic growth, a negative Merrill Lynch report on PC sales that initially hit tech stocks and a Piper Jaffray decision to raise earnings estimates for Apple Computer. Piper Jaffray also set a new, attention-getting price target of $100.00.
By the end of the day, the dollar had temporarily stabilized and crude had retreated off its high of the day. Most indices had posted gains, with the BTK (Biotechnology Index), TRAN (Dow Jones Transportation Index), XNG (Natural Gas Index), UTY (Utility Index) and DJUSHB (Dow Jones Home Construction Index) being among the standouts, each posting more than 1 percent gains.
Daily Chart of the SPX:
Annotated 15-Minute Chart of the SPX:
Annotated Daily Chart of the Nasdaq:
Annotated 15-Minute Chart for the Nasdaq:
Annotated Daily Chart of the Dow:
The TRAN, the Dow's sister index, sometimes gives advance notice as to the direction the Dow and S&P's are most likely to take. The TRAN is sensitive to both crude and economic issues.
Annotated Daily Chart of the TRAN:
Annotated Daily Chart of the Russell 2000:
What happens tomorrow will likely be influenced by the reaction to the SEMI book-to-bill number, with that number not yet released as this report was prepared, and crude prices.
Annotated Daily Chart of Crude for January Delivery:
The dollar's performance remains important, but the dollar consolidated much of Monday. With the Nikkei closed Tuesday for a one-day holiday, the dollar/yen pair may continue to consolidate or zoom around in a choppy fashion difficult to predict, and the euro/dollar pair may follow suit.
Currency issues have been much featured in financial newsletters and television reports late last week and through today. This weekend, finance ministers and central bank members from twenty countries concluded a meeting without a statement addressing the dollar's decline against other currencies. According to one article, German officials had attempted to include language that criticized the volatility of recent currency moves, but the U.S. rejected the language.
Going into the meeting, many had feared that no consensus could be reached, but that lack of consensus still remained a disappointment. Some interpreted the lack of a statement to mean that some participants wanted to see currencies fluctuate freely against the dollar. Some must have argued against the kind of intervention that has been practiced in the past by Japan and South Korea to weaken their currencies against the dollar.
China, too, has been under pressure to allow its currency to fluctuate against the dollar, with China's President Hu Jintao reportedly telling President Bush separately, in their meeting in Chile, that China will consider allowing more flexibility, but only if economic conditions are stable. A stronger dollar benefits foreign exporters but hurts U.S. exporters. Some feel that a weaker dollar is needed to lower the U.S. deficit, but other countries fight to protect their more fragile economies.
Currency experts felt that the lack of a statement and the presumed reasoning behind that lack suggested further declines in the dollar against other currencies. That decline against some currencies didn't take long to occur, as the dollar fell to multi-year lows against South Korea's won, but throughout most of the U.S. trading day, the dollar consolidated against most other currencies.
Another meeting, the Asian Pacific Economic Cooperation Summit, occurred in Santiago, Chile. However, despite the "economic" thrust of those meetings, North Korea's nuclear threat issues was the subject of a bilateral meeting with President Bush and Japanese Prime Minister Koizumi. At that bilateral meeting, President Bush reaffirmed his intention that discussions with North Korea must be multi-party ones, including other Pacific Rim leaders.
Iran's nuclear threat was also discussed, with President Bush also meeting with China, South Korea and Russia to discuss Iran's threat. In the wake of those meetings and at the eurozone countries' urging, Iran on Monday suspended enrichment processes that could be used to develop a bomb. Some consider the suspension a ploy to avoid the U.S.'s request that the U.N. sanction the country. The U.S. wants a statement added in the EU draft resolution to the U.N.'s International Atomic Energy Agency (IAEA) that sets forth measures to be taken if Iran restarts its enrichment program.
Iran has already warned that it's not that country's intention to make the suspension permanent. Rather, Iran intends the suspension as an effort to restore confidence in its peaceful goals for the program. The IAEA has been in the process of confirming the suspension, with a report likely at a Thursday meeting.
Discussions about a comprehensive global trade accord and free trade agreements were also scheduled for that Asian Pacific Economic Cooperation Summit. At the conclusion of his meeting with Prime Minister Koizumi, President Bush reiterated his commitment to a strong dollar and to lowering the U.S. budget deficit, both a concern of our trading partners, but his statement made little impact in convincing market watchers that the dollar would stem its slide on more than a temporary basis.
That concern about the U.S. budget deficit and dollar performance was heightened by the International Monetary Fund's lowering of the globe's 2005 economic growth forecasts, to 4.0 percent from the IMF's former 4.3 percent estimate. The IMF cited the U.S.'s budget deficit and higher crude costs when lowering that forecast.
Computer makers were the subject of conflicting reports Monday. Merrill Lynch proposed that PC sales growth had already peaked for 2004, at 12 percent. The firm expects sales growth for 2005 and 2006 to be lower, at 9 and 6 percent, respectively.
Piper Jaffray had more encouraging things to say about computer maker Apple (AAPL), raising the company's full-year earnings estimate for 2005-2006. Piper Jaffray caught the attention of market watchers when the firm raised the price target to $100 from its current $52. The firm took this step after conducting a six-week survey of former PC users who bought iPods, determining that a healthy 13 percent of those intended to buy or had already bought Macs. In the interests of accounting for errors or bias among survey participants, Piper Jaffray's analyst trimmed those estimates back to a 6.5 percent capture rate for reeling in first-time Mac buyers.
Fulcrum Global Partners also raised Apple's price target, but to $65.00. The firm's analyst cited strong sales of iPods and iMac G5 desktops, and increased his estimates of iPod sales and IMac shipments. He expects Mac shipments to grow faster than in the overall PC market.
The GHA, the GSTI Hardware Index, includes AAPL as a component stock, as well as a number of PC makers. While many component stocks started the day under pressure, the GHA climbed, consolidated, and climbed again into the close, with the GHA's strong performance perhaps predicting early on that the Nasdaq would rise by the end of the day, too. Despite the disturbing news from Merrill Lynch, this strong performer's daily candle engulfed Friday's bearish one, touching 300 and closing just above it at 300.07. The GHA should be watched for rollover or breakout potential.
Annotated Daily Chart of the GHA:
Other developments Monday included a 2.53 percent loss in Google (GOOG) after Friday's report on insider selling and 2.16 and 4.93 percent gains, respectively, in Toys R Us (TOY) and Campbell Soup Company (CPB) after their better-than-expected earnings results. Oracle dropped 0.54 percent. PeopleSoft shareholders decided they would take ORCL's offer, but PeopleSoft's board still insisted that the offer undervalued the company. ORCL said it would seek a hearing this week in Delaware to resolve the issue.
The calendar for economic releases remains light Tuesday. At 10:30, investors get a glimpse of October's Existing Home Sales. After the close, the ABC Consumer Confidence number will be released at 6:30 EST. The Nikkei won't trade tonight, but watch the futures' reaction to the SEMI book-to-bill number for some insight into the impact of that number. The tech-heavy Taiwan Weighted and South Korean Kospi can also be watched to gauge reaction to that number. Remember that markets are already seeing holiday-lightened volumes, and volumes may stagnate even more as Thanksgiving approaches. Be prepared for stagnate markets, too, or for markets that chop around in difficult-to- anticipate moves. Don't get married to any positions in a light- volume, holiday week.