Market Wrap, Wednesday, 02/09/2005
by OI Staff
HAVING TROUBLE PRINTING?
One article Wednesday referred to crude inventories numbers as having bucked expectations. Those numbers weren't the only or the first surprises of the day.
Indices bucked recent expectations, too, and headed down ahead of tomorrow's Trade Balance number.
Annotated Daily Chart of the SPX:
Annotated Daily Chart of the Dow:
Almost always a leader, the Russell 2000 has led the pack in dipping to test its 50-dma and 50 percent retracement of the decline off its late-December high. It did more than dip to those levels Wednesday. Most of the day, it held just above them, but late-day action saw the RUT plummeting below long-term S/R, the 50-sma and the 50 percent retracement of the decline off the January high. Its action may help predict how other indices might behave if they should test analogous levels. So far, that prediction does not encourage bulls.
Before bulls nibble on longs at the 50-sma's and 50 percent Fib levels on their preferred indices, they should first make sure that the RUT has bounced back above those levels. If not, Wednesday's late-day action perhaps was not just an overrunning of support. In that case, don't anticipate new bullish entries for other indices at those tests.
Annotated Daily Chart of the Russell 2000:
The SOX also moved down to test the 50 percent retracement of the decline off the high it hit in early December. It also approached the 50-dma. Both the RUT and SOX should be watched Thursday to see if they bounce from these averages and to note the quality of the bounce. Bulls want a strong V-shaped recovery. If there's to be a bounce, bears want to see a tepid climb that closes beneath the midpoint of Wednesday's range. In the RUT's case, bears would actually prefer to see the bounce stopped at the 50-sma and 50 percent Fib level; in the SOX's case, at the 200-sma and -ema's.
This week, the Nasdaq also tested the 50-dma and the 50 percent retracement of its decline off its early January high, but the Nasdaq was making that test from the underside.
Annotated Daily Chart of the Nasdaq:
Those bulls expecting today to be the day that the indices pushed up through recent resistance levels saw their expectations dashed. One chart of the TRAN increases cause for worry, at least for market bulls.
Annotated Weekly Chart of the TRAN:
The early part of the week proved light on economic releases. That was true Wednesday, too, but that didn't mean that potentially market-moving events weren't in the making. News that Carly Fiorina had stepped down as Chairperson and CEO of Hewlett-Packard spiked U.S. futures higher, Mark Davis of the OptionInvestor staff reported. That futures spike was erased at the cash open, although HPQ continued to show gains. HPQ closed higher by 6.90 percent, but the GHA, the GSTI Hardware Index, erased early HPQ-inspired gains to close lower by 0.71 percent.
Although Fiorina's decision was termed a resignation, her comments suggested that differences with the board forced that resignation, ending her term as the first female head of a Dow Jones Industrials company. Robert Wayman, CFO, will serve as CEO on an interim basis, and Patricia Dunn will serve as non-executive chairman of the board.
Goldman Sachs asserted that the change in HPQ's executive lineup was due to operational and performance differences rather than strategic ones, but speculation arose immediately about changes that might follow Fiorina's resignation. Would the printer business be sold? Would other changes result? Goldman Sachs spoke immediately, suggesting that Fiorina's resignation would not likely lead to either a merger or a selling off of parts of the company.
Atlanta Fed president Guynn provided accelerant for the U.S. dollar early in the day, repeating hawkish claims that the FOMC never promised that rates would be raised in a measured manner. The dollar had been easing overnight, but spiked up again in a move that proved to be short lived. That spike happened despite recognition that Guynn speaks for a hawkish minority among the FOMC members. The dollar eased somewhat midday but steadied after a strong treasury auction.
Also before the market open, the Mortgage Bankers Association noted that the 13-basis-point drop in fixed-rate 30-year mortgage rates in the reporting week prompted a rise in mortgage applications, but not home purchasing. The seasonally adjusted index of mortgage applications rose 4.2 percent, building on last week's 7.3 percent gain, and the seasonally adjusted index of refinancing applications soared 7.8 percent, adding to the previous week's 16.6 percent gain. The purchase index gained 1 percent. Rates for adjustable-rate mortgages rose sharply and applications for these type loans dropped sharply, too.
Perhaps due to those hawkish comments from Guynn, however, the DJUSHB, the Dow Jones Home Construction Index failed to benefit from the drop in fixed-rate 30-year mortgages or the rise in mortgage applications. The index erased Tuesday's gains, producing a tweezer-top reversal signal on its daily chart and closed lower by 2.13 percent. Bears in this market should note, however, that the DJUSHB maintains an ascending regression channel that began building off the October low, with the 30-sma loosely following that channel higher. Until the channel's current 838 support and the 30-sma at 815.87 are broken, the trend remains intact, although it certainly looks as if the index may be preparing for a test of that support. This thing has to fall sometime, but many bears have expired of held breath waiting for that to happen.
After the upbeat MBAA report, news from Countrywide Financial (CFC) surprised. Countrywide Financial reported that its December fundings fell 6 percent from the previous month's on an average daily basis, although volume increased 37 percent over the year-ago level. January's fundings fell 19 percent, but the company blamed three fewer business days in the month for that drop.
Several other companies bucked expectations, disappointing when giving EPS forecasts for the first quarter. Those companies included BGP, CAM and KEA. Large insurers beat expectations, with American International (AIG) besting EPS estimates by six cents. Insurers AIG, Cigna (CI), and AON Corp (AOC) all bested expectations, too, although CI's revenue declined from the year-ago levels. Prudential (PRU) also released strong earnings and reaffirmed in-line guidance for the year. Those results pulled insurers up, with the IUX, the S&P Insurance Index, breaking above recent 324 resistance. The IUX was one of the few indices destined to close in the green, closing up 0.74 percent. Others included the XAU, the Gold and Silver Index, climbing 1.13 percent; the HUI, the Gold Bugs Index, gaining 1.51 percent, and the XNG, the Natural Gas Index, climbing 0.27 percent.
The negative sentiment at the open outweighed the good, however, bucking usual reactions in the last week, with CSCO and KKD declines contributing to the negative sentiment. CSCO would close lower by 3.34 percent, and KKD, by a whopping 9.19 percent.
December's Wholesale Inventories preceded the crude inventories number by thirty minutes, released at 10:00. Unless this number surprises enough to impact the GDP outlook, it's usually not market moving, but it bucked expectations and proved to be market moving after all. Although one source differed, the number rose .4 percent against an expectation of a rise of .9 percent. December's wholesale inventory-sales ratio fell to 1.14. Normally, this ratio at least would be considered good news because it suggests a depletion of inventories that will require a new build. U.S. 2004's wholesale sales climbed a record 13.8 percent. That 10:00 release began the long cascade down Wednesday morning.
Crude inventories numbers bucked expectations, too, when the Department of Energy released them near 10:30. The DOE reported that crude inventories fell 1 million barrels and distillates fell 3 million barrels, but that gasoline supplies rose by 500,000 barrels. According to one source, expectations had been for a rise of crude inventories by 500,000 barrels, a drop in distillates by 2 million barrels and a rise of gasoline inventories of 1 million barrels. Crude futures had been climbing since about 10 minutes before the released, surged up to $46.40 by 10:50, and then fell to the day's low of $44.50. Crude closed right at the midpoint of the day's range, nearly flat with Tuesday's close.
While Thursday's economic releases aren't numerous, they could be market moving. Thursday's economic releases begin with the usual 8:30 release of jobless claims, but also include December's Trade Balance, also released at 8:30, and January's Treasury Budget, to be released at 2:00. Trade Balance forecasts ranged from $57.4-58.1 billion, below the $60.3 billion seen in the previous number. The world's economists have been discussing how likely it will be that the narrowing will occur. Expectations for that narrowing have been high, and a widening could be taken badly. Here's one area where traders don't want to see a bucking of expectations tomorrow.
Remember to watch the RUT and the SOX. A bounce must include a Russell move back above the 50-sma and the 50 percent retracement of the decline off recent highs and a SOX move back above its 200-ema and -sma before it's believable. The TRAN's move to levels at which it usually tops and the VIX's recent lows argue caution.