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Friday's selloff continued in international markets overnight, dragging US futures lower. But as the sun came up in North America, prices were off their lows and ticking positive with positive earnings being reported (see below). The indices retraced part of Friday's losses, holding uneasy ranges on both sides of unchanged.

Breadth was positive for most of the session and volume was above average, though lower than Friday's massive numbers. The volatility indices rose briefly above Friday's high closing levels, and then declined throughout what proved to be a slow, boring session. Volume breadth finished fractionally positive, with 1.5 advancing NYSE shares for each declining, and 1.4 advancing for each declining on the Nasdaq.

Daily Dow Chart

The Dow finished lower by 16 points, 51 points off its low but failing at a high of 10105. Extreme oversold readings on the intraday charts generated only a tired sideways bounce, and today's candle printed entirely below the lower Bollinger band at 10163. The 10000 support level has yet to be tested, and the Dow remains stretched to the downside to an extreme degree. While a technical bounce is to be expected, bulls are hoping that today's tired twitching wasn't it. To the upside, there's a big overhang in the 10330-360 area.

Daily S&P 500 Chart

The SPX eked out a 3.4 point gain, bouncing from a low of 1140 and failing at 1149, both well-worn support/resistance zones from months and years past. As with the Dow, extreme oversold conditions on the intraday cycles generated only a sideways retrace of the lower end of Friday's range, and resulted in a print below the Bollinger channel bottom at 1149.8. A break of these levels will see a retest of the confluence zone fro 1125-30, while to the upside, the 1162 area is the Dow's 11330-360 equivalent.

Daily Nasdaq Chart

The Nasdaq also closed lightly green, adding 4.77 to close at 1913 after testing a low of 1904. The bounce failed at 1922, 20 points below the lower Bollinger channel. 1970-75 is upside resistance, followed by 1996 and 2025, while 1900-05 is support from last October. While the intraday cycles are oversold and calling for a bounce, the longer daily and weekly cycles continue to point south.

Daily TNX Chart

The Treasury auctioned $30 billion of 3-month and 6-month bills today. There were 2.1 bids tendered for each accepted on the $16 billion 3-month auction, which generated a high rate of 2.805%, while the bid to cover ratio for the $14 billion 6-month bills was a stronger 2.25 with a high rate of 3.04%. Foreign central banks took just over 1/5th of the total.

Ten year treasury bonds had been very strong for the morning, with ten year note yields (TNX) gapping lower and holding their losses until a few minutes before the release of the auction results. The morning gap was nearly filled as the TNX spiked back above the 4.25% level at 1PM. Currently, a strong daily cycle downphase is reaching the lower end of its range, suggesting support at current levels. 4.2% and 4.26% are back in play, and with the 10-day stochastic looking bottomy, ten year treasury bulls/TNX bears should be tightening their stops. For the day, the TNX lost 2.4 bps to close at 4.249%.

Chart of Crude oil

May crude oil printed a new low for the move at 49.65 last night, bouncing later in the morning to break 51 briefly. OPEC President Sheikh Ahmad al-Fahd al-Sabah said that the cartel would stand by its recent output increases, but that the price drop would likely forestall any further increases until the mid-June meeting. Currently, US inventories are at their highest levels since the summer of 2002.

On the daily chart, today's failed bounce to 51.15 finished closer to the bottom of its range, leaving a doji star verging on a gravestone doji. The daily cycle oscillators continue to point lower, just approaching oversold territory. The rising support line and the confluence support at 50 are followed by less significant support in the 46-47 area, still nearly 20% off the December-January lows and well within this year's uptrend. For the day, May crude closed lower by .175 at 50.325 on the Nymex.

Today was a quiet day, with no major economic reports. There was also a relatively quiet weekend newswire, as little came out of the G7 meeting. Most notable instead was China's absence therefrom, which amounted to a strong statement in the rarified air of diplomatic relations. The attendees failed to reach an accord concerning the forgiveness of loans to developing nations, and resolved not to sell gold to pay down those debts. Speculation continues as to the outcome of the US-China dispute over the Chinese currency peg and recent threats of tariffs as high as 27.5% on Chinese imports, but WMT closed higher today by 18 cents at 47.88.

As expected following Friday's market declines, foreign bourses sold off Sunday night but were recovering by the time US traders returned to their terminals. US futures had been down hard overnight, but the SPX futures were back to unchanged before 8AM. There was even chipper news to greet them, courtesy of Bank of America. BAC, the 3rd largest US bank, reported a 75% jump in Q1 profit from the previous year, citing growth in consumer banking and its acquisition of FBF. Quarterly net income climbed from 91 cents per share or $2.68 billion to $1.14 per share or $4.7 billion, which results included a charge of $112 million or 2 cents per share for merger and restructuring costs. These results blew away estimates for EPS of 97 cents. BAC closed higher by 1.02% at 44.73 following a gap up open, trading 16.8 million shares compared with its 9.6 million average.

This good news was supported by SunTrust (STI), the #7 bank in the US, which reported a 36% jump in profits for the quarter on growth in loan and deposit activity, a decline in bad loans and its acquisition of National Commerce Financial. Net income rose from $1.28 per share or $361.8 million to $1.36 or $492.3 million. The prior results were restate to correct entries for some of the reported bad loans. Excluding items, the quarterly EPS was $1.37, beating estimates by a nickel. STI rose throughout the day to close 1.44% at 71.17 on stronger than average volume.

First State Bancorp (FSNM) chimed in with a 19% rise in earnings from 23 cents or $3.6 million to 28 cents or $4.3 million for the quarter, beating estimates by a penny. PrivateBancorp (PVTB) came in with a 31% increase, earning $7.8 million or 37 cents a share, beating estimates by a penny and citing narrowing loan-loss provisions. FSNM gained 2.02% to close at 17.19 on light volume, while PVTB added 1.55% to close at 31.18. The PHLX Bank Index (BKX) closed higher by 1.26% at 95.73.

MMM reported before the bell as well, announcing earnings of $809 million or $1.03 per share, up from 90 cents or $722 million the year earlier. Estimates were for $1.01 per share, but revenue came in light, rising 4.06% from $4.94 billion to $5.17 billion. Analysts were looking for $5.26 billion. The company said that improved efficiency, pricing and sales growth helped it to weather slow economic conditions in Western Europe and Japan, as well as high input material prices. MMM got clocked for a 6.13% loss, gapping lower at the open and declining all morning to flatline in the afternoon, closing lower by 4.96 at 75.90.

The lone bright splash of green on Friday, aside from the volatility indices and the US Dollar Index charts, was in the health- and drug-related stocks. LLY reported before the bell, announcing a big jump in Q1 earnings from 37 cents or $400.4 million to 68 cents or $736.6 million on revenue of $3.497 billion, topping estimates for 66 cents but missing the $3.564 billion expected revenue. LLY gained 1.6% to close at 59.

The Nasdaq futures went green as Corning (GLW) announced that Q1 earnings would come in higher than expected on stronger demand for hardware and equipment, lower than expected taxes and strength at its Dow Corning unit. Estimates are for earnings between 16-17 cents compared with the prior 11-13 cent guidance. Expected revenues are now $1.04-$1.05 billion from a previously expected $.98-$1.03 billion. Software security maker CheckPoint (CHKP) reported good news as well, announcing a 76% rise in Q1 net profit y-o-y, which, excluding items, beat estimates for 29 cents per share by a penny. GLW rose 4.14% to close at 11.56 on double its average volume, while CHKP lost 1.97% to close at 21.37.

In other news, ADBE announced its plan to buy Macromedia (MACR) in a deal estimated at $3.4 billion, pursuant to which MACR share would be exchanged for .69 shares of ADBE. The price represents a 25% premium to Friday's MACR closing price. MACR shareholders would end up owning 18% of Adobe upon completion. The deal is pending shareholder approval from both companies and by federal regulators. ADBE's CEO stressed that the deal is a growth play, and not a consolidation. ADBE got hit hard on the announcement gapping down to the low 53 area and advancing slowly throughout the session, while MACR gapped up. Keybanc analyst Marc Schappel ruled the selloff in ADBE to be an over-reaction, saying that it provides a good entry point, presumably from the long side, upgrading the stock to a "buy" rating and setting a $70 price target. ADBE closed lower by 9.71% at 54.77, while MACR gained 9.78% to close at 36.72.

After the bell, NVLS reported net earnings of 22 cents or $30.5 million on $339.7 million revenue, meeting estimates on EPS and coming in $300 000 light on revenue but well up from last year's Q1 11 cents or $16.7 million earnings. The stock has risen 2.19% to close at 24.30 during the regular session, but was down to 23.92 as of this writing.

Texas Instruments got a lift afterhours, beating net EPS earnings estimates by a penny at 24 cents or $411 million on revenue of $2.97 billion, compared with 21 cents and $2.94 billion in last year's Q1. Estimates were for revenue of $2.99 billion, and the company cited not strong demand but rather lower manufacturing and operating costs. Nevertheless, the stock was up 5.45% at 24.00 as of this writing.

The economic calendar heats up starting tomorrow, with Housing Starts and Building Permits, as well as the Producer Price Index, all before the opening bell. Wednesday we get the CPI and Core CPI data. As well as the Fed's Beige Book. Added to the mix is a heavy slate of Fed speeches and appearances, with Chairman Greenspan testifying on budget process reforms to the Senate Budget Committee on Thursday. With the indices short term oversold, even after today's consolidation, and ten year treasury yields becoming oversold and approaching strong support, the stage is set for a strong move on the release of either the PPI or CPI data. With earnings season in full swing and a full slate of reports for tomorrow (including GM and PFE reporting before the open and INTC reporting after the close), there's even more potential than usual for wild swings and violent chop.


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