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Market Wrap

Opex Kickoff

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The US Dollar rose as equities, treasuries and commodities declined following the 8:30 release of the Empire State Index. Equities reversed, however, led by the Nasdaq which broke and closed above Friday's highs. It was by far the strongest of its peers, nearly doubly their percentage gains for the day.

Volume was weak, and volume breadth took its time going positive, finishing the day with 1.47 advancing shares for each declining on the NYSE, and 1.84:1 on the Nasdaq. Most of the gains were made in the hour between 11:30AM and 12:30PM, with a slow sideways range following from there. Volatility declined, and other than the action at the middle of the session, option-expiration Monday was slow, sideways and true-to-form.

Daily Dow Chart

The Dow broke to a new low that blew off in a doji spike. The high printed at 10655, below Friday's high, and despite the bullish intraday action, the day yielded a lower low and lower high. Surprisingly, the 10-day stochastic stalled anyway, showing a bullish kiss. A move above 10685 should be enough to confirm a new daily cycle upphase, while a closing break below the 10560 support (today's low was 10557) would restore the downphase.

Daily S&P 500 Chart

The SPX printed an inside day, bouncing from a higher low at 1226 and failing at lower high of 1236. The daily cycle indicators remain in their downphase, but any strength tomorrow should result in the same bullish kiss as appears on the Dow. Bears need to see a break of 1224 to kick off the next leg down, but as was seen last week, there has been no shortage of bids at that level so far. Above 1239, the daily cycle should turn back up.

Daily Nasdaq Chart

Despite its notable strength today, the Nasdaq remains in a clear daily cycle downphase. However, today's bounce took out Friday's high easily, and restored the index above its 22 day EMA. A higher low was printed at 2147, and the high was 2174. The challenge for bears is clear enough, with rising support from the April low at 2150. A close above 2185 should be enough to reverse the current downphase.

Daily TNX Chart

The Treasury auctioned $34 billion in 13-week and 26-week bills today. Foreign central banks purchased a respectable $7.5 billion of the total, with new high-yields being set for the year. The 13-week bills had a high-yield of 3.47% and generated a bid-to-cover ratio of 2.31, while the 26-week bills had a high-yield of 3.705%, with a bid-to-cover of 2.3.

At 9AM, the Treasury reported that June capital flows roses from $55.7 billion in May to $71.2 billion in June, with foreign central banks purchasing $17.2 billion of US assets. Foreign purchases of US treasuries reached a 2-year low of $7.9 billion, down from $27.6 billion in May. Foreigners bought a record $52.2 billion of US corporate bonds, but sold $24.8 billion in short-term treasuries.

Ten year note yields (TNX) bounced in the wake of the of Empire State index (see below), but it was far to weak to overcome the daily cycle sell signals printed on Friday's steep drop. For the day, TNX gained 3.2 bps to close at 4.27%.

Daily Chart of Crude oil

The financial press reported that oil prices were weaker as US refineries began recovering from recent outages. But the drop was reversed in the morning as prices recovered to a high of 66.975, spending the remainder of the session in light negative territory after last week's 7%+ gain. The jump was attributed to the usual combination of supply concerns, exacerbated by tensions in Iran last week as that country broke the seals on nuclear installations. During the day, various snips from different media outlets noted that oil was coming down, etc., as the oil bears cheered each pullback. On the daily chart, we see September futures in a trending overbought upphase as the price melted up last week. Bears need to see a break below former 62.00-62.50 support, followed by a test of the secondary rising trendline at 60.50. Only a break below the primary trend at 53 would threaten the upward bias. However, longs will want to be snugging up their stops in view of the 10-day stochastic, which finished on an ominous bearish kiss.

For the day, September crude oil finished lower by .55 at 66.30, off an afternoon low of 65.375.

It was a characteristically quiet Monday for economic data, with the New York Empire State Manufacturing Index released at 8:30. The Index declined from 23.9 in July to 23 for August, exceeding expectations for a reading of 18.9. The "new orders" component set a high for the year at 33.8, and the "employment" component rose from 1.4 in July to 10.2 in the current month. However, "prices paid" rose from 21.6 in July to 29.00.

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In corporate news, Lowe (LOW) reported that it earned $838 million, or $1.05 per share on sales of $11.93 billion in Q2, up from last year's $700 million or 87 cents on sales of $10.17 billion in the year-ago quarter. Estimates were for EPS of $1.02 and sales of $11.81 billion. The company expects full year EPS of $3.31-$3.37, and total sales to increase 16%, compared with the current consensus of 17% growth and EPS of $3.29. For the month of July, same-store sales rose 6.5%. LOW finished higher by 1.09% at 65.90.

Agilent (A) reported that Q3 earnings rose 4% from $100 million or 20 cents per share to $104 million or 21 cents in the current quarter, missing estimates by a nickel. Revenue declined from $1.89 in the year-ago quarter to $1.69 billion, missing its expected $1.7-$1.8 billion range. However, the company affirmed Q4 estimates of 33-38 cents on revenue of $1.79-$1.89 billion. It also announced that it will be cutting 1300 jobs and restructuring, including spinoffs and a $4 billion stock buyback that are expected to reduce infrastructure costs by $450 million per year. The transactions are expected to complete by mid-fiscal 2006.

Philips Electronics (PHG) announced that it would be buying A's 47% position in Lumileds Lighting for $950 million cash, which would bring its holdings to 96.5%. The WSJ reported that Kohlberg Kravis Roberts & Co. and Silver Lake Partners will be buying A's semiconductor business for an estimated $2.6 billion. The proceeds of this nearly $3.6 billion in new liquidity are expected to be spent on its stock buyback.

Agilent finished higher by 3.88 or 14.69% at 30.29. PHG gained .56% to close at 26.97.

Delta Airlines (DAL) got slammed in premarket trading on news that the company has begun to arrange financing in preparation for a bankruptcy filing. According to a New York Times report, DAL was speaking with GE's Commercial Finance Unit, one of its creditors. DAL lost 21 cents or 13.04% to close at 1.40, while GE gained .02 to finish at 34.27.

The National Association of Home Builders-Wells Fargo announced that their Housing Market Index declined from 70 in July to 67 in the current month. The diffusion index indicates optimism amongst home builders on readings above 50, and so this month's reading indicates that they are slightly less optimistic than in the previous month. This is notable in light of the fact that bond yields have risen considerably since July. Marketwatch reported that the Index for current sales dropped to 72 from 76, a more than 12 month low. Buyers traffic fell from 55 to 50, while the index for future sales held at 77.

The Fed cleared some of the mist later in the day, reporting that US banks eased lending standards and terms during the past 3 months, helping to bolster demand from buyers.

It's set to be a heavy week for economic data, with the CPI, Housing Starts and Building Permits, Industrial Production and Capacity Utilization scheduled for tomorrow, followed by the PPI on Wednesday, then Initial Claims, Leading Economic Indicators and the Philadelphia Fed on Thursday. For tomorrow, the overbought intraday cycles will be dueling with the stalling daily cycle downphases. A break above or today's range should break the deadlock, but with op-ex week manipulations thrown into the mix, the potential for false moves and whipsaws will be greater than usual.
 

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