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Market Wrap

EMC's warning is latest drag for technology

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Stocks opened higher as merger news provided optimism, but gains faded toward the close with semiconductors once again pacing declines after data storage giant EMC Corp. (NYSE:EMC) $10.41 -6.88% warned that it now expects to earn $0.13 share on revenue of $2.58 billion, down from the company's prior quarterly guidance of $0.13 a share on revenue of $2.66 billion.

If EMC's warning had a silver lining, it seemed to have been cannibalized in a somewhat mixed statement from management regarding its new Symmetrix systems offering. While the company said it had strong new orders for its Symmetrix DMX-3 systems, the orders came late in the quarter, and couldn't balance fewer-than-expected orders placed for its Symmetrix DMX-2 systems.

Shares of Heritage Property Investment Trust (NYSE:HTG) $35.94 +2.74% gained 96 cents, but trade well off their March highs of $40.00 after the company said it has agreed to be acquired by the Australian-American joint venture of Centro Watts for $1.83 billion, or $36.15.

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Further merger news had shopping center REIT Kimco Realty Corp. (NYSE:KIM) $37.41 +1.46% buying smaller operator Pan Pacific Retail (NYSE:PNP) $69.35 -0.92% for $70.00 a share. Kimco said it will assume approximately $1.1 million in PNP's debt.

Kraft Food (NYSE:KFT) $30.21 +0.03% edged up a penny by the close. Kraft said it will buy the Spanish and Portuguese operations of United Biscuits, a U.K. cookie maker, for $1.07 billion. The deal satisfies Kraft's appetite to buy back all Nabisco trademarks in the E.U., Eastern Europe, the Middle East and Africa.

Two economic reports were released during Monday's trade.

Wholesale inventories for May (10:00 AM EDT) showed a 0.8% increase to a seasonally adjusted $375.81 billion, even though sales rose at a rate twice as high as stockpiles. Economists expected inventories to rise by 0.5%.

Consumers continued to take on debt, but at a slower pace than in April, as a sharp rise in credit card financing and other revolving debt offset the first drop in non-revolving debt in six months. May consumer credit (03:00 PM EDT) expanded by $4.4 billion to $2.174 trillion according to the Federal Reserve. April's previously reported $10.6 billion surge was revised lower to $9.3 billion.

U.S. Market Watch - 07/10/06 Close

For whatever reason, several indexes I was tracking in my U.S. Market Watch have either been "discontinued" as of June 30, or multiple data sources are no longer paying fees to exchanges for feeds. As such, I've simply tried to "substitute" like indexes with some ETF (electronic traded funds) for various sector representations. PINK **.

The NASDAQ-100 Tracker (QQQQ) $37.36 -0.87% did trade a fresh 52-week low intra-day, with the Semiconductor HOLDRs (AMEX:SMH) $31.09 -2.23% closing at a new 52-week low.

Earnings season kicked off with Dow component Alcoa (NYSE:AA) $33.41 -0.41% falling to $31.94 in tonight's extended session. The aluminum giant reported Q2 net income of $744 million, or $0.85 a share, up 62% from $460 million, or $0.52 a share, a year ago. Alcoa said income from continuing operations came in at $0.86 a share, which matched Wall Street expectations. Investors appeared disappointed as revenue increased 19% to $7.96 billion, which missed analysts' estimate of $8.01 billion.

Telecom equipment maker Lucent (LU) $2.34 -1.26% looks set to challenge recent 52-week lows tomorrow morning after the company warned it will miss its quarterly revenue target by $300 million, with earnings per share also falling short of estimates, as its telecom equipment gear was hurt by weak sales in the U.S. and China.

Lucent, which has agreed to be acquired by French equipment maker Alcatel (NYSE:ALA) $12.30 -1.04% for $13.45 billion, said in a statement that sales for its fiscal third quarter totaled $2.04 billion, roughly 13% lower than its sales in the same period a year ago.

Energy prices softened from recent highs. I did note a Dow Jones headline this morning that Saudi Arabia has started testing some of its heavy-oil reserves, looking to unlock its huge, hard-to-tap and largely unexploited reservoirs of heavy crude.

As earnings season begins, I find a headline from Dow Jones that Wall Street forecasts for the S&P 500 are now calling for aggregate Q2 operating earnings growth of 11%-12%, up from single digits forecasted earlier in the quarter that threatened to snap a winning streak of 11 straight quarters of double-digit profit growth.

When I went to bed Sunday evening, Japan's Nikkei-225 ($NIKK) was down more than 100-points. When I woke up this morning, the Nikkei-225 finished up an impressive 245-points, or 1.60%.

Japan's Nikkei-225 ($NIKK) - 50-point box

In this morning's Market Monitor I posted the above chart, where the Monday's early session dip to 15,100 would have a supply (O)/demand (X) chartist continuing to chart lower to 15,000. However, I do show "blue ?" to depict the intra-day turnaround.

What looks to have triggered the intra-day reversal was that machine orders fell 2.1%, which was less than the -4.6% forecast.

We've been hearing about a "liquidity crunch" out of Japan, and I do think an earlier release of the country's M2+CD Money Supply year-over-year reading of +1.2% versus forecast of +1.5% and previously reported +1.4% gain spooked buyers earlier in the session.

I'd have to say that after having some N. Korean-launched missiles falling the in the Sea of Japan, the Nikkei-225 has been hesitant to relinquish some bottom-fishing gains. I'll continue to monitor things, but a break back below 14,800 would be an alert to weakness.

I like to extend "old trends" on a chart and monitor them. If they begin serving up resistance or support, that will often-times depict market participants showing a growing bias. With the $NIKK still somewhat either side of its recently broken bullish support trend, but now below downward trend, at best I'd be cautiously optimistic/bullish.

Hong Kong's Hang Seng ($HSI.X) - 50-point box

As quickly as China's Hang Seng fell 2,050 points (-11.8%) from its May highs, buyers have been aggressive after recent triple top buy signal at 15,900.

Earlier this morning China said it country's trade surplus hit a record as it exported $14.5 billion more in goods than it takes in during June. Economists had forecasted a surplus of $13.6 billion.

Currency traders saw the data as further adding the U.S. pressuring China to let the yuan appreciate faster.

I wanted to updated traders and investors on these two major Asian/Pacific Rim indexes, as they appeared to be providing the bulk of the drag for other major stock market indices around the world.

Things look to have stabilized here, but I'll continue to monitor.

Internals improving at NYSE, still weak at NASDAQ.

Over the past week, some of the major market bullish % indications have reversed higher.

In fact, all have reversed back up except the very broad NASDAQ Composite Bullish % ($BPCOMPQ) from StockCharts.com

NASDAQ Composite Bullish % ($BPCOMPQ) - 2% box chart

I don't mean to "focus on the negative," in fact; some have said, "Jeff's too bullish!"

No, what I think traders and investors need to do is at least take note of an indicator that is "different" than some others. For any number of reasons, where one primary reason may be favorable stock option grant prices to company executives, the greater number of stocks listed on the NASDAQ (4 and 5 lettered stock symbols) are still depicting that supply is in control.

It would be painting with a broad brush to say the NASDAQ is "all tech," but it is broadly known that many technology firms tend to compensate their executives to a greater extend with stock options.

Each week I get an e-mail from Scott & Scott regarding their investigation into a company possibly having granted stock options to a company executive at a "favorable price" prior to the stock's price moving higher.

NASDAQ Composite ($COMPQ) - 10-point Box

I'm running late to my editor's deadline, but I would continue to caution "NASDAQ Bulls" of getting too aggressive with bullish plays. It should be suspicious to some that the NASDAQ's first test of bearish resistance trend comes on July 3, just as the Stock Trader's Almanac notes that historically, the NASDAQ "Worst 4 Months" begin in July.

Be careful out there, and DO NOT OVERLEVERAGE! Trade your stops and targets.
 

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