Option Investor
Market Wrap

Stocks Mixed After Weak Economic Data

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Stocks started the week out mixed to lower on Monday after January construction spending and February manufacturing figures showed the U.S. economy sputtered in the latter part of 2007 and early in the first quarter of this year.

Investors braced themselves for steep declines at the open as Asian markets exhibited weakness with Japan's Nikkei-225 ($NIKK) falling 4.49% and Hong Kong's Hang Seng ($HSI.X) shedding 3.07% on the heels of Friday's declines here at home.

Economic data released at 10:00 AM EST had the Commerce Department reporting that construction spending fell by 1.7% in January, which was below economists forecast for a 0.60% decline. December's previously reported 1.10% decline was revised lower to -1.3%.

But buyers stood their ground when at the same time, the Institute for Supply Management's index of U.S. manufacturing activity came in at 48.3 for February (January was 50.7). While the figure showed contraction (levels above 50.0 signal expansion), the 48.3 measure was slightly above the 48.0 forecast.

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A breakdown of the ISM Manufacturing Index showed the prices index eased modestly to 75.5 from 76.0 a month earlier, but the expansionary 75.5 measure was enough to keep a firm bid in commodities with the CRB Index (CRY) carrying gains to close at another 52-week and multi-year high.

Other sub-index measures showed the employment index falling to 46.0 from January's 47.1, new orders edging lower to 49.1 from 49.5, production falling to 50.7 from 55.2 and inventories falling to a 45.4 measure from 49.1.

Closing U.S. Market Watch -

After last week's plunge to multi-year lows, the U.S. Dollar Index (DXY) showed some stability, more than likely due to short-covering.

Gold and silver as depicted by the StreetTracks Gold (GLD) $97.41 +1.27% (approximately $974.10 spot) and iShares Silver (SLV) $201.65 (approximately $20.16 spot) continued to shine.

The AMEX Gold Bugs Index ($HUI.X) 501.65 +3.20% was today's sector winner and psychological resistance of 500.00 found little traction among sellers.

First sign of any weakness in my opinion on the HUI.X would be a close back below its 01/14/08 close of 481.00.

AMEX Gold Bugs Index ($HUI.X) - Daily Intervals

The HUI.X looked like it might be showing signs of a reversal on Friday as the major averages saw selling. As soon as the broader markets see some abatement of selling, the HUI.X powers higher still. I've been showing both gold and silver commodity's charts with similar "bull fit 38.2%" retracement and an Andrews Pitchfork (modified schiff) that some "wave traders" will use.

iShares Silver Trust (SLV) - Daily Intervals

Silver as depicted by the iShares Silver Trust (SLV) $201.63 +2.51% has been playing "catch up" to gold over the longer-term. So much so that last week I had to stack, or copy the Andrews Pitchfork (modified schiff) to give wave traders further upside targets. As tough as it is for me to suggest new long positions, it is outlandish to even suggest short positions. It has been for months as overhead supply is nonexistent.

Homebuilders and financials were among today's sector losers after mortgage lender Thornburg Mortgage (NYSE:TMA) $4.32 -51.46% said it hasn't yet been able to meet a new wave of margin calls worth at least $270 million and that it is facing a shortage of cash, which could hurt its ability to meet any future margin calls.

S&P 500 Index ($SPX.X) - 10-point box

On Tuesday and Wednesday of last week, the S&P 500 Index (SPX.X) tested its bearish resistance trend, but quickly fell back below heavy 1,350 March put/call open interest, which would be a "Max Pain" theory level for quarterly expiration (03/20/08 is Triple Witching expiration).

A break at 1,310 would be quite bearish and set the stage for a test of the January lows.

Dow Industrials ($INDU) - 50-point box

Not unlike the SPX, the Dow Industrials ($INDU) found sellers at its bearish resistance trend and sellers stood their ground below 12,800 resistance.

Boeing (NYSE:BA) $80.67 -2.56% gapped lower at the open to trade as low as $79.25 on news that it had lost a $35 billion Air Force contract.

United Technologies (NYSE:UTX) $69.40 -1.57% made an unsolicited offer to buy Diebold (NYSE:DBD) $38.84 +61.02% for $2.63 billion in cash. Diebold, which is a big player in the automatic teller machine, security system arena said later in the day that it was "not the right time" for the UTX offer. That suggested UTX might have to sweeten its bid.

DIA and SPY Montage - Daily Intervals

Neither the DIA, or SPY have seen a CLOSE below their conventional 19.1% retracement since the January lows, but strength is needed as both the QQQQ and iShares Russell 2000 (IWM) $68.20 -0.66% remain a drag.

IWM and QQQQ Montage - Daily Intervals

A late session "rally" in the small caps had the IWM recapturing the $68.14 level by the close, but growing concern for QQQQ/NDX heavyweight Apple's (AAPL) iPhone sales had the most-heavily weighted component falling back below its 1/23/08 low of $126.14.
 


 

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