Stocks tried to turn lemons into lemonade on Thursday in the face of several less-than-stellar economic reports and rising political turmoil in Greece. Even with those headwinds, the Dow Jones Industrial Average posted a solid gain, while the S&P 500 and Russell 2000 showed gains of a more meager stature. The Nasdaq closed lower and will probably open lower tomorrow, a situation that will be addressed momentarily.
It was a busy day in terms of economic data and none of it was particularly wonderful, though that has become the norm in recent weeks. The Labor Department said initial claims for jobless benefit by 16,000 last week to 414,000. The decline is good news, the fact that the four-week moving average remains stubbornly above 400,000 is not. Last week was the tenth consecutive week the four-week moving average resided above 400,000. Still, last week's reading was below the 420,000 new claims economists were forecasting.
Jobless Claims Chart
The new residential construction report issued today was another case of ''not exactly great, but certainly less bad.'' Permits for single-family homes jumped 2.5% in May to a seasonally adjusted rate of 405,000 units. There ends the good news because the May 2011 number is 6.9% below the May 2010 number and almost 77.5% below the number posted in September 2005, according to Blytic.com. Single-family housing starts rose 3.7% last month, but that is almost 9% below the May 2010 level and 77% below the 2006 peak, Blytic reports. Ugly is all I can say.
Single-Family Housing Permits
And speaking of ugly, we have the Philly Fed manufacturing index which plunged to -7.7 in June from 3.9 in May. That gives us the worst reading in 31 months. Economists were expecting a reading of 5.5.
Philly Fed Manufacturing Index
Normally, I do not start with the after-hours action, but today I will make an exception because BlackBerry maker Research In Motion (RIMM) treated investors to yet another quarter of disappointing results and an even more disappointing outlook. Before getting into the most recent quarterly numbers from RIM, it pays to take a look at why the stock's chart, which I include momentarily, is so ugly. This chart help explains why.
Smartphone Market Share
What that chart shows is smartphones operating on Google's (GOOG) Android are eating everyone's lunch, at least here in the U.S., and that includes BlackBerry and the iPhone. To be sure, Apple's (AAPL) iPhone is nowhere near as vulnerable as BlackBerry and it is widely expected that iPhone will surpass BlackBerry this year for the second spot in U.S. smartphone market share. The problem for RIM is not only is it losing market share in the U.S., it is relying on international markets to make up for those lost subscribers, but in many of those markets, BlackBerry has to do battle with at least the iPhone, if not a host of other rival products.
For the most recently completed quarter, RIM earned $1.33 a share on revenue of $4.91 billion, but analysts were expecting a profit of $1.32 on sales of $5.14 billion. I have been saying for over a year that missing on the top line is a recipe for disaster for any company and given RIM's recent track record, this is damaging news.
Revenue outlook for the next quarter is even worse. RIM expects revenue of $4.2 billion to $4.8 billion, well below the $5.46 billion analysts were expecting. RIM's tablet, the PlayBook, did show sales of 500,000 units, 100,000 above estimates, but making headway against the iPad will be a formidable task and as one analyst quoted by the Wall Street Journal notes, investors are getting tired of hearing RIM say wait for new products in the back half of this year.
The company also cut its fiscal 2012 profit outlook to $5.25-$6 a share from $7.50. Co-CEO Jim Balsillie said ''Fiscal 2012 has gotten off to a challenging start.'' You don't say. The company also made a weird share repurchase announcement today, saying it will repurchase some of its own shares, but the amount and timing of the buybacks were not disclosed.
Well not to be snarky, but RIM will be getting a good deal on its own stock. The shares are plunging in the after-hours session, down 15% and hovering around $30. RIM has not traded below $30 since September 2006.
In more positive news, there was a bit of mergers and acquisitions activity in the air on Thursday as Energy Transfer Equity (ETE) announced it will acquire Southern Union (SUG) for $4.2 billion, creating one of the largest U.S. natural gas pipeline operators in the process. The combined company would have more than 44,000 miles of natural gas pipelines and about 30.7 billion cubic feet per day of natural gas transportation capacity, according to the Associated Press.
The deal is the second big one for Energy Transfer in 2011. In March, the company paid $1.93 billion to acquire LDH Energy Asset Holdings. Energy Transfer will pay $33 a share for Texas-based Southern Union, a 17% premium to where the stock closed on Wednesday. Shares of Energy Transfer jumped 8.2% on volume that was nearly quadruple the daily average on news of the deal. Even with that big move higher, the stock still yields 5.2%.
For more news and commentary on the energy sector, register for the OilSlick Daily Newsletter (HERE).
Energy Transfer Chart
In the graphic evidence category, this continues to be a truly gruesome environment in which to take a company public. That statement is backed up with a quick view of almost every Chinese Internet IPO from late 2010 through this year. Remember when LinkedIn (LNKD) jumped to over $120 on its first day of trading? That is a hard event to recall when the stock closes near $68 as it did today.
Still, the allure of going public is too strong to ignore for some companies and they end up learning a lesson, at least a short-term one, the hard way. Pandora (P), the Internet music service went public yesterday and started off hot before fizzling into the close. Today was no better. With today's 24% plunge, investors that paid $26 for Pandora on Wednesday are now in the hole to the tune of nearly 50%.
Along the same lines, I read that Angie's List has selected a bank to manage its upcoming IPO. Angie's List is sort of Craigslist meets Yelp, but I have a feeling a fate similar to that of LinkedIn and Pandora awaits Angie and her list. By the way, a few years ago, banks were clamoring for Craig to take his list public, but he never did. Perhaps he made the right choice.
Looking at the charts, today's bounce for the S&P 500 really is not worth bragging about, but if the market is going to continue move higher, the Index would find resistance around 1290 and would then need to claw its way back above 1320. Support still looks to be 1250 and if that does not hold, the 1200-1210 area could be next.
S&P 500 Chart
Even with a decent move today, the Dow could not find its way back above 12,000 and resistance looms in the 12,070 area. If the blue-chip index can make its way above that area, another 150 points of upside is possible. Support is around 11,700 and if that does not hold, downside targets would be 11,450 and then perhaps below 11,200.
The Nasdaq has been looking especially vulnerable and that tune will not change following RIM's terrible results. It would probably take a return to 2700 and higher to get buyers interested again, in the near-term, a run to 2600 is a real possibility. From there, 2545 could be the next stopping point.
The Russell 2000 seems to have found support at its 200-day moving average, but it would not be accurate to say that fund managers have suddenly embraced small-caps again. They have not. It will probably require a move above 800 to encourage small-cap buying. Likewise, a drop below 760 probably takes the Russell 2000 to 740 and then back to 700-710.
Russell 2000 Chart
I still no reason to be initiating long positions here, certainly not large ones, and I am also of the mind that the S&P 500 has probably gotten to the point where the financials need to finally start carrying their weight. Problem is, there is just too much headline risk for that group for it to start chipping in to broader market gains in any meaningful fashion.
The best I can say is that big financials ETFs like XLF and KBE are nearing critical support levels and if those areas hold, each could bounce a couple of bucks, but those moves probably will not put a Ferrari in your garage. I remain leery of financials and non-Apple tech until I find a reason not to be. Trust me, I would like to find that reason.