The major indexes started out mix-to-lower at the open after the Institute for Supply Management said its manufacturing index bounced back to a stronger-than-expected 54.7% in April from 50.9% in March. Readings above 50% in the diffusion index mean more firms were reporting business expansion.
April's 54.7% reading reversed seven months of weakening readings that have ranged between 49.3% and 52.3% and was much stronger than economists forecast of 51.0%. April's 54.7% was the highest since May 2006.
Economists saw the ISM Manufacturing data healthy and if sustained, would be consistent with growth of 4% for the economy.
Some of the sub-index measures showed the new orders index rising to 58.5% from 51.6%, the highest in 14 months. The production index rose to 57.3% from 53%, the highest in a year.
On the supply side, the inventories index fell to 46.3% from 47.5%, indicating contraction in inventories for a ninth straight month. The prices-paid index rose to 53.1% from 48.7%, the highest since August of last year.
Of the 18 industries measured, 11 showed expansion, led by wood products, apparel and food.
Homebuilders as depicted by the Dow Jones Home Construction Index (DJUSHB) 637.21 +1.21% found their session low just after 10:00 when the National Association of Realtors its pending-home-sales index declined 10.5% from March 2006 and sits at its lowest level since March of 2003.
David Lereah, the NAR's chief economist said "Although the weather improved in March, we're starting to see the effects of a decline in subprime lending and tighter lending standards."
The NAR's report showed pending home sales rose in the West, but dropped in all other parts of the country.
In the West, pending sales were up 1.6% in March, but is still 8.6% below last year. In the Northeast, pending sales fell 4.9% from February, while the Midwest fell 6.9%. The South's index fell 7.1%.
After finding selling in early morning trade on the stronger ISM data, the benchmark 10-year Treasury Yield ($TNX.X) eased from a yield high of 4.666% to finish up 1.2 basis points at 4.642%. The shorter-dated 5-year yield ($FVX.X) finished up 2.5 bp at 4.539%, while the longest-dated 30-year yield ($TYX.X) finished down a fractional 0.1 bp at 4.816%.
Automotive manufacturers reported their monthly sales figures today, with no real surprises to speak of.
April's U.S. vehicle sales came inline, but weak. Every manufacturer except DaimlerChrysler (NYSE:DCX) $80.91 +0.49% reported a decrease from the same month last year.
DaimlerChrysler's overall sales increased to 213,999 from 211,365 a year ago, due to an increase at its Chrysler Group. Chrysler sales rose by 1.6% to 193,104 last month from 190,095 last year. Mercedes sales slipped 1.8%, from 21,270 to 20,895.
Yes, even Toyota Motor (NYSE:TM) $121.53 +0.09% reported a decline. The automaker said sales dropped 4.4% to 210,457 last month, from 219,965 in April 2006. It was the first year-over-year monthly decline for Toyota since May 2005.
General Motors (NYSE:GM) $31.25 +0.06% said sales dropped 9.5% from April of last year, while Ford Motor (NYSE:F) $8.05 +0.12% said sales were down 12.9%, largely due to a 23.6% decline in car sales compared to a 5.7% decline in truck sales.
Are you still with me?
It looked like today's session was going to be a sleeper until just before noon when suddenly, shares of publishing giant Dow Jones (NYSE:DJ) $56.20 +47.53% surged higher from the $36 level on word that Rupert Murdoch's News Corp. (NYSE:NWS) $22.99 -4.20% made an unsolicited bid for the company. Shares of Dow Jones were halted just as the stock achieved its point and figure chart's bullish vertical count of $55 (Dorsey/Wright) and $54 from a dividend-adjusted StockCharts.com's PnF chart.
The trading halt had news disseminating that News Corp. was offering $5 billion, or $60/share for the company.
Dow Jones said it was informed by a representative of the Bancroft family, which holds 64.2% of voting power, that it would cast slightly more than 50% of the outstanding voting power against the proposal.
Boy, you don't see that type of move come around that often, and while the Bancroft family might be able to hold onto the shares, I suggested traders/investors take profits with a longer-term target achieved.
The news sent some shockwaves into the market and lifted the Dow Jones Industrial Average ($INDU) 13,136.14 +0.56% to a record close.
Here's why ....
Just after Dow Jones (DJ) was released for trade, computers began gobbling up the deep cyclicals as depicted by the Morgan Stanley Cyclical Index (CYX.X) 1,020.56 +1.99%.
Morgan Stanley Cyc. Indx Components - Equal Weighted
When an equal weighted index sees a member surge 47.5%, there's some "basket buying" that usually takes place as institutional computer try and get things squared up.
Not unlike the Dow Industrials, the CYC.X has just 30 stocks. Pink ** note 8 Dow Industrials' components and an index can bust a move in the direction of the gainer, or loser.
Morgan Stanley Cyclical Index (CYC.X) - 5-point box
I had an alert set on the CYC.X just above the recent 52-week high. When Dow Jones (DJ) was released for trade, even though it had made the big move prior to being halted, the "basket buying" began.
In this weekend's update, I wrote an article on the point and figure "bullish vertical count."
Now, I don't put a lot of weight in an index, or broader market average's bullish vertical count, mostly because I think it more difficult for the MARKET to move a basket of stocks to a bullish, or bearish vertical count, but when I see a narrower index like the CYC.X achieving a bullish vertical count, and one of its components doing the same, my first thought is to protect gains if you've got them.
U.S. Market Watch - 05/01/07 Close
The CYC.X is a basket full of deep-rooted and economically sensitive stocks. You saw the list and it is an index that market participants will, or should keep an eye on.
Today's decline in energy prices didn't hurt for an equity rebound. However, it would have to be my opinion that into May's Unleaded expiration, gasoline prices have been the most "worrisome" to broader-market equity bulls.
Tomorrow we'll get another EIA report. One comment I heard on CNBC was that oil analysts were looking for a build in crude oil stockpiles of 1.4 million barrels.
June Crude Oil (cl07m) did find sellers at the $65.50 level when Kuwaiti's Oil Minister said he thought the oil markets were stable and didn't see any supply bottlenecks. He said that OPEC ministers "will be ready to meet if any bottlenecks occur," and added "there won't be any meetings before September."
NYSE Summation Reverses Back Lower
In last night's Market Wrap, I touched, if not talked you to boredom about both the NYSE and NASDAQ new high and new low ratios.
But just as this weekend's Trader's Corner article had a purpose as to assessing RISK/REWARD in a trade, or investment, the new high and new lows do to.
I once wrote an article titled "The Market is My Inchworm."
Ah yes, a favorite to some long-time subscribers.
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An article then made note of how a stock market tends to move like and inchworm as it tries to move UP a tree, or starts to slide lower.
That's what the new highs and new low indications hope to depict. If the "head" is moving higher, then likely, the inchworm has EXPANDED, it stretches itself out, and the "tail" will slink higher, with fewer new lows, dig themselves in, get some traction, and provide support for the head to move higher still, see an expansion of new highs, and the inchworm, or the market, press higher.
But that's not what we were seeing last night. And I can't say that it improved all that much today.
Another indicator of breadth that I like to follow is a very neat set of data that StockCharts.com has called the NYSE Summation Index ($NYSI), which in its simplicity, measures on a continual basis the number of advancing issues against declining issues.
It is a "faster" moving internal measure than the most important NYSE Bullish % that institutional money managers follow.
But this is perhaps a good indicator of what is going on between the "head" and the "tail" of a market. Which direction are the juices flowing?
This is a FANTASTIC point and figure internal indicator, but over the years, I've seen some chart watchers do some damage to their accounts when they try and use stochastics, or other oscillators in combination.
NYSE Summation Index ($NYSI) - 20-point box
Don't make it any more difficult that it has to be. All the NYSI is doing is measuring the supply/demand relationship between the number of advancing issues against declining issues as each day passes.
The PRIMARY reason for addressing the new highs and new lows, is to see where the "leadership" is headed. And it has been "resting" from a very bullish NYSE NH/NL 5-day ratio reading of 94.1% on 4/26/07 (see last night's wrap). If 100% is a goal, from 94%, how much higher to 100% can you go?
It's somewhat like a snake swallowing an apple isn't it? You can see the apple slowly moving into the snake's body as the process of digesting that apple begins.
OK ... now, you'll note that I mark 12/26/06 at a NYSE Summation reading of 900. See, in a way, that was a "sell signal" for this measure.
Then ... see the PINK dates circles? I've played with the "scale" at 20-point box size over the years, and find this scale to be the best for smoothing out some of the noise. I'm looking for a flow. I don't want a bunch of "false" buy and sell signals. I want a flow.
To get the flow, I'm not trying to trade the indicator and "catch the high" or "catch the low." I'm looking for it to reverse 3-boxes at any given measure, and let me know when demand (X), or supply (O) is in control.
You don't need to be hit over the head with an iron skillet to know this measure of NYSE advancing/declining issues was once again at some type of important level.
Now, bar chartists can pull up their bar charts and follow the NYSE Composite ($NYA.X) and match some of the benchmark dates I've highlighted in the NYSE Summation Index, but let's take a look at the point and figure chart, get a look at supply/demand with the same date benchmarks.
NYSE Composite ($NYA) - 50-point box
Now, I coughed up a mouthful of milk last night when I read "bull got caught asleep Monday." Not on my watch, and I don't think the chart of the NYSE Comp shows bulls getting whacked of late.
But I wouldn't be a complacent bull either.
Yes, on 12/26/06 the NYSE Summation ($NYSI) was saying "I'm getting weak," but the NYSE Comp ($NYA.X) reversed 4-boxes to 9,000, then went on to another record high of 9,450. Then it got "whacked."
But if long, or out of a short when this very broad MARKET (over 3,000 stocks) gave the "buy signal" at 9,150, with NYSE Summation confirming, then demand really took control and we've seen another all-time high.
The point here is that yes, bulls have reaped another big gain. At this point, I'd say bullish leadership is taking a rest, and maybe, there are some "buying climax" signals. Hey, don't let that stop you from taking some profits off the table.
Don't just sit there either, with 100% cash in your account. Look for some stocks that have pulled back to support, pick away at them with partials positions.
How "short" would I want to be with a NYSE Composite looking as it is? Oh, maybe 1/4 position in a stock/security that meets your criteria, but as I look at the NYSE Comp, I think a short is looking for REWARD to 9,500 at this point and RISK is another new high at 9,800. That's about 50/50 from tonight's close.
I do think that Dow Jones (DJ) had a lot to do with today's gains. Yes, a bit hard to believe, but with all the wonder of "is the economy slowing..." those cyclicals are being monitored closely.
Yes, the Dow Industrials (INDU) closes at a record high. But with several INDU components in the cyclical index, we have an idea why.
New Long Plays
New Short Plays
Long Play Updates
Bristow Group - BRS - close: 37.60 chg: -0.00 stop: 36.75
The technical picture is definitely looking mixed in BRS right now. Short-term it looks like the stock wants to trade lower. Tomorrow could see some volatility as investors react to the weekly oil inventory numbers. We're not suggesting new positions. More conservative traders will want to consider an early exit now. Our target is the $38.40-38.50 range. FYI: The P&F chart is bullish and points to a $47 target. We do not want to hold over the early May earnings report.
Picked on March 11 at $35.88
Dell Inc. - DELL - cls: 25.22 change: +0.01 stop: 24.49
Investors bought the dip in DELL at $24.75 midday. The afternoon rebound looks like a new entry point to buy the stock. More conservative traders may even want to tighten their stop toward today's low. Our target is the $27.25-27.50 range. We do not want to hold over the late May earnings report.
Picked on April 29 at $25.23
ENSCO - ESV - close: 57.38 change: +1.00 stop: 53.44
ESV displayed relative strength with a strong rebound and a 1.7% gain. The bounce near $56 (actually 55.73) looks like a new entry point to buy the stock. Don't be surprised if energy stocks see some volatility tomorrow morning due to the weekly oil inventory numbers. The P&F chart points to a $76 target. We have two targets. Our conservative target is $59.85-60.00. Our aggressive target is the $62.50-65.00 range.
Picked on April 29 at $56.84
NVIDIA Corp. - NVDA - cls: 33.24 chg: +0.35 stop: 30.58
NVDA spent the session churning sideways and ended up with a 1% gain by the closing bell. We're not suggesting new positions. More conservative traders will want to consider taking a profit here or raising their stops. We want to exit ahead of the May 10th earnings report. Our target is the $34.50-35.00 range.
Picked on April 15 at $30.58
World Acceptance Corp. - WRLD - cls: 42.64 chg: -0.29 stop: 40.99
We remain very cautious on WRLD. The stock failed to bounce with most of the market this afternoon. We are not suggesting new positions at this time and more conservative traders may want to raise their stop loss toward $42.00. Our target is the $49.50-50.00 range. The P&F chart points to a $56 target.
Picked on April 29 at $44.58
Short Play Updates
Lan Airlines - LFL - close: 72.05 chg: -1.10 stop: 76.05
Our bearish play in airline stock LFL has been opened. The stock broke down early this morning and dipped to $70.93. Our suggested trigger to short it was at $71.49. The bounce from its lows is a concern so readers can watch for a failed rally under $74.00-73.75 as a new bearish entry point. We are suggesting two targets. Our first target is the $66.00-65.00 range (near the rising 100-dma). Our second, more aggressive target will be the $61.00-60.00 range. FYI: The most recent data puts short interest at 750K shares versus the 19.3 million-share float. LFL has about 63.7 million shares outstanding.
Picked on May 01 at $71.49
Closed Long Plays
Starbucks Corp. - SBUX - cls: 31.01 chg: -0.01 stop: 30.85
We would have been stopped out of SBUX at $30.85. We warned readers that the situation didn't look good for the bulls although today's afternoon bounce is a potential entry point. At this point in the game we'd wait until after the company's earnings report on May 3rd before considering any new positions.
Picked on April 22 at $31.66
Closed Short Plays
Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.
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