Buyers were hard to find on Tuesday unless you looked in the Treasury bond, currency, or energy pits, where despite some modestly upbeat economic data that helped give equity futures a pre-cash session bid, a disappointing outlook from retailing heavyweights Wal-Mart (NYSE:WMT) $43.82 -5.08% and words of caution from Home Depot (NYSE:HD) $33.52 -4.88% regarding a recently announced stock buyback program.
Wal-Mart (WMT) fell back to last August's lows after the retailing giant lowered its full-year estimate for earnings from continuing operations to a range of $3.05-$3.15 from $3.15-$3.23 a share. JP Morgan couldn't wait to plow its grocery cart full of stock into the Achillies tendon of any bull looking to buy the gap lower as the firm downgraded the stock to "neutral" from "overweight."
Wall Street wasn't looking for any bullish surprises out of Home Depot (HD). The building products retailer said profits fell 14.8% amid softer sales as Q2 profits dropped to $1.59 billion, or $0.81/share from $1.86 billion, or $0.90 a share in the year-ago quarter. Bottom-line figures beat expectations by $0.05 a share.
What wasn't necessarily "expected" was the company saying it may have to cut its previously announced $22.5 billion stock repurchase program and lower the sales price of its HD Supply unit, which it sold for $10.3 billion to a consortium group of private equity groups in June.
The company cited "current market conditions" in the credit markets as one reason that it may have to make "material changes to the terms and financing of the transaction."
Some analysts expected Home Depot to sell its HD Supply unit for more than $12 billion, the amount in sales it pulled in last year.
U.S. Market Watch - 8/14/07 Close
Just after I had written last night's Market Wrap, I turned on the news feed from Dow Jones to see that the Bank of Japan (BOJ) was DRAINING liquidity to the tune of 1.6 trillion yen ($13.6 billion) from the banking system in two portions (Y600 billion and Y1 trillion), reversing two days of cash injections that drove overnight call rates to near zero percent as global money markets appeared to have calmed.
The first thing I thought was ... "do they think the credit crunch is over?"
The BOJ said the pro-rata rate at the first selling operation was 0.22%, while the pro-rate rate at the second selling operation shot up to 0.52%, which is just above the BOJ's target of 0.50%.
"The BOJ's fund injections were not necessary in light of domestic market conditions, but it was done as part of a global cooperation," said a money market dealer at a Japanese bank.
With that said, the sun then rises in Europe, and then here in the U.S. when Sentinel Management Group Inc., which oversees $1.6 billion in assets, said it was seeking to halt investor redemptions.
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Yes! For the most part, $1.6 billion isn't "that much," but in the current market environment, any investment company saying "you can't have your money back right now," is somewhat analogous to a voice coming over the intercom at a crowded moving theater and saying, "please exit the theater in a quiet and orderly pace as the theater will burn to the ground in 30-seconds."
When that type of news hits the wire, don't expect Joe Bob to just sit there, finish off the rest of his Junior Mints before he slowly walks to the nearest exit sign.
Instead, you'd probably at least consider the possibility that "Joe Bob" pushed the little kid sitting next to him firmly to the floor and rush to an exit.
While the U.S. Dollar Index (DXY) shows the greenback having a rather bullish day, trading all the way up to its WEEKLY R2 (see last night's Market Wrap) the "giant sucking sound" that came out of the BOJ really brought a bid into the yen.
Global Equity Benchmarks / Currencies
I need to take a second and correct an error from last night's Market Wrap. The 8/13/2007 close of the euro/yen cross rate should have been 160.96 (not 163.97).
I don't want to focus too much on currencies, as that's another can of worms, however, from a global trade perspective, the STRENGTHENING of the yen against the euro could be negative for Japanese exports to the European block.
As I type, the Nikkei-225 is finding selling, down 267 points, or -1.59% at 15,577 for Wednesday's trade.
We did get a BIG round of global economic data today, which may also have had an impact on currency markets.
GGlobal Economic Calendar (08/14/2007) - ForexFactory
Some quick notes here. Red and orange "folders" are considered more important economic releases than yellow folders.
German and French gross domestic products came in a little shy of economists forecast. If anything, that might have the ECB holding off on further rate HIKES. That type of thought process among traders/investors could be bringing in some selling pressure on the euro.
Great Britain's consumer price index came in at 1.9% year-over year, which was likely a relief to inflation hawks. Core CPI (excluding volatile food/energy prices) at 1.7% also a bit shy of a 2.0% estimate..
Great Britain's Retail Price Index, which measures the rate of inflation experienced by consumers purchasing goods and services bought for consumptions by the majority of households was still elevated at 3.8% year-over-year, but again, not has high as the forecast.
Ah, now the U.S.
Producer prices (PPI) rose 0.6% month-to-month, and that was well above the 0.1% forecast.
OK ... the dollar finds a bid on that, but WHY NOT TREASURIES?
Folks, when we see some "inflation" and TREASURIES find BUYING, which drives YIELDS lower, that to me is DEFENSIVE buying by market participants.
The benchmark 10-year Treasury Yield ($TNX.X) fell a sharp 4.6 basis point to 4.732%.
TThe core rate, which removes the volatile food and energy components rose just 0.1%. That's NOT inflationary, but again... some of the declines in Treasury YIELDs today look defensive.
One "blurb" I did catch intra-day, and mentioned in the OptionInvestor.com Market Monitor was that Mexico's 10-year Yield actually ROSE 0.28 percentage points (fractional rise) to 7.90%.
I wouldn't argue with anyone that a U.S. Treasury bond is SAFER than a Mexican
government bond, but the theme here would be "flight to safety."br>
The U.S. trade balance with its trade partners fell to a $58.1 billion deficit as strong export growth overcame the effects of higher auto imports and oil prices.
That will likely have economists ratcheting up their GDP growth forecasts. Some economists have already said the next Q2 GDP report should show growth in the 4% range, up from an advance estimate of 3.4%.
Imports were up 0.5%, or roughly $900 million. Auto imports alone were up $900 million, but were partly offset by a $200 million decline in imports of other consumer goods.
At $60.95/barrel, the average price of imported oil was the highest since September of last year, as was the total oil import bill. June crude imports were up 2.2%. Economists say oil now accounts for about 40% of the total US trade deficit.
Natural and liquefied gas imports, which have been contributing to the energy deficit in recent months, fell by $500 million.
EExports were up 1.5%, or $2 in June. It was various industrial supplies and raw materials, including the United States's own energy exports, which accounted for most of that increase.
But despite some of the "good news" on the trade front, which should bolster
U.S. gross domestic product results, investors were tossing away their Junior
Mints, and looking for the exits.br>
While the small caps of the Russell 2000 Index ($RUT.X) "outperformed to the downside" today, don't think they will go down without a fight.
They BENEFITED when the Fed added liquidity last week, and just as the "credit crunch" story doesn't seem to go away, don't rule out further Fed action.
As such, in last night's Wrap I had mentioned that I had profiled an iShares Russell 2000 Index IWM Sep $78 Put (IQQ-UZ) from 08/09/07. I've suggested that traders now LOWER their stop to $78.50. With volatility measures like the VIX.X jolting this way and that, it is nearly IMPOSSIBLE to predict an option price stop. I like to simply use the underlying securities PRICE to determine a stop/target. The TARGET I had established for a Sep $78 Put was $73.00.
Tonight, I do want to address some of the action in the S&P Retail Index ($RLX.X) 454.93 -3.62%, where a bearish session of trade was highly tied to WMT and HD, but I want traders and investors to be ALERT as to what may be in play should the RUT.X break further below the 3/05/07 low and upward trend.
I have NO knowledge of what there is yet to come regarding the "credit crunch."
Some say the amount of "bad loans" is miniscule in the greater scheme of things.br>
A "credit crunch" might not only tie in with a smaller sized company that may be finding it difficult to access credit markets right now, but even some consumers with VERY HIGH credit scores are finding "current market conditions" difficult to secure a loan at a reasonable interest rate.
SS&P Retail Index (RLX.X) - Daily Intervals
In this morning's Market Monitor, I took a quick look at the RLX.X based on the HD and WMT news. I quickly slapped on a retracement from a VERY similar 07/18/06 Low CLOSE to the recent highs.
What struck me as "this looks familiar" to the RUT.X is that while the other NARROW and BIG indexes were making new highs in July and August, the RLX.X wasn't. NEITHER WAS THE RUT.X.
What I think a trader/investor can do is use the RLX.X as the proverbial "canary in the coal mine" and perhaps use it as an additional indicator that can shed some insight as to the MARKET's pulse on what the IMPACT of a tight credit market is having on things. In the case of the RLX.X, it would be the consumer.
Dow Industrials (INDU) - Daily Intervals
What do you think about BIG and NARROW?br>
Do it ONCE, then DON'T do it AGAIN until the DIA PRICE action is ABOVE your initial entry point.
Do NOT over leverage.br>
However, don't be SHORT, or BEARISH strength, should markets suddenly strengthen.
At least one trader I know of was AGGRESSIVELY SHORTING Dow futures in early July.
What "would have been" the better short?
Just as bulls stick with what's working, bears are the same, and the more success they find they build on the trade until it NO LONGER is WORKING.
SS&P 500 Index (SPX) - 10-point box
CONVICTION will likely be tested here, and this is probably the INDEX of
BULLS have the SAME "risk to a sell signal" of 1,420 that they had last night.
TToday's S&P 500 Bullish % (BPSPX) from Dorsey/Wright did show a net loss of 3.02%, so there was a net loss of roughly 15 stocks to reversing lower point and figure sell signals.
This market is still "bear confirmed" at 46.88%.br>
New Long Plays
L.B.Foster Co. - FSTR - cls: 37.33 change: +0.90 stop: 33.90
Why We Like It:
Picked on August 14 at $37.33
New Short Plays
Akamai - AKAM - close: 32.35 change: -1.48 stop: 35.05
Why We Like It:
Picked on August xx at $xx.xx <-- see TRIGGER
Long Play Updates
Helmerich Payne - HP - cls: 30.37 chg: -1.38 stop: 28.85
Oil service stocks continued to struggle even though crude oil was ticking higher. News that tropical storm Dean, currently in the Caribbean, might turn into a hurricane and head into the Gulf of Mexico was pushing oil higher. Sadly that didn't spark any buying in oil stocks. Shares of HP lost 4.3%. The move today looks very bearish, especially following yesterday's failed rally pattern. We warned readers to expect a dip into the $31.00-30.00 zone. The question now is where will HP bounce? Will it bounce at the $30.00 mark or will it bounce at the 200-dma near $29.60? Or will it keep falling? Wait for signs of a bounce before considering new positions. We have two targets. Our first target is the $34.50-35.00 range, which looks like resistance. Our second, more aggressive target is the $36.00-36.50 zone near its highs. FYI: We did not see anything specific to account for HP's relative weakness today.
Picked on August 12 at $31.55
Patterson-UTI - PTEN - cls: 22.45 change: -0.22 stop: 20.74
PTEN slipped just less than 1% but that was better than most of the oil service stocks. The OSX index lost 1.7%. Traders bought the initial dip in PTEN near its 10-dma. We would watch for a bounce near $22.00 as a new entry point for longs. Our first target is the $24.85-25.00 range.
Picked on August 12 at $22.36
Starbucks - SBUX - cls: 27.15 chg: -0.66 stop: 26.75
Market weakness pulled SBUX lower and the stock dropped to its next level of short-term support near $27.00. The stock did manage a minor bounce from technical support at its 50-dma near $27.00. We're still waiting for a breakout to a new relative high and we're suggesting a trigger to buy the stock at $28.81. However, we'll be keeping a close eye on SBUX for any alternative entry points. Right now we'd be watching for SBUX to bounce near $26.50-26.25 as potential (and aggressive) entry point (probably with a stop loss around $25.99).
Picked on August xx at $xx.xx <-- see TRIGGER
Teva Pharma - TEVA - cls: 42.89 change: -0.25 stop: 41.45
The market sell-off was very broad-based today and drug stocks were not seen as safe haven plays. The DRG drug index lost 1.3%. Shares of TEVA managed to out perform with a minor 25-cent decline. We still expect another pull back toward the $42.00 level and its rising 50-dma. Wait and watch for a bounce before considering new positions. More conservative traders may want to wait for a rise past $44.50 before initiating new positions. Our conservative target is the $45.85-46.00 range due to the old all-time high. Our secondary target is the $47.50-50.00 range.
Picked on August 12 at $43.33
Short Play Updates
Dell Inc. - DELL - cls: 26.46 change: -0.24 stop: 28.05
DELL is still inching its way lower. The stock produced another failed rally at its 10-dma today. DELL is currently trading inside a narrow, bearish channel. The bottom of the channel looks like the $25.50-25.00 zone, which lines up perfectly with our target in the $25.75-25.50 range. More aggressive traders may want to aim toward the $24.75 region.
Picked on August 06 at $26.95
Motorola - MOT - cls: 16.51 change: -0.34 stop: 17.55
The action in MOT today was bearish. The stock produced a bearish reversal in the form of a bearish engulfing candlestick pattern. The move (-2%) looks like a new entry point for shorts. However, after the closing bell tonight it was announced that billionaire investor Carl Icahn and his company had boosted their stake in MOT to around 69 million shares, which is about 3% of the company. This news pushed MOT shares up toward $16.85 in after hours trading. The stock could open higher tomorrow morning. Wait and watch for another failed rally near $17.00 as a new entry point for shorts. If you're feeling conservative you could tighten your stop loss toward Thursday's high (17.23). Our target is the $15.10-14.50 range.
Picked on July 29 at $16.95
NTELOS - NTLS - cls: 25.08 change: -0.16 stop: 26.55
Volume in NTLS is evaporating. The stock traded sideways, which is neither bullish nor bearish. However, when you take into account the market's weakness then today's action in NTLS almost looks bullish. More conservative traders may want to tighten their stops toward $26.00. We're not suggesting new positions at this time. Our target is the $22.25-22.00 range.
Picked on August 05 at $25.76
Riverbed Tech. - RVBD - cls: 41.53 change: -0.69 stop: 45.51
RVBD is drifting lower again toward support near the $40.50-40.00 zone. If we take into account the sliding volume figures then we suspect that RVBD will bounce again near $40.00. Wait for a new failed rally near $44.00 or a new breakdown under $40.00 before considering new shorts. We are somewhat concerned about the 100-dma near $38.50 as potential support. Our target is the $36.00-35.00 range. The P&F chart points to a $35 target.
Picked on August 05 at $41.79
UnitedHealth - UNH - cls: 48.51 change: -0.53 stop: 50.01
UNH experienced some profit taking follow its two-day bounce. We're still concerned the bounce isn't over yet, especially with the bullish turn in the short-term technicals. We are not suggesting new bearish positions at this time. Our target is the $45.25-45.00 range.
Picked on July 26 at $49.95
Energy Sector SPDR - XLE - cls: 67.35 chg: -0.45 stop: 70.10
The XLE is still sinking. However, we are warning readers now. There was news today that tropical storm Dean might turn into a hurricane and head into the Gulf of Mexico. If this occurs it will push crude oil higher, which should strengthen the oil stocks. We're not suggesting new short positions at this time. The XLE has already hit our first target in the $65.25-65.00 range. Our secondary, aggressive target is the $62.50 level.
Picked on July 26 at $69.75
Closed Long Plays
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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