The major averages finished mixed with only the small caps of the Russell 2000 (RUT.X) 754.01 -1.13% giving traders much action ahead of tomorrow's jobs report.
Today wasn't the first day the small caps have traded weak either. Having fallen five days in a row for a 6.52% decline, the RUT.X has relinquished all but 6-points of it pre-Christmas holiday gains as investors position themselves for the New Year.
With credit markets still roiled and oil prices having reached $100.09 on the Nymex today, the last seven trading sessions hint that market participants are questioning the sustainability of U.S. economic growth in 2008.
Certainly we've seen some year-end rebalancing of portfolios taking place. Tax-strategy positioning (realization of capital gains to offset capital losses), as well as inventory adjustments. Not just for equities, but many financial instruments. Even commodities like oil.
Economic data released before the opening bell had the Automatic Data Processing payroll data showing the economy added 40,000 private sector jobs last month, which was above the 30,000 forecast of economists polled by Dow Jones, but below the 45,000 forecasted by Forex Factory. November's figures were revised lower from 189,000 to 173,000.
Just as I (Jeff Bailey) am filling in for Linda Piazza this evening so she can spend time with her family over the extended holiday week, I'm relatively sure that many economists were unable to be reached for their fine-tuned ADP forecast.
While stock futures found a modest bid on the report, an equal amount of selling was found at 08:30 AM EST when the Labor Department said first time claims for unemployment benefits for the week ended 12/28 fell to 336,000 from an upwardly revised 357,000 (revised up from previously reported 349,000).
At 10:00 AM EST, the U.S. Census Bureau said November factory orders showed a 1.5% increase ($6.2 billion) to $430.3 billion, which was nearly double the 0.7% forecast.
New orders for manufactured durable goods in November, down four consecutive months, decreased $0.2 billion or 0.1% to $214.1 billion, revised from the previously published 0.1% increase.
This followed a 0.5% October decrease.
New orders for manufactured nondurable goods increased $6.4 billion or 3.0 percent to $216.3 billion.
However, a look inside the figures would show that a 15.9% rise in petroleum orders accounted for much of the gain. Excluding that gain, new orders fell 0.2%.
Inventories increased 0.8% in November, which reduced the inventory-to-sales ratio to 1.22. Tight inventory levels are a major bulwark against a recession because firms won't need to cut back production or employment severely if demand stalls.
Unfilled orders rose 1%, with the gains largely concentrated in civilian aircraft.
Orders for transportation equipment rose 1.5% in November, including a 20.8% jump in civilian aircraft orders. Excluding transportation, orders rose 1.4%. Excluding a big drop in defense goods, total orders rose 2.1%.
Orders for electronics fell 1.2%. Orders for machinery dropped 2%. Orders for electrical equipment rose 1.2%, while orders for primary metals increased 0.7%.
Orders for chemicals fell 1%.
Closing U.S. Market Watch
February Crude Oil (cl08g) traded as high as $100.09 as the clock struck 12:00 PM EST.
At 10:30 AM EST, the Energy Information Agency (EIA) said crude U.S. crude oil stockpiles fell by 4.05 million barrels to 289.5 million barrels. It was the 7th-straight week of draws as refiners paired inventories into the end of 2007.
While stockpiles of crude oil fell, refiners increased their crude oil inputs by 164,000 barrels per day to 15.382 million barrels per day.
There's little room for error as it relates to any disruption in crude oil imports as the number of days of supply for crude oil falls to 19.0 days.
Total gasoline stockpiles jumped by 1.98 million barrels to 207.8 million barrels.
By session's end, February Crude (cl08g) settled down $0.44, or -0.44% at $99.18.
February Unleaded (rb08g) settled down $0.0275, or -1.07%.
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The continued decline in crude oil stockpiles and builds of refined products did have some of the refiners notably weak in today's session.
Valero Energy (NYSE:VLO) $66.67 -4.00% and Frontier Oil (NYSE:FTO) $38.01 -3.65% are two names I follow closely in the OptionInvestor.com market monitor.
Valero Energy (VLO) is one of my "Top 5" bullish picks for 2008, but I'm looking for an initial entry at or below the $63.00 level.
All a trader investor is looking for is a "signal" that refining margins are improving.
In the above U.S. Market Watch, you can see from the 5-day Net% and 20-day Net% that oil prices have risen 2.63% vs. 0.79% for unleaded in the last 5-day Net%, while the 20-day Net% has oil up 13.6% vs. 13.39%. This gives us the observation that the "margin" or crack spread between unleaded and oil is narrowing.
That will put pressure on refiners near-term, but the dynamic is understood, or easily comprehendible.
To trade, or invest in the refiners, I have shown the following relative strength chart of Continuous Unleaded ($GASO) and Continuous West Texas Intermediate ($WTIC) on a 0.40-box chart.
Continuous Unleaded vs. Continuous WTIC - 0.40-point box
Oil's sharp rise in recent months and a more "gradual rise" in refined products like unleaded gasoline has my crack spread chart showing some basing action, but that rise on oil (an INPUT for a refiner) and the more gradual rise in the refined product (an OUTPUT for a refiner) still leaves margins under some pressure.
The summer driving season is just less than 6-months from now and I think it is time to start getting interested on the BULLISH side for the refiners.
Santa's Failure To Show May Portent Somber 2008
The last 5 days of a calendar year and first two trading days of the New Year mark what may traders and investors call the "Santa Claus Rally" period.
According to The Stock Trader's Almanac, Santa Claus tends to come to Wall Street nearly every year, bringing a short, sweet, respectable rally within the last 5 days of the year and the first two in January. This barometer has been good for an average 1.6% gain since 1969 (1.5% since 1950). Santa's failure to show tends to precede bear markets, or times stocks could be purchased later in the year at much lower prices.
The Stock Trader's Almanac discovered this phenomenon in 1972.
At tonight's close, the 2008 "barometer" would suggest weakness into the latter part of 2008.
In my last Market Wrap from 12/24/07 Santa was certainly making his rounds to bullish households and while the internals suggested improvement and an oversold bounce was at hand, we're right back where we started in mid-December.
S&P 500 Index (SPX.X) - 30-minute intervals
Some readers may be familiar with The Stock Trader's Almanac findings, and its historical significance for longer-term market direction.
Today's close below the 1,485 "Santa Benchmark" is perhaps one hint that we'll see a weaker equity market.
On the above chart, I display my QCharts trading software's WEEKLY Pivot levels, which are used by institutional computers to manage inventory of stocks.
Now here is a look at some YEARLY Pivot Levels as we lay the ground INITIAL groundwork for the year ahead.
SPX Yearly Pivot Levels - 2000 to 2008
Another gain for the SPX in 2007! That's the good news for bulls.
But if The Stock Trader's Almanac history that "Santa's Failure To Show" at this year's benchmark and the January 2nd intra-day high on the SPX 1,471.77 is any indication that 2008 might not be as bullish, then traders and INVESTORS may want to take note.
For 2001, the SPX fell well below its Yearly S2, and while you and I have undoubtedly read bearish headlines for the last 5-years that the "sky is falling," I'd hate to think we become complacent in 2008.
S&P 500 Index ($SPX) - 10-point box
Go ahead! Take the "For 2007" yearly pivot levels of 1145, 1282, 1356, 1493, 1567 and draw them on the above chart, see what you come up with.
In late November, the SPX did briefly violate its bullish support trend (blue +)
at 1,430. That was the FIRST break of trend since a move above its then bearish
resistance trend (red +) back in March of 2003 at SPX 875.
Play Editor's Note: We cautioned readers last week that our market bias was bearish for this week. So far stocks haven't disappointed us. Now after a 55-point drop in the S&P 500 and five straight days of losses in the Russell 2000 I would look for an oversold bounce. Unfortunately, tomorrow's jobs report is a wild card. Market direction tomorrow will depend on how investors choose to interpret the jobs data.
New Long Plays
Cypress Semi - CY - close: 36.02 change: +0.95 stop: 33.99
Why We Like It:
Picked on January 03 at $36.02
New Short Plays
Corning Inc. - GLW - cls: 23.21 change: -0.16 stop: 24.21
Why We Like It:
Picked on January xx at $xx.xx <-- see TRIGGER
Zoll Medical - ZOLL - close: 25.86 chg: -0.44 stop: 27.01
Why We Like It:
Picked on January 03 at $25.86
Long Play Updates
Advent Software - ADVS - close: 53.73 change: +0.20 stop: 51.90
ADVS is still trying to bounce. If the market can produce a decent day ADVS looks like it's ready to rally. Unfortunately, we are seeing more of a bearish divergence in the daily chart's MACD indicator. Our target is the $57.50 level. More aggressive traders may want to aim for the $60 region.
Picked on December 21 at $53.83 *gap open entry
Fiserv - FISV - close: 54.90 change: -0.36 stop: 53.99
This remains a dangerous position for FISV. The stock did decline today following yesterday's bearish reversal and the stock broke down under its rising 10-dma this afternoon. Short-term things have turned bearish. More conservative traders will want to tighten their stops. We would expect a dip to the $54.25-54.00 zone. We're not suggesting new positions at this time. Our target is the $59.75-60.00 range. As expected the move over $56.00 has produced a new Point & Figure chart triple top breakout buy signal. The P&F chart now points to a $69 target.
Picked on December 28 at $56.11 *triggered
Ingles Markets - IMKTA - close: 24.48 chg: -1.12 stop: 23.95
IMKTA did see profit taking today, as expected. The stock blew right past the $25.00 level and closed on its 50-dma with a 4.38% loss. The bullish bounce from November and December is in trouble. The MACD on the daily chart is nearing a new sell signal. If the stock doesn't bounce soon traders will be looking at a retest of the mid December low. Wait for the dip and signs of a bounce before considering new positions. Our target is the $27.75-28.00 range. More aggressive traders could aim higher. FYI: Normally we do not play stocks with an average daily volume of less than 250,000 shares so we're tempted to label this play as aggressive.
Picked on December 23 at $25.66
Sonoco Products - SON - cls: 32.17 chg: -0.70 stop: 31.95
Hmm... an exit yesterday doesn't sound so bad today. SON should have some short-term support near $34.00. Unfortunately, today's trading does not suggest there will be any sort of bounce. The stock produced both a failed rally near its 10-dma this morning but it also produced a bearish engulfing candlestick pattern. We would say exit here but our stop loss isn't that far away. If we get any sort of bounce tomorrow we'd suggest exiting as close to $33.00 as we can. This play is going to be over tomorrow one way or the other.
Picked on December 20 at $33.36
XTO Energy - XTO - close: 54.07 chg: +1.93 stop: 51.79
XTO exploded higher today. The stock surged right from the open and crossed resistance at $54.00 to hit an intraday high of $54.50. Our suggested trigger to buy the stock was at $54.15. The 3.7% gain is impressive and was fueled by stronger than average volume. However, readers should not be surprised if there is any profit taking tomorrow. A dip in the $53.50-53.20 zone could be used as another attractive entry point. If shares don't dip we remain bullish with it above $54.00. Our target is the $59.00-60.00 range.
Picked on January 03 at $54.15 *triggered
Short Play Updates
Bob Evans Farms - BOBE - cls: 25.59 chg: -0.84 stop: 27.55 *new*
Bears can cheer now! We are finally seeing some movement out of BOBE. The stock broke down from its two-week trading range and lost 3.1% on above average volume. This move should herald another leg lower. Our target is the $25.25-25.00 zone. More aggressive traders will want to consider aiming for the November low near $24.60. We considered aiming lower but the $24.60 level could be tough support with the November 2007 low and an August 2006 low. We are adjusting our stop loss to $27.55. FYI: The most recent data puts short interest at 11.6% of the 32.74 million-share float. That is a relatively high amount of short interest and raises the risk of a short squeeze.
Picked on December 16 at $29.01
Fist Community Bancorp - FCBP - cls: 39.20 chg: -1.10 stop: 43.26
Another day, another decline for the financials. FCBP lost 2.7% and hit new two-year lows. Daily chart technicals like the MACD and RSI are showing new sell signals. Our first target is the $35.25-35.00 range. Our second target is the $32.00-30.00 zone. The P&F chart is bearish with a $30 target. FYI: We do not want to hold over the late January earnings report.
Picked on December 30 at $40.80
Granite Constr. - GVA - close: 35.82 change: -0.34 stop: 40.01
GVA is serving up more of the same. The stock has a very bearish trend but momentum has slowed. Someone is buying the stock in the $36.00-35.75 zone although it looks like selling pressure (supply) is going to break through that level soon. More conservative traders might want to take a little money off the table right now. You may also want to tighten your stop toward $39.00 or $38.50. Our target is the $34-33 range near its lows for the year. FYI: The most recent date puts short interest at 7.8% of the 34.4 million-share float.
Picked on December 16 at $38.73
IAC Interactive - IACI - cls: 25.93 chg: -0.35 stop: 28.01
Lack of a bounce following yesterday's decline is a positive sign for the bears. Broken support near $26.50 should now be new resistance. We have two targets. Our first target is the $25.50-25.00 range. The H&S pattern, if it follows through, is forecasting a target in the $22 region. Our second, more aggressive target will be the $22.50 level. The P&F chart is still bullish for now but is on the verge of a breakdown. FYI: The latest data puts short interest at about 4% of the 120 million-share float.
Picked on December 11 at $27.60
Medicis Pharma - MRX - close: 25.76 change: -0.16 stop: 27.01
MRX dipped again with another test of support near $25.50. There is where we should expect shares of MRX to bounce. If the pattern continues to hold then we can look for a failed rally in the $26.50 region. Our target is the $23.00-22.50 zone. The P&F chart is bearish with a $19 target. FYI: Any time we play a biotech stock we're dealing with a high-risk situation. MRX seems to be more of a drug company but we're still at risk that some FDA decision or some clinical trial news could send the stock gapping one direction or the other. Furthermore the most recent data puts short interest at more than 23% of MRX's 49.2 million-share float. That is a high-degree of short interest and raises the risk for a short squeeze.
Picked on November 18 at $26.08
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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