Wednesday delivered another round of positive economic news and yet the bulls aren't buying it. Is the rally finally running out of gas? Stronger than expected new home sales and rising durable goods orders should have helped push stocks higher. Several market pundits are very surprised that stocks aren't a lot stronger today and find this relative weakness to be a real clue to the market's short-term health.
Foreign markets were mixed. Asian stocks were mostly higher. The Chinese Shanghai index gained 1.7%. The Hong Kong Hang Seng eked out a 0.1% gain. The Japanese NIKKEI index gained 1.3% thanks in part to strength in Toyota (TM), which announced last night it would reduce its global capacity by 10%, which is about one million vehicles, in an effort to return to profitability.
After hitting 10-month highs yesterday the major European bourses hit some profit taking. The French CAC-40 and the German DAX both ended a four-day winning streak with a -0.33% and -0.72% decline, respectively. The English FTSE index lost 0.5% snapping a six-day winning streak. Investors did not seem to react to news that German business sentiment shot higher. The German business confidence or sentiment survey is sent to 7,000 managers and executives. Economists were expecting German business sentiment to rise to 89. Ifo, the German think-tank that does the survey, said confidence rose for the fifth month in a row with a jump from 87.4 in July to 90.5 in August. The next major economic report from Europe is probably England's Q2 GDP report due out Friday.
Here at home in the U.S. one of the big reports today was the new home sales figures from the Commerce Department. Economists were projecting a rise to a 390,000 unit annual sales pace compared to June's 384,000. July new home sales rose 9.6% to 433,000, which is the fastest sales pace since September 2008. The median sales price actually ticked lower from $210,400 to $210,100. There seems to be a lot of skepticism about the sustainability of the strength in housing. Analysts are concerned that when the current $8,000 tax-credit program for new home buyers ends in November that sales will fall sharply. Furthermore there is skepticism about the 9% jump in sales given the Commerce Department's +/- 13% margin of error for the report.
In a separate report the Commerce Department announced that durable goods orders, for items expected to last three years or more, rose 4.9%. Economists were expecting a rise of 3.0% in July versus a 2.2% drop in June. The big jump was fueled by a huge rise in demand for aircraft. The recent cash-for-clunkers program also had an impact with demand for autos rising from 0.2% in June to 0.9% in July. It's expected the cash-for-clunkers will have a larger impact in next month's demand. The transportation sector can be volatile and durable goods orders outside of transports only rose 0.8% versus the 0.9% estimate, which was disappointing.
Crude oil continues to make headlines. Last night the API inventory report said stockpiles rose more than 4 million barrels. The official EIA report came out this morning and claims that oil inventories only rose 200,000 barrels. Analysts were projecting a 1.1 million barrel decline. This build in crude oil helped push oil futures lower with oil trading near $71.00 a barrel. Overall commodities were mixed. The U.S. dollar is bouncing, which is normally bearish for commodities. Gold and silver are down but copper and grains are up on the session.
One of the big events today was the $39 billion treasury auction of 5-year notes. Tomorrow we'll get some high-profile earnings reports. Apparel retailer American Eagle (AEO) reports earnings tomorrow morning. Wall Street expects AEO to deliver a profit of 14 cents a share. Computer maker DELL is due to report earnings Thursday night after the closing bell. Analysts are forecasting a profit of 23 cents a share.
Currently the S&P 500 index is off less than 3 points at 1,025. The NASDAQ composite is off less than 8 points at 2,016. The Dow Industrials are down about 11 points at 9,528. The small cap Russell 2000 index is down just over 2 points at 580. You can see from the intraday charts that the short-term trend has a bearish pattern of lower highs.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
A quick scan of the OptionInvestor.com play list reveals that FLR is off 2.7% and nearing its long-term trendline of higher lows. IBM dipped to $117.51 and bounced. Our stop on IBM is at $117.45. MVL, a put play, tagged overhead resistance at $39.00 and is fading lower.