Stocks finished Thursday in the red, but the declines were negligible and probably not enough to stoke the flames of the bears, assuming they have any fire left in them. After finishing Wednesday's session at 11-month highs, stocks pulled back on Thursday, but none of the declines among the three major U.S. indexes broke into double-digit territory. The S&P 500 fell 3.27 points to close at 1065.49 while the Dow Jones Industrial Average retreated less than eight points to finish the day at 9783.92. The Nasdaq show similarly tepid losses, falling just 6.4 points to close at 2162.75.
The declines were disappointing, as they always are, when considering that Thursday's session got off to a good start on news that weekly jobless claims fell by 12,000 last week, beating expectations. The Labor Department said 545,000 people filed new unemployment claims last week. Estimates were calling for that number to come in at 560,000. Today's number is below the four-week moving average and any good news on the jobs front is welcomed by the market at this point.
Unfortunately, the jobs news was not enough to prop stocks up for the entire session as a couple of glum economic data points sent the bulls into sell mode and proceeded to keep equities locked in tight, lethargic ranges for the remainder of the day. Housing starts rose by a less-than-forecast 1.5% in August and continuing jobless claims rose to 6.23 million from 6.1 million. Housing starts hit 598,000 in July, but analysts had been expecting 600,000. On the bright side, building permits were up 2.7% month-over-month.
One aspect of today's decline that is noteworthy is that marquee, blue chip names endured the brunt of the selling. Down days have recently been marked by either the financials or commodities-related stocks being the epicenters of the sell-offs. That was not the case on Thursday as telecoms took their turn in the negative spot light. The group was the biggest loser among the 10 industry groups tracked in the S&P 500.
A mixed bag of comments from the chief executive officers of America's two telecom giants, AT&T (T) and Verizon (VZ), both Dow components, had investors feeling squeamish about the sector. AT&T CEO Randall Stephenson told attendees at a Goldman Sachs investor conference said that while he expects his company to add more mobile phone subscribers, he expects the company's overall growth to be ''flattish for some time'' and that opportunities for growth may appear in the second half of 2010.
Lukewarm comments to be sure and certainly not enough to send the bulls running into AT&T shares, which finished the day down 17 cents to $26.37. Verizon CEO Ivan Seidenberg gave a more dour assessment, noting the U.S. economy is still shrinking and that growth among small business customers was ''not as fast as you'd like.'' Seidenberg said very little job creation is taking place and that it is too soon to estimate when key markets will start to recover.
Seidenberg's comments sent Verizon shares down 90 cents to $29.51, meaning Verizon closed at the low of the day making the stock the biggest loser in the Dow Jones Industrial Average. Verizon's chart is not a pretty picture. The recent highs have been lower and the recent lows have been lower, too, and today's drop sent the stock tumbling below both its 50 and 200-day moving averages.
Given the glum comments from AT&T and Verizon, it appears that the biggest point of attraction for either stock is that they both yield 6.1%, the best level in the Dow, and both firms are reliable dividend payers. Verizon recently hiked its payout and it would not be a surprise to see AT&T follow suit. See, I do like to point out positives from time-to-time.
As I said earlier, this was a blue-chip led decline today and AT&T and Verizon were certainly not the only culprits. Oracle (ORCL), the largest maker of enterprise software in the world, tumbled during Thursday's trade after Wednesday's after-the-close earnings report missed analyst estimates. Oracle earned 22 cents a share on sales of $5.1 billion during its usually slow fiscal first quarter. Those numbers missed analyst estimates of earnings of 30 cents a share and sales of $5.2 billion and Oracle's decline weighed on the Nasdaq.
The Nasdaq and its many tech issues have led the market higher over the past six months and during that time, Oracle's share performance has tracked that of its home index, but there has been some divergence over the past three months with the Nasdaq up about 17% and Oracle lagging at ''just'' 11%. Today's close for Oracle saw the stock finish below support in the $21.85 area, also the 50-day moving average.
FedEx (FDX) chimed in with its own not-so-great news. The second-largest U.S. package-shipping firm said quarterly sales fell 20% to $8.01 billion, missing analyst estimates of $8.23 billion. That led to a 2.23% decline for FedEx shares, but all was not lost. The company said a global economic recovery is under way and that should bolster demand for FedEx's shipping services.
No, FedEx is not the sexiest stock on the Street, but it is considered a bellwether for the U.S. economy and the fact that FedEx CEO Fred Smith said industrial production should improve by 4% in 2010 is significant, not only for his company's shares, but for the broader economy as well. Transportation stocks are historically viewed as harbingers for the performance of the U.S. economy and if you find yourself in the bullish camp, cheering the Dow toward 10000 and the S&P 500 to 1100, you should also have a rooting interest in seeing the Dow Jones Transportation Average make its way to 4200-4300.
The home to 20 of the largest transportation-related issues was down today, closing below 4000, but the index is up nearly 30% since early July, so a little hiccup like Thursday's trade probably is not anything to get too concerned about.
Keeping with the mixed bag and not-so-bad decline themes, I need to be fair and highlight a few blue chip names that performed well during Thursday's session. One Dow component that turned in a sterling performance was Caterpillar (CAT). The maker of construction and mining equipment gained a $1.27 to close at $53.89. Oddly enough, I happened to come across a press report a couple of weeks ago where an analyst hypothesized that Caterpillar was a candidate for a dividend cut.
I cannot say for certain if that is going to happen, but it appears Caterpillar shares are poised to clear $55 sooner rather than later and there is some room to run from there before psychological resistance at $60 becomes an issue. Frankly, the chart looks pretty good. After making a double top around $48.95, Caterpillar has surged higher and $50 should act as support.
Caterpillar is a pretty venerable name and a good day for the stock will not come as a surprise to many investors, but one sector that is not normally associated with strong moves is the airline group and that group was a leader today. Allow me to be honest, it is hard to be a fan of the airlines even when the economy is good and as someone who just returned from vacation, I am definitely a fan of donating $30 to have my bags make the journey with me.
And whenever I think about the perils of investing in this sector, I remember the scene in ''Wall Street'' where Gordon Gekko expressed disdain for airlines. Hey, sometimes art does imitate life. All of this aside, I did mention in the Market Monitor today that AMR Corp. (AMR), parent of American Airlines was up in a big way. News that the company will get $2.9 billion in fresh financing enabling it to stave off another visit to bankruptcy court was the bullish catalyst.
Part of the financing comes in the form of $1 billion from the advance sale of frequent flier miles to Citigroup. Citigroup (C) will issue those miles to holders of the popular American Airlines credit cards. If you ever thought frequent flier miles were worthless, at least in dollar terms, think again. Other major carrier such as Delta (DAL), and United (UAUA) have also done advanced miles sales to raise cash.
I also noted in the Monitor that there was heavy buying in the October 12 calls of Southwest Airlines (LUV), the discount carrier, but perhaps even more noteworthy is the fact that the Claymore Airline ETF (FAA) has gained nearly 50% since June. ETFs get a lot of publicity, but for some reason FAA tends to fly under the radar (no pun intended), though I will pat myself on the back for mentioning it here in early July.
The chart shows a rapid ascent and some overbought Stochastics, but those traits have appeared dozens of times over the past few months and the stocks or ETFs have just kept going higher.
Taking a look at market technicals, the S&P 500 closed Wednesday 20.1% above its 200-day moving of 889.64. According to Bloomberg, the index has only climbed 20% above the 200-day line three times since World War II, the most recent trip coming in 1986. The resulting gains a year out have been proven robust, ranging between 13% and 20%.
The index may be dealing with some resistance in the 1075-1080 area right now, but it is hard to ignore the recent uptrend and once 1080 is cleared with some vigor, there should be clear sailing to the 1116 area. Prior resistance of 1035 appears to be new support.
S&P 500 Chart
The Dow seems to be having a fight around 9800, the current resistance zone, but from there a move to 10300 could be a possibility. That is not to say there will not be hiccups along the way, there will, especially at 10000. Support can be found at 9575, but it might take some seriously bearish news to bring that number into play over the near-term.
The Nasdaq went from leader to weakest link to leader again all in a fairly short amount of time. With the all important 2000 level having been cleared weeks ago, 2063 is looking like support. Even with the glum news from Oracle, it still appears that the Nasdaq is on track to make a move to resistance at 2160. From there, a move to the 61.8% retracement level at 2251.84 could be in the works.
The bottom line there was nothing about Thursday's trade to make me want to say the bears are back. If anything, the dip, mild as it was, probably represents an opportunity to add to currently profitable positions. At this point, there is simply no reason to buck the trend.