At least Wednesday was a pretty benign day in terms of domestic and international headline risk. Dell's (DELL) gloomy after-hours report on Tuesday carried over to today, making the Nasdaq the worst performer of the three major indexes. The S&P 500 and the Dow Jones Industrial Average were able to scrape together modest gains.
Gold continued its bullish ways as COMEX-traded gold for December delivery closed at a record $1793.80 an ounce. That is a record closing price in nominal terms and below the intraday record of $1817.60 set on August 11. The yellow metal got a boost from an unusual source. Then again, for those of us that actively follow the oil industry and the geopolitical issues that affect that business, gold's Wednesday run may not be that surprising at all.
Venezuelan President Hugo Chavez has decided to nationalize the South American country's gold industry, something he did several years ago with the OPEC member's oil business. This really does not mean much in terms of lost or gained supply, but Venezuelan gold will be withdrawn from the European banks where it is currently stored to come home to vaults run by Venezuela's central bank.
Venezuela's official gold reserves, of 365.8 metric tons as of June, make it the 15th largest gold holder in the world according to the World Gold Council, the Wall Street Journal reported. I admit I might be jumping ahead here, but it might be worth keeping an eye out for a similar move by Peru, which is major gold and silver producer. Peru's new president is something of a Chavez disciple and a known leftist, so nationalization of any business there can never be ruled out. Nevertheless, it still looks like gold is headed higher.
In stock-specific news, I will not rehash all of the carnage surrounding Dell because Jim went over those numbers last night, but it is worth having a look at Dow component Hewlett-Packard (HPQ) because the world's largest personal computer maker reports earnings tomorrow. With the disappointing outlook provided by Dell, investors chose not to wait around for HP's numbers and opted to bail on the stock today, sending the stock lower by nearly 4% on strong than average volume.
Dell was only partially to blame for HP's day in the red. BMO Capital Markets analyst Keith Bachman cut his rating on HP to ''market perform'' from ''outperform'' and slashed his price target on the stock to $36 from $43, citing ''deteriorating financial performance.'' The new price target still implies significant upside from where HP currently trades, but the reality is this stock has been almost untouchable from the long side since the 2010 departure of former CEO Mark Hurd.
Shares of HP have tumbled 25% since Leo Apotheker replaced Hurd. Bachman also said it might be worthwhile for HP to consider selling its PC business, but acknowledged there would be a limited field of buyers and that HP might struggle to monetize the asset appropriately, MarketWatch reported.
In earnings news, Deere (DE), the largest maker of agriculture equipment, said its fiscal third-quarter profit rose 15% to $712.3 million, or $1.69 per share, from $617 million, or $1.44 per share, a year earlier. Revenue jumped 22% to $8.4 billion. Analysts were expecting a profit of $1.67 a share on revenue of $7.52 billion.
Beating expectations was not enough to appease investors as Deere shares fell 1.2% on volume that was roughly double the daily average. Deere's report amounts to a mixed bag when considering the strength in the international agriculture business. On the bright side, the company said earlier this year that natural disasters that struck Japan could weigh on sales to the tune of $300 million. That number is looking more like $70 million. On the other hand, Deere is spending more on raw materials and research and development for new products.
The company remains bullish on the global ag market, though it did lower its estimate for Brazilian farm income to $20.2 billion from $26.1 billion, but that is still above the 2010 level of $15.4 billion, the AP reported. Overall, Deere forecast a 2011 profit of $6.40 a share on revenue of $29.47 billion. Analysts were expecting revenue of $29.05 billion.
Keeping with the commodities theme, shares of apparel retailer Abercrombie & Fitch (ANF) plunged almost 9% on volume that was more than triple the daily average after the company said higher commodities costs will be an issue in the back half of this year. Obviously, that means cotton prices, which I find to be an interesting situation.
Take a look at the chart of the iPath Cotton ETN (BAL). It is trading around its lowest levels of 2011 and has been in tailspin for months. So while cotton prices are high by historical levels, it can be argued that a company like Abercrombie should be catching a break on cotton prices compared to earlier this year and late 2010, not complaining about cotton prices.
Any hint of a double-dip recession would bring the bears out in droves for Abercrombie for the simple reason that this particular company has a deeply flawed business model. The flaw is that the company wins sales from parents of teens and college kids because these parents often choose to indulge their kids with the Abercrombie and ignore the fact that shirts, khakis, etc. of comparable quality can be had at any number of retailers for lower prices.
Put another way, if you are a parent looking to save money on clothing for your kids, Abercrombie is probably one of the last places you want to shop. And to add my anti-Abercrombie musings, the company is essentially bribing the cast of ''Jersey Shore'' to stop wearing Abercrombie apparel. That is odd when considering the target age group for Abercrombie is basically the same as the target age group for the MTV show.
Abercrombie & Fitch Chart
Looking at the charts, make that three days in a row that the S&P 500 has stalled at 1200. Today, the index traded as high as 1208, but could not keep those gains and closed below 1200 once again. A close above 1205 would be inviting for buyers, but that is also the neighborhood where the sellers appear most viscous. On the downside, support appears firm at 1175, but if 1205 is cleared, a run back to 1250 appears likely.
S&P 500 Chart
With a gain of just four points on Wednesday, the Dow remains laboring in its 11,200-11,500 range, though on an intraday basis, the index was able to trade slightly above the 11,500 mark. The sad story that is Hewlett-Packard is known at this point and I would not expect that earnings report to have a material impact on the Dow one way or the other unless it is far more negative than expected.
The Nasdaq honored support at 2500 today, no small feat given Dell's woes. Google continues to look weak, but Apple offsets that situation with strength of its own. Same song as yesterday: Short below 2500, long above 2565.
Perhaps the best thing that can be said about the Russell 2000 is that it remains above 700 and that old resistance could be turning into new support. On the other hand, the 715-720 range has become a hurdle that is hard to overcome for the small-cap index recently. If the Russell gets through there, it could run back to 775. If support at 700 fails, 650 is the next stopping point.
Russell 2000 Chart
There is a distinct lack of direction in this market and to go along with that, there is not much in the way of scheduled catalysts. As I mentioned on Monday, another week of jobless claims below 400,000 would provide an excuse for buyers to get going on Thursday and that would result in some short covering as well. Here's to hoping no negative surprises emerge from Europe.