A day after equity markets were rocked by stark reminders there are still significant problems in Europe to be dealt with, the dip was bought, but not enough to erase Wednesday's savage beating. A calmer outlook on the political front in Italy helped the S&P 500 and the Dow Jones Industrial Average each gain almost 1% while the Nasdaq barely closed higher.
Despite all the chaos in Europe, there was one good economic data point out today here in the States. Weekly jobless claims dropped to 390,000 last week, easily beating the reading of 400,000 claims economists expected. More importantly, the number is the lowest in seven months. The four-week moving average also ticked lower. I am not saying it is time to breakout the bubbly, but there are some slight indications the jobs market is improving.
That said, there is still too much commotion in Europe to forecast an entirely smooth ride in the months ahead for the U.S. economy. On Friday we get the latest reading of the Reuter's/University of Michigan's consumer sentiment index. The consensus estimate is 61.3 compared with the previous reading of 60.9.
As noted in the market stats table, gold took a beating today, probably because Italy looked like less of a disaster. For one day at least. As I always say, one day does not make a new trend and it would a lot more than a one-day decline to reverse gold's long-term trend. If you like to use the options market as a tell, then traders remain quite bullish on gold.
The gap of calls to buy the SPDR Gold Trust (GLD) compared to puts to sell the largest gold ETF has risen 6.5% this month, with ownership of June $220 calls showing the biggest increase, according to Bloomberg. Last week, long bets on gold futures jumped almost 7% to 148,279 contracts and a Bloomberg survey indicates analysts and money managers see the yellow metal touching $1,950 an ounce in the first quarter of 2012. Disclosure: I am long the iShares Gold Trust (IAU).
Taking a closer look at Italy, the Euro Zone's third-largest economy was able to sell bonds today with a yield of 6.9% and there was relief in the market that the sale went smoothly and that Italy was able to escape a 7% yield. Still, that's the highest yield on 12-month debt Italy has paid in 14 years, Reuters reported. Such is life when the market takes its eyes off Greece and focuses squarely on Italy.
Problem with that is Italy probably cannot keep issuing debt with these lofty yields and while European policymakers might be able to craft a bailout plan for an economy as small as Greece's, they have basically said already they cannot afford a similar plan for Italy. So forgive me if I say the 3.3% jump in the iShares MSCI Italy Index Fund (EWI) today was not all that impressive. Volume was about 20% below the daily average and the ETF closed right in the middle of its 40-cent intraday range. And the ETF is still down almost 9% in the past month.
Italy ETF Chart
In stock-specific news, shares of controversial Green Mountain Coffee Roasters (GMCR) plunged 39% after the Vermont-based company posted fiscal fourth-quarter sales of $711.9 million, well below the $757.7 million analysts expected. The company's profit for the quarter rose to $75.4 million, or 47 cents a share, from $27 million, or 20 cents, a year earlier. For fiscal 2012, Green Mountain expects to earn $2.65 a share. Analysts were expecting $2.60.
Predictably, this was not a light volume decline. Nearly 47.4 million GMCR shares changed hands compared to average daily volume of almost 5.7 million. The stock has been halved in about a month, but if one is desperate to say something nice about the stock, it's still positive year-to-date as the chart indicates.
Or that could mean there is more downside to come, a bet that hedge fund manager David Einhorn has made in GMCR. That looks like a winning to me. And for what it is worth, Einhorn is also bullish on gold miners. Noteworthy is the fact that one online source touted GMCR as a takeover candidate today, naming Starbucks (SBUX) and Nestle (NSRGY) as the possible suitors.
Green Mountain Chart
Shares of Kohl's (KSS) gained almost 2% after the company said its third-quarter profit rose 20% to $211 million, or 80 cents per share, from $176 million or 57 cents per share a year earlier. Revenue increased 4.1% to $4.38 billion and same-store sales rose 2.1%. Analysts expected a profit of 80 cents on sales of $4.38 billion.
Kohl's gave decent guidance of a fourth-quarter profit of $1.93-$2.04 a share on revenue of $6.28-$6.4 billion. Analysts were expecting a profit of $1.96 per share on revenue of $6.3 billion. The company expects a full-year profit of $4.34-$4.49 a share. Analysts were expecting $4.46.
In after hours news, another former darling continues to see its star lose some luster. I am referring to Molycorp (MCP), the largest U.S.-based rare earths miner. The company reported a profit of 67 cents a share on revenue of $138.1 million, but analysts were expecting 70 cents on revenue of $161.6 million. That miss was not viewed as slight and that shares of Molycorp down 9.6% as of this writing.
Sales, margin and income were all records in the third quarter, but that was not enough to impress investors. The company did provide an update on its important Mountain Pass, Calif. rare earths project.
''Molycorpâ€™s ''Project Phoenix'' modernization and expansion plan at its flagship Mountain Pass, California rare earth facility has been accelerated, with the Company now expecting to achieve its Phase 1 production run rate of 19,050 metric tons per year by September 30, 2012, three months earlier than originally planned. The Company's Board of Directors authorized an additional investment of $114 million to fund the acceleration, which includes contingency funds. The acceleration of Project Phoenix Phase 1 will increase the Companyâ€™s estimated 2012 production by approximately 3,500 metric tons of Rare Earth Oxide equivalent to between 8,000 and 10,000 metric tons,'' according to a statement.
Looking at the charts, Wednesday's slide was extremely damaging to the S&P 500 as it forced the index below its 200-day moving average. Thursday's gain was not nearly enough to get the index back to that level. Another drop below the 1220-1230 area probably takes the S&P 500 down to 1215, perhaps lower. If the index can reclaim its 200-day moving average, then the 1305-1310 area could come into play on the upside.
The Dow's chart looked just as ugly following the Wednesday dive as that drop represented a violation of the uptrend established last month. Obviously, Thursday's up move was not enough to put much of a dent in the previous day's loss, but the bears were not able to force the Dow down to the critical 11,630 level. That would be the area where selling could accelerate. Resistance can be found just below 12,200. From there, look for 12,350 and 12,875 as next resistance.
The Nasdaq is not any more impressive than the other two major indexes. In fact, a lethargic Thursday performance might be cause for concern. The bright side is the Nasdaq remains above 2611. A drop below that area probably gets us back to 2585. From there another 20 points could come off. Next resistance lies around the 2680 area, then 2715 and 2733. I say worry about 2700 first and then the other resistance points will come into focus.
With a strong day on Friday, the S&P 500 and the Dow could actually close the week flat or slightly higher. Either scenario could be viewed as a victory following Wednesday's action. I would not say that is an invitation to get really heavy. However, if the consumer sentiment number is strong and the news out of Italy improves, those would at least be signs to do some selective buying.