Earnings season is beginning to heat up and so far there has not been much to be excited about. Economic data continues to come in mixed and makes me ask the question, is the economic recovery really expanding or are we reaching a cyclical peak.
Futures had been trading lower before the announcement of today's economic data. The release of today's data and revisions to last week caused an immediate 15 point drop in Dow futures to -45. The index, at opening, traded down around 55 points from yesterday's open in the first minutes.
There is a surprising revision in the initial claims data that shows a different picture than the previously released information.
Initial claims last week, which had been at 4 year lows, was revised upward by 4.6% to 364,000 from 348,000. This week's claims fell from the revised number by 5000 to a seasonally adjusted 359,000 claims for an initial week of unemployment. The four week moving average, a lagging but widely accepted indicator of joblessness continued to decline. It fell by 3,500 claims to a four year low of 365,000.
Today's jobs data gives a little different perspective on the state of joblessness. The market previously thought we were at 4 year lows but we really weren't. Revisions, while near the lows, are lending strength to other signs of economic slowing and the need for more quantitative easing which fed chairman Ben Bernanke alluded to in statements earlier this week.
This weeks initial claims data
Continuing claims data fell as well. The previous weeks data was revised down to 3.381 million and data this week fell another 41,000 to to 3.340 million.
Total claims for all forms of unemployment benefits also fell in today's data. Claims dropped by 131,488 to 7.15 million.
The final data for US fourth quarter GDP was also released today. Fourth quarter GDP held steady at 3% and suggests the slowly strengthening economy will continue making gains in the first quarter of 2012. GDP deflator and PCE Price Index also remained steady from previously released data.
The benchmark 30 year mortgage rate fell below 4% last week. The rate was pegged at 3.99%, down from the previous weeks 4.08%. This is nearly a full percent down from last year's number of 4.86% in the comparable week. The rate cost, on average, 0.7 points in prepaid interest to obtain.
Best Buy (BBY) released disappointing earnings this morning alongside plans to close as many as 50 stores next year. The news does little to support the theory of improving jobs, especially with today's revisions to initial claims. The tech retailer posted a loss of over $1.5 billion in the fourth quarter, citing lower sales of notebooks and TV's. The company announced plans to close stores and cut 400 jobs as part of an effort to reduce costs by $800 million by 2015. The stock dropped as much as 8% in early trading and ended the day down 6.9% at $24.77.
There was not only negative news in Best Buys statements. The chain is planning to switch its focus to smaller outlet type stores in order to be more competitive and maintain costs. The company is planning to open 100 Best Buy Mobile format stores in fiscal 2013. The losses in 2012, while based largely on sales misses, also included substantial one time charges. Best Buy is also planning to target more online shoppers as well as open new stores in China, which has been a successful strategy for other retailers.
Best Buy Chart
Social media game maker Zynga traded up over 2% in today's trading after their secondary stock offering was priced at $12. The stock has been trading over $12 since late January and could be building support at that level. Today's trading is on high volume and left the stock up by 4.74% at $12.82
Telecom giants AT&T (T) and Verizon (VZ) both received downgrades today from outperform to neutral. The downgrades come on lowered growth outlooks and valuation. AT&T traded down today, dropping below the 30 day moving average intraday. The stock opened much lower than yesterday's close, below the 30 day moving average, but managed to regain some of the initial loss to close above the average at $31.21
Verizon also traded lower on the downgrade. The bears are taking a bite out of Verizon this week and are making a run toward support at $37. The stock is trading below its 30 day moving average on high volume. At the current level the stock yields over 5% in dividends. In the long term the stock is looking pretty weak.
Verizon, Daily with volume
Verizon, Weekly with MACD
Under Armor (UA) also received a notable downgrade. The stock was reduced from buy to neutral by brokerage firm Longbow. The stock traded down as much as 3.5% in today's action and closed at $1.84, down 1.92% from yesterday's close. The stock found support at the 30 day moving average.
Under Armor, Daily
Ford Motor Company (F) was added to the Top Picks Live list at Citigroup. The stock traded down marginally throughout the day but gained strength in the afternoon to end at $12.49, up 1.38%. The stock is trading right around its 30 day moving average, between short term support and resistance lines at $12 and $13. The technicals are mildly bearish but in decline. The US auto sector improved in 2011 and is still expected to continue improving in 2012.
Transocean (RIG), provider of offshore drilling services to the oil industry, was upgraded to outperform from underperform by CLSA. This is the most recent of several upgrades the company has received over the past two months. The upgrades come on expectations of higher realized profits through increased day rates and pass throughs of maintenance costs. The stock dropped below its 30 day moving average early today on weak volume but found support in afternoon trading. The stock has been in decline recently from three month highs but is expected by many analysts to rebound and continue its bull trend.
The oil industry , as represented by the oil industry ETF (OIH), has been trending sideways for much of the last twelve months. The stock is oversold and could be forming support between $39 and $40.
Banking giant Wells Fargo (WFC) was upgraded by Nomura to buy from neutral. The company thinks that consensus estimates of Wells Fargo earnings are too low. The technical outlook on the stock is bullish. The short term trend is up with a recent break above resistance on high volume. The price action could be forming a bullish triangle. The stock traded down to end the day at $33.94 , -1.4%, but is still trading near 12 month highs.
Wells Fargo, Daily
The financial sector Spyder (XLF) holds Wells Fargo in top spot as 9% of invested funds. JP Morgan (JPM), Citigroup (C ) and Bank of America round out the top four with 8.5%, 5.5% and 4.6% of total fund money each. The XLF traded down today, and is just under a major resistance level. The stock has been trading up to this level for about two weeks now and is forming a triangle similar to WFC. The move is on mildly increased volume and bullish technical indicators.
The financial Spyder (XLF), Daily
The IPO market is heating up a little. This week there are 9 scheduled IPO's. Annie's(BNNY), a natural food company based in Berkeley, CA opened yesterday to little fanfare but quickly stunned investors as the stock rose above its price range of $14-$16 and closed the day at $31. Today the stock continued its climbed, doubling from its opening price and closing the today up another 6.25% at $37.92.
Annie's, One Minute Intraday Chart
There were two IPO's today, Millennium Media (MM) and Rexnord (RXN). Millennium was priced between $9-$11 but the actual opening was more than double the expected price. The stock opened the day at $25 per share, traded down a little during the day and closed at $25. Millennium is an independent provider of mobile advertising platforms.
Millennium, One Minute Intraday Chart
Rexnord (RXN) is manufacturer and operator of water management and motion control systems. It operates worldwide. The stock was priced in the middle of the expected range of $18-$19 and was met with approval. The stock traded up throughout the day at $20.28.
Rexnord, One Minute Intraday Chart
Rimm announced earnings after the bell today. This is the first quarterly report since the company was taken over by its new and untested CEO, Thorsten Heins. The company has been struggling against competitors in the smart phone sector and is expected unveil new Blackberry 10 technology later this year. The stock has been trading very quietly for the last few months and today was no exception. Anticipation of the statement had the market waiting all day. The actual report failed to inspire confidence in the company but did spark a short covering rally that was halted briefly. RIMM earned an adjusted $0.80 per share. Actual revenue was $4.2 billion versus an estimated $4.54 billion. Sales were at the low end of guidance. Revenue in Heins first quarter as CEO fell roughly 50% from the same period last year.
Redhat, leader in Linux based open source software, soared more than 18% today to a 12 year high. The company reported earning after the bell yesterday and made investors very happy with the news. Full year revenue increased by 25% to $1.13 billion. The gain is on increased subscription revenue, up 22% for the year, and the results of investments in qualified salespeople around the world. The stock opened sharply higher and continued to trade strongly throughout the day on heavy volume.
The price of oil, gas and natural gas all fell sharply today on talks of opening strategic reserves. The US, England and France have been considering the release in order to drive down high gasoline prices at the pump. An unexpectedly large gain in natural gas inventories also helped the move lower. Natural gas inventories rose by 57 bcf, higher than expected. Lower fuel costs could help prolong the current bull market in equities. Light sweet crude traded down as much as 2.5% today, around $102.75/barrel, with Brent crude in tow with a decline of around 1.5%. Gasoline bucked the sell off and traded up about 0.15% during the afternoon hours.
News from Europe was quiet today as the European markets fell to three week lows. Weak data and Bernanke's statements helped to push the region lower. Home prices in the UK suffered their sharpest monthly decline in over two years, this comes ahead of the end of a major tax exemption. Spain is also being watched as the government is expected to release its new â€œausterityâ€ budget tomorrow. The budget is likely to stir debate and could cause a knee jerk reaction in the European markets.
Gold prices fell again today as the dollar gained strength. The dollar gained today versus the Euro and the Yen but fell slightly to the pound. Other precious metals, silver and copper gained ground as well.
The major indexes all opened lower and traded lower throughout the day. Late afternoon trading brought the Dow back to regain about 0.10% from yesterday's close. Today's trading brought the Dow down to the 30 day moving average, where it found support and then started the advance to close at the days highs. The price trend remains bullish but is at risk of breaking.
The Dow Jones Index, Daily
A look at the Dow Jones Index tracking stock (DIA) shows the same. Volume is low and momentum is weak.
The DIA, Daily
The broader S&P 500 traded in similar fashion but failed to regain positive territory. The index has weak momentum and is overbought.
S&P 500, daily
The long term trend is still up and bullish
S&P 500, weekly
The Nasdaq retreated today as well. The tech heavy index fell by less than a half percent and is still well above the 30 day moving average. Momentum is weakening and the index is also overbought.
Tomorrow marks the end of the first quarter of 2012. There are a few IPO's scheduled tomorrow as well. Economic data tomorrow includes the PCE Core prices, Michigan Sentiment and Chicago PMI. Earnings announcements are light, only about 16 companies expected to report.