Comtex SmarTrend(R) Morning Call -- October 27, 2009

Several factors combined to halt the early stock surge yesterday morning: commodity stocks went down as the dollar went up and home builder stocks fell when the Congress seemed destined to forego renewing the first-time homebuyers' tax credit; finally banks headed south on the renewed promise of federal uber-regulation. The DJIA dropped 104 points for the day to close at 9,868. For the past few days the SmarTrend(R) indicators have been headed due south, now just arriving at their oversold zones where bottoms should be established; however, this process is not likely to be complete before the end of this week.

Good news this morning regarding home prices would offset the mixed economic news out yesterday, and help dampen the ongoing multi-day downtrend; but investor wariness is likely to persist until the quarterly GDP report is released on Thursday. Investors are expecting a positive confirmation then that the economy is recovering, but are apprehensive that GDP growth will point to a long and bumpy road back to prosperity. This mood was reflected in yesterday's SmarTrend(R) uptrends to downtrends, which turned more biased to the downside at 12:96. This downside bias took its toll on the IBDI and Trend Ratio; both fell and now threaten the awakening of the intermediate-term uptrend. Even so, this critical component of the investing environment is doing nothing so far to counter the continuing march northward by the long-term uptrend. Thus the investing environment remains conducive to establishing long stock positions.

It is likely to take until the end of this week for the trading environment to synch up with the investing environment, because the near-term trend indicators are just now reaching the boundaries of their oversold zones. It was forecast in this report last week that the near-term downtrend would not bottom out before Wednesday, and that prediction is evolving as anticipated. It has been a good week to avoid establishing long stock positions. After the near-term trend indicators fall into their oversold zones they are expected to take several days to move sideways before consolidating bases from which to rally. During this period the DJIA and S&P500 are still vulnerable to declining to 9,600 and 1,050, respectively.

Yesterday's SmarTrend(R) morning call also warned of the possibility of the market indices souring quickly and dropping precipitously again as they had done on two days last week. This happened intraday Monday, commencing around 11AM, following the expected surge up shortly after open. The S&P500 fell from 1,090 to 1,066 in an hour, and became oversold. The market struggled to recover for the rest of the day. The market indices are likely to struggle and mainly move sideways today, and the trade-term trend will continue to provide more intraday bounces up and down; however, the telltale pattern of progressively lower intraday highs and lows will persist until near-term bottoms are found. In the meantime at least one more intraday movement of the market indices may still be sharp and short. The potential trade-term trend impacting flow of earnings and economic reports due out today are discussed below. Investors will be looking and hoping to find that proverbial pony, but they are not likely to do so before the end of the week. To examine the complete list of constantly-updated trend-changing stocks, please click on http://www.mysmartrend.com.

Monday proved an interesting day of whispered worries, which sent financial shares and the broad market indices lower, the U.S. dollar higher and the Vix, a measure of investor uncertainty, to its sharpest one-day percentage increase in a month. Financial sector shares fell 2.3% on news of a ratings downgrade on regional banks and rumors surrounding Bank of America (NYSE:BAC). Homebuilder shares were hurt by refuted reports that a research group opined the first time homebuilders' tax credit unlikely to be extended. The dollar moved further from last Wednesday's 14-month low of $74.94, up 0.7% against a basket of currencies on both its safe-haven appeal as investors' risk appetites waned, and on an unwinding of short positions. Commodities eased as crude prices shed $1.82 to close at $78.68 on concerns about the state of global demand amid ample supplies.

The result: after an early rise, the DJIA dropped 104 points, having traded in a 200-point range, to close off 104 points, or 1.1%, at 9868. The S&P500 was hit with broad sector weakness in all ten groups, but especially from downturns in financials (-2.3%), basic materials (-2.0%), and oil and gas (-1.6%). NYSE volume was a moderate 1.39 billion shares, well under last year's average of 2.28 billion, as declining shares ran ahead of advancing shares by a three-to-one margin.

Once again a downgrade from Dick Bove, analyst at Rochdale Securities, was attributed for the weakness, as he lowered ratings on regionals Fifth Third Bancorp (NYSE:FITB), Sun Trust Banks (NYSE:STI), and US Bancorp (NYSE:USB). Moreover, a Saturday WSJ article alluded to disagreements between Bank of America (NYSE:BAC) and the government over capital requirements before the firm could repay its bailout funds. Street rumors suggested the company might need to sell shares to repay the funds. Additional rumors maintained S&P had a Bank of America (NYSE:BAC) downgrade in the wings, along with several other banks, a report on which S&P refused to comment. Furthermore, FDIC Chief Sheila Bair cautioned banks still face "serious challenges."

Today's key economic post is likely to prove a release on home prices, the 9:00 ET report of the 20-city S&P/Case-Shiller Home Price Index. Analysts expect the report to show the smallest drop in 19 months, an 11.9% August decline, after July's 13.3% drop. Now in crisis for over three years, the housing market may be stabilizing as mortgage rates have fallen, home prices have become more affordable and inventory levels have declined. On the other hand, unemployment rates continue to head higher, foreclosures still boost inventories, and further mortgage resets loom. Government contention on whether to extend or possibly wind down the first-time homebuyers' tax credit due to expire November 31 drew concern over the state of housing minus the stimulus, sending homebuilders' shares lower yesterday, with Toll Brothers (NYSE:TOL) down 4.2%, Lennar (NYSE:LEN) down 4%, and Beazer Homes (NYSE:BZH) off 4.4%.

Also impacting commodity-related shares was the bounce in the greenback, which sent crude prices higher. In another anomaly, as the dollar rose and equities dropped, Treasuries also fell in price Monday, driving yields higher on concern over the Treasury's record issuance planned for the week, as well as speculation of a more hawkish policy shift underway. While yesterday's indirect bid on the reopened 5-year TIPS drew above-average interest, demand missed expectations, once more raising doubts on overseas interest in buying US debt. Crude prices, off $1.82 to $78.68, reflected estimates of inventory builds. Today's American Petroleum Institute weekly report is expected to reflect a 1.4 million barrel crude stockpile increase according to a Reuters poll, with Bloomberg data showing tomorrow's Energy Department's weekly inventory data reflecting a 1.5 million barrel build.

The CBOE Vix, "fear factor" index, jumped 9.2% on Monday to 24.31, underscoring traders' apprehension in front of the raft of the week's economic data. At 10:00 ET today, the Conference Board's consumer confidence measure for October is estimated to have improved slightly to 54.0 from 53.1, a highly debatable number as higher stock prices are offset by higher unemployment. Second-tier retail data from weekly ISCS Goldman store sales and Redbook may prove better-than-expected, boosting hopes for an improved holiday season.

According to our analytics team, expect continued consolidation in today's trading, with the trade-term trend providing more intraday volatility; however, the telltale pattern of progressively lower intraday highs and lows will persist until near-term bottoms are found. For a look at our more complete technical report on today's trading, as well as the stocks changing trends recently, please click on http://www.mysmartrend.com.

In the corporate corner, the following are slated to release quarterlies today: AK Steel (NYSE:AKS), FirstEnergy (NYSE:FE), FPL (NYSE:FPL), Johnson Controls (NYSE:JCI), Paccar (NASDAQ:PCAR), Textron (NYSE:TXT), US Steel (NYSE:X), Valero (NYSE:VLO), and Visa (NYSE:V).

DryShips (NASDAQ:DRYS) reported third quarter earnings of 27 cents, 7 cents above estimates, on revenues of $228.2 million, down 30.4%, but above projections of $210.7 million.

Baidu (NASDAQ:BIDU) offered downside fourth quarter guidance as third quarter results posted a slight miss at $2.07 versus $1.47 a year ago.

BP (NYSE:BP) posted 50% better-than-estimated interims as cost-cutting measures generated results of $4.98 billion, down 50% from last year, due to lower oil and gas prices.

Johnson Controls (NYSE:JCI) reported fourth quarter results one cent above estimates at 52 cents, on inline revenues of $7.87 billion, off 15.5%.

US Steel (NYSE:X) posted a third quarter loss of $2.11, 76 cents better than forecast, on estimate-topping revenues of $2.82 billion, down 61.5%, but above estimates of $2.72 billion. Noting customer order rates below second quarter levels, the firm provided a cautious outlook on end-user demand.

By Chip Brian, Editor-in-Chief, Comtex news Network

www.Comtex.com -- editor@mysmartrend.com

The following equities mentioned above include:

                                    Comtex SmarTrend Alert
                        ----------------------------------------------
Ticker    Last Close    Trend Direction    Trend Price      Trend Date
----------------------------------------------------------------------
BAC        15.40         Downtrend           15.64          10/26/2009
FITB       9.52          Uptrend             1.94           3/16/2009
STI        19.85         Downtrend           20.08          10/26/2009
USB        24.15         Uptrend             20.17          7/30/2009
TOL        18.36         Downtrend           19.13          10/1/2009

INX -- S&P 500: 1,067
Lo: 1,065 Hi: 1,092
Change: -12.65

http://www.mysmartrend.com/images/INX20091027.jpg

INDU -- DOW JONES: 9,868
Lo: 9,849 Hi: 10,072
Change: -104.22

http://www.mysmartrend.com/images/INDU20091027.jpg

QQQQ -- NASDAQ: 2,142
Lo: 2,137 Hi: 2,184
Change: -12.62

http://www.mysmartrend.com/images/QQQQ20091027.jpg

This report is divided into three sections. The first deals with our 5 proprietary market indicators, the second section examines important economic and business happenings which are expected to affect U.S. Stock market movements and the third section describes specific company announcement and earnings releases. Experience demonstrates that when these 5 indicators reach extremes they can shortly be expected to change direction and move in the opposite direction. When such happens in all or most of the 5 indicators, on or about the same time, followed by a move from below an extreme (oversold) to above that extreme (or vice versa for overbought), a change in market direction is very probable. The near term market moves are measured to identify the best possible returns for traders/investors. Daily price/volume examinations provide the best data upon which to base such forecasts. In this report though, intraday indicators are examined to improve the point of entry timing for the expected move.

Comtex News Network, Inc. is not a registered investment advisor and does not provide investment advice. Investors bear complete responsibility for their own investment research and decisions and should seek the advice of a qualified investment professional prior to making investment decisions. SmarTrend is a registered trademark of Comtex News Network, Inc. Copyright, Comtex News Network, Inc. 2008

Comtex News Network, Inc. ("Comtex") obtains information from sources deemed to be reliable; however, Comtex does not guarantee the accuracy of any of the information or commentary provided. Comtex makes no warranties, expressed or implied, as to the fitness of the information for any purpose, or to results obtained by individuals using the information. In no event shall Comtex be liable for direct, indirect, or incidental damages resulting from the use of the information. Comtex shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to the information and its use. Comtex does not make specific trading recommendations or provide individualized market advice. The information contained in the Morning Call product is provided as an information service only.

To subscribe to this newsletter, please visit http://www.mysmartrend.com/newsletter . To learn more about SmarTrend, go to http://www.mysmartrend.com or call Comtex sales at (212) 688-6240.

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Companies: Bank of America Corp. (BAC), SunTrust Banks, Inc. (STI), Toll Brothers, Inc. (TOL), U.S. Bancorp (USB)

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Comtex SmarTrend(R) Morning Call -- October 27, 2009