Comtex SmarTrend(R) Morning Call -- October 29, 2009

An unexpected drop in new home sales catalyzed a sell-off in the stock market Wednesday. The DJIA dropped 119 points to close at 9,763. The SmarTrend(R) indicators arrived in their oversold zones right on schedule, and now can begin to build bases for a multi-day rally next week, starting with a rebound up this morning.

The good news about the GDP out this morning points to an emerging economic recovery, albeit not as robust as hoped, but the resultant stock buying enthusiasm coincides nicely with the decline by the SmarTrend(R) indicators and the market indices deep into oversold zones. The crescendo sell-off discussed in this report yesterday was extended, as anticipated, as the daily SmarTrend(R) uptrends to downtrends became even more polarized to the downside than on Tuesday, coming in at 3:523. Taken together, the two days saw 700 stocks enter downtrends, and only 7 enter uptrends. By any measure this was a precipitous climax sell-off of equities. In the process the IBDI reached oversold territory, and the Trend Ratio dropped to 56, having been at 75 just one week ago. Today is expected to bring an improvement in this important SmarTrend(R) uptrends to downtrends measure, and this improvement is expected to mark the beginning of base-building in preparation for a multi-day uptrend rotation next week. The neutering of the intermediate-term uptrend has had only a mild weakening affect on the long-term uptrend. It climbed another notch yesterday despite many stocks falling off a cliff. It is the resultant continuing long stock support from the investing environment that provides the basis for the notion that the last week of declines has brought the market to the threshold of a forecasted trading environment correction, not a complete reversal of fortunes for stock buyers.

In the downtrends the DJIA fell to just above support, which has climbed to 9,700, and the S&P500 index fell through its support at 1,050. These indices are now expected to bounce around these levels of support, starting this morning with a rebound from being acutely oversold yesterday. This condition is reflected in the near-term trend indicators, three of four of which became deeply oversold; so deeply oversold that a V-shaped rebound is likely today. However, confirmation that a multi-day uptrend is in progress will happen only when these same near-term trend indicators climb out of their oversold zones. This process is likely to take until early next week.

The second important factor in the trading environment is the trade-term trend, and for the past few days it has synced up with the declines in the near- and intermediate-term trend indicators, not adding or subtracting much from the overall process. The declines by the market indices, while sharp, were relatively orderly. All of this seems to have reflected a state of wariness by investors that caused them to ignore continuing better-than-expected quarterly corporate reports and focus on an unexpected drop in new home sales, the first in six months. The 4% monthly drop from (compared to an expected 6% increase before the report) underscored the level of skittishness by stock buyers, apparently willing to run for the exits at a blip on the radar screen that the economic recovery road ahead is going to be bumpy. The important issues framing economic expectations are discussed below. Yesterday's sell off was somewhat of an overreaction, which created an acutely oversold state that may just inaugurate the beginning of a multi-day uptrend foretold by the SmarTrend(R) indicators last week to be on tap after Wednesday of this week. Buckle up though, as the ride up out of this basement is likely to be as bumpy as it is thrilling. To take a look at the list of stocks changing trends in the last week, please click on http://www.mysmartrend.com.

Breaking below a key technical level, with trading relatively heavy and losses broad-based, equities appeared in a mind to factor in increased concerns over economic growth prospects, attending less to the steady stream of better-than-expected corporate results. Rocked by disappointing new home sales numbers, and preferring caution in front of this morning's advance GDP results, traders trimmed their appetites for risk, sending the S&P500 to a 5.04% decline from its 2009 highs reached only last week. The S&P500 and NASDAQ both broke through their 50-day moving averages for the first time since July; the DJIA turned in its third triple-digit decline in the past four sessions. NYSE volume picked up to 1.68 billion shares; declining shares ran ahead of advancers by a nine-to-one margin. And the market's volatility index, the CBOE Vix, continued higher, up 12.4% Wednesday to 27.91. The result: the DJIA closed down 119 points, or 1.2%, to 9763; the NASDAQ closed off 2.7% at 2060; and the S&P500 finished 2% lower at 1043.

All ten S&P500 sectors traded lower yesterday, led by falls in basic materials (-4.0%), oil and gas (-3.2%), financials (-2.9%) and industrials (-2.6%). The US dollar continued higher for the fifth straight day, trading up 0.5% against a basket of foreign currencies, and causing weakness in commodity-related shares. Crude prices plunged 2.8% to $77.79, well under the year's high of $82 set on October 21, on weekly industry data yesterday that showed higher gasoline inventories.

US Treasuries headed higher as the weak economic data boosted interest in safe-haven assets and the $41 billion 5-year note auction was well received with a bid-to-cover ratio of 2.6. Prices on the 10-year increased 10/32 in price, dropping the yield to 3.415%.

The risk of the week is two-fold: have we closed the door on the deepest recession since the Great Depression, and will the recovery prove sustainable after the government's one-off add-ons? Yesterday's report on the housing industry's new home sales did little to bolster hopes for a rebound in the housing market. Showing its first drop in six months, sales posted down 3.6% to a seasonally adjusted annual rate of 402K in September, off August's revised 417K pace and economists' expected 2.6% gain to 440K. At fault were a number of factors, including: anticipation of the expiration of the tax credit for first-time buyers, unemployment concerns, and the glut of foreclosed homes on the market. Regardless, the disappointment undermined hopes for a housing recovery, engendering further concerns regarding consumer demand as wealth remains undermined by falling prices. The week's report on mortgage applications also remained negative, lower for the third week in a row, down 5.2% following the prior week's 7.6% decline.

Meanwhile, inline orders for manufactured goods meant to last over three years rose 1% in September after a 2.6% decline in August. Excluding volatile transportation orders, however, orders rose a better-than-expected 0.9%, up from August's 0.4% drop, and up from estimates of a 0.7% gain.

Noting the data on shipments and inventory from the durable orders report, Goldman Sachs (NYSE:GS) slashed its third quarter GDP estimate from 3%, already below consensus estimates of 3.2%, to 2.7%, causing a further sell-off in late-day trading Wednesday. The economy's return to growth follows four straight declines, and is expected to show the first quarterly growth since the second quarter of 2008. The cash-for-clunkers program is expected to have boosted consumer spending in the quarter, with residential investments also higher; however, inventory numbers appear uncertain.

Weekly jobless filings are expected to decrease to 525K from 531K prior, with continuing claims estimated at 5.915 million.

And so the S&P500 stands 54.1% above its March 9, 12-year lows, but headed for an October loss, which would snap its 7-month string of monthly gains. Third quarter earnings have bested estimates at 82% of the firms already reported, with profits on the 236 companies 19% lower. Today's reports include: Allergan (NYSE:AGN), Eastman Kodak (NYSE:EK), ExxonMobil (NYSE:XOM), Monster Worldwide (NYSE:MWW), Procter & Gamble (NYSE:PG), and Sprint (NYSE:S).

According to our analytics team, a rebound in the acutely-oversold DJIA and S&P500 indices is expected today and over the next several days, which may accelerate the timing of a multi-day rally forecast here to begin next week. For a look at our more complete technical report on today's trading, as well as stocks changing trends recently, please click on http://www.mysmartrend.com/.

In the corporate corner, Aetna (NYSE:AET) reported third quarter earnings of 69 cents, 3 cents better than expected, on inline revenues of $8.72 billion, up 14.4%. The company sees full year earnings of $2.75; Street estimates call for $2.86 for the year.

OfficeMax (NYSE:OMX) posted third quarter earnings of 8 cents, a 7 cent miss, on inline revenues of $1.83 billion, down 12.6%. The firm issued cautious guidance, anticipating macro employment trends will not turn positive well into 2010.

Nintendo (NASDAQ:NTDOY) posted first half profits off 52% to $768 million, while sales dropped 34.5%. The company slashed its dividend for the first half by 37%.

Newmont Mining (NYSE:NEM) reported third quarter results of 79 cents, 24 cents above estimates, as revenues of $2.05 billion, up 49.5%, bested estimates of $1.72 billion.

Royal Dutch Shell (NYSE:RDS.A) reported a 73% drop in net profit, with earnings ex-items of $2.62 billion slightly ahead of estimates of $2.55 billion. The company noted, "We see some indications that energy demand and pricing are improving, but the outlook remains very uncertain and we are not expecting a quick recovery."

Motorola (NYSE:MOT) reported third quarter results of one penny, one penny ahead of estimates, on better-than-expected revenues of $5.45 billion. The company expects fourth quarter earnings from continuing operations of 7-9 cents.

Colgate-Palmolive (NYSE:CL) reported third quarter results of $1.12, one penny above estimates, of inline revenues of $4 billion, up 0.3%.

Moody's (NYSE:MCO) reported third quarter result of 43 cents, a nickel above expectations, on better-than-expected revenues of $452 million, up 4.2%.

Procter & Gamble (NYSE:PG) posted fiscal first quarter earnings of $1.06, 7 cents above estimates, on inline revenues of $19.8 billion, down 6%.

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
----------------------------------------------------------------------
AGN        53.55         Uptrend             39.13          3/11/2009
EK         3.47          Downtrend           5.00           9/24/2009
MCO        24.62         Uptrend             22.23          10/9/2009
MWW        16.58         Downtrend           16.23          10/2/2009
XOM        73.84         Uptrend             71.31          10/14/2009

INX -- S&P 500: 1,043
Lo: 1,042 Hi: 1,063
Change: -20.78

http://www.mysmartrend.com/images/INX20091029.jpg

INDU -- DOW JONES: 9,763
Lo: 9,758 Hi: 9,902
Change: -119.48

http://www.mysmartrend.com/images/INDU20091029.jpg

QQQQ -- NASDAQ: 2,060
Lo: 2,057 Hi: 2,112
Change: -56.48

http://www.mysmartrend.com/images/QQQQ20091029.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: Allergan, Inc. (AGN), Eastman Kodak Co. (EK), Exxon Mobil Corp. (XOM), Men's Wearhouse, Inc. (THE) (MWw), Moody's Corp. (MCO)

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Comtex SmarTrend(R) Morning Call -- October 29, 2009

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