Comtex SmarTrend(R) Morning Call -- October 30, 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 9,762. 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.

Questions may remain regarding the sustainability of US economic growth; nevertheless, yesterday's estimate-topping GDP release was enough to spook those shorting financial and energy shares and to sweeten tastes for risky investments. Both the DJIA and S&P500 turned in their best percentage gains since July 23, as they erased Wednesday's sharp declines. The surprisingly strong improvement in the economy's fortunes rallied commodity prices, sending the price of crude up $2.44, or 3.1%, to $79.87, gold up $16.50 to $1046.40, and the broad-based DJ-UBS commodity index up 2.3% on the session.

Headed to month's end, the DJIA has advanced 2.6% in October; the S&P500 0.9%, while the NASDAQ remains 1.2% lower for the month. Twenty-eight of the DJIA's 30 components finished higher, sending the index to a 9962 close, led by a 9% jump in Alcoa (NYSE:AA) and a 5.5% and 5.1% climb in Caterpillar (NYSE:CAT) and American Express (NYSE:AXP), respectively. All ten sectors of the S&P500 rose during the day, led by advances in basic materials (+4.1%), financials (+3.9%), oil and gas (+2.4%), consumer services (+2.4%), and industrials (+2.2%) as 440 of the S&P500 ended higher. On the NASDAQ, 82 of its 100 managed gains.

The S&P500 stands 57.6% above its 12-year lows of March 9, in a recovery of equity prices based upon expectations that the US is exiting its worst recession since the 30's. Earlier in the week investors appeared unnerved by disappointing data on consumer confidence, which revealed a surprise drop in October, and new home sales, which posted its first drop in six months. Ratcheting nerves higher, Goldman Sachs (NYSE:GS) cut their GDP projections from 3%, already under consensus estimates of 3.2%, to 2.7%, noting questions on shipments and inventories based on the durable goods report released on Wednesday.

Normally a backwards-looking piece of low event-risk, the third quarter GDP this time around heralded the economy's first period of growth since the second quarter of 2008. The 3.5% expansion not only topped Goldman's (NYSE:GS) assumptions, but Street estimates as well, and proved a well-balanced result of the economy's gains. Improvements were fueled by strength in consumer spending for durables stemming from the government's cash-for-clunkers program, and the first increase in residential investment in more than three years from the homebuyers' tax credits. A slowing in the pace of corporations' reductions of inventory levels also boosted results.

The outlook for Asian economic growth received a boost as well yesterday. The IMF more than doubled its expectations for Asian growth this year, and increased next year's guidance as well. The IMF now expects economic growth of 2.8% this year and 5.8% next, up from last May's estimates for 2009 growth of 1.2% and 2010 growth of 4.3%.

The week's employment data also proved positive. Initial jobless filings fell 1K to 531K last week, although still higher than the 524K anticipated. However, continuing claims declined 148K to 5.8 million, the lowest since late March. Stubbornly high unemployment (numbers above 5 million are uncomfortable; at 5.8 million they're downright ugly) remains the economy's ghoul, suppressing politicians' glee over the latest economic data, and dampening holiday spirits as the holiday seasons near.

Today's economic posts cover September's personal income (0.0 versus 0.2% prior) and consumption (-0.5% versus 1.3% prior) data, and the University of Michigan's October Confidence Index (70.0 v 69.4 prior). Firms to release quarterly results today include: Chevron (NYSE:CVX), Duke Energy (NYSE:DUK), Sony (NYSE:SNE), and Weyerhaeuser (NYSE:WY).

According to our analytics team, Thursday's sharp rally might have matched the prior day's equally precipitous decline, thereby setting the stage for a modest pullback this morning. 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, Sony (NYSE:SNE) reported weak cell phone sales and reduced PlayStation III console prices generated another quarterly loss, but half of the anticipated loss and about one-third the prior quarter's losses. The firm also noted full-year prospects improved from the company's aggressive cost-cutting measures.

Alcatel-Lucent (NYSE:ALU) reported its twelfth straight quarterly loss of $269 million. The firm expects operating results to break even by yearend.

Duke Energy (NYSE:DUK) reported third quarter results two cents above estimates at 40 cents, as revenues of $3.4 billion missed estimates of $3.8 billion. The company noted, "Industry sales volumes continued to show signs of stabilization."

ITT Industries' (NYSE:ITT) third quarter topped Street estimates by 13 cents, coming in at $1.03 on inline revenues of $2.7 billion, down 6.3%.

Coventry Health Care (NYSE:CVH) reported its third quarter of 68 cents topped estimates by 13 cents, on inline revenues of $3.44 billion, up 17.7%.

Aon (NYSE:AOC), reported third quarter results of 65 cents, a penny miss, on inline revenues of $1.81 billion. The firm set full-year guidance at $3.25-$3.45 versus Street estimates of $3.10.

Constellation Energy (NYSE:CEG) posted third quarter earnings of $1.23, a 16 cent beat, on revenues of $4.03 billion. The firm expects 2009 results of $3.25-$3.45, ahead of Street estimates of $3.10.

Citigroup (NYSE:C) lifted its rating on Toll Brothers (NYSE:TOL) to "buy" while maintaining a $23 price target.

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
----------------------------------------------------------------------
AA         13.00         Uptrend             10.83          7/24/2009
AXP        36.44         Uptrend             26.28          7/15/2009
CAT        57.25         Uptrend             54.15          10/15/2009
CEG        31.13         Downtrend           31.20          10/29/2009
GS         178.58        Downtrend           178.75         10/27/2009

INX -- S&P 500: 1,066
Lo: 1,044 Hi: 1,067
Change: +23.48

http://www.mysmartrend.com/images/INX20091030.jpg

INDU -- DOW JONES: 9,963
Lo: 9,759 Hi: 9,970
Change: +199.89

http://www.mysmartrend.com/images/INDU20091030.jpg

QQQQ -- NASDAQ: 2,098
Lo: 2,071 Hi: 2,101
Change: +37.94

http://www.mysmartrend.com/images/QQQQ20091030.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.

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