Comtex SmarTrend(R) Morning Call -- November 5, 2009

Stocks rallied yesterday before and after the Fed announced an "extended period" of near-zero interest rates; but in the last hour of trading concerns set in regarding the Fed's reasons for holding interest rates down, and much of the days gains were given back. Nevertheless, the DJIA managed to close up 30 points to nose above 9,800. The SmarTrend(R) indicators signal the near-term rally expected to begin today has done so.

There were two flies in the Fed ointment yesterday. One was the indication by the Fed that it would be buying less federal mortgage paper than previously planned. A high percentage, ranging to and above 75%, of home mortgages are financed by federal agencies, and thus a reduced purchase of the consolidated loans by the central bank was interpreted as a bad sign for the real estate recovery. Second, the Fed's explicit reason for holding the interest rate near zero reflected concern that lingering high unemployment was contributing to a slow recovery of consumer spending and would lead to a "muted" economic recovery. The unemployment news out this morning will do very little to alleviate these concerns. The Fed Chairman stated that the U.S. recession, recently ended, has created a legacy of high unemployment and idled manufacturing, expected to keep price pressures, thus inflation, in check, even while the Fed was expressing confidence in an economic recovery. With all of these mixed messages, the daily SmarTrend(R) uptrends to downtrends still turned up on schedule and registered 41:20 on Wednesday. This, in turn, caused the IBDI and Trend Ratio both to perk up, and the intermediate-term uptrend began to stir from its recent two-week slumber. For the next two weeks it is expected to add some lift, along with the continuing long-term uptrend, to the investing environment.

A positive investing environment is one half of the signal needed to provide fertile opportunities for long stock buying. The other half is the trading environment. Yesterday its near-term trend indicators signaled a near-term rally is commencing. Three out of four near-term trend indicators, the NBDX, NBDV and SmarTrend(R) Ratio, climbed out of their oversold zones and appear headed north. The NBDI is still oversold but also is climbing. With a little help from the trade-term trend, look for the trading environment to create a lift to take the DJIA back up above 10,000 and the S&P500 above 1,100.

However, the help needed from the trade-term trend may be slow in coming as well as sputtering in nature. The sell-off occurring an hour after the Fed announcement yesterday was sharp and swift; the DJIA lost 100 points from 3PM to close at 4PM. That trade-term downtrend is expected to persist for a while this morning, although much slower in its descent. The market is expected to right itself later in the day, but not rally in earnest before Monday. This scenario could change as news events will encourage, and/or spook, already-anxious market participants. The potential impacts of these issues are discussed below, including Cisco's results, chain store sales report today, and the health care sector rally, which resulted from election results Tuesday that are likely to slow health care reform legislation. Nevertheless, a shallow but bumpy rally has commenced and is expected to gather momentum next week. To examine the list of stocks changing trends in the last few days, please click on http://www.mysmartrend.com.

Equity markets lost traction on its knee-jerk reaction to the mid-afternoon release of the Fed's policy statement. Up 156 points earlier in the session, the DJIA slid into home base, closing up only 30 points at the close, for a 0.3% rise to 9802. Meanwhile, the S&P500 finished the day up 0.1% at 1046, while the NASDAQ finished 0.1% lower at 2055. Still on its upward run, gold prices, reflecting their inflation-hedge status, hit an intraday record high of $1098.50, closing up $2.40 to $1087.30. Meanwhile, the US dollar moved lower against a basket of currencies, off 0.5%. NYSE trading activity slowed to 1.35 billion shares as advancing shares ran ahead of decliners by an 8 to 7 margin.

Diminished stomachs for upcoming risk events, such as Friday's employment report, have weighed on this morning's futures, despite bullish commentary from Cisco (NASDAQ:CSCO) CEO Chalmers after yesterday's close as the firm reported better-than-expected quarterly sales and earnings, and upped its current quarter revenue guidance. Weekly jobless claims are expected to slip to 523K from 530K prior, but go unnoticed against the larger picture of Friday numbers. Retail stores are expected to post a positive swing in October results, with a 1.2% rise anticipated, and may prove supportive of hopes for consumer demand strengthening. Both the ECB and BoE interest rate decisions are due, expected to hold rates steady, leaving interest to statements on the Bank of England's quantitative easing plans and the European Central Bank's exit strategy timetable.

Key to Wednesday trading action, the Fed announced plans to maintain rates low for an "extended period," but this time referred to basic causes of "low rates of resource utilization, subdued inflation trends and stable inflation expectations." Noting "economic activity has continued to pick up," and "household spending appears to be expanding," policymakers also noted weakness from the pace of job losses, weak incomes and housing as well as tight credit. Expecting economic activity to remain weak for some time, policymakers pleased investors with news that a premature exit strategy was not in the works, but in doing so offered a reminder that the current recovery still lacks strength to stand on its own legs. The subsequent announcement of next week's refunding auctions of $40 billion 3-years, $25 billion 10-years and $16 billion 30-years sent Treasuries lower, as the 10-year fell 14/32 in price and its yield rose to 3.52%.

The day's economic messages also came in mixed, still suggesting a recovery in place, but at a rate less robust than some had expected. Clues to tomorrow's nonfarm payrolls report, the two employment posts, brought positive news. Challenger Gray reported the number of planned layoffs had slowed to 55,679 in October, a 16% fall from September levels. And ADP noted private sector job cuts of 203K in October, while topping estimates of 198K, reflected a drop from September's revised-lower 227K.

The ISM service sector release marked its second straight month of expansion following eleven straight months in contraction territory. However, the index' drop to 50.6 in October from 50.9 the prior month missed estimates of an increase to 51.5, and demonstrated the stark contrast between service sector recovery and the more robust rebound in manufacturing and export activity. Earlier in the week the ISM manufacturing report noted its sharpest advance since April 2006.

Politics also entered the fray of risk analysis as health care shares Wednesday rose 1% to top gains within the S&P500 industry sectors. Results showing new Republican gubernatorial wins were interpreted as votes against President Obama's healthcare initiative, likely to result in further delays to changes to the healthcare program. The Senate unanimously voted to extend jobless benefits and broaden homebuyer tax breaks, with the Congress expected to vote before week's end. Housing shares finished higher, with Pulte Homes (NYSE:PHM) up 3.5%, Lennar (NYSE:LEN) up 3.4%, and DR Horton (NYSE:DHI) closing up 3.2%.

Meanwhile, financial shares lost ground, down 1.4%, despite the Fed's removal of the onus of low rate rationale from the group's shoulders onto the back of the fragile recovery. According to banking analyst Meredith Whitney, bank earnings are far from approaching "normalcy," and will reflect regulatory changes for a protracted period of time.

According to our analytics team, shares are likely to continue trading lower this morning, in a less precipitous fashion than yesterday's late sell-off, before stabilizing later in the day. However, we do not anticipate a turn before Monday, when a shallow, although bumpy, rally is expected to begin. 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, Cisco Systems (NASDAQ:CSCO) reported better-than-expected fiscal first quarter results of 36 cents adjusted versus 37 cents a year ago, topping estimates of 31 cents. Revenues of $9 billion, though off last year's $10.3 billion, exceeded projections of $8.75 billion. Current quarter revenue guidance was lifted to 1%-4% growth from a year ago to $9.9 billion-$10.2 billion, ahead of estimates of $8.98 billion. CEO John Chambers said the numbers "continued to reflect strong sequential growth trends," as he noted an improving economic outlook.

Toyota Motor (NYSE:TM) reported a surprise quarterly profit and halved its annual loss estimate as both its revenue and cost-cutting expectations topped estimates after vehicle demand grew in the US and Asia. The company now anticipates a $2.2 billion loss for its fiscal year ending March.

Costco Wholesale (NASDAQ:COST) reported same-store-sales rose 5% in October, topping estimates of 4.7% gains, as a weak dollar boosted international results.

Hyatt (NYSE:H) priced 38 million shares at $25, on its IPO.

Dr. Pepper Snapple (NYSE:DPS) reported third quarter results of 54 cents up from estimates of 49 cents on inline revenues of $1.4 billion.

CVS Caremark (NYSE:CVS) reported earnings of 65 cents, one penny above estimates, on inline revenues of $24.6 billion.

Time Warner Cable (NYSE:TWC) reported third quarter earnings of 76 cents, one cent higher than expected on inline revenues of $4.5 billion.

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
----------------------------------------------------------------------
CSCO       23.29         Uptrend             19.95          7/16/2009
DHI        11.57         Uptrend             12.46          10/22/2009
LEN        13.54         Uptrend             15.20          10/14/2009
PHM        9.55          Downtrend           11.37          9/25/2009
TM         79.46         Uptrend             79.99          10/13/2009

INX -- S&P 500: 1,047
Lo: 1,045 Hi: 1,061
Change: +1.09

http://www.mysmartrend.com/images/INX20091105.jpg

INDU -- DOW JONES: 9,802
Lo: 9,767 Hi: 9,928
Change: +30.23

http://www.mysmartrend.com/images/INDU20091105.jpg

QQQQ -- NASDAQ: 2,056
Lo: 2,053 Hi: 2,081
Change: -1.80

http://www.mysmartrend.com/images/QQQQ20091105.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

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