Comtex SmarTrend(R) Morning Call -- February 2, 2010
Feb 02, 2010 (SmarTrend via COMTEX) --
Companies: D.R. Horton, Inc. (DHI), Exxon Mobil Corp. (XOM), Ford Motor Co. (F), Marathon Oil Corp. (MRO), Walt Disney Co (DIS)
Stocks bounced up Monday as investors were cheered by better-than-expected reports on personal income, manufacturing and bellwether ExxonMobil's (NYSE:XOM) quarterly profit beat. For the second day in a row, the DJIA got its nose up over resistance at 10,175, and this time closed above that level at 10,186, 118 points higher for the day. Several SmarTrend(R) indicators headed up; but confirmation that a multi-day rally has started still must wait for three of four near-term trend indicators to rise together.
A continuing stock rally has been premised on Federal spending of future dollars one way or another for the last year. In effect the government has perpetuated the multi-individual credit gluttony of the American populace for three decades by spending beyond its means as a collective entity. Investor fears that this borrowing from future generations would soon stop has in no small measure created stock market jitters over the past month. Even though earnings reports and economic data suggest an economic recovery is in progress, many see this as the result of corporate cost cutting and anemic revenue growth. Thus, the notion holds that if government stimuli cease, the economy will recede again, and this will be presaged by a stock market correction of 10-15% as compared to the near 7% down move endured in the last two weeks. Yesterday many of those fears were assuaged when the White House produced another spending-spree budget, and characterized it as deficit trimming and jobs stimulating. The former misrepresented the facts, and the latter was a sign of a reset of policy direction to deal with what many feel truly ails the American economy; both good for the stock market. This was reflected in the daily SmarTrend(R) uptrends to downtrends which diminished in bias to the downside, registering 12:104. This performance caused the IBDI to perk up for the first time in two weeks, and the Trend Ratio to slow its descent. Thus, the intermediate-term uptrend began to awaken, and if it continues upward together with the long-term uptrend, this should rejuvenate a shallowly up-investing environment into heavier lifting of stocks again this month. It will help confirm this premise if the DJIA can rise above 10,225 and keep rising.
Critical to confirmation is that the trading environment has begun a rally, although it is the continuing requirement that three of four near-term trend indicators head north simultaneously from their oversold zones. Both the NBDI and NBDV started up that road yesterday, and the SmarTrend(R) Ratio and NBDX appear to be gearing up to move upward also, but two does not equal three. The momentum needed by the near-term trend indicators will develop when it is ready, and investors are advised again to wait for those signals to occur.
This morning the trade-term trend rally, which started yesterday, is expected to continue in a mild uptrend as investors wait to learn about auto and home sales. Probably most important to momentum building, or curtailment, today will be the testimony of Paul Volker in Senate hearings. Last night rumor had it that the restrictions on bank proprietary trading proposed by the White House would be scrapped and that would be made evident today. But others have a long memory of a prior era when Paul Volker did not hesitate to use a meat cleaver policy at the Fed to stem the tide of inflation. This is important because banks represent the lion's share of profits reported for the third quarter of fiscal 2010. Take away banking results, and the top line of corporate America grew only 2% over the same quarter a year ago. These and related issues are discussed below. At the moment the market finds itself at a pivot point, represented by the DJIA having reached 10,175. Signs continue that a rally to DJIA 11,000 is still in the cards, although recent events have postponed the expected multi-day rally on several occasions. Yesterday's bounce up was good news for beleaguered buyers, but not good enough yet to warrant diving into the market headfirst. To examine the complete list of stocks changing trends in the last week and/or hear a podcast of this report, please click on http://www.mysmartrend.com.
Risk sentiment had soured in January, engendering a near-7% correction in the S&P500 from the 15-month highs of January 19. February, however, witnessed a correction in the bearish sentiment, sending S&P500 share prices 1.4% higher on Monday, as strong global economic data weakened fears of a double-dip recession, and earnings continued to post above analysts' expectations and last year's dismal returns.
Strength in natural resource plays drove equity markets higher, even as all ten S&P industry sectors climbed during the session. The broad-based DJ-UBS commodity index rose 1.2%, as gold prices reversed their recent descent, climbing $21.20, or 1.9%, to $1104.30, and crude prices also turned higher, up 2.1% to $74.43. Investor skittishness eased, as indicated by an 8.3% decline in the CBOE Vix, "fear factor" index, to 22.59. Volume, however, held low at 1.038 billion shares, suggesting underwhelming confidence in the market's turn, even as advancing shares outpaced declining issues by a four-to-one margin.
Monday's session witnessed a triple-digit, 118-point rally in DJIA shares, with NASDAQ up 1.1% to 2171, and the S&P500 up 1.4% to 1,089. Today's premarket futures suggest further gains, but caution may reign as signs for a groundhog retreat to winter market doldrums are feared.
Only two of the DJIA thirty components closed lower on Monday, with shares of 3M (NYSE:MMM) and Disney (NYSE:DIS) both off a modest 0.1%. Alcoa (NYSE:AA) led on the upside, with gains of 5.0%, followed by a 3.2% advance in DuPont (NYSE:DD), reflecting strength in material stocks. ExxonMobil (NYSE:XOM) shares rose 2.7%, lifting Chevron (NYSE:CVX) 2.0%, as its fourth quarter topped estimates at $1.27 compared to projections of $1.19, despite refining losses and a 23% overall profit decline. Tech shares (+1.6%) rallied on numerous ratings upgrades, with the semiconductor industry outlook lifted, as well as individual upgrades issued on Research in Motion (NASDAQ:RIMM) and Oracle (NASDAQ:ORCL).
While recent share price declines may have provided attractive entry points for investors, the market appears equally focused on global policy and growth viewpoints, as well as political policy measures at home. And yesterday saw the Volker rule suffer a negative response from Senator Richard Shelby, a ranking Senate Banking Committee member, raising doubts of its ultimate passage. Today Volker testifies before the Committee, perhaps adding little more to sentiment expressed in Sunday's op-ed piece in the NYT. Geithner will also testify on the Hill, as he presents Obama's budget plan before the Senate Finance Committee.
The problems of escalating deficits worldwide, offering onerous debt legacies of rollover risks, currency freefalls, and a long road home, have heightened market awareness of the shift in credit risks from individual and corporate shoulders to government backs. With the "too large to fail" mentality now questioned even in terms of country credit woes, the deficit issue looms large for Obama, as he releases a current year deficit expected to hit a record $1.6 trillion, even though US credit ratings have yet to be in jeopardy. This morning's surprise announcement from the Australian Central Bank to hold interest rates steady at 3.75% versus an expected hike to 4.00%, also included its concerns over China monetary tightening and escalating sovereign debt issues.
Nevertheless, Monday's reports on domestic manufacturing and income provided much to cheer about at home, even as a bulging federal deficit promised future pain. The ISM manufacturing index rose to a five-year high in January, signaling expansion for the sixth straight month, climbing to 58.4, well above expectations for 55.5 and 54.9 prior. Strength in inventory building sent production levels to their highest since April 2004 as new orders climbed to their highest since August 2004.
Personal income increased for the sixth straight month in December, as personal spending grew for its third. Income rose 0.4%, ahead of 0.3% estimates, equaling November's rise. Spending was softer than expected, holding steady during the month and missing projections of a 0.3% gain. Construction spending disappointed, falling 1.2% in December, a faster pace than the 0.5% drop expected, versus a 0.6% decline prior.
Today's calendar is largely devoid of high-risk events, with focus likely on pending home sales and vehicle sales. A leading indicator of housing activity, December pending home sales are expected to post another drop - albeit at a slower pace than November's 16.0% fall - with a decline of 1.1% anticipated. The API industry-sponsored crude oil inventory report is expected out at 2:30 PM ET, and may presage Wednesday's government release of crude stockpiles. Also reporting are counts of vehicle sales for January, expected to indicate market share gains for Ford (NYSE:F) and General Motors (NYSE:GM) on the back of Toyota's (NYSE:TM) recent, pedal-driven recall. Consensus estimates call for a drop in January vehicle sales to 8.50 million from the prior month's 8.63 million level.
Meanwhile, interims will continue apace. Releases are expected from Cummins (NYSE:CUM), D R Horton (NYSE:DHI), Emerson Electric (NYSE:EMR), Marathon Oil (NYSE:MRO), MetLife (NYSE:MET), News Corp (NYSE:NWS), Pepsi Bottling (NYSE:PBG), Dow Chemical (NYSE:DOW), UPS (NYSE:UPS), and Whirlpool (NYSE:WHR).
According to our analytics team, the market finds itself at a pivot point, represented by the DJIA having reached 10,175. Signs continue to suggest a DJIA rally to 11,000 is still in the cards; however, recent events have postponed the expected multi-day rally on several occasions. Yesterday's bounce was good news for beleaguered buyers, but not yet good enough to warrant diving into the market headfirst. To examine the list of stocks changing trends in the last week, please click on http://www.mysmartrend.com.
In the corporate corner, Bank of America (NYSE:BA) upgraded ExxonMobil (NYSE:XOM) to "buy" from "neutral," with a price target of $82.
Bernstein initiated coverage of Visa (NYSE:V) and MasterCard (NYSE:MA), both with "outperform" ratings, and price targets of $104 and $325, respectively.
Citigroup (NYSE:C) upgraded Alcoa (NYSE:AA) and Freeport-McMoRan (NYSE:FCX) to "buy" from "neutral," with Alcoa's price target held at $17, and Freeport-McMoRan's lifted to $95 from $85.
Emerson Electric (NYSE:EMR) posted first quarter earnings of 56 cents, topping estimates of 42 cents versus 60 cents a year earlier on revenues of $5 billion, which bested projections of $4.7 billion. The firm provided guidance of $2.20-$2.40, ahead of Street estimates of $2.15.
Dow Chemical (NYSE:DOW) beat estimates with fourth quarter interims of 18 cents, ahead of estimates of 11 cents versus a 62 cent year-ago loss, on revenues of $12.5 billion, ahead of estimates for $11.8 billion.
Whirlpool (NYSE:WHR) posted better-than-expected fourth quarter results of $1.64 ex-items, which topped projections of $1.32 versus 60 cents a year ago, on revenues of $4.86 billion, besting estimates of $4.44 billion.
Archer Daniel Midlands (NYSE:ADM) reported fiscal second quarter earnings of 88 cents, beating estimates of 72 cents, on revenues of $15.9 billion, which missed projections of $16.5 billion.
Boeing (NYSE:BA) orders are likely to trail 2010 deliveries with demand not expected to rise until 2012. However, the firm is on track to make its first 787 Dreamliner delivery to Japan's All Nippon Airways by yearend.
Rio Tinto (NYSE:RTP) was upgraded to "buy" from "hold" at Citigroup (NYSE:C).
UPS (NYSE:UPS) posted fourth quarter results 2 pennies above estimates at 75 cents versus 83 cents a year earlier on revenues of $12.38 billion, ahead of estimates for $12.22 billion. Guidance for the year was set at $2.70-$3.05; Street estimates equaled $2.80.
By Chip Brian, Editor-in-Chief, Comtex news Network
www.Comtex.com -- editor@mysmartrend.com
The following equities mentioned above include:
Comtex SmarTrend Alert
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Ticker Last Close Trend Direction Trend Price Trend Date
----------------------------------------------------------------------
DHI 11.91 Uptrend 11.16 12/23/2009
DIS 29.52 Downtrend 30.33 1/22/2010
F 11.12 Uptrend 7.96 11/9/2009
MRO 30.65 Downtrend 30.91 1/25/2010
ORCL 23.22 Downtrend 23.41 1/29/2010
INX -- S&P 500: 1,089 Lo: 1,074 Hi: 1,089 Change: 15.31
http://www.mysmartrend.com/images/INX20100202.jpg
INDU -- DOW JONES: 10,186 Lo: 10,069 Hi: 10,191 Change: 118.20
http://www.mysmartrend.com/images/INDU20100202.jpg
QQQQ -- NASDAQ: 2,171 Lo: 2,152 Hi: 2,171 Change: 23.85
http://www.mysmartrend.com/images/QQQQ20100202.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. 2010
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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Companies: D.R. Horton, Inc. (DHI), Exxon Mobil Corp. (XOM), Ford Motor Co. (F), Marathon Oil Corp. (MRO), Walt Disney Co (DIS)
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