Stock Market Summary for February 19th 2008

In my pre market report I discussed that the futures were up with no solid reason to substantiate the advance. And we expected to see the rally fade, and fade it did. The markets inability to hold on to gains reinforces the bear market mentally that is so prevalent in the market. In bear markets rallies are sold, in other words "sell on strength".

One of the reasons we saw the gap open higher this morning was on the thought that Wal-Marts earnings were perhaps showing that the consumer still had a pulse and was on the road to recovery (as how the media reported it). As I pointed out in my pre market report Wal-Marts earnings were nothing great, only in line with their already lowered forecast and they went as far as to provide forward guidance on the lower end of the scale of their previous guidance. Absolutely nothing to get excited about, however the media jumped all over it. The Associated Press reported:

Wal-Mart Expects More Profitable Year After Low-Price Focus Boosts 4th-Qtr Earnings

Defying the gloom that many retailers are feeling, Wal-Mart Stores Inc. expects a more profitable year selling to penny-pinching shoppers after its renewed focus on low prices paid off over the holidays with a 4 percent rise in fourth-quarter profit.

 

But when you dig into the numbers from this morning there was nothing to get excited about. Wal-Mart, just like so many other retailers that have been lowering their forward earnings guidance. So when Wal-Mart came in with earnings ‘in line’ people got excited over nothing more than a company confirming that earnings were just as bad as the company had predicted when they issued guidance last quarter. The media seems to have a very short memory. After the market opened the retail sector (RTH) gapped up at the same time the media was reporting that "all the bad news is now baked into the stocks". "Baked in", a common term you hear on Wall Street which simply means that the price of a stock is already priced at a worst case scenario and not even bad news can keep it down any longer. Well I guess someone took the pie out of the oven too soon because the retail stocks still went lower, even when everyone was saying it was done. The retail sector sold off throughout the day and ended down 1.2%. So much for all the bad news being baked in.. Whenever you hear someone tell you that you need to buy a stock because "the bad news is already baked into the price" you should run, and run fast in the other direction.

The chart below is an intra-day chart of the Retail Holders Index (RTH) for today.

 

 

 

 

 

 

 

 

 

Financial stocks are another sector that has been touted as having all the bad news baked into the prices now. But, just like the retail sector today the financial sector also sold off. I have become very displeased with CNBC for their blatant ‘pumping’ of stocks by bringing on people who have positions in various stocks and/or sectors and they say how great a bargain they are now. Then to only see them continue lower in the following weeks. Except for a few smart and intelligent reporters on CNBC they have turned into the TV version of the Yahoo message boards. CNBC… shame on you!

As I said this morning we are holding our short position on the Dow Jones Industrial Average and that has not changed. That trade has worked well and we are going to keep it until the price stops us out (at break even) or we reach the lows reached back in the middle of last month. If we reach those lows on the Dow we are likely to see a battle of greed and fear and thus we will form some support at that region which would be a great time for us to take our profits from the trade. At that time we will determine our next play on the market. But even if the Dow reaches those previous lows again and it bounces we will still be in a bear market. As a matter of fact until further notice… we are still in a bear market.

Oil hit $100 dollars again. It really does not matter if oil is at $85, $90, or if it surges past $100. What matters is the average cost of oil, and the average has been rising over the past year and it is the average that plays an impact on our gasoline costs and heating bills. The longer the average oil price remains high the greater the impact will be on inflationary data. And inflation is what will continue to weaken the US economy even further.

Tomorrow we will get the Consumer Price Index and the FOMC minutes from their last meeting on January 29-30. Both of these events will likely have some wild impacts on the market tomorrow. Everybody is back to talking about more rate cuts from the Feds, the increasing inflation data (which does not even include the recent rise in oil) is going to impact the Feds even further.

In the after hours trading on Hewlett-Packard (HPQ) I saw a lot of selling on the strength. If we see HPQ pull back after their good earnings report we will know that nothing matters at all, good or bad earnings people just want to cash out. We will watch to see how they trade tomorrow.

Stock Market - Pre Open Report for February 19th 2008

Pre Market futures are up, but from what I am seeing thus far is that the advance in the futures is on weak volume. Not seeing a bullish rally here based on what I see so far and I would not be surprised to see the rally, if this is what it turns into to be faded quickly.

We are still short on the DOW by being in the Ultrashort symbol: DXD. See our post from February 13th for details of our trade. We are sticking with this plan and are using our entry price as our stop loss should any rally attempt try to take out that resistance level. However, this does not change our longer term view and we will quickly re-enter this short position of the DOW by taking a stand at the next resistance level.

There is not much of any substance this morning to justify the advance in the pre market futures. Wal-Mart had reported earnings this morning and were basically in-line with what they said they would have last quarter, no big surprise. And more importantly nothing great with respect to forward guidance. Wal-Mart earnings shown below…

REPORTS Q4 $1.04 (EX CHARGES) V $1.02E, R $106.3B V $106.8BE; GUIDES AT THE LOW END OF ESTIMATES
- Guides Q1 EPS $0.70-0.74 v $0.74e.
- Guides FY09 EPS $3.30-3.43 v $3.43e.
- Reports Q4 SSS ex-fuel +1.6%
- EPS items (+0.02 net add) included charges of $0.03 for approximately $70M in after-tax expenses for dropped U.S. real estate projects and an after-tax restructuring charge of $32M in the Company’s Japan operations, and a $0.01 benefit from the recognition of approximately $38M in after-tax gains from the sale of certain real estate properties.
- Customers more cautious in January spending

Anyone who views these numbers as being bullish may be in for a surprise down the road. Some say that if you build a better mouse trap customers will come, perhaps retails establishments are finding a way to create a better "bull trap". We shall see.

Bond insurers are yet again the topic De Jour. The CEO of MBIA has quit his position over the weekend and replaced with a former CEO, NY Insurance Commissioner Eric Dinallo is making statements that he hopes a resolution will be implemented soon. And on the rumor mill MBIA is believed to be working on a plan to divide the company into two parts, the good stuff, and the poison. Will this satisfy the ratings agencies? Can’t say… But if I were working at Moody’s or S&P it would not impress me.

So at this moment we are anticipating a higher open out of the gate. Lisa and I will be watching volume levels on the upside and downside throughout the day for clues into the strength, or lack thereof in today’s actions.

Oil is now approaching near $100 US dollars yet again and Gold is on another bullish rally upwards. A bit if a strange combination but with oil rising again this will only add to fuel costs in the near term and we will shortly be seeing higher gas prices yet again. Oil breaking $100 a barrel will send bulls into a slight shock as they reevaluate their positions given the circumstances of increasing commodity prices. Inflation is alive and well in the United States.

Stock Market Report - Pre Opening - February 7th 2008

Weakness in the market continues to be the theme. Last night’s Cisco (CSCO) numbers and weak guidance has the Nasdaq selling down significantly in pre market. Other companies that share the sector, and even some distant cousins of the sector are also being hit with people selling out. Apple extends their losses further this morning before the open and is now trading around $119. Hard to tell at this point if any bounce today in tech stocks will hold or not, but I have to say that trying to guess a bottom is nothing but asking for trouble. I am NOT a buyer of any tech related companies here.

The chart below is a weekly chart of the Nasdaq. Notice that we are very close to a significant trend support area. I expect to see some buyers of the Q’s (QQQQ) if the Nasdaq reaches the trend line. The question is if it will hold or not. If the Nasdaq were to close below the trend line I identified on the chart it will have significant bearish implications for the Nasdaq for it will have fallen out of a trend that was in place for 3 years.

 

 

 

 

 

 

 

 

 

(clicking on the chart will take you to a dynamic chart with 20 minute delayed data)

Retail sales have been pouring in this morning and the overall consensus has been weak sales growth. Wal-Mart (WMT) being the biggest this morning with lower sales (again). Some bright spots in the retail sales but the overall picture is weak. Macy’s (M) is laying off 2,300 employees.

The Bank of England lowered their interest rates by 25 basis points and the European Central Bank left theirs unchanged.

Initial jobless claims came in as well this morning and the continuing claims (the more important number) continues upward which presents us with further evidence of a deteriorating job market.

WalMart and Home Depot