Closing Update for Tuesday, August 18: Some Recouping

4:10 PM, Aug 18, 2009 --

• NYSE up 84.77 (1.3%) to 6,436.88.
• DJIA up 82.6 (0.9%) to 9,218.
• S&P 500 up 9.94 (1%) to 989.67.
• Nasdaq up 25.1 (1.3%) to 1956.

GLOBAL SENTIMENT

• Hang Seng up 0.84%
• Nikkei up 0.16%
• FTSE up 0.88%

UPSIDE MOVERS

(+) HD beats with results.

(+) TGT beats with earnings, misses with revenue.

(+) SKS beats with results.

(+) AXP gets analyst upgrade.

(+) GS gets analyst upgrade.

(+) HBC gets analyst upgrade.

(+) PRGO beats with Q4 results.

(+) SVA reports positive results for H1N1 vaccine.

(+) AFN swings to Q2 profit.

(+) OCLS says wound cleanser to be available in US.

(+) NVAX reports positive H1N1 vaccine results.

DOWNSIDE MOVERS

(-) RPRX down on bankruptcy speculation.

(-) GFG down as company says it likely can't continue even with bid extension from regulators.

(-) GERN says IND for spinal cord injury placed on clinical hold by FDA.

MARKET DIRECTION

Stocks joined their overseas counterparts in recouping at least a portion of Monday's sharp drop. Investors looked past some disappointing numbers on housing starts and focused on surprise results from key retailers that soothed concerns over consumer spending for the time being.

U.S. housing starts were flat in July, not quite the improvement that Wall Street economists expected. But single-family permits continued to rise for a fourth straight month.

Separately, July PPI fell 0.9% compared to the Street's view for a 1% drop. Core PPI, excluding food and energy, fell 0.1%, not the 0.1% gain that economists predicted.

Stocks also gained following upbeat commentary from a leading economist.

The global recession is over and a recovery has begun, the International Monetary Fund's chief economist Olivier Blanchard said Tuesday. But he warned that because this global recession has not been typical, the recovery will be slow.

Several analysts are on record Tuesday saying the past days' correction does indicate vulnerability for the broad market's six-month rally.

Stock gains and dollar weakness helped oil futures bounce back nearly 4% after two days of declines. September closes above $69 a barrel, adding $2.44.

Financial stocks were firmer and among the volume leaders following upgrades for American Express (AXP), HSBC (HBC) and Goldman Sachs (GS).

Retail stocks were broadly higher after mostly upside surprises.

Target (TGT) gained after it reports Q2 EPS of $0.79 per share, down from $0.82 per share a year ago but well ahead of the analyst mean of $0.66 per share. Sales were down 2.7% to $14.6 bln, below the Street view of $15.1 bln.

Home Depot (HD) gained after it reports Q2 earnings of $0.66 per share, down from $0.71 per share in the year ago quarter. Excluding the impact from closing its EXPO businesses, earnings were $0.67 per share. The analyst mean on Thomson Reuters was $0.59 per share. Sales were $19.1 bln, down 9.1% from the year ago quarter and just shy of the Street view of $19.23 bln.

For FY09, the company confirmed sales will be down about 9% from FY08. It expects EPS to be flat to up 7% from last year. Adjusted EPS is expected to decline by 15% to 20%.

Saks (SKS) was also higher. It reported a Q2 loss of $0.39 vs a loss of $0.24 in the same period a year earlier. Loss from continued operations was $0.01 vs a comparable loss of $0.23 a year earlier. The Thomson Reuters mean analyst estimate was for a loss of $0.52. Sales were $562 million vs $657 million a year earlier. The Street looked for $563.6 million.

The company guided for a comparable store sales decline for the second half of the fiscal year in the mid-to-high single digit range (with the third quarter weaker than the fourth quarter), resulting in a decline of low double digits for the full fiscal year.

Comments

[Bill L.:]

I think the things to watch to get an indication of this market's direction are the foreign indexes (namely China) and Dollar (UUP). China led the last market top, then bottom, and appears to be lead the US market in now to the down side. The dollar also appears to be strengthening here (as well as some buying interest in the TLT). It's bouncing off some major technical support as well as recovering from oversold conditions. I would be watching it carefully to see if it continues to strengthen, as an new up trend in the dollar would be a negative for the US market.

Aug 18 05:05 PM

[derryl:]

My guess is that we'll see a few days of sideways action now that the "disbelief and profit taking" correction has proved that this market can drop without collapsing. Then the uptrend will continue for maybe a month or two before another weak correction. We could go on like this for a long time.

I think this market is either discounting the real economy or has decoupled from it. As John Lounsbury says, "we're all traders now", seeking trading profits rather than long term dividends from the stocks we buy and sell. So the market can rise even though the economy is flat and corporate earnings show no signs of improvement, dramatic or otherwise. It's all about money coming in vs. profit taking. And it's probably being backstopped by high frequency trading with the blessing of the administration in the interest of reflating at least one asset class.

As retail traders we are too small to move the market or to even be noticed, but we are not too small to lose all our money. So don't be greedy. Don't worry about missing some points of downside or upside. If you can settle for modest profits you can make decent money in this kind of market.

Awhile back there was a SA article interviewing a couple of old sisters who had made millions in equities over decades. When asked their secret they said without hesitation, "12%". They always sold when they could make 12%. That sounds wise.

Aug 18 07:10 PM

[oilsands:]

Thanks very much, Derryl. Realistic, sensible comments.

Aug 19 11:50 AM

[leesbillbob:]

12% Maybe I should learn........

Aug 20 03:23 AM