Volume Tapers Off as Traders Become Defensive

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Includes: AMZN, AVGO, DIA, GLD, MSFT, QQQ, SPY, UDN, USO, UUP, XLK, XLU, XLV
by: Bill Cara

[Excerpted from Bill Cara's Daily Report]

Trade volumes fell off and stock buyers reverted to a defensive position as Healthcare and Utilities (XLV +1.8%, XLU +1.6%) took the lead, while Tech and Financial sectors (XLK -0.6%, XLF -0.6%) went negative in the US equity market on Friday. Microsoft (MSFT -8.26%) and Amazon (AMZN -7.86%) disappointed, taking some of the wind out of the sails of the bullish money managers who had been chasing prices higher for a couple weeks.

At the closing bell, the S&P 500 (979.26 +2.97 +0.30%), the DJIA (9,093.24 +23.95 +0.26%) and the NASDAQ Composite (1,965.96 -7.64 -0.39%) were not particularly strong.

Among the leading industries, the winners were Airlines ($XAL +4.6%), Biotech ($BTK +2.4%) and paper. Semi-conductors ($SOX -1.3%) were a loser, led south by Broadcom (BRCM -6.79%), which had been on quite a two-week run-up. Broadcom’s quarterly report, like Microsoft and Amazon’s was quite disappointing

The following comments on Thursday by the CEO of Cohu, Inc may have been taken negatively in some circles, but COHU shares rocketed following Cohu’s results and guidance.

"Conditions in the semiconductor equipment industry remain as difficult as we have ever seen. Semiconductor equipment is a cyclical business and industry veterans have been through downturns before, but this one is different because the scope of the economic decline are global in nature and encompass all insustries."

He continued, "Sales for the worldwide semiconductor equipment industry are expected to decline 52% in 2009. This follows a 31% drop in 2008. While there is no doubt that 2009 will be a second consecutive down year for the industry, many question if we have reached a bottom. In the test & assembly area, recent evidence suggests that we have. After reading an industry low in February, orders for back-end equipment have increased four consecutive months. Preliminary June orders are up 400% from February, but they are still down 52% from June 2008 levels."

Volume pulled back, and noteworthy was the fact that the higher volume traders that remained were about evenly split between gainers and losers.

In the Canadian equity markets Friday, the Toronto Composite (10,687.90 +12.22 +0.11%) and Toronto Venture bourse (1,143.95 +6.16 +0.54%) were modestly bullish. The Cdn Loonie gained another +18 basis points (92.01 +0.18 +0.20%).

Friday mid-day in the UK, there was a GDP report that was worse than expected and even though the FTSE 100 index closed higher on the day (4,576.61 Jul 24 +0.37%), there was a sell-off after the economic data was released. The French CAC (3,366.45 Jul 24 -0.22%) and German DAX (5,229.36 Jul 24 -0.34%) closed lower on the day and also were both weaker following the UK news, taking them from winners to losers.

The $USD (78.75 -0.31 -0.39%) gave back Thursday’s gain, losing -50bp on the week. The Yen (105.38 +0.05 +0.05%) was flat after a loss of -2.2% over the prior two days. The Pound (164.11 -0.65 -0.39%) dipped after the bad GDP number, whereas the Euro (142.01 +0.54 +0.38%), gained back some of the prior day’s loss.

The Crude Oil price was higher ($WTIC 68.05 +0.89 +1.33%) following a real strong Thursday and was up four days this week.

The US long bond ($USB 116.09 +0.47 +0.41%) recovered a bit after two days of big losses. The bond was still down well over -1 point on the week. Treasury yields for 30-year (4.555 -0.44 -0.96%), 10-year (3.670 -0.39 -1.05%), and 5-year (2.547 -0.29 -1.13%) weakened.

The Treasury bill yield remained at 0.180 for the fourth straight day.

Earlier Friday, Austral-Asian markets were strong across the region with Japan’s Nikkei 225 (9,944.6 +1.55%), China (3,372.6 +1.33%), Hong Kong (19,982.8 +0.83%), Australia (4,097.3 +0.61%) and India (15,379.0 +0.97%) all moving higher.

$GOLD (951.50 +2.70 +0.28%) recovered a bit to match Wednesday’s price, but the precious metals market has been very tight this week. At the close, Spot gold, palladium, platinum and silver were looking up: (950.60 +1.80 +0.19%); (256.5); (1179.5); and (13.860 +0.1900 +1.39%), respectively. Silver was a tad stronger.

The DJIA futures (9058 +67 +0.74%) were stronger than in the morning.