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Bad Data, Good Action...

Daily State of the Markets 
Wednesday Morning – August 4, 2010

There are many different strategies traders employ in their attempt to outfox Ms. Market on a daily basis. One of the more popular approaches is to try and gauge the action in the market relative to the news. This is the premise behind the cliché, "it's not the news, but how the market reacts to the news that matters." And although stocks were lower yesterday, the "action" was pretty good, all things considered.

Another way to look at it is to say that the bears had plenty of data points to work with yesterday and that the table was set for a decline. As such, the fact that the Dow managed to give back a measly 38 points has to be considered good action.

After Monday's big pop to the upside, we have to recognize that the market was overbought from both a short- and intermediate-term time frame and thus, some profit-taking was to be expected. In addition, the technical picture presented a tale of two markets with both the Dow and S&P appearing to have broken out to the upside while the NASDAQ, Russell 2000, and Midcaps continue to be stuck in a trading range. Therefore, this situation could have easily led to the dreaded "breakout fakeout" on some bad news.

And bad news is what traders got on the economic front yesterday. In addition to an awful lot of chatter about the FOMC changing course (albeit just symbolically) , traders were treated to less than inspiring reports on Personal Income and Spending, Pending Home Sales, and Factory Orders. Had this triumvirate of bad news come out a month ago, stocks would have tanked. However, despite the market appearing to be set up for a pullback, the selling was light and the technical action was pretty darned positive.

So, as we've been saying recently, it appears that the environment has indeed improved now that the idea that the economies of the world are about to stop on a dime has been pushed to the back burner. The short-term trend is higher, the intermediate-term trend is now neutral, and the correction appears to have ended. All in all - not a bad situation. Sure, things are likely to remain tricky and news-driven. But it sure beats the doom-and-gloom of a month ago, eh?

Turning to this morning... despite some soft data out of Europe and some conflicting data on jobs, the pre-game indicators are pointing northward at the present time.

On the economic front... Challenger says that planned job cuts were up again in June (the third consecutive monthly increase). However, ADP reported that the private sector job market expanded for the fifth straight month in July. The report shows that private sector jobs grew by 42,000 jobs during the month, which was a bit above the consensus expectations for a gain of about 28.3K.

Finally, remember to think positive today...

Pre-Game Indicators

Here are the important indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: -0.58%
       
    • Shanghai: +0.44%
       
    • Hong Kong: +0.43%
       
    • Japan: -2.11%
       
    • France: -0.11%
       
    • Germany: -0.28%
       
    • London: -1.10%

     

  • Crude Oil Futures: + $0.05 to $82.60
     
  • Gold: + $11.60 to $1197.70
     
  • Dollar: higher against Yen, lower vs. Euro and Pound
     
  • 10-Year Bond Yield: Currently trading lower at 2.90%

     

  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +3.89
       
    • Dow Jones Industrial Average: +32
       
    • NASDAQ Composite: +5.84

       

Wall Street Research Summary

Upgrades:

  • Leap Wireless (LEAP) - AURIGA
     
  • MetLife (NYSE:MET) - BofA/Merrill
     
  • Barnes & Noble (NYSE:BKS) - Goldman Sachs
     
  • Parexel (NASDAQ:PRXL) - Added to Conviction Buy at Goldman

     

    Downgrades:

  • FirstEnergy (NYSE:FE) - FBR Capital
     
  • Dow Chemical (DOW) - Goldman Sachs
     
  • American Electric Power (NYSE:AEP) - Goldman Sachs
     
  • Eli Lilly (NYSE:LLY) - Jefferies
     
  • Emulex (NYSE:ELX) - Jefferies
     
  • Burger King Holdings (NYSEARCA:BKC) - RW Baird
     
  • Parker-Hannifin (NYSE:PH) - Wells Fargo

     

    Earnings After the Bell

    Company

    Symbol

    EPS
    Reuters
    Estimate
    Americredit ACF $0.61 $0.42
    Anadarko Petroleum APC $0.49 $0.37
    CBS Corporation CBS $0.25 $0.21
    Chesapeake Energy CHK $0.75 $0.69
    Electronic Arts ERTS -$0.24 -$0.35
    Harris Corp HRS $1.24 $1.23
    Molex MOLX $0.39 $0.38
    ONEOK Inc OKE $0.39 $0.31
    Pitney Bowes PBI $0.48 $0.57
    Priceline.com PCLN $3.09 $2.65
    Unum Group UNM $0.69 $0.67
    Whole Foods WFMI $0.38 $0.37
    XL Capital XL $0.71 $0.64

    Earnings Before The Bell

    Company

    Symbol

    EPS
    Reuters
    Estimate
    Allegheny Energy AYE $0.57 $0.38
    Cameron Intl CAM $0.58 $0.55
    CenturyLink CTL $0.88 $0.85
    Devon Energy DVN $1.53 $1.42
    El Paso EP $0.22 $0.21
    Garmin GRMN $0.85 $0.73
    IntercontinentalExchange ICE $1.51 $1.41
    Pulte Group PHM $0.20* -$0.02
    Quanta Services PWR $0.18 $0.18
    Qwest Q $0.09 $0.09
    Polo Ralph Lauren RL $1.21 $0.89
    RR Donnelley RRD $0.47 $0.36
    Spectra Energy SE $0.27 $0.29
    Time Warner TWX $0.50 $0.45
    Cimarex XEC $1.46 $1.49

    * Report includes items that make comparisons to the consensus estimate questionable

    Long positions in stocks mentioned: OKE, ACF

    For more "top stock" portfolios and research, visit TopStockPortfolios.com

     


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Disclosure: OKE, ACF