Tuesday, October 27, 2009

Mixed Messages

Stocks began the day and finished it in mixed fashion, as the Dow was the only major index to close above the break-even line. Especially hard-hit was the NASDAQ, which suffered from a very downbeat report from Baidu.com (BIDU), China's version of Google, when the company reported third quarter earnings, but guided investors of a revenue shortfall upcoming due to a change in advertising placements. The stock opened down 77 points, but recovered to close only 49 points in the red. Still, the stock took an 11% hit by the end of the trading session.

The Dow was helped along by three components: ExxonMobil (XOM), Chevron (CVX) and IBM (IBM), which accounted for almost all of the smallish upside. The two oil majors were helped by a positive 3rd quarter from British Petroleum (BP), while IBM announced a $5 billion increase to its stock buy-back program.

Dow 9,882.17, +14.21 (0.14%)
NASDAQ 2,116.09, -25.76 (1.20%)
S&P 500 1,063.41, -3.54 (0.33%)
NYSE Composite 6,932.04, -28.05 (0.40%)

The session was overall a weak one, as declining issues beat gainers by a wide margin, 4263-2205. What is of particular interest is the small margin of new highs over new lows (123-71), the worst performance for new highs since that particular metric rolled over back in May. The easy comparisons to last year's stock prices, especially off the monstrous 7-month+ rally, would normally presume a large number of new highs, which was evidenced during the summer and early fall, but the recent pullback has changed the outlook considerably.

Volume on the day was in line with the overall trend of the past two to three weeks.

NYSE Volume 6,203,113,500
NASDAQ Volume 2,405,401,500

Commodities, like stocks, were tied somewhat to the stronger dollar, as gold fell $7.40, to $1,035.40, silver dropped 56 cents, to $16.54, but oil bucked the general trend, gaining 87 cents, to $79.55, though the $80 mark continues to appear to be a led on price. Demand is simply not high enough to support a price over $80, much less in the $70s. Additionally, supply is robust, with nary a shortage anywhere in the world. Price of energy commodities will continue to be pressured by warmer-then-normal weather in the Northern Hemisphere, which is predicted through December.

Investors, through their trading stratagems, are offering a very good insight into how earnings results are being played. With most of the big names already having reported, unless companies are beating both earnings and revenue projections, they are being bid up prior to the release of their reports and quickly sold off. This has all the earmarks that would accompany a market top, and the indices are generally 3% below the heights reached last week.

A 5-8% dip from here would be no surprise, especially with some severe headwinds approaching in terms of 3rd quarter GDP (Thursday), though first September Durable Goods orders before the bell tomorrow, which yesterday I incorrectly said would be reported today (hanks to Yahoo Finance).

No comments: