Dow Jones 30: Industrials Index

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Wednesday, February 23, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading up +5.10 points. The US stock market yesterday finished sharply lower as an escalation of violent protests in Libya prompted a sell off in global equity markets: Dow +0.59%, S&P 500 +0.19%, Nasdaq Composite +0.08%. The Dow and S&P 500 fell to 1-week lows and the Nasdaq tumbled to a 2-week low.

                Bearish factors included (1) an escalation of civil unrest and violence in Libya, which increases geo-political risks that may lead to global instability, (2) the larger-than-expected decline in the Dec S&P/CaseShiller composite-20 home price index which posted its biggest year-over-year decline in 1 year (-2.4% y/y versus expectations of -2.3% y/y), and indicates continued weakness in the US housing market, (3) the slump in airline stocks on concern the surge in fuel prices to a 2-1/3 year high will depress earnings, and (4) weakness in retailers led by a slide in Wal-Mart after the world's biggest retailer reported a seve nth straight quarterly sales decline at its US stores.

   Bullish factors for stocks included (1) the unexpected increase in Feb US consumer confidence which rose to a 3-year high (+5.6 to 70.4 versus expectations of -2.1 to 63.5), (2) the unexpected increase in the Feb Richmond Fed manufacturing index (+7 to 25 versus expectations of -1 to 17), (3) strength in energy producers after crude oil climbed to a 2-1/3 year high, and (4) data from TransUnion LLC that showed Q4 US credit card delinquencies fell -32% y/y.


•   Applied Materials (AMAT) rose 1.5% in pre-market trading after Piper Jaffray raised its recommendation on the semiconductor-equipment maker to "overweight" from "nuetral."


•   Hewlett-Packard (HPQ) tumbled 11% in pre-market trading after the company forecast Q2 profit of $1.21 a share on sales of $31.6 billion, below analysts' estimates of profit of $1.26 on sales of $32.6 billion.

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Stocks slide for a third day on Libya concerns...

By CHIP CUTTER and DAVID K. RANDALL, AP Business Writers Chip Cutter And David K. Randall, Ap Business Writers – 23 mins ago
NEW YORK – Stocks are closing lower for the third straight day on concerns about Libya. The losses moderated in the afternoon after oil prices started falling.

Oil fell to $97.28 a barrel Thursday after the International Energy Agency said the clashes in Libya were not affecting the global oil business as much as analysts had feared. It was the first decline in nine days.

At the close, the Dow Jones industrial average is down 37 points, or 0.3 percent, to 12,068. It had been down more than 100 points earlier.

The S&P 500 is down 1, or 0.1 percent, to 1,306. The Nasdaq is up 15, or 0.5 percent, to 2,738.

Rising and falling shares were about even on the New York Stock Exchange. Volume came to 1.2 billion shares.

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Thursday, February 24, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading down -7.50 points as crude oil surges to a 2-1/3 year high. The US stock market yesterday erased an early rally and finished lower on concern the surge in crude oil will diminish economic growth: Dow -0.88%, S&P 500 -0.61%, Nasdaq Composite -1.21%. The Dow and S&P 500 fell to 2-week lows and the Nasdaq tumbled to a 3-week low.

                 Bearish factors included (1) continued geo-political concerns in North Africa and the Middle East that threaten global stability and may reduce economic growth prospects, (2) a sell-off in retailers on concern that crude oil at a 2-1/3 year high will act as a tax on consumers and slow consumer spending, (3) weakness in automakers after the US Supreme Court opened the auto industry to new lawsuits over seatbelt designs, and (4) the slump in airline stocks for a second day on concern the surge in fuel prices will depress earnings.

   Bullish factors for stocks included (1) the unexpected increase in Jan US existing home sales which rose to their best level in 8 months (+2.7% to 5.36 million versus expectations of -1.5% to 5.20 million), and (2) a rally in energy producers as crude oil prices rallied sharply to a 2-1/3 year high.


•   Bank of America (BAC) slipped 1.1% in European trading after investors in mortgage-backed bonds sued the bank saying Bank of America's Countrywide Financial unit breached representations and warranties about the loans, which it originated.

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Friday, February 25, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading up +9.70 points as concerns over global crude supplies ease. The US stock market yesterday traded lower early on concern that rising energy prices will derail the global economy but erased most of its losses and settled mixed after crude oil prices erased their gains and finished lower: Dow -0.31%, S&P 500 -0.10%, Nasdaq Composite +0.55%. The S&P 500 and the Dow fell to 3-week lows.

                Bearish factors included (1) the surge in crude oil to a 2-1/3 year high, which may hurt global economic growth as businesses and consumers pay more for fuel costs, although crude did sell-off late in the day and settled lower, (2) continued geo-political concerns as civil unrest in North Africa and the Middle East threatens global stability and may reduce economic growth prospects, (3) the larger-than-expected decline in Jan US new home sales (-12.6% to 284,000 versus expectations of -7.3% to 305,000), and (4) the larger-than-expected de cline in home prices after the Dec FHFA house price index fell -0.3% m/m, versus expectations of -0.1% m/m, and the Q4 FHFA house price index dropped -0.8% q/q, versus expectations of -0.6% q/q.

                Bullish factors for stocks included (1) the larger-than-expected decline in weekly initial unemployment claims (-22,000 to 391,000 versus expectations of -5,000 to 405,000), (2) reduced interest rate concerns after the yield on the 10-year T-note slipped to a 3-week low, and (3) the late-day sell off in crude oil after the IEA said it is ready to release emergency stockpiles if needed.



•   Boeing (BA) jumped 5% in European trading after the Pentagon said late yesterday that the company beat out EADS for the $35 billion program to supply the US Air Force with 179 refueling airplanes.

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Dow Jones 30: Industrials Index...

Created by the Wall Street Journal editor and the co-founder of Dow Jones & Company, Charles Dow, the Dow Jones Industrial Average is an average of the 30 largest and most widely held public companies in the United States. Next to the Dow Jones Transportation Average, the DIJA is the oldest continuing U.S. market index.

Although 'industrial' is in the title, the companies represented in the DIJA have not much in common with heavy industry. Instead of an actual average, a scaled average of these blue-chip stocks is used in order to compensate for the effect of stock splits and other adjustments. To calculate the value of the DIJA, the sum of the component prices is divided by a divisor, which is changed over time. The DIJA is also quoted in points rather than dollars.

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Monday, February 28, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading down -0.30 of a point. The US stock market last Friday rallied on strength in consumer confidence along with a stabilization in oil prices: Dow +0.51%, S&P 500 +1.06%, Nasdaq Composite +1.58%.

                Bullish factors included (1) reduced worries about global crude supplies after assurances from the IEA and Saudi Arabia that they would fill the void left from a drop in Libyan crude production, (2) the larger-than-expected increase in the Feb US University of Michigan consumer confidence which climbed to a 3-year high (+2.4 to 77.5 versus expectations of +0.3 to 75.4), and (3) comments from Richmond Fed President Lacker who said the recent increase in oil prices is a "manageable" risk that won't derail the economic recovery.

   Bearish factors for stocks included (1) the larger-than-expected downward revision to US Q4 GDP (+2.8% annualized versus expectations of +3.3% annualized), and (2) the action by JPMorgan Chase to cut its Q1 US GDP forecast to 3.5% from a prior estimate of 4.0% due to the recent surge in energy prices.



•   Humana (HUM) may be active to the upside today after Jeffries Group upgraded the stock to "buy" from "hold" after Humana raised its 2011 anuual profit estimate to $5.95 a share to $6.15 a share from a previous estimate of as much as $5.90 a share.

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Tuesday, March 1, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading up +5.10 points. The US stock market yesterday moved higher on speculation of increased M&A activity along with strength in US manufacturing data: Dow +0.79, S&P 500 +0.56%, Nasdaq Composite +0.04%.

                Bullish factors included (1) a retreat in oil prices after Saudi Arabia offered to make up for lost Libyan output, (2) the larger-than-expected increase in Jan US personal income (+1.0% versus expectations of +0.4%), (3) the unexpected increase in the Feb Chicago purchasing managers index which expanded at its best level in 22-1/2 years (+2.4 to 71.2 versus expectations of -1.3 to 67.5), (4) increased M&A activity as announced takeovers of US companies have totaled $161.9 billion so far in 2011, 66% more than the $97.4 billion through this date last year, along with speculation of further takeovers after billionaire investor Warren Buffet said his "trigger finger is itchy" for deals, (5) comments from St. Lou is Fed President Bullard who said in a CNBC interview that oil prices would have to go "substantially higher" to be a concern to the US economy, and (6) comments from New York Fed President Dudley who said the "considerably brighter" economic outlook isn't yet reason for the Fed to withdraw its record monetary stimulus.

   Bearish factors for stocks included (1) concern the turmoil in the Middle East is widening after civil unrest was reported in Oman, (2) the weaker-than-expected Jan personal spending which posted its smallest gain in 7 months (+0.2% versus expectations of +0.4%), and (3) the larger-than-expected decline in Jan pending home sales (-2.8% m/m versus expectations of -2.4% m/m).



•   Baker Hughes (BHI) gained 1.1% in European trading after the US permitted deep-water drilling in the Gulf of Mexico for the first time since it banned production after the Deepwater Horizon rig sank last April.

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Dow Jones 30: Industrials Index...
The Dow found support at 12000 after penetrating the (olive) trendline. There is no indication of selling pressure from Twiggs Money Flow (21-day), but reversal below 12000 would signal a correction.

* Target calculation: 11200 + ( 11200 - 9800 ) = 12600

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Wednesday, March 2, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading up +2.90 points. The US stock market yesterday retreated as crude oil prices surged on concern that civil unrest in the Middle East was spreading: Dow -1.38, S&P 500 -1.57%, Nasdaq Composite -1.61%.

                Bearish factors included (1) a rally in crude oil on concern that escalating unrest in the Middle East and northern Africa was spreading to Iran, OPEC's second-largest producer, which stoked worries that higher energy costs will hurt consumer spending and corporate profits, and (2) comments from Fed Chairman Bernanke who said the labor market "has improved only slowly" and it may take "several years" for the unemployment rate to reach a "more normal level," and that "the housing market remains exceptionally weak."

   Bullish factors for stocks included (1) the larger-than expected increase in the Feb ISM manufacturing index which matched its 27-year high from May-2004 (+0.6 to 61.4 versus expectations of +0.2 to 61.0), and (2) comments from Fed Chairman Bernanke who said that "downside risks to the recovery have receded," and that the increase in oil and other commodity prices probably won't cause a permanent increase in broader inflation, which suggests the Fed will stay on course to complete its planned $600 billion QE 2 asset-purchase program.


•   Texas Instruments (TXN) rose 1% in pre-market trading after JPMorgan Chase raised its recommendation on the company to "overweight" from "neutral."


•   MetLife (MET) slumped 4.2% in after-hours trading late yesterday after the company said 146.8 million shares will be sold in public offerings as the firm raises funds to redeem securities given to AIG.

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Thursday, March 3, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading up +12.50 points. The US stock market closed higher on an upbeat Fed Beige Book and a larger-than-expected increase in private employment: Dow +0.07, S&P 500 +0.16%, Nasdaq Composite +0.39%.

                Bullish factors included (1) the larger-than-expected increase in employment growth in the Feb ADP employment change (+217,000 versus expectations of +175,000), (2) strength in technology stocks after JPMorgan Chase raised its rating on the semiconductor industry to "constructive" from "cautious," citing a change in its belief that an economic downturn was imminent, (3) comments from Fed Chairman Bernanke who said he wouldn't rule out further Fed purchases of Treasuries if the economy stalls, and (4) the Fed's Beige Book that stated the labor market improved throughout the country early this year, driven by increasing retail sales and "solid growth" in manufacturing.

   Bearish factors for stocks included (1) the rally in crude oil to near a 2-1/2 year high, which threatens to slow consumer and business spending, and (2) hawkish comments from Kansas City Fed President Hoenig who said the Fed should lift the Fed funds rate to 1.00% from near zero rather than ease during the current economic recovery.


•   Alcoa (AA) climbed 1.7% in pre-market trading after the prices of copper, lead, nickel and zinc all rose in overnight trade.

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Friday, March 4, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading up +0.60 ahead of the Feb US payrolls report. The US stock market yesterday rallied sharply on strong economic data along with a decline in crude oil prices: Dow +1.59, S&P 500 +1.72%, Nasdaq Composite +1.85%.

                Bullish factors included (1) the unexpected decline in weekly initial unemployment claims which fell to a 2-3/4 year low (-20,000 to 368,000 versus expectations of +4,000 to 395,000), (2) the unexpected increase in the Feb ISM non-manufacturing index to its best level in 5-1/2 years (+0.3 to 59.7 versus expectations of -0.1 to 59.3), (3) the decline in crude oil prices, which eases concern that high energy prices will derail the economic recovery, and (4) strength in retailers after Retail Metrics reported Feb same-store retail sales rose +4.3%, stronger than expectations of a +3.8% increase and its 18th consecutive monthly gain.

   Bearish factors for stocks included (1) concern that the ECB may raise interest rates as soon as next month after ECB President Trichet said an "increase of interest rates in the next meeting is possible," (2) an increase in inflation expectations after the difference between yields on 10-year T-notes and 10-year TIPS widened to 249 bp, the most in 2-1/2 years, and (3) comments from Atlanta Fed President Lockhart who said that long-term unemployment in the US is "very worrying" and that the outlook for a faster-than-expected US recovery has been muted by rising oil prices and turmoil in the Middle East.


•   Wal-Mart (WMT) climbed 1.1% in European trading after the company increased its quarterly dividend to 36.5 cents, higher than market estimates of 32.5 cents.


•   Intel (INTC) rallied 1% in European trading after Robert Baird upgraded the stock to "outperform" from "neutral."

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Monday, March 7, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading up +4.80 points. The US stock market last Friday closed lower as crude oil surged along with concern US wage growth may fail to keep up with soaring fuel costs: Dow -0.72, S&P 500 -0.74%, Nasdaq Composite -0.50%.

                Bearish factors included (1) soaring energy costs as crude oil climbed to a 2-1/2 year high as violence escalates in Libya, (2) the weaker than expected Feb US average hourly earnings (unchanged m/m and +1.7% y/y versus expectations of +0.2% m/m and +1.9% y/y), which raises concern consumers will cut back on spending in order to afford rising fuel costs, and (3) weakness in bank and financial stocks after Bank of America downgraded both Citigroup and Goldman Sachs to "neutral" from "buy."

   Bullish factors for stocks included (1) the unexpected decline in the Feb US unemployment rate to its lowest level in 1-3/4 years (-0.1 to 8.9% versus expectations of +0.1 to 9.1%), (2) the stronger-than-expected Feb manufacturing payrolls (+33,000 versus expectations of +25,000), and (3) the larger-than-expected increase in Jan factory orders which posted their biggest monthly gain in 4-1/4 years (+3.1% versus expectations of +2.0%).


•   Starbucks (SBUX) gained 1.2% in European trading after CEO Schultz said in a WSJ interview that foreign exchange effects are a "de minimus issue" and that he doesn't have "any intention" of increasing prices "at this stage" due to rising commodities.

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Wednesday, March 9, 2011...

Overnight U.S. Stock News

•   March S&Ps this morning are trading up +3.90 points. The US stock market yesterday moved higher after crude oil fell along with speculation of an increase in M&A activity: Dow +1.03, S&P 500 +0.89%, Nasdaq Composite +0.73%.

                Bullish factors included (1) a decline in oil prices, which eases concern that rising energy costs will derail the global economy, (2) strength in financials after Bank of America, the largest US lender, said its residential mortgage business in "recovery mode," (3) a rally in homebuilders after JPMorgan Chase said that recent sales data from PulteGroup shows "demand continues to stabilize and slightly improve entering the spring selling season," and (4) increased M&A activity with about $417 billion in global deals being announced so far this year, up 14% from the same period last year.

   Bearish factors for stocks included (1) concern the European sovereign-debt crisis may worsen after the yield on the 10-year Greek bond jumped 51 bp to 12.84%, the highest since Bloomberg data began in 1988, (2) the unexpected decline in the March IBD/TIPP economic optimism (-7.9 to 43.0 versus expectations of +0.7 to 51.6), and (3) data from CoreLogic that says 11.1 million US homes, or 23.1% of all mortgaged homes were underwater in Q4 of 2010, up from 22.5% or 10.8 million homes in Q3, which may keep the US housing market depressed as homeowners cannot sell their home for a profit nor can they qualify for refinancing.

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Dow Jones 30: Industrials Index...
Threat of a correction remains
The Dow continues to test support at 12000. There is little indication of strong selling pressure from Twiggs Money Flow (21-day), but reversal below 12000 would signal a correction.

* Target calculation: 11200 + ( 11200 - 9800 ) = 12600

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The Dow's Plunge: Should You Be Worried?
by Brett Arends
Friday, March 11, 2011

provided by
THE WALL STREET JOURNAL

On Thursday, the day before the Japanese earthquake, the Dow Jones Industrial Average saw its biggest drop since August. Markets tumbled while fears surged -- about jobs, Spain and Saudi Arabia.

But what does this mean for you, the investor?

Was this just a one-day wonder, a buying opportunity, a small but passing cloud on an otherwise sunny horizon? Or was it something more ominous?

The market's next move is always a mystery. It could go up 500 points next week or down 500 points, or stay in range. You shouldn't let one day's price movement govern your financial decisions. It's never sensible to panic. And sure, this could be just a passing storm.

Yet there are reasons to be concerned about what just happened. Maybe I'm being too nervous here. I hope so. When the market sells off, I usually like to find reasons to buy stocks more cheaply. But here are 10 reasons why this 228-point slump in the Dow makes me sit up and take notice.

1. It happened when the price of oil was falling.

For weeks, the market has been worried that the rising price of oil was going to knock the economy back into the hole. But the price of light sweet crude fell $2 a barrel on Thursday to $102, and it fell another 1.3 percent to $101.30 a barrel on Friday following the Japanese disaster). That followed a $1 fall earlier this week. It's still above the critical $100-a-barrel figure that may spell economic trouble. Nonetheless, some relief on oil should have been good news. If the market sells off at the same time it suggests investors may be reevaluating the fundamentals of the recovery.

[More from WSJ.com: An Easier Way to Bet on the Next Facebook]

2. It was across the board.

It wasn't just isolated to a few exchanges here or in Europe or in the Middle East. Exchanges fell around the world. Wall Street was down 1.9%. Shanghai and Tokyo both fell about 1.5%. Brazil's Bovespa was down 1.8%. London fell 1.5%. Even gold fell. The Standard & Poor's 500-stock index is now down about 4% from the peak seen last month. Since then it's tried three times to get its mojo back, and it's failed each time. Not cheerful.

3. The financial cockroaches are back.

The European debt crisis. Our continuing jobs gloom. Oh, and let's not forget the rocketing national debt that is financing the entire stock-market boom. In past months I've been watching with amazement as Wall Street -- and a lot of investors -- have been trying to sweep these under the carpet. But they won't stay there. On Thursday, markets were spooked when Moody's downgraded Spain's government debt. But why is anyone surprised? Had investors been paying attention, they would have known that the market for default risk was already sending serious warning signals about Spain and Portugal's credit -- not to mention that of Greece.

4. One of the smartest bulls I know has suddenly turned very edgy.

He's a European hedge fund manager who turned bullish in January 2009 -- on high-risk financials, no less -- and has stayed upbeat for most of the past two years. He was a raging bull last summer. Even a handful of weeks ago, he thought we'd see more momentum. Today? He's singing a slightly different tune. One of his biggest worries now is China -- in particular the strength of its economy and its sudden, surprise trade deficit last month. He's still looking for opportunities, as always, but I thought he'd be buying aggressively in this correction. He isn't. (Another manager I know thinks there is some juice left in the rally, as first-quarter earnings roll in. But she expects to turn more cautious after that.)

[More from WSJ.com: Where to Put Your Cash Now]

5. The bull market has just come so far, so fast.

Too far? From the lows of two years ago, the S&P 500 has almost exactly doubled. By any measure, it's been a remarkable boom. The Russell 2000 index of smaller stocks has soared 130%. So has the S&P Mid Cap 400 index of medium-sized companies, taking it to a new record high. But look at the fundamentals. Over that time economic growth has been sluggish. The economy today is no bigger, in real terms, than it was three years ago. The true jobs picture remains a disaster, and far worse than the official data will tell you. Wages have been stagnant. Yes, companies have boosted profits -- to near-record levels -- by slashing costs. But how far can that take you? (Perhaps in the end there will just be one, very productive guy left with a job. It would be Apple's Steve Jobs, of course. But then, alas, he'd have to buy all those new iPads himself.)

6. There's no "margin of safety" left in stocks.

While Wall Street was backing off a cliff Thursday morning, I was interviewing one of the brightest and most original thinkers in the market -- James Montier, strategist for tony fund shop GMO and author of "Behavioral Finance." Mr. Montier pointed out that stocks are now so expensive, they leave investors with almost no "margin of safety" in case things go wrong. Anyone investing now, he said, is taking a big bet on sunny skies and plain sailing ahead. It can happen, but life is not always so kind. "We're not completely 'priced for perfection,' but we're not far off," Mr. Montier said. And, he added, the risk curve was wrong as well: Based on GMO's calculations, investors in small-cap stocks at these levels actually face worse returns than investors in large-cap stocks. As small caps are more volatile, they should offer better returns to compensate.

7. Wall Street looks unappealing by the numbers.

The dividend yield on the S&P 500 is well below 2%. According to data compiled by Yale economics professor Robert Shiller, stocks are a thumping 24 times cyclically-adjusted earnings. That's extremely high. The historical average is about 16. In the past, today's levels have been associated with bubbles and hot markets, and have generally been followed, sooner or later, by a correction. A similar conclusion is reached by comparing equity prices to the cost of replacing company assets, a metric known as "Tobin's q." It also says Wall Street is heavily overvalued. Maybe worst of all: It is just extremely hard to find any cheap stocks out there. If I saw some great bargains, I'd say, "Don't worry about the market, buy this terrific company on six times earnings." But these types of opportunities are so thin on the ground right now. No one measure has all the answers. But plenty of metrics are signaling, at least, caution.

[More from WSJ.com: Flex-Spending Accounts: Boon or Burden?]

8. The public was just starting to buy stocks again.

Oh, brother. The U.S. private investor, who spent most of the 2009-10 rally getting out of stocks, started piling in again earlier this year. According to the Investment Company Institute, investors cashed out a net $31 billion from equity mutual funds between the start of March 2009 and the end of last year. But since Jan. 1, they have shoveled a net $33 billion back in. History has frequently shown that the public gets in -- and out -- at the wrong times, buying near peaks and selling near troughs. Is it happening again? I wish I felt better about this.

9. The insiders have been getting out.

Executives and directors across the market have been cashing out stock at a fast clip. "The pace and volume of insider sales hit a four-year high during Q4 '10," reported InsiderScore, a firm that tracks such data. While many of the top brass may have been locking in capital gains before a possible tax hike in 2011, it said, the pace of insider selling actually speeded up after the December tax deal, which gave a last-minute reprieve on taxes. And that suggests "it was valuations and opportunity -- not the Taxman -- that were the main catalysts for the record surge in insider selling," said InsiderScore. "Each sector and market cap group experienced heavy selling." So far this year insider selling has remained at a strong pace, too.

10. Sentiment had become giddy.

Jim Cramer on his TV show "Mad Money" has on occasion recently decried "all the negativity that's out there." I like Mr. Cramer, with whom I once worked, but he must be hanging out with an unusually gloomy group of people. I can hardly see any bears anywhere. They're in hiding from a two-year-old bull. As reported not long ago, fund managers had turned downright euphoric about the stock market. Hedge fund managers are now once again betting heavily on rising stocks -- and rising oil -- with borrowed money. Equity analysts have been hiking their forecasts. Oh, and the hot stocks were back -- like Salesforce.com, which recently hit 100 times forecast earnings. That's a hefty multiple for an $18 billion company. Whether Salesforce stock turns out well or ill over the longer term, you can hardly deny that its investors are cheerfully -- some might say remarkably -- optimistic.

None of this is a reason to start panicking. But these are grounds for investors to be cautious.

Write to Brett Arends at [email protected]