Yesterday, the markets churned but produced little in the way of results as the Labor Day weekend approached. With what appears to be indecision on the part of the Federal Reserve as to what path to take next to revive an ailing economy, the stock market could do no better than hold at an important support area.
After a sloppy opening, stocks rallied on the release of the Conference Board’s consumer confidence index for August. The index jumped to 53.5 from 51 in July, nicely above forecasts of 51.
There is hardly any reaction to the Fed’s Aug. 10 FOMC minutes. They indicated that the pace of the economy had slowed in recent months and that the Fed would embark on a strategy of reinvesting maturing or refinanced mortgage-related securities, thereby injecting some capital directly back into the markets.
Acquisition news was again a highlight of trading activity. Dow component 3M Company (NYSE: MMM) will acquire Attenti Holdings S.A. The announcement came after 3M agreed to acquire Cogent, Inc. (NASDAQ: COGT) on Monday. And Exelon Corporation (NYSE: EXC) announced that it will acquire the energy unit of Deere & Company (NYSE: DE) for $900 million. Saks Incorporated (NYSE: SKS) jumped 20% amid rumors that a private-equity consortium is preparing a cash bid of $1.7 billion, or $11 a share, according to the Daily Mail and the Wall Street Journal.
Technology stocks fell yesterday, following a cut in the 2010 projection for worldwide personal computer shipments by researcher Gartner. Cisco Systems, Inc. (NASDAQ: CSCO) fell 1.7%, SanDisk Corporation (NASDAQ: SNDK) was down 3.3%, and Intel Corporation (NASDAQ: INTC) lost 1.3%.
And Monsanto Company (NYSE: MON) fell 5.8% after saying that its fiscal-year earnings will come in at the lower end of its prior estimate.
The U.S. dollar was down versus the yen and the euro. U.S. Treasury 10-year notes fell over 40 basis points to 2.47%.
The Dow Jones Industrial Average rose 5 points closing at 10,015, the S&P 500 gained fractionally at 1,049, and the Nasdaq fell 6 points to 2,114.
The NYSE traded 1.4 billion shares with advancers ahead by 1.2-to-1. The Nasdaq crossed 677 million shares, and decliners there were slightly ahead of advancers.
The month ended as the worst August for stocks since 2001 with the Dow off 4.3%, the S&P 500 down 4.7%, and the Nasdaq losing 6.2%.
Crude oil for October delivery fell $2.78 to $71.92 a barrel as reports showed that U.S. oil supplies were high amid a slow economy. The Energy Select Sector SPDR (NYSE: XLE) fell 14 cents to $51.20.
December gold rose $11.10 to $1,250.30 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 2.29 points, closing at 185.15.
What the Markets Are Saying
As noted for the last week or more, the immediate battleground for traders is the very narrow trading range of S&P 1,040 to 1,055. Yesterday’s activity reinforced those numbers with a low of 1,040.88 and a high of 1,055.14. So the summer of 2010 ends with the S&P 500 sitting smack on a major support zone with resistance at 1,130. The Nasdaq’s situation is similar with near-term support at 2,100 and resistance at 2,155 and a top at 2,300.
After four months of seesawing, the long-term trend is down (bear market), the intermediate trend is flat (sideways), and the near-term trend is down, but with several bullish reversal days within the last week.
Volume could fall as we approach the long weekend and volatility could pick up. This creates an unpredictable situation since the heavy volume of the institutions will most likely be on the sidelines. But this August registered the lightest volume for August since 1999, and the market has been down for the entire month.
Before picking up from Monday’s “Traders’ Rules” we need to define the objectives of investors since most are not traders. After almost 45 years in the investment business, I’ve discarded the time goals defined by years that some managers try to pin on clients. For example, short term (1-3 years) with a goal of buying a car, a vacation, etc., or medium term (3-7 years) with a goal of a deposit on a house, boat, etc., and long term (7+ years) with a goal of children’s education, retirement, etc.
Most stock buyers’ objectives are more defined by attitude and comfort level than by the length of time that they hold portfolios of stocks. Their goals have been shaped by education, experience, logic and, yes, emotion. And today’s investors often separate their investments into pie charts with a combination of goals:
Long-term Investors
Buyers of stocks, bonds, and mutual funds who purchase for the long term and seldom, if ever, sell stocks. They will most likely buy blue chips or high quality, dividend-paying stocks. These investors could care less about trends and technical analysis. They are in it for the long haul. They are satisfied by average returns on their investment. They may have large portfolios with many gains that have low tax basis, and they feel locked into these positions. Many have inherited their holdings.
Cyclical Investors
These folks buy mostly the same stocks and mutual funds as long-term investors but follow trends, and are interested in buying fundamentally sound stocks but at prices that are “reasonable.” They will buy a “flyer” for the long-term, but will sell only when convinced that a bull market has ended. They seek above-average returns.
Cyclical Traders
Buyers of stocks who closely follow both technical and fundamental analysis and will hold only as long as the trend for their holding is positive. Their goal may be 12 months for long-term capital gains treatment, but will sell quickly if they determine that “the game has ended” for a holding. They seek exceptional returns and will take higher risks to achieve their goal.
Monthly and Day Traders
Buyers and sellers (short) who are interested in capitalizing on short-term moves in the stock market. Their tool is primarily technical analysis and identifying trends is of paramount importance to their game plan. They are the gamers. They get a kick out of trading, want high returns, and will take higher risks to achieve their goal. But in order to be successful they require a disciplined approach with a static set of rules that is devoid of emotion. Emotional traders lose; disciplined trades tend to be winners.
The Daily Market Outlook attempts to appeal to all types of investors. But in the last decade the long-term investor has generally experienced below-average returns. Thus, most investors are interested in ways to maximize returns with varying degrees of risk tolerance.
We will pick up this discussion again tomorrow.
Today’s Trading Landscape
Earnings to be reported before the opening include: Brown-Forman, Charming Shoppes, Express, Genesco, G-III Apparel, HJ Heinz, Joy Global, LTX-Credence and Zale.
Earnings to be reported after the close include: Casella Waste, China Green Agriculture, Collective Brands, FuelCell Energy, Greif, Hovnanian Enterprises, Martek Biosciences, Oxford Industries and SAIC.
Economic reports due: motor vehicle sales (the consensus expects 8.7 million), MBA purchase applications, Challenger Job-Cut Report, ADP employment report, ISM manufacturing index (the consensus expects 53), construction spending (the consensus expects -0.6%), and EIA petroleum status report.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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