Market Wrap – Nasdaq’s Streak is broken on Microsoft’s soft Earnings
By Robert Perrego, at 4:31 pm on July 24th, 2009The Nasdaq finished in the red today ending its positive gain days streak at 12. Weakness in the tech sector was led by Microsoft Corporation, which posted total sales $1 billion less than expected and was also the first ever decline in Windows annual sales. Amazon.com Inc. also came out after the bell yesterday with earnings that, while they beat expectations by a penny, were not as strong as many had thought they would be.
Amazon.com (NSDQ: AMZN) lost $7.38 a share (-7.86%, $86.49) and Microsoft (NSDQ: MSFT) lost $2.11 (-8.25%, $23.45) today.
The Dow closed up today by 23.95 points (+0.26%, 9093.24) with the S&P also marginally improving by 2.97 points (+0.30%, 979.26) and the red hitting the Nasdaq 100 losing 2.48 points (-0.15%, 1599.06). After yesterday’s rally it was a positive event that we held these levels but no movement or a market stall like today could also be setting us up for a reversal next week.
Sector movement: Energy +1.03% followed by consumer cyclicals +0.91% with tech -0.01% and finance -0.08% the two losers.
Oil closed out the day with an 89 cent rally (+1.33%, $68.05/barrel) and Gold added $3.70 an ounce but seems to still be stalled out right around the $950 resistance level ($951.70/ounce at 4:15 p.m. est).
Leonardo Fibonacci, in 1202, introduced the 0 through 9 mathematical system to the west and also, through the study of Egypt’s pyramids, noticed ‘The Golden Ratio’ extension 0.618. Many technical traders use what are called Fibonacci Retracements to measure the size of a reaction (bounce/pullback) to a stock or index move. Scientists have also proven the existence, and many times for unexplained reasons, of this same ratio or Fibonacci number, in many instances of natural phenomena such as waves on a pond cause by a raindrop. Regardless of various claims, if enough traders use it, it will become a self-fulfilling prophecy or it could just be that it works for a real reason.
The Dow peaked at 14,198 and bottomed at 6,469. According to Fibonacci’s Retracement theory the first reaction level should be at;
14,198 – 6,469 = 7,729.
6,469 + (7,729 * (1-0.618)) = 9,421
Now 9,421 looks like another 328 points to the upside to me and I am sure the Bulls would agree. Currently the market has bounced about 1/3 from the bottom (9,005) which is a level that I have seen many traders improperly use for the first Fibonacci level (1/3). Coincidence?
An important news event today was that the ‘Blue Dog’ Democrats in the House stated that Obama’s health plan will not pass in its current form. The Bill, which needs to be cleared though three committee votes before going to vote on the floor of the House has been cleared by two, but is blocked by seven Blue Dog’s on the House Energy and Commerce Committee. Health care companies performed well today and yesterday as a result, many believe, of the stalling of health care reform. Pharmaceutical – MRK + $0.74 (2.44%, $30.99), Health insurer – UNH + $0.27 (0.99%, $27.32), Hospital Services – UHS + $1.52 (2.97%, $52.61).
On the housing front houses for rent rose 6% while houses for sale fell 9%. This shows a shift from people not choosing to sell their house but rent it out to ride out the price swoon and hopefully get a better price later. Also, banks are not putting a lot of foreclosed homes up for sale with speculation they are holding off to keep the housing market prices from dropping even further. I got news for ya’ banks – you are going to have to sell them sooner or later. It seems like a lot of people are holding off hoping for a better price. This is like a game of chicken as there are all these people sitting around saying ‘nope, not selling yet’ but as soon as prices improve slightly someone tries to cheat and get their home out there and the prices drop right back down. Time usually cures this ‘invisible’ supply but that is just the thing – this stretches out the low price time and consequently the bad economic times for all of us. If all these stubborn sellers would just dump the homes we could make a volume bottom and get on with the recovery.
One main theme heard throughout all the latest earnings is that revenues or total sales have dropped significantly but that companies are beating the earnings numbers analysts expected them to hit. Most of these beats were caused by ‘increasing efficiencies’ and cost cutting. Putting this phrase into more immediate and descriptive terms, companies are cutting jobs and that means higher unemployment. Can the consumer, which contributes to 70% of the economy, lead us out of this recession without having a job? What will be the next job creation sector or where will the next job wave come from? Efficiencies usually means less jobs.
Have a great weekend. See you Monday.
Monday Economic Releases: 10:00 a.m. New Home Sales.
Tuesday: 9:00 a.m. S&P Case-Shiller HPI, 10:00 a.m. Consumer Confidence
Monday earnings Releases: ACE (1.94) after the close, ACV (0.29), GLW (0.32) before the open, EPD (0.41) bto, FCL (0.71) bto, HMA (0.10) atc, HON (0.60) bto, LO (1.43), MTH (-0.71) atc, OMI (0.63) atc, PRE (2.33) atc, PPD (1.64) atc, RSH (0.28) bto, SOHU (0.76) bto, TFX (0.88) bto, TLAB (0.06) bto, VZ (0.63) bto, TZOO (0.02) bto
