Traders,
The market is still in this resistance band and having problems moving higher through this area. It seems that earnings continue to come in better than expected, but forecasts are more conservative - thus putting investors in a cautious position. We are seeing some improvement in consumer confidence, but still light on spending.
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| Home Depot profits
and sells confidence. |
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Lowe's came out yesterday better than expected, but also lowered forecast next quarter - creating some concern that while the building sector maybe seeing a bottom it is still not seeing the top-line growth. Home Depot had a similar report and reported profit that exceeded estimates. Earnings were 24 cents a share (above the 19 cents a share estimate). Same stores sales rose 1.2% on gains in international business (as well as more DIY type goods) - rather than raw building materials. Home Depot also expects the full year earnings to rise 1.79 a share, compared with the earlier 1.72 a share projected. While it is not clear about the spring quarter impact, it is a positive sign that they expect to see yearly better than expected growth. However, we really need to see more than a 1% increase to start seeing job creation.
Home Depot did go the extra mile to boost confidence and raised their dividend by 5% to 23.625 cents per share (payable March 25th). That is helping boost stock in the pre-market. Stock is trading up at 18.70 in the pre-market, it does look like 20 is a resistance area.
http://www.bloomberg.com/apps/news?pid=20601087&sid=am9ULdNEayAQ&pos=5 |
| Target & Sears
Retailers still see modest growth. |
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Two more retailers report similar results. Target reported earnings increased to 1.24 from .81 cents a year ago. Target (along with Wal-mart) became the go-to stores of the recession. The down-shift in consumer spending to quantity valued and discount stores help the bottom line. Target also gain in market share - which helped bottom line numbers. They did see a sharper than expected decline in credit card receivables (down by 10.2%) as consumers continue to expand debit card purchases. This is curbing growth as consumers are still limited in credit spending. They will be holding their conference call in an hour, but expectations seem to be on tract for another conservative estimate for 2010. The stock is slight down in the pre-market as expectations in revenue fell short. http://www.cnbc.com/id/35537584/site/14081545
Sears saw a drop in consumer sales of 6.1% as they lose market share. The 4th quarter saw a decline of 2.5%, as they blame the decline in the demand for large appliances (kind of the opposite report from Home Depot - interesting enough). Total revenue declined less than 1% and that is the long-term story that investors don't want to hear. The company will also record a $7 million charge for store closing in the first quarter. They also have a rather lack-luster growth story for the next quarter. The stock is up in the pre-market, as the news was slightly better than some analyst expected. There was an expectation that Sears would of seen more of a decline in market share and Target and Wal-mart had previously been taking a big bite out of retailers in the recession. |
| Futures Pre-market
Where's the action! |
| The futures are down the in pre-market, expect a lower opening.. |
| Support / Resistance
Going higher or lower? |
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INDU 10,000 / 10,500 (We gave up a little strength in this upper resistance band and the futures are showing a little weakness. )
NDX 1800 (The futures are pulling down a little more, the NDX did manage to make a better jump up off the lows - so expect a little more volatility in this range. Watch the 1800 level for short-term support, but treat it as a straddle strike.)
SPX 1100 (This 1105 - 1110 area is a resistance band that the index seems to be struggling with. Watch the 1100 area - a good straddle strike.)
RUT 600 / 625-635 (This is the resistance band and the index closed almost unchanged. It seems to be under slight pressure. Watch this resistance band area.)
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| Conclusion
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Case-Shiller just came out and reflected home prices were down nationwide by 2.5% for the 4th quarter. However, there were a couple of bright spots, a few cities showed some growth, the largest being San Francisco (4% increase in home prices). On the other hand there were some very bleak areas as well. The majority seems to be still rather soft in the -3 to -9 % range. It looks like we are trying to find a bottom, but kind of in a holding pattern. S&P/Case is reporting this morning that it is hard to determine the real values since there is so much inventory over-hang and massive amounts of government injections. Freddie and Fannie contribute to the murky expectations and they worry that home prices might continue to drop substantially if there is a quick withdraw of government programs and stimulus.
Seems like Main Street still has a way to go to recover.
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| Author |
| Michael Williams has 20 years experience as a institututional floor broker and options market maker. He is a partner in both Silexx Financial Systems (a trading software company) and Kinetic Strategic Group (a private investment firm). He co-authored the book "Fundamentals of the Options Market" a McGraw-Hill text and has lectured throughout the country on Options, Risk Management, and Volatility. | |
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