Dow Dropped 3.6%, S&P 500 Down 3.9%
Did you hear about the analyst at the Wall Street Greek blog, who presciently foretold the market's demise? Well, if not, then head on over to the blog and honor the mind of our technical guru. The Dow dropped 3.6% today and the S&P 500 Index slipped 3.9%, so perhaps some smart money is still reading along after all.
"The Greek" earned clients a 23% average annual return over five years as a stock analyst on Wall Street. While writing for Wall Street Greek and others, he presciently predicted the financial crisis and housing and banking failures of the Great Recession. Visit the front pages of Wall Street Greek now to see our current coverage of business news, global financial markets, real estate, shipping, fine art, technical analysis and global affairs.
(Tickers: NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD)
Dow Dropped, S&P Down...
99% of the S&P 500 Swindex fell today. The trading day marked the worst single-session decline in a year. We waited until now to write you, as we wanted to leave our technical analysts' prescient work atop the blog all day today, so you might notice somebody called it. We have some pretty good analysts scribbling away here, and we hope you noticed.Weekly Jobless Claims
One of the data points that contributed to Thursday's stock slide was the weekly filings for unemployment insurance. In the week ended May 15, new filings for unemployment insurance increased by 25,000 over the prior week period, rising to 471K. This marked the highest weekly count in five weeks, certainly not good news for those looking for economic recovery. The result surprised the experts too, as economists surveyed by Bloomberg had pegged 440K as the mark to expect this week.
The four-week moving average, which offers a clearer view of real trend, increased by just 3,000, to 453,500. Insured unemployment stuck at 3.6%, but none of this is good news for a market that is looking for deeper signs of a normalizing economy. I single out California in the statistics below, because it is clear from housing starts and unemployment data that the state is in for more woes ahead, and may soon garner the attention of the country as a symptom of its illness.
The highest insured unemployment rates in the week ending May 1 were in Alaska (6.4 percent), Puerto Rico (6.0), Oregon (5.6), Nevada (5.0), California (4.9), Pennsylvania (4.6), Wisconsin (4.6), Montana (4.5), Idaho (4.4), North Carolina (4.4), and Washington (4.4).
The largest increases in initial claims for the week ending May 8 were in California (+8,351), Michigan (+3,175), New Jersey (+2,362), Georgia (+2,333), and Puerto Rico (+1,362), while the largest decreases were in New York (-3,144), Kentucky (-2,193), Connecticut (-1,512), Missouri (-1,031), and New Hampshire (-607).
Leading Indicators
The Conference Board's Leading Economic Indicators Index (LEI) fell in April, marking the first monthly decrease in more than a year. However, March's LEI had gained 1.3%, indicating there was an Easter impact and more. March economic figures were generally super, where April tracked off, due to the early April fall of Easter. Most of the related economic activity occurred in late March ahead of the holiday. Also, building permits rocked in March, ahead of the April deadline for qualification into the First-Time Homebuyers Tax Credit; building permits tracked off sharply in April though, and that contributed to the month-to-month decrease in the LEI.
Philadelphia Fed Survey
The Philly Fed produced its manufacturing survey for the month of April today. The New York Fed reported an ease in the pace of expansion not too long ago, so most were concerned about the possibility of similar signs from Philly. Economists were not, however, as the experts forecast May's General Business Conditions Index would increase to 21.5, from April's 20.2 level. May's actual result did not disappoint, as the index marked 21.4. Remember, a reading above zero marks expansion. The index has been positive for nine consecutive months.
Upon closer inspection, the data was not so enthusing. The index is based on a single question survey of general conditions. Closer inspection shows activity more similar to that of the New York region. The New Orders Index, which is forward looking, fell by 8 points in May. Hiring activity continued, but at a slower pace, similarly to the Empire State data. Also, price pressures continued for manufacturers. The Prices Paid Index decreased by 7 points, but 39% of firms surveyed reported paying more for input prices in May. Price pressure is forcing its way through vertical channels as well, as the Prices Received Index rose 3 points to 3.5. Earlier this week I suggested that the first signs of inflation may be showing themselves now, and this data seems to hint at that possibility as well (though this is admittedly a reach).
Natural Gas Inventory
For the week ended May 14, working gas in storage increased by 76 Bcf. Natural gas inventory stood 308 Bcf above the five-year average for this time of year. Also, gas was above the upper limit of the average range for this time of year. With inventory rather fat, and economic recovery in question globally, commodity prices and energy stocks gave back ground again today. Nearest contract WTI Crude futures dropped 1.5% to below $70 a barrel. Natural gas held at already soft pricing. Gasoline gave back 1.25% as well on the RBOB futures.
Corporate News Drivers
My Apology for an Idea Never Shared
I watched Sears (Nasdaq: SHLD) shares tank today and wished I had shared an article with you, written and never published, favoring the short side on it. Who would believe that now... only readers of WSG who have benefited from similar ideas in the past. It was entitled "Everybody Does it Better," and I'll likely still publish it, but not just yet. I'm also holding an article on Amazon.com (Nasdaq: AMZN), but I'm not revealing which side of the trade I favor.
EPS Reports
The day's earnings reports included Dell (Nasdaq: DELL), TORM A/S (Nasdaq: TRMD), Accelrys (Nasdaq: ACCL), Aeropostale (NYSE: ARO), Bon-Ton Stores (Nasdaq: BONT), Books-A-Million (Nasdaq: BAMM), Brocade Communications (Nasdaq: BRCD), Casual Male (Nasdaq: CMRG), Computer Sciences (NYSE: CSC), Compuware (Nasdaq: CPWR), Cost Plus (Nasdaq: CPWM), CSS Industries (NYSE: CSS), Cycle Country Accessories (AMEX: ATC), Dollar Tree (Nasdaq: DLTR), eLong (Nasdaq: LONG), Encision (Nasdaq: ECIA), Escalon Medical (Nasdaq: ESMC), Focus Media (Nasdaq: FMCN), Foot Locker (NYSE: FL), Gamestop (NYSE: GME), Gap (NYSE: GPS), Intuit (Nasdaq: INTU), Iteris (AMEX: ITI), Jade Art (Nasdaq: JADA), Kemet (Nasdaq: KEME), Kongzhong (Nasdaq: KONG), Lakes Entertainment (Nasdaq: LACO), Linktone (Nasdaq: LTON), Marvell Tech (Nasdaq: MRVL), MF Global (NYSE: MF), Multi-Color Corp. (Nasdaq: LABL), National Grid (NYSE: NGG), New York & Co. (NYSE: NWY), NewLead Holdings (Nasdaq: NEWL), Nordson (Nasdaq: NDSN), Pacific Sunwear (Nasdaq: PSUN), Patterson Dental (Nasdaq: PDCO), Perry Ellis (Nasdaq: PERY), Raven Industries (Nasdaq: RAVN), Red Robin (Nasdaq: RRGB), Ross Stores (Nasdaq: ROST), Salesforce.com (NYSE: CRM), Sears (Nasdaq: SHLD), Ship Finance Int'l (NYSE: SFL), SkillSoft (Nasdaq: SKIL), Stage Stores (NYSE: SSI), Staples (Nasdaq: SPLS), Stein Mart (Nasdaq: SMRT), The Buckle (NYSE: BKE), The Cato Corp. (Nasdaq: CATO), The Children's Place (Nasdaq: PLCE), The Wet Seal (Nasdaq: WTSLA), Tidewater (NYSE: TDW), Toro (NYSE: TTC), Trans World Entertainment (Nasdaq: TWMC), Verigy (Nasdaq: VRGY), Trans-Lux (AMEX: TLX), Vermillion (Nasdaq: VRML), Williams-Sonoma (NYSE: WSM) and Zumiez (Nasdaq: ZUMZ).
Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.
posted by The Greek | 9:00 PM
3 Comments:
"Did you hear about the analyst at the Wall Street Greek blog, who presciently foretold the market's demise?"
Yes, indeed, and even though not having enough stock market knowledge to fully comprehend the analysis, I was impressed by the mathematically based logic of his argument. Made a lot of sense to me.
However, I also remember another Wall Street Greek analyst telling us that the Eurozone crisis is excellent news for the US economy. Well, this leaves me wondering: Is the stock market behaviour totally independent of such good news? Or how else to get the two strongly diverging views into sync?
Gray,
I learned long ago that there are two factors that drive stock prices, and they are found in the P/E ratio. There is real economic value, in the "E" or earnings of companies, assuming those are real earnings. And there is the importance of the future cash flows of the company. Is this a one hit wonder, ala the George Forman Grill with Salton Co?
The second determinate of stock prices is investor perception. This is what allows value to diverge above mean real value. This is why we have bubbles and why we have opportunity.
So there is a real value, and a perceived value, and the two do not always coincide. Remember Crocs (Nasdaq: CROX)? Perceived value took the price into space.
The market was overbought, and that was clear in options data, investor sentiment and hedge fund long/short positions. If you have followed WSG long enough (I think you just started reading maybe), we mentioned the market was overbought in one of our weekly copies I believe months ago (perhaps one or two months). We also pointed out the likelihood that stocks would retrench, based on fundamentals (Ferguson outlined technical reasons).
That does not negate the importance of Chinese domestic concerns and European flop for the relevant rise of the US economy. Too many geopolitical issues were being influenced also by the swing in US economic power. China believed it should have more say in world affairs, since capitalism was failing and communism was prospering. Islam was rejoicing that the Great Satan was finally being punished. Europe fancied itself the new market.
While democracy was born in Greece and thrived there once, let's not forget where it reined supreme and has proven the best form of government. America benefits in many ways when international entitities don't do as well; the same as how foreign entities benefit from US sinking. Two words tell you why: CAPITAL FLOWS.
Investment moves to the better market. All is not lost in America because the stock market retrenched and reevaluated.
If ever one market influences the world, it's the US market though. We are the consumption capital, top buyer. We dominate most technologies, outside of alternative energy, but we will soon rein supreme there as well. That's because we allow capital flows to find smart ideas. That's democracy and capitalism, the best of it.
I'm glad to see financial regulatory reform passing, as it will help control the worst of it.
"So there is a real value, and a perceived value, and the two do not always coincide."
Indeed, and you explained this very convincingly, thx!
"While democracy was born in Greece and thrived there once, let's not forget where it reined supreme and has proven the best form of government."
Yes! Hooray for the Swiss! Oldest democracy in the world, and still going strong. Impressive.
"If ever one market influences the world, it's the US market though."
I totally agree. Even though it looks like there's a contender for that title now, an economy with more than 4 times as many people, which is gaining importance rapidly. Let's no ignore that challenge, it would be at our own peril.
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