Market Preview 08-18-10

Morning Greek
Greek Factor: -2

We've applied a negative Greek Factor to today's open and trading in this market preview, based on the bad news communicated about the European economy through Deere's EPS release. Also, Target's report and subsequent premarket share decline shows that yesterday's enthusiasm was overdone in retail (as we stated yesterday). The "Greek Factor" ranges from +3 to -3, and is a subjective measure of "The Greek's" view of the market impact of individual and aggregate premarket news events.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, and Mr. Kaminis has appeared across major media. While writing for Wall Street Greek, he presciently predicted the financial crisis in detail.

(Tickers: NYSE: TGT, NYSE: DE, NYSE: BJ, NYSE: CHS, Nasdaq: AFCE, Nasdaq: AMAT, AMEX: BLD, Nasdaq: BRCD, NYSE: DL, Nasdaq: CEDU, Nasdaq: IMOS, Nasdaq: CTRN, NYSE: CCM, NYSE: DGW, NYSE: EV, Nasdaq: FLXS, NYSE: GU, Nasdaq: GYMB, Nasdaq: HOTT, NYSE: CTC, Nasdaq: LCRY, NYSE: LTD, Nasdaq: NTAP, Nasdaq: NTES, Nasdaq: OTEX, Nasdaq: PETM, NYSE: STP, Nasdaq: SNPS, Nasdaq: VVTV, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

Market Preview

You caught a break today, as only the two regular economic reports are scheduled, with the mortgage activity data reported in the premarket and the petroleum status information scheduled for later today. More importantly today, two EPS reports are playing a role in general trading. Our market preview centers on Deere's report, which implies trouble in Europe. European austerity is affecting economic value in a bad way.

Mortgage Activity Report
Greek Factor: +1

In the premarket, we received an interesting look at the Mortgage Bankers Association's Weekly Applications Survey. Thanks to the lowest mortgage rates in the survey's history, the Market Composite Index jumped to its highest level since May 2009 (which was not a hot period folks, so contain yourselves). The data for the week ended August 13 (Friday, keep in mind) showed a 13% jump in the Market Composite Index of mortgage activity.

The Purchase Index, which measures mortgage applications for home purchase, decreased 3.4%. That's not fantastic news and continues a trend we've been pointing to. In our weekly copy, we said, "This component has been fizzling out and could even turn negative soon if business conditions falter further (which we expect)." The term for that is called, "Spot on!"

The Refinance Index soared 17.1%, benefiting from very low average contracted rates on 30-year and 15-year fixed rate mortgages to 4.6% (from 4.57% the week before) and 3.99% (from 3.95%), respectively. It's also possible that a large bank or mortgage broker initiated some sort of campaign to increase fees, considering that last week's data was relatively unchanged on similar rates. We give the data point a mildly positive factor rating on the refinance activity, which does create value for households.

Petroleum Report

The EIA's Petroleum Status Report is due at 10:30 AM ET. Last week's report covering the period ended August 6, showed crude oil inventory decreased by 3.0 million barrels. Total motor gasoline inventory increased by 0.4 million barrels. Both crude oil and total motor gasoline inventory remain above the upper limit of the average range for this time of year. However, the average world crude oil price increased $4.10 since last week, to $78.79. The spot price for conventional gasoline in the New York Harbor was 204.84 cents per gallon, 1.23 cents less than last week's price but 12.59 cents over this time last year.

Corporate News Drivers

Deere Disappoints
Greek Factor: -2

Deere (NYSE: DE) noted better than expected EPS in its quarterly report, but its forward guidance came in short of analysts' consensus. The shares are down 1.8% in the premarket on the news. Deere noted that US farmer demand for tractors and harvesters supported results, while European markets were down sharply. We've been talking about this scenario playing out, and these are some of the first signs from a corporate source. Deere also noted what it sees as a bottom in demand for forestry and construction equipment, but reported absolute-basis low level activity in these segments.

Sales were up 16%, and that's pretty good. EPS rose even more, and at $1.44 exceeded the analysts' consensus. The disappointment came in the company's view that industry wide sales will drop 15-20% in Western Europe moving forward, on weakness in dairy and livestock sectors. This news will bring heightened awareness of derivative impacts from European austerity, and so we apply the stronger negative factor to the news. This is a medium to long-term negative factor for stocks in fact.

Target Shares Lower
Greek Factor: -1

Target's (NYSE: TGT) shares are down 2.8% in the premarket on a revenue disappointment. This did not stop WalMart yesterday (see our report here: WMT Red Flag), but TGT is taking a hit nonetheless. At $0.92, Target's EPS came in line with Wall Street's view. Revenues were up 3.1%, slightly less than analysts were looking for. Target's same-store sales grew 1.7%, versus WalMart's decline.

Apparently, the company's efficient management, adding value with the sales of food goods, was not enough to offset market concerns about weaker sales of its primary products. It seems that some of Target's reasoning for a better future is faulty, as it emphasizes improved consumer confidence. As we've seen, and relayed here, over recent weeks, confidence is waning now. Target's P/E ratio is a bit higher than WalMart's, and could be playing a role in the greater sensitivity; but it's growth forecast is also higher. I view management's focus on negatives, and its overcoming them, within its press release a factor in TGT's decline today (PR could have been better). More importantly, Target rose with WalMart yesterday, but dropped with it towards the end of the day, as we believe the market took heed of our warning (see linked to article above). So it's more likely that investors are reconsidering retail generally, and see the weaknesses again in TGT's data.

EPS Reports

The corporate EPS wire highlights data from Target (NYSE: TGT), Deere (NYSE: DE), BJ's Wholesale Club (NYSE: BJ) and Chico's FAS (NYSE: CHS). The remainder of the list includes AFC Enterprises (Nasdaq: AFCE), Applied Materials (Nasdaq: AMAT), Baldwin Technology (AMEX: BLD), Brocade Communications (Nasdaq: BRCD), China Distance Education (NYSE: DL), ChinaEdu (Nasdaq: CEDU), Chipmos Tech (Nasdaq: IMOS), Citi Trends (Nasdaq: CTRN), Concord Medical Services (NYSE: CCM), Duoyuan Global Water (NYSE: DGW), Eaton Vance (NYSE: EV), Flexsteel Industries (Nasdaq: FLXS), Gushan Environmental Energy (NYSE: GU), Gymboree (Nasdaq: GYMB), Hott Topic (Nasdaq: HOTT), IFM Investments (NYSE: CTC), LeCroy (Nasdaq: LCRY), Limited Brands (NYSE: LTD), NetApp (Nasdaq: NTAP), NetEase.com (Nasdaq: NTES), Open Text (Nasdaq: OTEX), PetSmart (Nasdaq: PETM), Suntech Power (NYSE: STP), Synopsis (Nasdaq: SNPS) and ValueVision Media (Nasdaq: VVTV).



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.