Morning Market Report 08-25-10

Morning Greek
Greek Factor: -3

We've applied a dramatically negative Greek Factor to today's morning market report, based greatly on the bad news on Durable Goods for July. Orders fell in many key categories, including previous areas of strength, business investment and computer and electronics. Stock futures agree, and point to a markedly lower start to the day. 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: Nasdaq: CWTR, NYSE: MDT, Nasdaq: CVLT, Nasdaq: JDSU, NYSE: DNR, Nasdaq: AREX, Nasdaq: FNGN, NYSE: TOL, Nasdaq: NKBP, NYSE: GES, Hong Kong: 656.HK, OTC: HKFI.PK, NYSE: ACH, NYSE: AEO, Nasdaq: ANGN, Nasdaq: AVNW, NYSE: BHP, NYSE: BWS, NYSE: CM, NYSE: LFC, NYSE: CHA, Nasdaq: CYBX, Nasdaq: DLIA, Nasdaq: HAIN, NYSE: HEI, Nasdaq: ITRN, NYSE: JAS, Nasdaq: KONG, Nasdaq: OSIS, Nasdaq: PERY, NYSE: PTR, Nasdaq: RAVN, Nasdaq: RUE, Nasdaq: SMTC, Nasdaq: SHLO, Nasdaq: SCVL, Nasdaq: SIGM, Nasdaq: SYNO, Nasdaq: TBAC, Nasdaq: TIVO, Nasdaq: VSNT, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

Morning Market Report

Today's market has a lot weighing against her. The importance of July's Durable Goods data cannot be overstated in this morning market report, with most industry segments, except perhaps auto orders, weighing against economic life. Meanwhile, mortgage activity improved, but we must take note of why. Mortgage rates dropped to historical bottoms, and that is indicative of an anemic real estate marketplace. That is NOT a good thing, and gives reason to sell again today. Enjoy your coffee, donut and economic double-dip.

Mortgage Application Volume
Greek Factor: -1

Mortgage activity for the week ending August 20 improved, but only as mortgage rates collapsed to the lowest levels in recorded history. Contracted mortgage rates on 30-year and 15-year fixed rate mortgages fell to 4.55% (from 4.60%) and 3.91% (from 3.99%), respectively, in the measured period. Thus, the Refinance Index gained 5.7%, to its highest level since May 1st. Purchase activity was less robust, rising 0.6% on a seasonally adjusted basis, but losing 1.1% when unadjusted. The Market Composite Index increased 4.9%. We are applying a negative factor rating to this data point due to the fact that purchase activity remains nonexistent, and even due to the depth of mortgage rates. While this should be fueling economic growth, its anemic mark is reflective of the pathetic state of our economy and housing market.

Durable Goods Orders
Greek Factor: -3

Durable Goods Orders were reported this morning for the month of July. New Orders increased just 0.3%, well short of the economists' consensus for a gain of 2.5%. Excluding volatile transportation data on big ticket orders, the result was a 3.8% drop. July's result compared against a revised higher June result of -0.1%.

The strength was clearly in transportation, where orders gained 13.1% after posting two consecutive monthly drops. Aircraft orders were up on nondefense, as non-defense aircraft orders jumped 75.9%. Total New Orders ex-defense were up 0.3%. Computers and Electronics Products Orders fell 2.4%, and most related segments showed drops in order activity as well. This was a strength in recent months, so the turn around will disappoint investors today. Also dreadful, Capital Goods Orders Ex-Defense and Aircraft collapsed 8.0% in July, meaning businesses stopped investing. Again, investors were desperately hopeful here, and the rug has been pulled out from under them. This is a key driver today, and we'll take a closer look in a later article.

New Home Sales

New Home Sales data for July is due for release at 10:00 AM. This follows the lousy Existing Home Sales Report released yesterday. Existing home sales account for about 90% of total sales, and therefore matter significantly more than New Home activity. That said, economists forecast an annual rate of New Home Sales of 340K for July. This would compare against June's rate of 330K. I am not expecting good news here. We do not assign a Greek Factor to the data point because it has not been released in the premarket. However, we expect it to weigh against the market today.

FHFA House Price Index

The Federal Housing Finance Agency (FHFA) will report on its House Price Index (HPI) at 10:00 AM. This latest reading will be for the month of June, and will compare against May's monthly gain of 0.5%. Eventually, one of these indices is going to turn sour, and we might see it in FHFA data, due to price ceilings here. The House Price Index is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. In contrast to other house price indexes, the sample is limited by the ceiling amount for conforming loans purchased by these government-sponsored enterprises (GSE).

EIA Petroleum Status

The EIA reports on Petroleum Status every Wednesday at 10:30. The last report, covering the period ended August 13, showed oil inventory fell by 0.8 million barrels. Gasoline stocks remained relatively unchanged last week. Both oil and gasoline stores remained above the upper limit of the average range for this time of year. Energy prices are giving way now as economic expectations deteriorate.

Corporate News Drivers

Coldwater Creek (Nasdaq: CWTR), Medtronic (NYSE: MDT), Commvault (Nasdaq: CVLT) and JDSU (Nasdaq: JDSU) discuss earnings and more with investors today. Denbury Resources (NYSE: DNR) and Approach Resources (Nasdaq: AREX) make presentations at the EnerCom Inc. Oil & Gas Conference. The IPO lockup period expires for Financial Engines (Nasdaq: FNGN). BHP Billiton (NYSE: BHP) reports results this morning, and its CEO said it would maintain discipline in its bid for Potash (NYSE: POT).

The day's EPS schedule includes news from Coldwater Creek, JDSU, Toll Brothers (NYSE: TOL), China Nuokang (Nasdaq: NKBP), Guess (NYSE: GES), Fosun Int'l (Hong Kong: 656.HK), Hancock Fabrics (OTC: HKFI.PK), Aluminum Corp. of China (NYSE: ACH), American Eagle (NYSE: AEO), Angeion (Nasdaq: ANGN), Aviat Networks (Nasdaq: AVNW), BHP Billiton (NYSE: BHP), Brown Shoe Co. (NYSE: BWS), Canadian Imperial Bank of Commerce (NYSE: CM), China Life Insurance (NYSE: LFC), China Telecom (NYSE: CHA), Cyberonics (Nasdaq: CYBX), dELiA's (Nasdaq: DLIA), Hain Celestial Group (Nasdaq: HAIN), HEICO (NYSE: HEI), Ituran Location & Control (Nasdaq: ITRN), Jo-Ann Stores (NYSE: JAS), Kongzhong (Nasdaq: KONG), OSI Systems (Nasdaq: OSIS), Pery Ellis Int'l (Nasdaq: PERY), PetroChina (NYSE: PTR), Raven Industries (Nasdaq: RAVN), rue21 (Nasdaq: RUE), Semtech (Nasdaq: SMTC), Shiloh Industries (Nasdaq: SHLO), Shoe Carnival (Nasdaq: SCVL), Sigma Designs (Nasdaq: SIGM), Synovis Life Technologies (Nasdaq: SYNO), Tandy Brands (Nasdaq: TBAC), TIVO (Nasdaq: TIVO) and Versant (Nasdaq: VSNT).



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