Daily Market Reports | Apr 18 2008
By Greg Peel
After rallying over 250 points on Wednesday the Dow managed to add the total of one point last night. The S&P didn’t trouble the scorer either while the Nasdaq lost 0.3%. Wall Street has once again failed to meaningfully consolidate a big rally-day with another respectable sortie into the green.
The bulls will tell you a stable result is good news as the gains of Wednesday have been held, while the bears will tell you it’s bad news that the market couldn’t kick on. Veteran traders will tell you it is Day Two after a big rally that is more important, as Day One usually brings a breather. If Day Two gets a kick then get bullish. But in 2008 the story has been rally and fail, rally and fail. If you like tea leaves, then have a look at this simple three month Dow chart:
Draw a trend line from the January top across the successive tops. The trend is in gradual descent. Then draw a similar line across the bottoms from March for a steeper ascent, and achieve a classic triangular or “flag” shape. The market has to break out of the flag, the question is which way?
The descending trend is even more pronounced in the more realistic broad market S&P 500. In the S&P’s case the tea leaf readers want to see not just the trend line broken to the upside, but a break of the psychological 1400 mark.
Back in the real world…
The strong lead-in from Dow component IBM which beat the Street with its earnings report late on Wednesday did not manage to provide the impetus the market wanted on the open. Crimping the enthusiasm was the release of the Philly Fed monthly index of economic activity – the most closely watched of all the Fed district indices – which fell once again in April to -24.9 after spooking the market with a solid fall to -17.4 in March. With this wet blanket at the party, the earnings numbers thereafter had to be good.
Following good results previously from Dow-components Intel, JP Morgan, Coke and IBM last night’s exclusive member Pfizer produced a fizzer which saw this serial underperformer fall to a ten-year low. Perhaps Pfizer should take some of its own medicine to get a rise. A poor result from Finnish phone success story Nokia, citing US dollar weakness as its burden, added to the disappointment side of the ledger.
There were some positives among other less-recognisable stocks (with the exception of Harley Davidson, which is feeling a bit hog-tied in the downturn) but the result of interest was always going to be that of #3 investment bank Merrill Lynch.
Merrills posted a US$2bn loss for the first quarter bringing its run of quarterly losses to three. It wrote down a further US$2.3bn. The loss was worse than Wall Street expected, so initially the stock was sold. However, it finished the day up 4%.
It rallied on the day for three reasons (a) it was seen as a “kitchen sink” result, meaning things can’t get any worse, (b) CEO John Thain declared Merrills would not have to issue any capital, and (c) the market really, really wants to buy financials and is looking for even the slightest excuse.
In response, one might note (a) this is at least the second “kitchen sink” call on Merrills – just how many kitchens does this firm have? (b) John Thain had only last week suggested the bank need not issue capital, but had to qualify that last night by specifically suggesting common stock would not be issued (leaving the way open for pref issue for example), and (c) why? What’s looking good?
It beggars belief as to why bank CEOs just don’t learn to shut up. Thain is now under fire in the market, with CNBC hinting his days might be numbered as it reported the Merrills CFO had to castigate the CEO for making his earlier “no raising” statement. History suggests that whenever a CEO says nothing is wrong then something usually is very wrong. Bear Stearns’ CEO was all smiles and affirmations two days before the bank was gone.
Elsewhere in the markets it was a case of pulling back slightly from sharp moves on Wednesday. The US dollar rallied back a little, sending gold down US$6.70 to US$938.00/oz, oil down US7c to US$114.86/bbl, and the Aussie down a tad to US$0.9374.
The real volatility was in copper, where conflicting reports coming out of Chile had the metal surging ahead again before dropping back 3% from the highs. The end result was a 1-2% down day for most metals.
The confusion over Chile centres unsurprisingly on conflicting statements from local copper giant Codelco and its workers. Management suggested three of its five major divisions were operating normally while two had been shut down not because of strikes but because of safety issues. The local union, however, suggest it was they who closed down at least one plant and that Chilean police had used tear gas and water cannon to clear the picket. If you’re a world away in London, who do you believe?
The SPI Overnight closed up 7 points. Guess where we are? Yep – hovering around the 5500 level in the ASX 200 for only the umpteenth time. After three good days of rally is this the day to square up and hit the lunch circuit?
Wall Street may yet see another good lead-in tonight, at least in the Nasdaq, as Google posted its earnings just after the bell. There have been grave concerns for Google in 2008 given the apparent sliding momentum of its advertising click-through model. The stock has fallen from a euphoric high of nearly US$750 in January to close to US$400 since, but last night it not only beat the Street, it smashed it into submission. Google shares were up no less than 17% in the aftermarket.
In the past few months tech has been king, and then tech has been dead once more. With all of tech leaders Intel (chips), IBM (hardware) and now Google (internet) posting solid results it would seem tech may be alive and kicking after all – supported by an average 50% of earnings from outside the US. We just need Microsoft (software) to complete the set.
