X-Games Hit Wall Street
While it used to be acceptable to play golf at a leisurely pace and even use a cart in the process, a new version of "extreme golf" has swept the country. In this style of play, golfers run, not walk between strokes. The faster you can complete a round, the better. I don't know about you, but I'd much rather pace myself and hit some good shots in the process, than hack at the ball between sessions of hyperventilating into a brown bag.
Where am I going with this? Well, it seems traders have taken the whole "extreme" mentality to heart lately. The DOW (INDU) and the NASDAQ (COMPX) both went from being overbought to being oversold in a matter of just one week. Stocks are being sold with gusto one day and then are being bought with just as much adrenaline pumping enthusiasm the next (look at Oracle (NASDAQ:ORCL) today, yikes).
With trading taking on the aura of a Mountain Dew commercial lately, market players should be switching into stealth mode. This entails taking profits early and keeping those stops tight. In other words, (in keeping with the whole sports theme) try to lay down a series of singles instead of going for the home run.
Also adding to the recent volatility is the fact that recent economic data continues to paint a picture of a weak economy. On Thursday, we received word that initial jobless claims rose by 8,000 to 419,000, roughly in line with estimates. The jobless claims number has been on the rise for three consecutive weeks. Most economists are optimistic, however, because the rate of the jobs slowdown seems to be slowing.
The DOW and the NASDAQ managed to contain their losing streak to three sessions apiece, as the indices received a boost from many diverse sectors.
The NASDAQ added 25.99, or 1.25% to 2110.49. It did so on less volume, however, which is not too encouraging from a technical standpoint. Only 1.8 billion shares changed hands in Thursday's session. On the other hand, breadth improved, with advancers beating decliners 2258 to 1591.
The DOW managed a gain of 39.30 to 10911.94 on NYSE volume of 1.1 billion shares. The positive close on the DOW was due in large part to United Technologies (NYSE:UTX) and 3M (NYSE:MMM), which added $1.61 and $1.23 respectively.
Stocks and Sectors on the Move
A troubling trend is developing within stocks that are issuing warnings. Many are blaming higher energy costs as one of the primary reasons behind their shortfalls. We are seeing this from everyone from healthcare to restaurant companies. We heard from the latter today, as CEC Entertainment (NYSE:CEC), who operates Chuck E. Cheese restaurants, informed investors that they would come up shy on profits for the year. In addition to the higher utility costs, they also blamed higher cheese costs for their woes.
Other restaurant stocks asked for the check and headed lower on the session as well. Darden (NYSE:DRI) lost $0.81 to $27.90, Brinker International (NYSE:EAT) gave up $2.10 to $24.55 and Outback Steakhouse (NYSE:OSI) surrendered $1.98 to $28.50. Unfortunately our Applebee's (NASDAQ:APPB) was also caught in the downdraft and lost $3.32 to $39.78 stopping us out for a loss.
Getting back to the higher energy costs issue, keep an eye on the stocks that are falling on reports of increased utility costs. The market has a funny way of discounting near term "blips" in the profit picture of stocks, so these fallen soldiers could turn out to be good buys soon. It would not be uncommon for these stocks to fall, stabilize at lower levels, and then start climbing higher on an improved cost outlook.
Turning to other movers on the day, it wasn't higher utility or cheese costs that dragged down shares of McLeodUSA (NASDAQ:MCLD) today. It was none other than a Merrill Lynch downgrade from a "near term accumulate" to a "near term neutral". Merrill lowered its rating on MCLD because it revised the company had decided to revise its business plan for the worse. MCLD closed down $0.88, or 16.03% to $4.61 and was the sixth most active stock on the NASDAQ today.
Looking Forward, Always Forward
TGIF brings with it the granddaddy of all economic reports, that of course being the May employment report. Non-farm payrolls are expected to fall 30,000 and the jobless rate is predicted to come in at 4.6%. This report has the potential to be market moving since it is one of the few larger reports due out between now and the Fed meeting in mid June.
Any further slippage beyond Wednesday's lows on the indices will have traders talking all weekend about a retest of the April lows. What we really need going into this weekend is a so-so opening flowed by a surge into the close. While volume will no doubt be sorely lacking on a getaway summer Friday, we will need the indices to hold any gains they can muster in order to keep the bulls from wondering out of their pasture.