Investors Forego Tech For Food
Cell phones, routers and semiconductors took a backseat on Wednesday to Nabisco cookies, Post cereal and Philly cream cheese, as the long awaited Kraft Foods IPO hit the street. With investors recently shifting their attention back to companies with actual earnings, Kraft (NYSE:KFT) was a sight for sore eyes.
The Kraft IPO is the biggest initial offering since the AT&T Wireless (NYSE:AWE) offering in April of 2000. But unlike the AWE offering, KFT managed to eke out a slight gain on its first day of trading. After trading about 70 million shares, Kraft ended today's session up $0.25 to $31.50.
However, some analysts were saying that due to the fact that the "cheese play" was so heavily oversubscribed, it was priced at close to the top of the range for being reasonably valued. Therefore, they don't see much upside to the stock from here, at least in the near term.
In anticipation of the Kraft deal, other food stocks have been breaking out of bases and setting new highs. Some of the technically stronger ones include Suiza Foods (NYSE:SZA), Dean Foods (NSE:DF) and Smithfield Foods (NYSE:SFD). In addition to having strong balance sheets, these food plays are fairly recession proof. And with economic data still pointing towards a continuation of "challenging times", investors have filled their plates with these food stocks and show no signs of putting the fork and knife down soon.
Speaking of economic news, we received word on Wednesday that retail sales for May moved up by 0.1% versus projections of 0.2%. This came on top of news that April's retail sales were revised up to 1.4% from 1.1%. So, it seems that while the consumer has his moments (he spent like crazy in April), he is still not ready to open his wallet for big-ticket items or for any length of time.
Take yesterday's price action, flip it on its head, and you have an accurate reading of what happened today. While yesterday saw a weak open followed by strong buying in the afternoon (as if someone fired a gun on cue), today we saw a fairly strong opening followed by a footrace to exit doors.
The NASDAQ (COMPX) lost 48.29, or 2.23%, to 2121.66. Volume picked up a bit, with 1.5 billion shares changing hands. The tech heavy index closed under support at 2150, so we are now looking towards support at 2100 as the next safety net for the NASDAQ.
The Dow (INDU) also disappointed investors on Wednesday. After flirting with the 11,000-level just before noon, the Dow called it quits and headed south into the close. The pullback from 11,000 today reinforces resistance at this psychologically important level and served to leave a bearish taste in the mouths of traders everywhere. Volume on the NYSE came in at just over 1 billion shares and surprisingly (given the lousy session), decliners and advancers were almost dead even at the close.
Stocks and Sectors on the Move
There were the obligatory warnings today and some individual movers of note, but in this section today I mostly want to focus on some sectors and stocks that I have been watching lately. These are by no means "go out and buy them tomorrow" stocks, but some of them might pique your interest enough to warrant further exploration on your part.
But before I get to my watch list, I feel obliged to let you in on the hot news of the day. That said, Lucent (NYSE:LU), got pummeled by 10% after Standard & Poors lowered its rating on its bonds to "BB-plus" or junk status. S&P cited significant uncertainties over whether LU could turn its current situation around in the face of such a weak telecomm market. LU ended the session down $0.70 to $7.24.
Maytag (NYSE:MYG) became the latest in a string of companies to blame softening sales and a weak economy for their impending earnings shortfall. MYG now expects earnings in the neighborhood of $0.32 per share as opposed to previous estimates of $0.46 per share. The stock finished the day at $32.17, down $0.31.
In after hours action, Ingram Micro (NYSE:IM) lowered its second- quarter earnings bogey and Quantum (NYSE:DSS) also said it will miss estimates of $0.17 by about $0.07 per share.
Now we turn to the sectors and stocks du jour. I have been watching the action in the gambling/casino group for a few weeks now and am impressed by the staying power of these stocks. Many have already broken out of bullish base formations and are ensconced in well defined up trends. Any weakness has been almost immediately met with buying interest, which tells me that the "generals" don't think that these stocks are a gamble. My favorite in the group is little MTR Gaming Group (NASDAQ:MNTG). It has been moving higher ever since the gaming laws in West Virginia (where it owns casinos) were changed to allow higher stakes gambling. The more a customer can bet, the better it is for the house. MNTG closed up $0.70 to $11.90 today.
I have also been intrigued by a select bunch of high tech stocks that have totally disregarded the recent plight of their peers. I am speaking of the computer software sector and more specifically the educational/game-software sector. Within this specialized group, I like Activision (NASDAQ:ATVI). The stock has been experiencing huge volume surges on up days and has just broken out of a loose base formation on more than three times average trade. In addition, an analyst at CSFB just moved ATVI's price target from $35 to $50. ATVI closed Wednesday's session up $1.00 to $40.93.
Rapping up my "featured" sectors for today is the insurance group. These slow moving stocks have been quietly advancing all year and a select few are now breaking out of bullish chart patterns. My favorite insurer right now is St. Paul (NYSE:SPC), which just completed a cup and handle breakout. The stock had been moving sideways for three weeks on lower volume (textbook) before breaking up through resistance at $50.75 during today's session. Now that SPC has broken $50.75, it does not face significant resistance again until the $55-level. The only "iffy" aspect of today's breakout was the volume. SPC did only 850,000 shares as opposed to its average 1.1 million.
Take from these what you will. Good traders know that almost 50% of a stock's price movement is sector related. Stick to strong sectors and you give yourself an edge right off the bat.
Looking Forward, Always Forward
Thursday morning brings with it more information from the inflation front. We get May's PPI number (expectations of a 0.3% reading) and initial jobless claims (looking for a number close to 424,000). These are both potentially market moving, so keep an eye on those early trades.
Looking ahead, while I am still bullish on the market in general, I have to say that technically speaking, storm clouds are brewing. By this I mean that the charts of the NASDAQ and the Dow (more so the NASDAQ) reveal ugly head and shoulders formations that are close to breaking down. A bearish break of the NASDAQ's neckline at 2100 would have many a chartist heading for the sidelines for a piece. On the DOW, a break down through today's low of 10865 would have the same results.
While we are not saying that a break of these above-mentioned necklines will result in a total collapse of the market, these are levels that a lot of pros are looking towards when placing trades. And in this slow market, if buyers get spooked anymore than they already are, it may be time to tighten the stops and take a step back.
Keep sticking with the strongest sectors and continue going for singles instead of home runs. You'll be pleasantly surprised at how many runners you'll get home.