Market Moves: Deals & Data? Lots of Drama is Driving the Dow
May 13, 2008
The Dow is facing pressure from every direction. The bulls are
pushing it up. The bears are moving it down. The deals are driving
it. And the data is mixing is up. Who knows in which direction this
market will trend? Sometimes, it looks like the market will move
back across the 13K line. Other times, it appears to struggle to
remain in 12K territory. This week is opening with important data
promising to move the market. The data is mixed and slightly
contradictory. In other words, there is something for both the
bulls and the bears to believe in. The deals are on the rise again
and the market loves to watch their continuing drama unfold.
Sometimes they flourish. Other times, the deals fail. But they are
always exciting. These data-and-deal factors are converging to lead
to a market that is strongly positive on one day, and then taking a
dive the next day. Occasionally, the market is eerily silent. The
Dow is not the only market driven by the data and deals so
let''s take a look at the global markets.
The Asian markets experienced a very positive day on Tuesday, May
13, 2008. Of course, there was a single exception. While most of
the region was making multiple percentage-point gains, the Shanghai
index fell nearly 2 percent. Uncertainty and despair following an
earthquake that killed 12,000 people is cited as the sole reason
for the index''s decline. Communication and transportation
disruptions compounded the problem in the Sichuan province. These
negative feelings were not felt in the rest of the region. The Hang
Seng gained 2 percent, followed closely by Japan''s Nikkei,
which rose 1.5 percent. India''s BSE gained 0.7 percent.
The European Big Four group experienced a mixed trading day on
Tuesday, May 13, 2008. London''s FTSE was the only loser in
the region, trading down 0.3 percent. Switzerland''s SMI
gained 1.2 percent. The CAC and DAX made modest gains. However,
these gains came late in the afternoon as not-so-negative data from
the US was released, particularly the retail sales figure. Even the
merger news from Hewlett-Packard Co. (
HPQ) helped to revive the European indexes. Still, as the
trading day closes in Europe, the indexes are gaining upward
momentum that could fuel a strong opening on Wednesday, May
14 th.
Back in the US, the Dow (
$INDU) made a bearish opening, which gained momentum as morning
trading proceeded. The index traded down 92 points just before the
lunch hour. However, the retail sales report and the H-P merger
news are rocking the Dow so a turbulent day is definitely ahead.
Let''s go straight to the economic data.
Economic Reports
The retail sales report was one of the big news reports of the
trading day. The higher-than-expected figure was somewhat
misleading. The retail sales figure for April showed a loss of 0.2
percent, which is down from March''s 0.2 percent gain.
However, the expected figure was expected to show a decline of 0.3
percent. So, while this figure was not as low as expected, it
certainly was not a glowing example of a strong and vibrant retail
sector. Nevertheless, if you remove the auto sales figure from the
equation, the retail sales figure jumps to a 0.5 percent gain.
Obviously, the auto sector is weighing heaving on the retail
sector. The report was released at 8:30 this morning and it is
probably one of the major mix-ups felt by the market.
The next big report that the market awaits is the Consumer Price
Index. The CPI is one of the few reports with which most people are
familiar. Basically, everyone knows that it measures the rate of
inflation for consumer products. And that gets everyone''s
attention. Analysts are predicting that the CPI will decline from
0.3 percent in March to 0.2 percent in April. That is within the
Fed''s acceptable inflationary guidelines. Most of the markets
despise inflation so lower inflation is viewed quite favorably. The
bond market could get a boost from this declining CPI figure. The
stock market could also have a bullish response to this figure. The
dollar can have a mixed reaction, but it should primarily be a
positive response since it helps to maintain the value of the
Greenback. Declining inflation is generally good for the markets
and the economy, particularly an economy that is struggling for
growth. The CPI figure will be released on Wednesday, May 14 at
8:30am.
The inflation data will continue next week with the release of the
Producer Price Index on Tuesday, May 20 th. While the CPI
is more closely watched, the PPI is also closely monitored for its
effect on businesses. When prices increase for businesses, then
prices will also increase for consumers. At this time, any price
increases for consumers will not be welcome by consumers. However,
I think that we can expect that the PPI will probably decline
similar to the CPI, if analysts are correct and the CPI does,
indeed, decline. Also, next week, the housing data will continue
with mother of all real estate sales reports: existing home sales.
So, there is a lot of data driving the Dow. Let''s take a
quick look at a deal in the tech sector.
Company News
The Dow remained low after the lunch hour. It appears that the
bulls cannot get enough momentum to move the bears. The big deal
this week is that Big Blue may have a new rival: Hewlett-Packard.
Yes, H-P has always been a formidable foe in the tech sector.
However, this possible merger could change the balance of power in
the entire sector.
As everyone knows, Hewlett-Packard is bidding to purchase
Electronic Data Systems, Corporation (
EDS). This move would make H-P the second largest global
provider of IT services. How much is that worth to H-P? Well, the
bid price for EDS is $14 billion. Unlike the Yahoo, Inc. (
YHOO)-Microsoft Corporation (
MSFT) failed merger, this one seems to be nearly a done deal.
Both companies have announced that they are holding advanced talks
and, let''s face it, there is a very positive and excited
atmosphere surrounding this deal. But like the ABN-Amro (
ABNY.Y)-Barclays (
BCS) deal, there is always the possibility of another
interested party stepping in to liven up the deal. Or a bidding war
could begin as in the Boston Scientific (
BSX)-Johnson & Johnson (
JNJ) competition over Guidant Corporation (
GDT). So, we shouldn''t get complacent. The fun is just
beginning! In the midst of all the fun, EDS is trading up a
percentage point while Hewlett-Packard is down more than 7
percent.
Market Moves Wisdom of the Week
Follow the data and deals! The market responds to the economic data
as well as the news and events that develop during the trading day.
The data and deals are pieces of a puzzle that develop into a
picture of the market. This picture can be very helpful to traders
in developing their trading systems, finding good trades, and
knowing the right times to enter and exit trades. So the Market
Moves Wisdom of the Week is to follow the trail that the data and
deals make. This trail can lead to better trades and higher levels
of profitability.
Robin Lofton
Staff Writer and Trading Strategist
Profit Strategies.com
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