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U.S. stock index futures were pointing to a lower opening on Tuesday.
Yesterday's bounce had the earmarks of new month money coming into
the market. But the technical action was mixed with the advance decline
ratio acting well but volume remaining tepid.
News For Thought
Ex-Con Congressman wants to return to D.C. According to
The Washington Post: "James A. Traficant Jr., who served seven years
in prison for corruption, is running as an independent in his Ohio home
turf."
China: Stocks dropped to seven month lows overnight. Manufacturing slows
in one survey, rises in another. According to Reuters: "China's key stock
index fell to a seven-month low on Tuesday morning after China's central bank
said it would raise banks' reserve requirement ratios to fend off property and
consumer price inflation." The report added: "Banks weighed on the index after
the central bank's Sunday announcement of a 0.5 percentage point hike in the
ratio of funds banks must keep with the central bank as reserves, the third such
increase this year under a campaign to absorb excess cash in the economy at a
time when inflation is rising."
Bloomberg added: "Chinese manufacturing grew at a slower pace in April, easing
overheating risks in the world’s fastest-growing major economy, a survey of more
than 400 companies showed. A purchasing managers’ index released today by HSBC
Holdings Plc and Markit Economics fell to a six-month low of a seasonally adjusted
55.4 from 57 in March. A number above 50 indicates an expansion."
But, the direction of manufacturing remains unclear. According to Bloomberg: "A
government index, released May 1, showed manufacturing picking up pace and the
fastest gain in 22 months in input prices. HSBC’s survey uses a different sample
of businesses."
Greece: Bailout may not be enough. According to The Wall Street
Journal: "The €110 billion ($147 billion) three-year Greek bailout by euro-zone
countries and the International Monetary Fund won't be enough to cover Greece's
costs, an examination of Greek financial figures shows, setting Europe up for
more tough choices if private markets don't start lending again. The bailout
announced here over the weekend will solve one pressing problem: Greece will
have enough cash to repay an €8.5 billion bond that comes due in two weeks. But
the bailout package is based on assumptions that by the end of 2011 Greece will
be able to borrow again from capital markets. That may be optimistic, say some
bond-market specialists."
Semiconductor sales rose in March. According to The Wall Street
Journal: "Global semiconductor sales rose 4.6% in March from the prior month,
driven by demand for PCs and cellphones. Global sales totaled $23.1 billion." |
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The stock market rallied on 5-3 behind a robust ISM manufacturing
index and the heralded return of the consumer to the economic recovery.
Yet, the data is backward looking, and more current information does suggest
that a slightly different take is worth considering.
To be sure, it's hard to argue with the NYSE advance decline line (NYAD) as a
stock market indicator for now. The AD line has been the most reliable of indicators
with regard to the market's direction for several months, finding its way to
our pages on a regular basis. And once again on 5-3, it came within whiskers
of another new high, which if it happens, will signal that positive momentum
is back for the market.
Yet, we're still skeptical about the ability of the economy to sustain its recovery
without something more tangible to drive it, such as jobs, and less of a threat
of higher taxes. Call us old fashioned, but there you have it.
So we'll try to piece together some data that makes our case. Over the last few
weeks, one of our running themes has been the relationship between the casual
dining sector and the consumer. It's fairly clear that when consumers are upbeat
about their prospects, they dine out more often. Yet, lately, when things have
seemed bleak, we had on many occassions scratched our heads about the large crowds
in restaurants such as Texas Roadhouse (Nasdaq: TXRH) and Panera Bread (Nasdaq:
PNRA), among others.
In a piece here, on March 8, we noted: "it was a huge surprise when this scribe
trucked the family to the Texas Roadhouse (Nasdaq: TXRH) in Mesquite at 5:30
in the afternoon, and the place was already packed with about thirty to forty
people waiting outside and inside at any one time to get a table." In April,
we were in Wichita Falls, TX, and we visited another Texas Roadhouse restaurant.
The crowd was still big, but it seemed to us that it seemed to thin out more
quickly than other similar crowds we had seen at other shops from the same company.
Last week, Buffalo Wildwings (Nasdaq: BWLD) told analysts that same store sales
were likely to disappoint, and the stock fell, as did the rest of the casual
restaurant sector. Now, after the bell, on May 3rd, Texas Roadhouse told analysts
that "April comparable restaurant sales fell slightly," and shares took a beating
in the after hours session.
Earlier in the day, the market rallied on what it interpreted as good economic
news, the consumer was back spending money. But a close look at the personal
income figures shows that consumers spent their savings in April, and some analysts
are saying that much of the spending boom in March and April may have been partially
due to tax refunds, as well as employment benefits. If that's true, then Buffalo
Wild Wings and Texas Roadhouse are confirming what we noticed over the weekend,
empty tables at restaurants that were full just a month ago.
And if the restaurants are empty, that means that consumers aren't all that positive
about things, which could mean that the rosy scenario painted by data from March
and April, is just that, a rosy scenario that's already passed us by, leaving
the data behind.
And if business was so good, why would Brinker International be selling its second
high profile brand, On the Border, after it jettisoned the majority ownership
in Romano's Macaroni Grill in the past few months. Brinker, which owns Chili's
and Maggiano's, for its own part reported decreasing revenues for its most recent
quarter.
Panera also guided analysts lower in its upcoming quarter, making this phenomenon,
a trend, as the casual dining sector, in our opinion is sending a fairly clear
message, things are about to slow.
Conclusion
Yesterday, we noted that the number of upscale houses in North Dallas seems to
be increasing. This is in keeping up with the number of houses that are now owned
by banks after being unable to unload them at auctions after foreclosure.
Empty houses without buyers, and empty restaurants that were full a month ago
don't give us the warmest and fuzziest feelings about what lies ahead. And when
you add the fact that consumers are tapping into their savings in order to buy
things, we are getting concerned.
What we need to look for next are signals from the banking sector, such as potential
earnings warnings in the next few weeks. If we see that kind of activity, and
other sectors start to sound the alarm, we may have the start of the double dip.
Dr. Duarte is currently short the financial sector via the SEF ETF. This is an
example of a hedge. Visit all our different sections as Dr. Duarte's positions
are highlighted.
Know when to sell and how to make money when the market falls. Get
a detailed trading plan in your pocket. Read Dr. Duarte's All
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The market bounced
back on Monday, but some subtle technical signs in S & P
SPDR ETF (NYSE: SPY) suggested that Tuesday could be a
down day at least at the start.
Chart Courtesy of StockCharts.com
The bulls were happy on Monday, as they got back a lot
of what they lost on Friday. Yet, the S & P 500, despite
a sound day of advancing stocks failed to break above one
key technical barrier, a trendline that went back to April
26th, the day the market topped.
The trendline started at 1219 and sloped down placing resistance somewhere near
1205 on Monday. The S & P's high for the day was 1205.13. What the S & P
did accomplish was a move back above 1200 and its 20-day moving average. Those
are positive developments, but they may be overshadowed if the market closes
below 1200 and the 20-day line. More important would be a close below 1186,32,
the April 30 low, as the selling could pick up steam if that happens.
For now, the trend remains to the up side, but it's clearly weakened, and a lot
of what happens in the U.S. may be influenced by international developments.
European markets were moving lower on Tuesday, and Asian markets were mostly
lower overnight.
Higher interest rates in China and a general sense of doubt with regard to the
Greece bailout package are the major worry points. The Euro is continuing to
weaken as well.
What's the bottom line? This is starting to be a very pivotal week in this bull
market.
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