Here we are in front of a new week of trading and having to look back at last Friday’s trading to get some idea of what is going to happen this week, the old look in the rear view mirror to see where you’re going. This is normally not a very good idea in the real world so we need to be careful not to put too much credibility on where we’ve been but we do need to review the Friday trading day.
Our last post said we thought we would see a pretty good pop at the opening if the jobs report was at all weak and Weak is what we got. The ADP estimate we told you about last week was about 368K and the composite estimate was 175K and the number actually came in at 121K an hour before the market opened. Bonds liked the number all day long and stocks liked the number until…
Just before the opening, MMM, Minnesota Mining and Manufacturing warned that second quarter profit would miss earlier guidance. The reason, weaker than expected demand for optical films used in flat screen TV’s and computer monitors. The news immediately hit MMM, a Dow component, and the stock market reacted negatively. The opening bell included a five point drop in MMM and the Dow was quickly down about 85 points. The selling picked up about half way through the session with the Dow down about 160 before rallying to close down 134.
This action reveals the tenuous nature of the market at the present time. On Thursday we saw MO jumping on the tobacco news and then Friday we get the crushing blow of MMM. We expect that the market is not prepared for any negative news coming out of second quarter earnings reports. Of course, the media is extremely bullish on the upcoming reports but when a company of MMM’s stature gets hammered for almost 9% there could be more where that came from.
There isn’t much in the way of economic news in the next week but we will try to keep you posted on the earnings news that we find interesting.
We do hope you took the opportunity to get out of some of your holding over the past week. The 200 point Dow rally was a very good time to do so. Looking back on our call for a rally starting right after the Fed news and going to 10 o’clock last Thursday was spot on—How do we do it? The MO news spurred that little rally on Thursday morning allowing us to be happily bullish for a week. For those of you who traded PAAS in that period of time, you would have bought it for right around 16.85 and sold it around 18.40 for a tidy 9% profit in a week.
Be careful out there.
Dow Industrials: 11,090.67 -134.63