Tuesday, July 25, 2006

UPS Slams Transports

Monday night’s news on TXN didn’t mean much for the stock market on Tuesday morning.  In the Dow, MMM, 3 M, started the day out with a big miss on earnings that the market punished with the stock down 5% on the day.  MMM had been hit about a month ago when it pre-announced and now it is down about 20% from its May highs.

Over at UPS, the United Parcel Service, there was some more bad news.  UPS announced disappointing results because it had to pay too much for fuel as well as the effects of a slowing economy.  The stock took a big 10% haircut today leading the Dow Jones Transportation index to a 1.76% loss.  We have questioned the logic of these transports just continuing to go up in spite of increasing fuel prices so today some of that logic is being realized.  

The rest of the market traded sideways for the better part of the day with a good sized spurt the last hour and a half of the day to show some positive closing prices.  This happy close was not greeted very well by the after hours news with AMZN announcing dismal earnings.  The stock got smacked for 10% after that news.  So, while the QQQQ’s we own did have a nice up day, the after hours took it all away.  We can only imagine what the trading day will be like on Wednesday.  

We did see the existing home sales fell again, as expected, last month.  That makes eight in the last ten months that home sales have fallen.  And, as sales have fallen, inventories are rising, this month to a new world record 3.725 million units.  This represents a 6.8 month supply using June’s pace.  Last June (2005), the supply was only 4.4 months.  On top of that, prices, while still rising, only rose 0.9% from year ago levels, the smallest year over year gain since May 1995.

The Fed is not doubt monitoring the economy and will take note of the important news items of this week especially the first estimate of second quarter GDP growth.  Current estimates come in at a modest increase of 3.2% with some forecasting even less for the third quarter.  The big Fed meeting is on August 8th and will provide some entertainment for a few minutes at least.  Yes, it is a few weeks away but we are at a point where the Fed Has to stop raising rates and the market knows it.  Any further weakness that we see in the other news items like the durable goods orders or new home sales on Thursday will cause them to relax and enjoy the ability not to raise rates again.

We are thinking that the current rally can continue until about then but we are looking more at the July jobs report that is due on Friday August 4th.   We’ll fine tune our thinking as the days go b(u)y—ok, not funny because we are not sure that with the weakness we are seeing in some of these stocks whether we will actually see a rally or if the train wreck will show up first.  We are still long the QQQQ’s.

Dow Industrials:  11,103.71  +52.66
QQQQ:  36.62
RYVNX:   24.08
RYAIX:  25.34
TLT:  85.03
BEGBX:  13.35

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