Tuesday, April 24, 2007

There We Go Again, Another Up Day for the Dow

Market Action:
Tech stocks were off to the races as the bell rang to open the Tuesday session. IBM had announced earnings that were ok on Monday evening and then announced a stock buy back so that stock jumped about 5% in the early going. Since the Price of IBM is in the 90’s, a 5% move goes a long ways to pushing up the Dow price, say about 40 points. How much was IBM up at the end of the day? 3.28, so its contribution to the Dow was about 26 of the 35 points.

[The Dow is a Price weighted average and the way the Dow is calculated is to add up the total Price of the index and then normalize it by dividing that total by a divisor. Well, the divisor changes anytime there is a stock split in one of the Dow stocks so that the price of the Dow in the next day’s trading have a smooth change. Right now the divisor the Dow Jones Industrial Average is 0.12305141 so basically whenever a stock moves twelve point three cents, which is very close to an eight of a point, the Dow moves up 1 point. In the case of IBM going up about 5 points in the early going, the Dow benefited to the tune of about 40 points. As a reminder, no other indexes are calculated in this manner, most of them are weighted by capitalization, the more the company is worth in stock terms, the more weight it carries in the index. So, MSFT (Microsoft) with is around 28 a share has a fairly low price so a large percentage move wouldn’t affect the Dow much but it would affect the NASDAQ indexes it’s in.]

The news from TXN (Texas Instruments) on Monday evening caused part of the uproar in Tech as well, with TXN up about 8%. TXN is Not in the Dow so it didn’t affect that price but it did move the Philadelphia Semi-Conductor index. With about 20% of the index in TXN, the index was up over 3% on Tuesday.

After the bell on Tuesday, AMZN reported what looked like superior news to it shareholders and potential shareholders as that stock was up about 12% after the news. We happened to notice, though, that it wasn’t having much of an effect on other stocks in the after hours market. We’ll have to wait and see how the market opens in the morning. With Japan down over a percent this evening, there might be some drag on the market in the morning.

Generally speaking, however, the market was not strong in other areas and the tech world was able to mask the underlying weakness in the broader market. In fact the SP 500 was actually down a tad on the day with the NASDAQ Comp up just a tad. The NASDAQ 100, a more heavily tech weighted average was up nearly 0.50%, not that we like this.

Looking at the advance/decline numbers, the decliners led on both the NYSE and the NASDAQ but the advancing volume was higher on the NASDAQ than the declining volume but not on the NYSE. This indicates that there was underlying weakness in the market even though the Price indicators were a little more positive.

In The News:
The economic news on the day did not present a picture of strength, with the consumer confidence numbers down more than was expected and the existing home sales down a big 8.4%. We need to remember that the existing home sales are a little outdated since they are counted at closing with sales long before that. The news was that the February weather was the reason home sales were down, ok, right, that was it.

Wednesday, we get the new home sales which are counted at the time of sale sort of. We say sort of because they are only counted on the first sale. So, let’s say that cancellation rates are high (gee, that would be now, wouldn’t it?). That would tend to over state the sales for those homes that were first sold and then cancelled. But, the opposite is true, as second sales come in, there would be no way to know the actual number in this report so we would get an understatement of the results as sales were starting to turn around. This will be an argument that will be used over the next several months to put a bullish spin on low new home sales.

The other important indicator for Wednesday is durable goods which will be announced before the market opens. The expectations are for another up month to the tune of 3%. Oh, new home sales are expected to come in up 5.5%. Then there is the ever popular Fed Beige Book in the afternoon, as well as several more earnings reports.

Dow Industrials: 12,953.94 +34.54
VIX: 13.12
HUI: 348.13
QQQQ: 45.70 (new relative high)
QQQRS: 0.72 bid
QQQRT: 1.09 bid
RYVNX: 15.72
RYAIX: 20.77
RYCWX: 33.40
TLT: 88.80
BEGBX: 14.06

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