Sector Investing

[ReturntoSender]

Better Than Monday
By Jim Brown

http://www.asianinvestoronline.com/marketwrap/070803_1.asp

No, we did not put more points on the board but we did exceed Monday's volume by a fair amount. Is this a good thing for a day where the Dow barely broke even? That $64 billion question will be answered on Wednesday when the market will have to meet a much higher standard just to break even.

Dow Chart - Daily


Nasdaq Chart - Daily


Economically the day was a pass with no material economic reports and profit taking from Monday a much bigger concern. The leading report Tuesday morning was Weekly Retail Sales which rose +0.7% to a new high for this cycle. The sales were boosted by the July 4th promotions but traders could have cared less. This is not a real market mover under normal circumstances and today was no different. This weekly snapshot will take a backseat to the real monthly numbers on Thursday. We will get to see if the high inventories have burned off from the heavy discounting and what stores are looking at for the balance of the summer. With consumers getting a chunk of extra cash on their paychecks from the recent tax cut, retailers will be slashing prices and running big ads to get their share.

Those same consumers ran up their debt over the month of May with a bounce in consumer credit to $7.3 billion from the consensus estimates of $5.2 billion. However April was revised down to $7.8B from the previously reported $10.7B. The biggest jump was in auto debt which was prompted by continuing big incentives from the major manufacturers. These gains were despite a refinance index that is 400% higher than it was this time last year. Some consumers are paying off debt at a record pace while others are going deeper in debt due to unemployment.

The most positive report for the day was the Richmond Fed Survey which came in positive, only +1 but we can't complain. This was the first gain in five months and the first time the shipments index has been positive since January. Unfortunately new orders were flat and backlogs were severely negative at -15. The ISM showed a minor contraction in June and this survey is only showing a very minor improvement in the Richmond Fed region. The good news is that we are not seeing an increase in the contraction but signs, however slight, of continued improvement. Traders are unsure if the minor improvements will be enough to maintain earnings through the 3Q until the second half recovery begins.

The big story was the multiple merger/takeovers announced today. The biggest impact to the market averages came from the Yellow Roadway acquisition. The +$16 bounce in ROAD sent the Dow Transportation index soaring +107 points and probably had a lot to do with the positive mood on the Dow. While the indexes are not directly related they are intertwined on a sentiment basis. The Dow normally has trouble when the Transports fail to move in the same direction. Traders seeing the large numbers on the TRAN today could have gotten that warm fuzzy feeling about the market in general. If so they did not get it until after 3:PM.