Week in Review
DJIA +67.58 (+0.47%) to 14,397.07; S&P 500 +6.92 (+0.45%) to 1,551.18; NASDAQ +12.28 (+0.38%) to 3,244.37
This week was all about Jobs data and the build up to a number that didn’t disappointing posting a 236K non-farm employment change when consensus expectations were around 158K. This also took the Unemployment rate down to 7.7% from 7.9%. Cue to the cynicism regarding the number and the way it is calculated and it is not that I disagree but the fact also is that the method of calculation is not changed month to month so there is a frame of reference where better is better and worse is worse. I don’t get too hung up on the exact numbers, especially not month to month as the numbers can always be revised (which is what I will we watching for in the next report) but instead focus on the trend. Right now the trend is higher for the markets and while we have negative divergence on the Daily charts and have been calling for traders/investors to use caution, it doesn’t change that shorting or just being out of the market has not been the correct stance.
A name from the Watch List was in the news today, Citigroup (C) as they submitted their capital plan to the Fed which included a $1.2B common share repurchase and and a 1c per share quarterly dividend. 1c is not something people would normally get all worked up about but it is a step and also there are funds that only invest in dividend paying stocks. This now open C up to that new population of potential investors.
I have not been there myself in maybe 6-7 years but McDonald’s (MCD) gaped higher Friday on declining same-store-sales (SSS) which were better than analysts expected. I personally would not be allocating any new capital to MCD at these levels and would only be interested on a pullback and consolidation but if we get that MCD might be the type of global name that makes sense in a portfolio.
One of the worst kept secrets in the market became a reality today as Gardner Denver (GDI) agreed to be acquired by KKR (KKR) in an all cash deal valuing GDI at $76 per share in cash.
Notable names moving on earnings today included Pandora (P) which reported better than expected Q4 earnings. Along with the positive results the CEO announced his resignation and received a few upgrades including one from JP Morgan to Overweight with a $17 price target (up from $11). Footlocker (FL) gaped lower after their report but analysts came out in support of the name. I think FL is likely going to recover from this move but aggressive traders can use Friday’s lows to trade against. Also moving lower on earnings was Skullcandy (SKUL) and it wasn’t Q4 causing the issue but forecasts for Q1 which show a potential 25-30c loss per share when analysts expected a positive 5c showing. I will be watching SKUL for a potential bottom but it will be a pure spec play (lotto ticket) and not of core focus.
Finishing on a high note Tempur-Pedic (TPX) moved nearly 6% higher Friday on news that they received FTC clearance for their acquisition of Sealy (ZZ).
Week in Review:
This week was long for me and it wasn’t until I started writing that I full remembered. Do you remember Monday? Moday started with a small gap higher but quickly then started heading lower until we reached the 20 day SMA and that marked the bottom and we turned. The stock of the day was Transocean (RIG) which gaped higher on earnings which came out Friday after the close. After filling an upside gap and coming close to the downward sloping 20 day SMA above, RIG then spent the remainder of the day declining. Later in the week RIG again tested the 20 and the gap highs but has yet to take them out and I would be waiting for a better set-up in the name. Another name of focus Monday was Cliffs Natural (CLF) which was “taken to the wood shed” on news of the Chinese Government is looking to slow their housing market and that they will plan to start companies to compete with Global mining conglomerates. CLF eventually bounced and is higher than Monday’s close. I will be watching CLF and some other mining companies to carve out a bottom but bottoms can also take time so there will likely be fits and starts but definite trading opportunities.
Tuesday the markets built off Monday’s holding of the 20 day SMA and the S&P 500 closed nearly 1% higher with the Dow slightly lagging and the Nasdaq leading. The stock of the day Tuesday was JC Penny (JCP) which was down over 10% after a block sale went through. There were reports the seller was Vornado Realty Trust (VNO) which is JCP’s second largest shareholder and if they were the seller it would have represented half of their holdings. This seemed to lead the charge that Ron Johnson needs to be replaced or the company needs to be sold. I think this is a tough environment for JCP to do a turn around but I also noted that what I have seen has impressed me and I think JCP is stronger with Ron than without. If he can actually save the brand, I don’t know, but I also know the task is daunting and he was handed a mess and I would personally give him more time. Otherwise I would be first in line for the job after him because I think you continue along the lines of his plan and see success.
Wednesday was more of a consolidation day with the Dow & S&P slightly higher and the Nasdaq slightly lower. The interesting news of the day for me was Tom DeMark noting that he sees the rare sell signal coming on the Daily, Weekly and Monthly charts for the S&P 500. Before you discount his comments because we finished the week higher, he didn’t say it was now and DeMark provided a price target for the peak which is $1,567.40. This still leaves abut 16 points of upside to reach DeMark’s ideal top and with this next week being March OP-EX I often find that if a trend is in place into OP-EX that the trend will continue. Stocks of the day were Dell (DELL) and Staples (SPLS). CNBC’s David Faber reported that Carl Icahn has accumulated a near 100M share position in DELL or roughly 6% and that instead of the previously announced buy-out (by Michael Dell and Silverlake partners) the company should use leverage to pay shareholders a one time special dividend of $9 per share. The idea seemed to get some support although I am not sure it was that people loved Mr. Icahn’s idea or if they more didn’t like the buyout. SPLS closed over 7% lower after reporting EPS that beat (46c vs 45c) but on light revenues ($6.57B vs $6.72B) but what drove today’s reaction was the 2013 guidance which came in well below street estimates ($1.30-1.35 vs $1.43). I still think SPLS is chopping out a longer term bottom after under-performing for a while and that the Office Max (OMX) – Office Depot (ODP) merger news is positive for the industry as a whole.
Thursday was another quiet low volume slightly higher consolidation day heading into the Friday Jobs report. Stock in the news included Time Warner (TWX) which announced plans to spin off its Time Inc. publishing division closing over 2% higher for the day and Gap (GPS) whose same-store-sales numbers were leaked to the street and later GPS confirmed that SSS rose 3% sending the stock over 4% higher. Moving in the opposite direction losing over 6% was Petmed Express (PETS) after being mentioned cautiously at Bank of America/Merrill (BAC) because of Amazon’s (AMZN) Wag.com which provides online access to pet medications. I noted that this would make me nervous as a PETS investor and I would be watching margins in any future reports. AMZN has deep pockets and they could really use the service as a loss leader. If I were PETS I might be looking into partnerships with other Pet stores or supplies and maybe even take a page from AMZN and look at a deal like they did with SPLS allowing people to pick-up items sold on AMZN in SPLS stores.
As always you can visit the Event’s Calendar for the release of economic data, scheduled meetings and other news that could move the market. Also in that section are Dividends and Splits.
Major averages 5 day results:
Dow Jones Industrial:
S&P 500:
Nasdaq:
While difficult to disagree with the idea that the S&P 500 is stretched on the charts in multiple time-frames, especially the short term, I also rely on the trend being your friend as well as that stocks and indices will top and bottom in more of a process so if this is truly the final top we are pressing into there will likely be fits and starts as well as some “bouncing” around so there should be time to set stops and/or exit. Also remember the stance has been to decrease risk into this rally by allocating less capital to new trades as you close out old ones.
