Wall Street Wrap August 17, 2010 - If It Smells, It Sells

The market jumped on addition by subtraction today with the Producer Price Index (PPI) being reported at or above expectations.  The Dow Jones Industrial Average added 104 points (+1.04%, 10,406) and the S&P 500 jumped 13.16 points (+1.21%, 1092) while the tech heavy Nasdaq 100 rose 23.86 points (+1.30%, 1845).  The indices were stronger during the trading day but a sell-off in the last hour took the DJIA down almost 50 points.

We are in truly unusual times as speculation form some corners has future inflation being the problem as a result of massive government debt and current deficits while others fear a deflationary environment.  It seems the market is more worried about deflation though, as the PPI had a month-over-month rise of 0.2%, which was exactly what analysts expected.  The year-over-year number was a surprisingly strong 4.1% rise, and this number eased deflationary fears providing a boost to stocks.  With the way the market has been lately, who knows, it is possible the inflationary hawks could take control in a few months and have a similar number as today’s cause a drop.  Strange days folks.

Industrial Production reported positively as the month-over-month rise came in up 1.0% while capacity utilization beat at 74.8% vs. the expected 74.5%.  This might seem to be a small beat but alongside the PPI numbers the painted picture is one less likely to be deflationary.  The street seems to be in deep fear of deflation these days and these numbers were enough to assuage traders as they sent stock prices higher.

Wal-Mart hit its earnings number this morning coming in with 97 cents a share but missed on the top line with $103 billion in sales versus the $105.5 analysts expected.  What provided the strength of the report was that the world’s largest retailer upped their full year projections a nickel; $3.95 to $4.05 vs. $3.90 to $4.00.

Potash Corp. (POT) jumped $31.02 as the company turned down a $38.6 billion offer from BHP Billiton (BHP).  The unsolicited offer was rejected as company officials said it did not value the company highly enough.  I bet the officers holding stock and company options were not all that unhappy the unsolicited offer was made as the stock added 27.65% on the day.  The offer valued the stock at $130 a share and the close today was at $143.  Either the officers at Potash are correct, that the bid was too low as the market seems to think as well, or the market is expecting other offers and a bidding war.  Similar stocks such as Mosaic Company (MOS) and CF Industries Holdings Inc. (CF) jumped 8.74% and 4.65% respectively as it seems today if it smells it sells.

Banks were a weak spot on the day as the S&P bank Index (BIX) was down marginally.  The big winner on the day, besides fertilizer, was the retailers on the back of Wal-Mart’s report with the S&P Retail Index (RLX) up 1.99%.  Urban Outfitters added over 5% as the stock tries to break out of a downtrend.  Home Depot (HD) jumped 3.39%, The Limited (LTD) up 2.73%, Tiffany’s up 2.59% and Bed Bath and Beyond (BBBY) added 2.31%.

In a previous post I mentioned how strong Autozone Inc. (AZO) has been and the strong rising trend channel it is in.  In this article I mentioned that the stock was at the upper trend channel line which is also known as the ‘return’ line or the ‘reaction’ line.  Since then, the stock has backed off to the lower trend line and is now giving all the signals it is headed to new all time highs.  (If you want to learn how to identify these trend channels yourself go to www.StockTradingCards.com)

Gold has been rising steadily for the last three days but took a bit of a breather today with no significant move with New York spot last at $1,225.60 an ounce (+$0.10, 4:19 p.m.)  Last Tuesday I wrote about the seasonal characteristics of the gold market and since then shiny yellow metal has added $20 an ounce.  Keep an eye on gold as historically the fall provides outsized gains.

Nymex light crude added 47 cents a barrel (+0.62%, 4:11 p.m.) to $75.24 as it seeks to regain the high $80 level it held early last week.

The rest of the week is light on the economic calendar with only MBA Purchase Applications tomorrow and Jobless Claims, Leading Indicators and The Philly Fed Survey on Thursday.  More earnings are to be reported, and the fact that either as a result of lower or managed analyst expectations or solid belt-tightening management, results have been coming in better than expected on average.  With less economic reports and more earnings coming, the rest of the week should see an upside bias - but only time will tell.

Tuesday, August 17, 2010 - 4:40 p.m.