Market Preview: Risk Appetite Spoiled
By Michael Baron - 05/14/12 - 8:17 PM EDT
NEW YORK (TheStreet
) -- It's starting to look like all anyone is going to do is sell in May.
The first day of the month was a sunny rally but the weather's been ugly since then. The Dow Jones Industrial Average
is down in eight of the past nine trading sessions, losing 4.4% since closing at 13,279 on May 1.
The S&P 500
finished at 1406 on May 1, and has now surrendered 4.8% since then, while the Nasdaq
rallied in the first two sessions of the month, closing at 3060 on May 2 but it's subsequently pulled back the most, losing 5.1%.
And while it doesn't take a chart watcher to guess that such consistent selling pressure isn't the hallmark of a healthy stock market, the finish below 1340 on by the S&P 500 on Monday is worrisome, according to Mark Arbeter, chief technical strategist at S&P Capital IQ
"While we have been calling for new recovery highs by the major indices later in the second quarter, that call is now on thin ice," Arbeter said in written commentary on Friday. "We think any closing breakdown below the recent lows in the 1,340 region could usher in additional downside, with the index at least dropping back to the 1,300 region, and potentially further."
He also sees some troubling signs in the action in certain other markets and sectors.
"One important and ongoing concern is that many global indices have rolled over into major pullbacks or corrections, a warning for U.S. stocks," Arbeter wrote. "Cyclical sectors have been underperforming for months, while we are seeing outperformance by the defensives. This, in our view, is also a warning for stocks. In addition, many of the market leaders have rolled over into corrections, not a good sign, in our view. We think it will be important to see some stabilization in the U.S. as well as global indices in the near term, and if we don't, something more ominous may be lurking."
Monday's weakness was a particularly bad way to start the week because it wasn't so much a reaction to a single event but rather the gradual worsening of the quality of news on a number of fronts, mostly in Europe, of course. The signs that Wall Street's risk appetite is pretty well spoiled
are seemingly everywhere with the 10-year Treasury bond's yield down at 1.772 at last check and gold beaten down below $1560 an ounce.
Europe will again be in focus on Tuesday with France's new socialist president Francois Hollande set to meet with German Chancellor Angela Merkel. There's also a goodly amount of economic data due from across the pond, and Moody's has already downgraded a bunch of Italian banks
With the recent history being the more the spotlight is on Europe, the worse it is for stocks, there's likely to be a whole lot of red flashing on trading screens again.
As for Tuesday's scheduled U.S. news, Dick's Sporting Goods
is among the retailers slated to open their books. The average estimate of analysts polled by Thomson Reuters
is for earnings of 38 cents a share in the April-ended period on revenue of $1,23 billion from the Coraopolis, Pa.-based company.
The stock is up 31% so far in 2012, hitting a 52-week high of $51.58 on April 27, so Wall Street's expectations are pretty high. Bank of America Merrill Lynch reiterated a buy rating and $56 price target on Dick's Sporting Goods ahead of the report, noting the stock remains one of its top picks.
"We continue to see upside to guidance of 2-3% same-store sales in F13 given: (1) footwear vendor price increases (5-10%) are working supported by lightweight running and the expansion of the shared service shoe dep't, (2) apparel strength, with new offerings from TNF, UA and Nike, (3) +75-100 in-store shop roll-outs are planned for NKE Nike
, UA Under Armour
, and TNF The North Face
that should continue to drive sales of higher price point, higher margin apparel & (4) improved trends in Golf should continue in 1H12 on new product launches," the firm said, adding later: "Importantly, new store productivity levels (94.2% in 4Q) remain strong as DKS plans to slightly accelerate store growth in 2012 from 8% (w/ LT opportunity to operate 900+ Dicks Sporting Goods).
Indeed, the sell side is mostly bullish on the stock with 17 of the 28 analysts covering Dick's Sporting Goods at strong buy (8) or buy (9), and the 12-month median price target at $55, implying potential upside of 16% from Monday's closing price of $47.24.
Check out TheStreet's quote page for Dick's Sporting Goods for year-to-date share performance, analyst ratings, earnings estimates and much more.
reports Tuesday as well and Wall Street is expecting a loss of a dime per share on revenue of $3.46 billion. The report will give investors their first, real glimpse into how consumers are responding to the new pricing strategy and image changes at the department store operator being implemented by CEO Ron Johnson since he came on board from Apple
Citigroup is expecting J.C. Penney to stick with its prior full-year outlook, and thinks the company's investor presentation following the report could be a positive catalyst for the stock, which is down 2% in 2012, pulling back after running to a 52-week high of $43.18 in mid-February.
"In our view, JCP is a compelling buy into the investor presentation, as management will likely highlight the early successes of its transformation strategy," the firm said. "In addition, JCP's high short interest (27.5%, up from 22.0% at the beginning of the first quarter) and two large shareholders should provide support for the stock."
The Plano, Texas-based company is expected to keep bleeding red ink through its fiscal second quarter ending in July before breaking back into the black in the third quarter. The company has forecast an adjusted profit that meets or exceeds $2.16 a share in fiscal 2012.
The other big retailing report on Tuesday comes from Dow component Home Depot
. The average estimate of analysts polled by Thomson Reuters
is for earnings of 65 cents a share on revenue of $17.96 billion.
Other companies expected to disclose their numbers on Tuesday include Artic Cat
, Duane Reade
, JA Solar
, Lifeway Foods
, LJ International
, Plug Power
, SINA Corp.
, and TJX Cos.
The economic calendar is a busy one with retail sales on tap for April, the consumer price index for April, and the Empire State manufacturing survey for May all due at 8:30 a.m. ET; then business inventories for March and the National Association of Home Builders housing market index for May due at 10 a.m. ET.
And finally, Groupon
looks set up for a big day after the online daily deals company reported better than expected quarterly results
after Monday's closing bell.
Groupon, which was walloped after announcing plans to restate prior results on March 30, also gave a revenue outlook with upside as well, sending the stock more than 15% higher in the extended session
--Written by Michael Baron in New York.
>To contact the writer of this article, click here: Michael Baron
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