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Markets Could Pause For A Breather After Run Up

2/6/2013 9:13 AM ET

The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment reflecting the nervousness of the traders over the overbought levels of the markets. Corporate earnings continue to be encouraging, brightening the economic outlook. Economic data has also suggested improvement in most sectors of the economy. That said, macroeconomic risks in the horizon such as the U.S. fiscal situation and the European debt crisis have the potential of impeding the economic momentum. With limited visisbility into how these risks will pan out, the overbought markets are likely to see some consolidation.

U.S. stocks rebounded on Tuesday following the previous session's sell-off, as traders focused on the positive tidings on the corporate earnings and economic fronts. The major averages opened higher and rose steadily until late trading before seeing some consolidation thereafter. The Dow Industrials ended up 99.22 points or 0.71 percent at 13,979 and the S&P 500 Index closed 15.58 points or 1.04 percent higher at 1,511, while the Nasdaq Composite closed at 3,172, up 40.41 points or 1.29 percent.

Twenty-eight of the thirty Dow components closed higher, with Bank of America (BAC), UnitedHealth (UNH), American Express (AXP), Hewlett-Packard (HPQ), JP Morgan Chase (JPM) and Coca-Cola (KO) leading the gains.

Financial, transportation, biotechnology, retail, housing, semiconductor and computer hardware stocks were among the biggest gainers of the session.

Despite the 14-day RSI (currently at 72.98) hovering around overbought levels, the Dow Industrials along with the other major U.S. averages has been climbing on the support lent by fundamental economic data and earnings. The 21-day MA (currently at 13,693) has been serving as a strong support level for the index and on a positive note, the shorter-term 50-day MA (13,371) has sneaked above the 100-day MA (13,315), signaling bullishness.

Downside support is also seen around the 13,953 and 13,875 levels. Further down, the 13,668 level, which coincides with the neck level of a double-top formation way back in 2007, could provide support. On the upside, if the buoyancy persists and the Dow can bank on these solid support levels, it could attempt to take out the 14,096 level.

On the economic front, the results of the Institute for Supply Management's service sector survey showed that the service sector continued to expand in January. Out of the 18 industries surveyed, 8 industries reported growth. The non-manufacturing purchasing managers' index fell 0.5 points to 55.2 but remained above the key level. The business activity index fell 4.4 points to 56.4 and the new orders index declined 3.9 points to 54.4. The order backlogs index slipped 0.5 points to 49. Meanwhile, the employment index rose 2.2 points to 57.5.

Currency, Commodity Markets

Crude oil futures are trading down $1.37 at $95.27 a barrel after adding $0.47 to $96.64 a barrel on Tuesday.

An ounce of gold is currently valued at $1,678.70, up $5.20 from the previous session's close of $1,673.50. On Tuesday, gold fell $2.90.

Among currencies, the U.S. dollar is trading at 93.43 yen compared to the 93.70 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.3509 compared to yesterday's $1.3583.

Asia

The Asian markets closed mostly higher, tracking the buoyancy on Wall Street overnight, which improved the risk appetite and led traders towards risky bets such as equities. The Japanese market rallied strongly, as the yen continued its downward spiral.

Japan's Nikkei 225 average opened notably higher and advanced steadily thereafter before closing up 416.83 points or 3.77 percent at 11,464, its highest closing level since September 2008. The yen slid to a nearly 3-year low after Bank of Japan governor Masaaki Shirakawa announced his intention to retire by March 19th, three weeks ahead of schedule.

The announcement strengthened hopes of further monetary policy easing, which weighed on the Japanese currency. The market also received support from corporate earnings, as most exporters capitalized and expect to capitalize on the yen's weakness. The market witnessed a broad based rally, with Toyo Seikan Kaisha, Mitsui Engineering and Mitsubishi Heavy among the biggest gainers among the index components.

Australia's All Ordinaries hovered in positive territory throughout the session, ending up 37.90 points or 0.77 percent at 4,941. Consumer staple, energy, healthcare and material stocks saw notable buying interest.

Hong Kong's Hang Seng Index closed at 23,257, up 108.40 points or 0.47 percent. The New Zealand market was closed for a public holiday, while the Malaysian and South Korean markets retreated.

On the economic front, a report released by the Australian Bureau of Statistics showed that Australian retail sales fell a seasonally adjusted 0.2 percent in December, contrasting expectations for a 0.3 percent increase.

Europe

After seeing some strength in early trading, European stocks have moved to the downside, as traders digested mixed earnings.

In corporate news, Syngenta reported fourth quarter sales of $3.24 billion, up 12 percent year-over-over. For the full year, the company's EBITDA rose 8 percent to $3.15 billion and revenues increased 7 percent to $14.20 billion.

Swedish luxury truck maker Volvo reported an 18 percent drop in fourth quarter sales to 69.92 billion Swedish Kronor, while EBITDA fell to 4.18 billion Swedish Kronor.

Arcelor Mittal (MT) reported a wider loss for its fourth quarter, while it said it sees some improvement in its steel business in 2013. easyJet reported higher passenger statistics and load factory for January. Wind turbine maker Vestas reported a loss for 2012 and lowered its shipment guidance for 2013. However, the company's fourth quarter earnings and revenues.

On the economic front, Lloyds Group's Halifax division reported that U.K. house prices fell 0.2 percent month-over-month in January following two straight months of increases. The decline was in line with expectations. A survey by the British Retail Consortium showed that U.K. shop price inflation fell to 0.6 percent in January from 1.5 percent in December.

U.S. Economic Reports

The Treasury is due to make announcements concerning next week's auction of 3-year and 10-year notes and 30-year bonds at 9 am ET.

The Energy Information Administration is scheduled to release the results of its weekly oil inventory report for the week ended February 1st at 10:30 am ET.

The inventory report for the week ended January 25th showed that crude oil inventories rose by 5.9 million barrels to 369.1 million barrels. Stockpiles remained well above the upper limit of the average range for this time of the year.

Meanwhile, gasoline inventories fell by 1 million barrels and yet remained in the upper limit of the average range. Distillate stockpiles declined by 2.3 million barrels and remained in the lower half of the average range. Refinery capacity utilization averaged 86.4 percent over the four weeks ended January 25th compared to 87.7 percent over the four weeks ended January 18th.

Stocks in Focus

Disney (DIS) reported first quarter earnings of 79 cents per share compared to 80 cents per share last year. Revenues rose 5 percent to $11.34 billion. The results exceeded estimates.

Liberty Global (LBTYA) released preliminary results, expecting a 23 percent increase in its fourth quarter operating profit to $501 million and revenues of $2.73 billion. Separately, the company announced an agreement to buy Virgin Media (VMED) in a cash and stock deal valued at $23.3 billion. Meanwhile, Virgin Media reported revenues of 4.10 billion pounds for its fourth quarter, up 2.7 percent. The company reported operating income of 208.6 million pounds, up from 166.3 million pounds last year.

Take-two Interactive's (TTWO) third quarter earnings were above estimates and it issued positive guidance for the full year.

Panera Bread (PNRA) announced the appointment of Roger Matthews Jr. as its VP and CFO, effective March 18th, 2013. The company reported higher fourth quarter earnings that beat estimates, while its revenues were below expectations.

Unum Group's (UNM) fourth quarter results were above estimates. Chipotle Mexican Grill (CMG) reported fourth quarter eanings that missed estimates by a penny, while its revenues exceeded estimates.

Elan (ELN) announced that it would transfer the full ownership of multiple sclerosis drug Tysabri to Biogen Idec (BIIB) for $3.25 billion and additional royalty payments on the sales of the drug.

Zynga (ZNGA) reported fourth quarter adjusted earnings of 1 cent per share, beating analyst estimates for a loss of 3 cents per share. Revenues also exceeded estimates. The company's first quarter bottom line estimate was below expectations, while its revenue guidance was above estimates.

Expedia (EXPE) reported below-consensus earnings from continuing operations for its fourth quarter, while its revenues topped expectations.

Equity Residential (EQR) reported worse than expected fourth quarter results and also issued weak guidance for 2013. C.H. Robinson (CHRW) reported fourth quarter earnings that missed estimates, while its revenues surpassed expectations.

3M Co. (MMM) announced an 8 percent increase in its dividend to 63.5 cents per share and also said its board authorized a $7.5 billion stock buy back program. Sallie Mae (SLM) also announced an increase in its quarterly dividend to 15 cents per share from 12.5 cents per share. The company's board also authorized a $400 million stock repurchase program.

Aflac (AFL) reported in line fourth quarter earnings, while its revenues trailed expectations. Jack Henry & Associates (JKHY) reported better than expected second quarter results. Genworth Financial (GNW) also reported better than expected fourth quarter operating earnings. However, the company's revenues missed expectations.

Fiserv's (FISV) reported fourth quarter earnings that beat estimates, while its revenues were shy of estimates. The company's 2013 adjusted earnings per share guidance surrounded the consensus estimate.

Myriad Genetics (MYGN) reported higher second quarter earnings and revenues that were above estimates. The company also raised its full year guidance.

Time Warner (TWX) reported fourth quarter earnings that beat estimates and almost flat revenues, while it expects full year adjusted earnings per share to rise in low double digits. The company also announced an increase in its dividend.

CVS Caremark (CVS) reported better than expected fourth quarter results.

Akamai Technology (AKAM), Everest Re (RE), FMC Corp. (FMC), Green Mountain Coffee (GMCR), InterActive Corp. (IACI), Netease.com (NTES), PartnerRe (PRE), Protective Life (PL), Prudential (PRU), RealNetworks (RNWK), Sierra Wireless (SWIR), Visa (V) and WMS Industries (WMS) are among the notable companies due to release their quarterly results after the close of trading.

by RTT Staff Writer

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