Bulls finally show some life Tuesday on gains overseas and a stronger dollar. This past week has been tough for the bulls, starting last Tuesday when the Dow ($INDU) fell nearly 400 points. Prior to this decline, traders had bought the dips, but this time selling continued right up through yesterday's session. Traders really didn't get much good news from U.S. economic data today, but the hope is that the worst is over and that a bottom is starting to form.
Economic data was heavy today, including reports on productivity and costs and factory orders. Productivity for the fourth quarter was revised sharply lower to growth of 1.6 percent from the initial reading of 3.0 percent. This was expected due to the fact fourth quarter GDP was also revised much lower last week. Unit labor costs were revised much higher to 6.6 percent from the 1.7 percent initially released. This definitely isn't good news on the inflation front, but the Fed is likely to hold off judgment until after the release of the employment report on Friday.
The sub-prime lending sector continues to be in the news today with New Century Financial (NEW) shares up more than 25 percent. This is a dead cat bounce after the stock fell 70 percent on Monday. NEW is under federal investigation due to bad loans and its technical default to several lenders. Another sub-prime lender, Fremont General (FMT), is seeing its shares rise 15 percent after announcing it will sell its sub-prime business after the FDIC proposed a cease-and-desist order.
Comments from Treasury Secretary Henry Paulson eased worries Tuesday. Mr. Paulson stated that he does not see the sub-prime lending problem and weak housing market as having a major impact on the financial sector or global economy. He noted that the global economy these past few years is as strong as he has seen in a lifetime.
Shares of Google (GOOG) are higher by more than two percent despite Microsoft's (MSFT) attack on the firm. A Microsoft lawyer stated that Google has a "cavalier approach to copyright" and that the company is exploiting content without permission. Google did announce that it is working with Apple (AAPL) on several projects and this has lifted both stocks.
So far, the 12,000 level is holding for the Dow, but this could give way this week if the employment report is disappointing. If the Dow experiences a 50 percent retracement, it could take the index down to the 11,700 to 11,800 level, which is also where the 200-day moving average resides.
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