Nature is unpredictable. Storms, hurricanes, heat waves, and tornadoes can develop quickly and leave lots of damage in their wake. Meteorologists can watch the development of hurricanes on the open ocean and predict with reasonable accuracy when they will hit land. They can see high pressure systems and predict a period of high temperatures and sun. But no one can predict the intensity of these systems or the amount of damage that will occur when (and if) they develop. There are too many other factorsâthe legal term is superseding, intervening eventsâthat play a role in the development of these systems and how they will affect our lives. This is not unlike the stock market. And the past week has shown us that the only thing we can predict with any level of certainty is that the market will sometimes be unpredictable. The questions we might have now are how long will this "market storm" last? Is the market storm over? Let's begin with a short discussion of the overseas markets.
In the past five trading days, the Asian markets have been hit hard by the market storm. Many have lost multiple percentage points in the past week. Yes, the strong gains that have been accumulated in these markets this year were washed away. As late as Monday, March 5, the Nikkei lost more than 3 percent and the Hang Seng lost 4 percent. However, Tuesday, March 6th is showing that the storm might be losing some power. The Nikkei closed in the positive for the first time in five trading days, gaining 1.22 percent (202.25 points). The storm over Europe also appears to be weakening. After wiping out all the gains made in 2007, the storm could be starting to subside. In mid-day trading on Tuesday, March 6th, the European Big Four group is trading in the positive. Switzerland's [SMI] is the biggest winner, gaining 1.56 percent, but the rest of the Big Four is showing nice recovery as well.
Back in the United States, the Dow on Monday, March 5th closed just above the 12,000 mark and the [S & P] 500 (SPX) lost its 1400-point status in last week's storm. However, Monday showed the sun peaking through the market storm's dark clouds in early trading, but at mid-day the clouds and rain returned to wash away another 63 points. But this brief period of sunshine could mean that a rainbow is on the way and that the markets will rise again. This could be helped by a superseding, intervening event like economic data coming this week. Also, Fed members will be speaking this week both in the U.S. and abroad. These factors could blow the storm away. Or they could fuel the storm up to a category five. Let's start with the data.
Productivity ReportâMedium Market Mover
Society believes that being productive is very important. People are encouraged to be productive for the benefit of the individual and/or family. Companies are encouraged to be productive for the good of the consumers, shareholders, and economy as a whole. This report measures the level of productivity by workers who produce goods and services. Productivity allows an economy to grow fast without risking inflationary pressures so this quarterly report is one of the most important reports awaited by the market. Everyone likes a strong productivity report, particularly if it helps to control inflation. Analysts predicted the productivity figure would decrease from 3.0 percent for the third quarter to 1.4 percent for the fourth quarter. The report is actual report showed that productivity fell to 1.6 percent for the fourth quarter.
A fall in productivity could cause bond prices to fall. However, bond prices might remain high with the current equity market situation.
Lower productivity means lower corporate profits, which is bearish for equities.
Lower productivity means less ability to compete with foreign companiesâand less ability to lower the trade deficit.
Table 1: Declining Productivity Impact Chart
Non-farm PayrollâVery Big Market Mover
This is a very eagerly awaited report. Given the current market storm, this report could create enough pressure to blow the storm away or it could lower pressure to give more strength to the storm. However, everyone awaits this report regardless of market conditions. The non-farm payrolls report measures how many jobs were created during the previous month. The private service-providing (67%) and manufacturing (10%) industries are the largest sectors measured in this report. This report could have a particularly strong impact this month because thoughts of recession are floating around the market. A strong report could change those thoughts. Analysts are predicting the employment figure will decline from 111,000 jobs created in January to 100,000 jobs created in February. That could hurt! Look for the report coming on Friday, March 9th at 8:30am.
Bonds are already having a bullish run, but a weak employment report could make the bulls run faster. This low figure could suggest that recession is around the corner, which raises bond prices.
Lower employment growth will discourage consumer spending, which means weak sales and less corporate income.
A weak employment figure could put downward pressure on interest rates, which decreases demand for the dollar.
Table 2: Lower Non-farm payrolls report impact chart.
These are the major reports coming for the remainder of the week. If the analysts are right, then the reports could increase the demand for bonds, which are already faring well in this market storm. With a lower [ISM] Services Survey released on Monday, March 5, the data could suggest that the economy is, indeed, facing a possible recession in the near future. The Services Survey figure was forecast to decline slightly to 58.0 for February, but it fell more dramatically to 54.3. Together with a lower productivity report and a weak employment figure, the market storm could hover for a while longer. Next week brings several big market movers. I'm interested to see how the market reacts to the February Producer Price Index and February Consumer Price Index figures released in the same week. So, March 15th and 16th will be inflation days!
Most of the company news for the week of March 5th will focus on the technical information. I'm curious to see which companies weathered this market storm. Not every company was weather-beaten last week. In fact, we had several 52-week highs in the past trading days during this market storm. So, I'm looking at company charts that showed strong support levels above the 20-day moving average line. Then, we can conclude with a discussion of a company that has produced an interesting drug and how the market is reacting to this development.
Diamond Management and Technology Co. (DTPI) showed resilience in the market storm. Yes, the stock price fell and even gapped down, but it is resting on the 20-day moving average line, which is serving as strong support. The stock price is approaching its 52-week high of $15.98, which it reached on February 26th. The strong downward pressure from the market moved the stock price, but the rising moving average line is helping to prevent a freefalling stock movement. Diamond Management shares have risen more than 2 percent in early trading on Tuesday, March 6th.
Figure 1: Diamond Management and Technology Co. (DTPI) Daily Chart. The stock price is resting on the rising 20-day moving average (blue) line. However, the oscillator (lower chart) is showing that the strong bullish trend is weakening.
Ryerson, Inc. (RYI) has experienced very strong support from its rising 20-day moving average line. The company has tested this line on three consecutive days, but the bulls regained some control and moved the stock price back upward. Ryerson posted a loss on its fourth quarter earnings report, which was released in mid-February. However, takeover talks by other companies in the steel industry helped to feed the bulls during this market storm and raise the stock price of Ryerson by twelve percent. The steel company hit a 52-week high on March 2nd, and the stock price is again approaching this year-high level. Ryerson is trading up 4.27 percent to $35.90 in early trading on Tuesday, March 6th.
Figure 2: Ryerson, Inc. (RYI) Daily Chart. The stock price has tested the 20-day moving average (blue) line on three occasions in the past week. Tuesday, March 6th is proving to be a bullish day for the stock.
Chemed Corporation (CHE) actually gapped up just before the market storm hit last week! Yet, even with the downward pressure from the storm, the gap has not been filled. It seems to be serving as a new support level. Of course, the stock price has fallen somewhat since its bullish gap, but the stock price remains well above the 20-day moving average line. The stock price has a fairly wide spread between its year-high ($61.91) and its year-low ($29.75), but the stock price on Tuesday, March 6th remains close to the mid-point at $46.37, representing a 1.02 percent gain for the day.
Figure 3: Chemed Corporation (CHE) Daily Chart. The company experienced a bullish gap, which is holding firm despite downward pressure from last week's market storm. Momentum remains strong, but is showing signs of weakness.
I will end this article by mentioning Novartis, AG (NVS), which is a Swiss pharmaceutical company. The company reported that U.S. regulators [FDA] have approved its new hypertension medicine called Tekturna. This innovative new drug is the first medicine to attack a gene which is known to cause high blood pressure. This type of drug is known as a direct rennin inhibitor. The stock price has risen 5.6 percent in early trading on Tuesday, March 6th.
Figure 4: Novartis AG (NVS) Daily Chart. The company was strong affected by last week's storm. The overall chart is quite bearish as shown by the 20-day moving average (blue) line and the oscillator (lower chart) illustrating an increasingly-strong downward trend. However, a reversal may be imminent. Look at the Doji on this candlestick chart. It's a classic sign of a trend reversal. FDA approval of the company's new drug is also a bullish signal!
Market Moves Wisdom of the Week
Traders must be prepared for any type of weather! From market hurricanes to sunny market days, a trader must be positioned to minimize losses and maximize gains regardless of the market weather. It can be difficult to know keep a level head, wear a market raincoat, keep a financial umbrella in the closet, or even lock in profits when the market rainbow appears. But it is necessary for every trader to learn this lesson if he or she wishes to keep trading profitably. The Market Moves Wisdom of the Week is to prepare for market storms, reap the benefit of market rainbows, and remember that "market meteorologists" don't have all the answers. Finally, remember that profits can be made in sunny and stormy weather alike!
Staff Writer and Trading Strategist