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Daily Blog -01/29/09- 2:32 P.M.

Economic Data Depresses

Stocks snap a four-day winning streak as investors react to some depressing economic data. The Dow Jones Industrial Average (DJIA) is off about 220 points and back under the 8,200 level. Tech stocks are taking in on the chin with the NASDAQ down 3.2% and completely erasing yesterday's gains. Meanwhile the S&P 500, burdened with financial stocks, is down 3% and back under the 850 level.

Chart of the NASDAQ:

Chart of the S&P 500:

The Commerce Department released the latest Durable Goods orders for December and the results were negative. Orders fell 2.6%, the fifth straight decline in a row. Almost every category was sharply lower except for defense. If we strip out defense items then December's durable goods orders plunged 4.9%.

Home sales were another downer although we shouldn't be surprised. The holidays are normally a very slow time for real estate. Analysts were expecting new-home sales to reach 390,000 at a seasonally adjusted rate. The actual figure was a 14.7% drop down to 331,000. This was the lowest reading ever in the history of the survey dating back to the early 1960s. The report showed that there is still a 12.9-month supply of new homes on the market, which is way too high. Equilibrium is normally thought to be a six-month supply.

The Labor Department's weekly jobless figures also weighed on the market. This week's report showed a jump of 159,000 to 4.78 million jobless claims. This is an historic all-time high covering 40 years of data. Economists are beginning to raise their estimates for next week's non-farm payrolls (jobs) report. Some are expecting unemployment to hit 7.5% in January. The last few months have heard many pundits and economists forecasting a 9% to 10% level of unemployment in the next 12 months.

There were plenty of individual stocks making headlines. Allstate Corp. (ALL), the insurance giant, is down more than 21% to $23.35 after reporting fourth quarter numbers last night. Analysts were expecting a profit of $1.35 a share. ALL reported $0.97 or a miss of 38 cents. Revenues plunged almost 27%. Fears are rising that ALL might actually have to raise capital, which could mean selling stock and diluting shareholders.

Here's a shocker... AutoNation (AN) delivered earnings that were better than expected. The company beat analysts' forecasts by a penny even as revenues declined. Considering the economic landscape this looks like an impressive feat. AN recognizes that this is a tough environment to be selling cars and expects an extremely tough first half to 2009. The stock spiked higher to $10.65 and is still up 7% at $9.89. Unfortunately this move is starting to look like another failed rally at AN's descending 200-dma and part of its long-term bearish trend of lower highs.

Power-tool producer Black & Decker (BDK) is diving to an 18% loss and new seven-year lows after reporting earnings. The company reported this morning and managed to beat fourth-quarter estimates by six cents but management issued an earnings warning for 2009. BDK now expects a yearly profit in the $1.75-2.25 range versus analysts estimates of $3.62. You have to go back to 2001-2000 to see BDK this low. There might be psychological support near $30.00 otherwise look for a drop toward 28.25-27.50.

The semiconductor sector is getting hammered with the SOX down 4.6% and almost completely erasing two days of gains. The culprits behind today's drop are earnings report from LRCX and LSI. LRCX missed earnings by four cents and Steve Newberry, LRCX's CEO, said that "The global semiconductor industry has entered one of the most difficult periods in its history, one that is presenting severe challenges..." Meanwhile LSI reported earnings and issued a warning for the next quarter where the company expects a loss. LRCX is down 13% and LSI is down 9.4%. I am worried that the SOX might be producing a bearish head-and-shoulders partern.

Chart of the semiconductor index (SOX):

The profit taking today is very widespread. The only sector that is showing any strength is gold. The XAU index is up 4.4% and the GLD gold ETF is up 2%. It's looking pretty ugly today.

Sector Performance:
SOX semiconductors  -4.5%
NWX networking ...  -5.0%

BKX banking index.  -5.1%
BIX banking index.  -5.0%
XBD broker-dealer.  -5.3%

IUX insurance ...  -6.5%
HMO healthcare ..  -3.2%
DRG drug index ..  -1.85%
BTK biotech index  -1.3%

OIX oil index ...  -2.6%
OSX oil services.  -3.5%

DFI Defense......  -2.5%
XAL airlines.....  -3.2%

CYC cyclicals....  -3.8%
RLX retailers....  -2.9%

DJUSHB homebuilders  -7.0%
DJUSCA casinos ....  -5.2%
DJUSRR railroads ..  -3.2%
DJ Transports .....  -2.7%

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