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Daily Blog -02/05/09- 1:03 P.M.

Bouncing Back from the Lows

The Wednesday afternoon decline continued into Thursday morning and the Dow Jones Industrial Average lost 111 points to hit 7,845. This was a new ten-week low for the DJIA but the bears had little time to rejoice. Stocks shot higher around 10:30 a.m. apparently led by strength in technology and retail.

Foreign markets were mixed. The Chinese Shanghai index saw its midday rally fade and broke its three-day winning streak. The Hong Kong Hang Seng index also saw its intraday rally evaporate. Meanwhile it was a rocky day for the Japanese NIKKEI, which gapped down at the open. The NIKKEI managed to rally to a new relative high only to see its gains fade away and close back near its lows for the session. The major European markets all had the same pattern today. The French CAC 40, German DAX, and British FTSE all gapped down at the open, sank lower throughout the session only to see a sharp rally higher in the last hour to close near unchanged for the day.

Thursday brought more economic data for the American market. The Commerce Department released its December U.S. factory orders. Orders declined 3.9% marking their fifth monthly decline in a row. This was the longest streak of losses since 1992. Economists had been expecting a drop of 3.3%.

Another negative economic number out today was the weekly jobless claims. The Labor Department said that jobless claims continued to rise and hit 626,000, which is the highest reading since 1982. This really doesn't bode well for tomorrow's non-farms payroll (jobs) report. You may recall that last month the jobs report showed a loss of 524,000 jobs in December. Right now estimates are running another loss of 525,000 jobs in January. If the figures come in anywhere close to the estimates it would be a record-setting pace for job losses not seen since the Great Depression.

With all of these people out of work you can imagine that they're not spending as much. This was reflected in this morning's same-store sales figures reported by many of the nation's retailers. Wal-Mart (WMT) was the headliner for the retail group today. Analysts were expecting WMT to report a gain of +1.1% in same-store sales. The company said January's same-store sales were actually +1.5%. In WMT's report the company's management said they were going to stop giving sales guidance on a monthly basis and only offer it on a 13-week basis (four times a year). WMT's new guidance for the 13-weeks beginning February 1st is for same-store sales gains of 1% to 3%. Fortunately, WMT will continue to report their same-store sales numbers on a monthly basis just without the guidance.

Rival retailers certainly fared a lot worse. Target (TGT) reported a drop of -3.3% in same-store sales. Apparel retailer Abercrombie & Fitch (ANF) announced a massive 20% drop in same-store sales but that was actually better than the expected -26% drop. The Gap Stores (GPS) reported a -23% drop in sales compared to estimates for a -15% decline. Department store Dillard's (DDS) announced a 12% drop versus estimates for -6%. Macy's (M) said their January same-store sales were -4.5%, which was a little better than expected.

Traders were watching crude oil this morning. The front-month oil futures contract fell under $40.00 a barrel. Oil is poised for a breakdown to new lows or is setting up for the possibility of a double-bottom as oil prices test their December lows. The USO oil ETF hit $27.79 this morning versus the December 2008 low of $27.73. Currently oil has recovered and the USO is up 1% as the wider market rebounds.

It's true. The market is seeing a widespread bounce. Here's the sector breakdown:

DJUSCA gambling .... +7.6%
HMO healthcare ..... +4.0%
XBD broker-dealer .. +3.9%
SOX semiconductors . +3.8%
DDX disk drives .... +3.8%
RLX retail index ... +3.2%
INX Internet index . +3.0%
IUX insurance ...... +2.9%
DJUSHB homebuilders  +2.9%
XAL airlines ....... +2.8%
NWX networking ..... +2.7%
BTK biotech index .. +2.0%
OSX oil services ... +2.0%
XNG natural gas .... +1.9%
OIX oil index ...... +1.9%
BKX banking index .. +1.6%
$TRAN transportation +1.5%
CYC cyclicals ...... +1.1%
XAU gold & silver .. +0.9%
DRG drug index ..... +0.8%
DFI defense index .. +0.0%
BIX banking index .. -1.0%

Here's a chart of the S&P 500 index:

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