Thursday, July 8, 2010

Morning Note...

Futures ~50bps higher this morning as yesterday’s rally extends to global markets and U.S. jobless claims were slightly better than expected.  The IMF also raised its global growth forecast for 2010 to +4.6% from +4.2%.  Pundits also point to the 10-yr bond yield over 3% as bullish for equities.  Additionally, same-store-sales are coming in mixed, but perhaps trending slightly better than expected as well.  (See the quote section below for specifics, but here’s the quick and dirty from CANT:  So far we have 11 beats and 12 misses in retail SSS. The more important misses include TGT, BJ, GPS, AEO (who also guided lower). Beats to consensus that matter include JCP, M, ANF, and LTD.)  Regarding jobless claims for the week ending July 3rd, 454k was reported vs. the 460k expectation and the 475k prior reading.  Continuing claims decreased to 4.4413M from 4.637M and versus the 4.6M expectation.  On other item of note that might be stealthily contributing to today’s global strength – the fact that global shipper AP Moller-Maersk (think of it like FedEx on steroids) raised 2010 guidance. 

Regarding the broad markets, the question remains…are you a believer in the bounce off the “Death Cross” levels in the S&P, which also perfectly correspond to a Fibonacci retracement from the 2010 highs?  I thought Mike O’Rourke’s note last night summed things up nicely, in particular his choice to use the word “manic”:

Manic Markets, The Sequel.

Today's volume was modestly improved over the previous two sessions as Equities bounced very respectably from oversold territory.  In this Love-Hate relationship investors have with the equity market, love was in the air today.  With the exception of a slightly better than flat performance from Telecom, every major sector was up approximately 2% or more, lead by the 4.4% gain in Financials.  There were positive anecdotal data points.  Airline load factors for June reported late yesterday fueled a 5.7% rally in the Airline index today.  ICSC said to expect same store sales to be up 3%-4% year over year.  The weekly numbers have rebounded nicely from recent softness.  Needless to say, an oversold tape combined with economic pessimism and investor uncertainty can provide fuel for a rally.  Although it has already been noted in the media and blogosphere, we can’t help but to highlight the Google Trends chart of the explosion in searches for Double Dip Recession.  It is also worth noting that today was a 4th consecutive day of higher lows, indicating that 1020-1025 level shapes up as good support.

Despite today’s sharp rally, there are also improvements materializing in the Behavioral/Volatility category we have been watching.  Despite the market's lower low here in July, the Vix has made lower highs and appears to be settling back down.  In addition, the two year swap spread has also tightened up.  Although there have been improvements, there is still some healthy skepticism among investors.  The Ted Spread and the 3 Month Dollar Denominated Libor-OIS stopped expanding a couple of weeks ago, but they have not contracted.  One also need look no further than the 3% 10 Year Treasury Yield to know there is still a good deal of cautious money out there.

Regarding the Fibonacci retracement, here’s the email from BTIG from last week – pretty solid call in hindsight:

Sent: Thursday, July 01, 2010 8:44 AM
Subject: technicals: one reason why the market is bouncing and could continue

            Some market technicians use Fibonacci’s mathematical measurements as a piece of the puzzle to determine major tops and bottoms in the market.

At 1006.20 area, SPX futures have just retraced 38.2% of the gains from the March 2009 low. Back in February 2010, the SPX futures retraced 38.2% of the gains since the first major correction in July 2009. And back in July 2009, they came to within 20 index points of a 38.2% retracement. This is just one item in the mix but should be monitored into the close ie IF 1006 area holds, the markets may stabilize as sellers exhaust in the short term.  

And regarding the disbelief that I mentioned earlier, market participants will recognize that this chart – posted by last month – is pretty damn accurate:


ANF higher on SSS.  CISG announces follow-on offering of 4.6M shares.  DRWI beats by 3c and misses on revs.  FBP announces agreement with US Treasury.  HRB downgrade at Barrington.  NANO cut at OPCO.  NGG cut at CITI.  BMOC ups ONXX.  SNBC announces $100M equity injection.  UBSS ups TOT.  TSCO raises estimates. 

Asia higher overnight.  Europe up ~1.5%.  EUR/USD $1.2683.  Oil +170bps.  Gold +10bps. 

S&P 500 PreMarket 8:30am (last/% change prior close/volume): 
ROBERT HALF INTL         21.27    -13.54%            200
J.C. PENNEY CO              23.45    +7.67%             68386
ABERCROMBIE & FI        35.40    +7.6 %              345742
HARMAN INTL                29.17    -6.78%              200
MEREDITH CORP            32.67    +6.76%             200
SEMPRA ENERGY            45.63    -5.9 %              200
NORDSTROM INC           35.60    +5.45%             4800
LTD BRANDS INC            24.85    +4.94%             4400
CB RICHARD ELL-A         14.37    +4.89%             1629
AMERIPRISE FINAN         39.86    +4.51%             300
DR HORTON INC             10.64    +4.31%             200
AMERICAN CAPITAL        5.10      +3.87%             11200
GAP INC/THE                 18.99    -3.71%              16000
PROLOGIS                     10.04    +3.4 %              3000
H&R BLOCK INC              14.99    -3.23%              1800
HUNTINGTON BANC        5.91      +2.6 %              41253
AGILENT TECH INC         29.29    +2.52%             1100

Today’s Trivia:  Now that the WC Final is set, let’s table the WC trivia for now… We all know the novel that celebrates its 50th birthday this summer (my personal favorite, actually) that stars Atticus, Jem, Finch, Scout, Boo Radley, and Tom Robinson… but what’s the name of the town in which it is set?
Yesterday's Answer:  No, it’s not #10…actually #9 has scored the most goals (235), followed by #10 (213), #11 (182), #7 (128), and #8 (127).

Best Quotes:  SSS Summary from BTIG:

Better Than Expected (11)

Macy's reports June SSS up 6.5% - better than 5.5%
(Sees 2Q Same-Store Sales Up 4.5%)

JC Penney June Same-Store Sales Up 4.5% - better than 3.7%
(Inventory Levels On Plan, Well Positioned For Back-To-School Selling Season)

Nordstrom June Same-Store Sales Rose 14.1% - better than 9.7%
(June Preliminary Total Retail Sales Rose 19.8% to $822M vs. $686M. y/y)

Dillard's reports June SSS up 2.0% - better than flat
(Total Sales $506.4M vs. $497M, up 2%)

Limited Brands June Comps. Up 6.0% - better than 3.7%
(Net sales $3.554B vs $3.236B, y/y)

Abercrombie & Fitch June Same-Store Sales Up 9.0% - better than 2.8%
(Total Sales $277M vs. $226M, up 23% y/y)

Aeropostale June Same Store Sales Increase 8.0% - better than 7.0%
(Net Sales up 14% to $186.8 million vs. $163.2 million, y/y)

Hot Topic Posts June Comp Store Sales Down 2.1% - better then (7.2%)
(Out Yesterday – Declared quarterly dividend of $0.07/shr)

Ross Stores June Same-Store Sales Up 5.0% - better than 4.7%
(SEES 2Q EPS $1.00-$1.02, HAD SEEN 95C-99C, EST. $1.00)

Stein Mart reports June SSS up 0.6% - better than (2.0%)
(Total Sales $107.2M vs. $108.8M, down 1.5%, y/y)

Zumiez June Comps Up 10.9% In June - better than 8.4%
(Out Yest – Net Sales up 16.4% to $37.2M from $32.0M, y/y)

Worse Than Expected (13)

Costco reports June SSS up 4.0% - worse than 4.7%
(Net Sales $64.5B, up 9% from $59.02B, y/y - Inflation in gasoline prices and strengthening foreign currencies had a positive impact on comparable sales)

Target reports June SSS up 1.7% - worse than 2.4%
(Total Retail Sales $5.9M vs. $5.6M, up 4%, y/y)

Saks reports June SSS up 2.5% - worse than 2.8%
(Total Sales $237.9 million vs. $230.2 million, a 3.4% increase)

BJ's Wholesale reports June SSS up 3.8% - worse than 5.3%
(Total Sales up 7.9% to $1.08 billion, from $1.00 billion y/y)

Gap Inc June Same-Store Sales Flat - worse than 3.5%
(CFO - “June was a difficult month with lighter traffic than we anticipated…Looking ahead, we remain committed to our goal of driving top line sales balanced with ongoing operational discipline.”)

Kohl's reports June SSS up 5.9% - worse than 6.3%
(CEO – “As expected, we reported stronger sales early in the month as the Memorial Day holiday fell in fiscal June this year. We continue to be pleased with E-commerce sales which were better than planned for the month and have increased almost 50 percent over 2009 year-to-date.”)

American Eagle June SSS Fell 1.0% - worse than 2.5%

The Wet Seal reports June SSS down 3.6% - worse than (1.5%)

TJX Cos. June Same-Store Sales Rose 3.0% - worse than 3.8%
(SEES FISCAL 2011 EPS $3.24-$3.33, ANALYST EST. $3.35)

Cato June Same-Store Sales Up 1.0% - worse than 6.0%
(SEES 2Q EPS 47C-50C, HAD SEEN 43C-46C)           

Buckle June Comparable Store Net Sales Decline 7.3% - worse than (0.3%)
(Net Sales decreased 2.4%  to $69.2 million from net sales of $70.8 million, y/y)

Stage Stores reports June SSS down 1.2% - worse than 2.0%
(Total Sales $129M, Up 1.3% from $128M, y/y)

Fred's June Comparable Store Sales Up 1.7% - worse than 3.3%
(CEO - "We will continue to stress creativity to drive market share, providing unique value opportunities for our customers. The positive mix shift we are experiencing from Core 5 validates the importance of our strategic changes given the present economic environment.")

News & Notes

Bon-Ton Stores June Comparable Store Sales Up 1.4%
(CEO – “Our comparable store inventories were down…reflecting continued inventory control and a fresh merchandise assortment. We are on schedule to receive back-to-school and transitional fall merchandise, along with new home assortments for our July semi-annual Home Sale.”