Stocks End Week on Sour Note

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Stocks were trading lower today as of press time, 3:35 P.M. eastern, with investors worried about consumer numbers. Stocks dropped almost immediately after the open as consumer confidence numbers, as measured by the University of Michigan, dropped to 63.2 for August from 66.0 for July. Consumers biggest fears continue to be job losses, shorter working hours, and smaller wages. These fears have dragged on consumer spend and put pressure on retailer and manufacturer earnings.

The Dow as trading at 9,274, down 124 points; the Nasdaq had shaved 31 points from the open, at 1,978; and the S&P 500 was below the 1,000 mark at 999, down 13 points.

A few stand-out small-cap price gainers include GreenHunter Energy (Amex:GRH), up 79%; China GrenTech (Nasdaq:GRRF), up 43%; and Newcastle Investment (NYSE:NCT), up 19%.

*****Most companies have already reported quarterly earnings but we still have few coming in, most notably retailers. Both J. C. Penney (NYSE:JCP) and Abercrombie & Fitch (NYSE:ANF) reported this morning.

 JCP - The net loss was $1 million, zero per share, in the second quarter ended August 1, compared with a profit of $117 million, or $0.52 per share the same time one year ago. Management has said that the company is now expected to earn $0.75 to $0.90 per share this year, up from a prior forecast of $0.50 to $0.65, but down from $2.57 in 2008 and from $4.93 in 2007. Analysts expect to see $1.38 in 2011.

ANF - The loss for the quarter ended August 1 totaled $26.7 million, or $0.30 per share. That compares with profit of $77.8 million, or $0.87 per share, a year ago. The results included $24.4 million in one time charges for the Ruehl closing and store asset impairment charges. Analysts forecast a loss of $0.07 per share. Sales in stores open at least one year, a key retail metric known as same-store sales, dropped 30%.

The biggest thing to note here is that although EPS is expected to grow 50% or so next year, take a look at where retail earnings are coming from. EPS is expected to be 50% less in 2011 than it was in 2008 and much worse from 2007, but is at least moving in a positive direction.

*****Keep in mind that inventory levels continue to falter and have gone unreplenished and that shipping rates have leveled off. Container lines traditionally raise rates around the third quarter as shops stock up for the “back to school” and holiday shopping seasons.

This year, cargo-box trade has faded as retailers shave orders. Bloomberg reports that container volumes at the Port of Los Angeles, the busiest in the U.S., fell 17% from a year earlier in June.

Emerging markets may take a dive if shipments to the U.S. cannot pick up momentum. Many stocks in China and India have risen as perceptions of a U.S. recovery have taken hold. The globe has priced in a V-shaped recession and unless proven correct stocks will start to lose ground rapidly. (If you’re looking for quality China stocks, be sure to check out the new China stocks special situations report from SmallCapInvestor PRO, click here for a copy.)

*****Despite monetary easing, the U.S. has been unable to spur inflation. July Consumer Price Index (CPI), which was unchanged month-over-month. In June the same index rose 0.7%. The core CPI increased 0.1% month-over-month after increasing 0.2% in June.

Over the past year CPI fell 2.1%, which exceeded the 1.9% decrease that was expected. Core CPI increased 1.5%, which was just shy of the 1.6% increase that many economists expected.

Despite a massive stock rally the past few weeks oil has been trading sideways in August. Looking at a chart of the USO, prices have yet to pick a direction and the outlook is uncertain. What is certain about the chart though is that gaps are always filled, and that $38.80 is strong resistance. Looking at a 60 min chart there is a gap at $32.50 and another at $34.

Oil must show strength in the upcoming weeks or the risk of substantial losses is high.

*****It’s Friday and that means that Jason Cimpl from TradeMaster Daily Stock Alerts joins us for technical analysis of this week’s trades and next week’s market direction. Click here to check out Jason’s video (it’s free).