Traders-Blog.com

Overnight sell-offs in the Asian markets and a weakening Dollar set the tone of the U.S. Markets today. Positive earnings from Dow component Caterpillar were overshadowed as investors retreated after the recent rally, finding little comfort in a slide in oil, gas and gold prices.

Today, the Dow Jones industrial average closed down 11.13 or 0.1% to 11,336.32, the Standard & Poor’s 500 index closed down 3.17 or nearly 0.2% to 1,308.11, and the Nasdaq composite index closed down 9.48 or 0.4% to 2,333.38.

Market breadth was negative. On the New York Stock Exchange, losers beat winners 19 to 12 on volume of 1.51 billion shares. On the Nasdaq, decliners topped advancers by 19 to 10 on volume of 1.98 billion shares.

It is evident that earnings are still the engine and the market is not overvalued, but the environment we are in is creating pressure. The modest pullback in oil and gas prices is not enough as oil is still above $70 a barrel, gas prices are around $3. Economic reports due this week include the first look at first-quarter economic growth - forecast to surge to around 5% from 1.7% in the fourth quarter. This may steer the market trend in the near future.

The G7, the Group of Seven leading industrialized nations, called on China to allow greater flexibility in the value of its currency. This prompted the Japanese yen to rally against the U.S. dollar. What the G7 is saying is that they really need to get some real domestic demand going in Asia and not just rely on keeping their currencies weak against the dollar to drive exports. A top Chinese official reacted to this by saying the U.S. dollar represents a greater risk to the global economy than the Yuan.

American Express Co. reported first-quarter earnings in line with expectations as revenue rose 12% to $6.33 billion. However, the stock closed down $0.47 or nearly 1% to $51.78. Some Other shares that closed down include Ford Motors lost $0.36 or 5% to $6.96, General Motors lost $0.34 to $21.45, and Xerox closed down $0.80 to $14.00, after the company reported a weaker first-quarter profit and earnings below analysts’ estimates. Additionally, the company also issued a fiscal second-quarter earnings forecast that sets the midpoint of the range below analysts’ estimates. Shares of TD Ameritrade closed down $2.09 or over 10% to $19.41, after reporting issuing an earnings forecast below analysts’ estimates. Additionally, the CEO and some other executives would be selling 5 to 6 million shares of the company over the next few weeks.

Caterpillar reported first-quarter net income that soared a stronger than expected 45%. The machinery maker capitalized on higher prices and booming mining and construction markets. However, shares of the company closed down $0.49 to $77.38. The company also lifted its fiscal 2006 earnings per share forecast.

Stock of Cendant Corp. closed up 64 cents at $17.49. Cendant, the operator of Orbitz, CheapTickets.com and Galileo International, said that it might sell the unit after receiving a number of unsolicited bids.

Washington Mutual Inc. said that it is buying Commercial Capital Bancorp Inc. for $16 a share, or $983 million, to boost its presence in California and its multifamily-housing market. Washington Mutual’s stock fell 1.2% to $44.45 while shares of Commercial Capital rallied 11.1% to $15.66. General Electric Co. is in talks to sell its U.K. life-insurance unit to South Africa’s Sanlam and could get between 400 million and 500 million pounds ($890 million). However, GE fell 4 cents to finish at $33.93

U.S. light crude oil for June delivery fell $1.84 or 2.5% to settle at $73.33 a barrel on the New York Mercantile Exchange, after OPEC agreed to keep its daily output unchanged. This decline helped ease some of the worries about rising oil prices, but oil at $73 a barrel isn’t exactly comforting to investors.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter