Capital Preservation

Last Tuesday's Federal Open Market Committee meeting brought a rate cut, as everyone was expecting. Many - including myself - hoping for a more aggressive reduction of 50 basis points. We didn't get it, and the market was quickly punished. The next day, the Fed announced a plan where it and other central banks around the globe would pump money in to help with the credit-market fallout. After a sharp, and extremely brief early rally, stocks continued the rest of the week sharply downward. By Friday's close, the Dow Jones Industrial Average (DJIA) had given back 2.1% since the prior Friday, the S&P 500 Index (SPX) was off 2.4% for the week, and the Nasdaq Composite (COMP) had posted a weekly decline of 2.6%. Then over the weekend Greenspan reared his ugly head, talking about recession and possible stagflation. That killed the trade in Asia where all the bourses were down big. This translated to massive selling in Europe and then Americas.
Today, Goldman Sachs 4th-Quarter topped estimates but the beat did not buoy the shares, as they did not do their usual blowout. Still pretty impressive given the backdrop. BBY reported that third-quarter earnings rose 52% to $228 million, or 53 cents per share, compared to last year's $150 million, or 31 cents per share. Revenue for the quarter rose 17% to $9.93 billion. Analysts were looking for a profit of 41 cents per share. More importantly, Best Buy boosted its full-year earnings forecast to $3.20 per share from a prior guidance of $3.15 per share.
After the close last night, Adobe Systems reported that net fourth-quarter income rose to $222.2 million, or 38 cents per share, from $183.2 million, or 30 cents per share, last year. Meanwhile, revenue rose 34% to $911.2 million. Excluding certain items, earnings were 49 cents per share, edging past Wall Street's consensus estimate for 48 cents per share. Revenue was also above estimates for $887 million, according to Thomson Financial. Following the report, the shares dipped nearly 1% in electronic trading, but appear to have rebounded heading into the open this morning.
Shares of solar energy companies resumed their climb after dipping in Monday's session, as Lehman Brothers raised price targets on several names. Citing expectations that polysilicon, a key component of solar wafers, will continue to be in short supply, Lehman analyst Tim Luke raised his target on MEMC Electronic Materials to $110, from $90, implying he expects the stock to climb nearly 32 percent in the next year, from it's close at $83.42 Monday.
St. Peters, Mo.-based MEMC added $2.02, or 2.4 percent, to $85.44 premarket.
And shares of Epix Pharmaceuticals shot higher after the small biotech released study results for a drug to treat Alzheimer's Disease that it called "encouraging and compelling."
While the study was only two weeks long, investors didn't wait to bid up the Lexington, Mass., company's stock, pushing it higher by $1.70, or 57.2 percent, to $4.67 premarket, from its close at $2.97 Monday.

Economic Calendar

The economic calendar is all about real estate today, with the release of November's housing starts and building permits data. Wednesday's economic agenda is anemic, with the usual crude inventories the lone release. Thursday picks up, as the government will release the final Gross Domestic Product (GDP) report for the third quarter, as well as November's leading indicators, amongst others. Friday will end the week with November's personal income and spending reports, as well as the core Personal Consumption Expenditures (PCE) inflation data.
In August after a sharp rebound we went back down at around the level we are at know. This is a crucial psychological area. We need to keep going up from here to confirm this bull market. Real levels of support 12500 and 1400 on the DOW and S&P respectively.