Archive for July, 2005|Monthly archive page

Backbone

Traders,

You can reach
But you can’t grab it
You can hold it, control it
No, you can’t bag it
U2
Our current position:

BUYER’S EDGE INTACT

In this week’s edition you will find:

  • Where We Are
  • What Was Important About Last Week
  • What We Are Watching For This Week
  • A Word On Discipline

The following sections can now be found on our home site:

The Growth Stock Landscape /
What We Like – What We Have / This Week’s Scans

Where We Are:

Taking a look at the overall markets:

We now have the S&P 500 and Nasdaq making 4-year highs.

This is all great, but the reality is the S&P 100 and Nasdaq 100 are not following.

The number of New Highs – New Lows is not supporting higher index levels either.

The number of Growth Stocks hitting new highs is also posting relatively low numbers.

This market continues to be driven by Energy and Real Estate issues.

While we have witnessed money flow into technology and cyclicals, the technical conditions of these sectors is sluggish.

Our concerns over the lack of performance from technology issues will either pass in time or worsen in light of a deteriorating market. Technology is the backbone of a healthy market.

Just as the stock market serves as a leading indicator of the economy, markets led by Energy are often reflecting an economy that will hit the top of its cycle months down the road.

Our speculation goes to the stock market, not the economy.

Because we are not seeing heavy selling, and the trend remains up, we continue to wave the Green Flag.

Given market conditions, we have not seen a whole opportunity from individual stocks, though have been ringing the cash register nonetheless.

Technically speaking:

All of the major indexes are trading above their major moving-averages which are stacked “trend-up”, with the 20-days above the 50-days, which are above the 200-days. This is no major trading signal to us, but a recognition of the nature of the rally that began in April.

The Dow Industrial Average ($INDU), -0.10%, continues to be the most vulnerable of the major indexes with significant overhead resistance to be reckoned with.

The S&P 500 ($SPX), +0.04%, marched to a new high, and closed the week with a bearish “doji” chart candlestick.

Nasdaq ($COMPQ), +0.23%, also hit a new high and closed with a bearish “doji” candlestick.

Russell 2000 ($RUT), +0.29%, followed the pattern of the S&P and Naz by hitting a new high and closing with a bearish “doji.”

It should be noted that we don’t place a whole credence in charting candlesticks unless they occur on high volume and/or relatively large trading ranges.

Volume indications continue to portray a buyer’s bias with the S&P 500 and posting two days of accumulation a piece. The Dow had one day of accumulation and one day of distribution.

New Highs – New Lows is telling us that the though the major indexes are moving higher, the number of individual issues doing so is not increasing. Highs – Lows for The New York Stock Exchange hit its peak July 11th, and has been showing bearish divergence ever since.

The Advance/Decline Line is giving us no signal at present.

Investors Intelligence continues to show a significant number of Bulls over Bears. From a historical perspective this is not good for buyers. We have yet to max out the scale here, and recognize the number of Bulls could easily increase before serving as a tradable warning.

Key chart action for the week:


Charts courtesy of Stockcharts.com

The 10-year Note Holdr (TLT) continues to trend down after coming shy of its high made 2003.

The U.S. Dollar Index ($DXC) and The Gold Miners Index ($XAU) have been trading sideways over the past five weeks, with the Dollar poised to break out of a lower base and the Gold Miners bearish in head-and-shoulders fasion. We don’t see a setup in either vehicle. We recognize the difference between generic patterns and opportunity.

The Dow Jones Commodity Index ($DJAIG) continues trading in an eight week range. To breakout or fall apart?

Consumer Cyclicals ($CYC) have outperformed the Consumer Staples ($CMR) over the past couple of months, but for the week the Staples held a modest edge. Neither index has broken out to new highs, though the Staples are close.

The Semiconductor Index ($SOX) failed to take out last week’s high. Going forward the 500 area will serve as an important resistance mark.


Banks ($BKX) have been trend-down for the past two weeks. Per Thompson Financial, financial issues have been experiencing heavy insider selling.

Broker Dealers ($XBD) had their first losing week after eight winning ones.

Retail ($RLX) hit a fresh high before settling in a “doji.”

Internet stocks ($IIX) remain sluggish as a group. With significant overhead resistance the index closed the week in “doji” form.

Telecoms ($XTC) remain in strong technical form as they came within a hair of Juanuary’s high.

Healthcare ($HCX) broke out to a new high.

Biotech ($BTK) failed to take out last week’s high, though remains trend-up.

REIT’s ($DJR) hit another new high. For what many media pundits deemed “a bubble”, we saw an opportunity.


Homebuilders ($DJUSHB) failed to hit a new high and showed slight distribution. Nothing to act on at this juncture, but perhaps a first step in a correction?

Transportation ($TRAN) crept past last week’s high and is holding ground after knocking out its bearish condition.

Airlines ($XAL) were quiet as a group and are “triangled” in a lower base formation.

Defense ($DFX) hit another new high.

Energy ($IXE) hit another new high.


Basis Materials ($A1BSC) was lackluster while holding ground near the half-way point from this year’s high.

Utilities ($UTY) edged out last week’s high, though are just shy the year’s high. We assume this sector will continue to go in step with the price of bonds over the long run.

The top 10 industry groups from the 6 month RS screen are:

  1. GROCERY STORES
  2. SEMICONDUCTOR EQUIP MA
  3. SEMICONDUCTOR-INTGRTD
  4. HEAVY CONSTRUCTION
  5. SEMICONDUCTOR-SPECIALI
  6. SEMICONDUCTOR-BROAD LI
  7. TECHNICAL SERVICES
  8. DEPARTMENT STORES
  9. INDUSTRIAL EQUIP WHOLE
  10. INTERNET SERVICE PROVI

What Was Important About Last Week

STOCKS:

  • No. 1 mobile-phone chip maker Texas Instruments (TXN), reported earnings up 42% to $628 million as it beat Wall Street estimates.
  • American Express (AX) announced its second-quarter earnings were up 16% from a year ago to $1.01 billion, beating Wall Street estimates.
  • Amazon.com (AMZN) said it earned $52 million in the second quarter, which is slightly down from last year, though ahead of Wall Street expectations.
  • Verizon (VZ) posted second-quarter profits of $2.11 billion, up 18% from a year ago.
  • British Petroleum (BP) reported earnings up 29% to $4.98 billion, though warned the third quarter is off to a slow start.
  • The Chicago Mercantile Exchange (CME) announced second-quarter earnngs of $2.36 a share, up 42% from a year earlier, though 2 cents below Wall Street forecasts.
  • Building Materials (BMHC) posted earnings of $2.28 a share, up 148% from a year ago and better than estimates.
  • Valero Energy (VLO) said it earned $3.06 a share, up 34% from a year ago and 12 cents above Wall Street expectations.
  • Legg Mason (LM) reported earnings up 22% to 93 cents a share, but 7 cents below forecasts.
  • The world’s biggest oil company, Exxon Mobil (XOM) announced earnings up 32% was a penny short of Wall Street forecasts.
  • The No. 3 oil company, Royal Dutch Shell (RD) said earnings were up 35%, though also fell short of estimates.
  • Sony (SNE) reported a loss for its second-quarter loss and lowered its guidance for the full-year.
  • MGM Mirage (MGM) posted earnings up 24%, 2 cents over Wall Street expectations.
  • Boeing (BA) said second-quarter earnings made for a $566 million profit, which was much better than Wall Street forecasts.
  • Sprint (FON) reported second-quarter earnings more than doubled to $600 million, beating Wall Street expectations.

ECONOMY:

  • The U.S. economy grew at a 3.4% annualized rate in the second-quarter, slightly down from the first quarter’s 3.8% rate.
  • Sales of pre-owned homes rose 2.7% in June to a seasonally adjusted annual rate of 7.33 million units, a new record.
  • New home sales in increased 4% in June to a seasonally adjusted annual rate of 1.374 million units.
  • Consumer Confidence dipped slightly, falling short of economists’ expectations.
  • Orders for durable goods in the U.S. were up 4% in June, beating economists’ forecasts.
  • The beige book gave indication of a helathy economy.

What We Are Watching For This Week:

Key earnings releases:

  • MONDAY: LoJack (LOJN), Macrovision (MACR), Statoil ASA (STO), Unocal (UCL).
  • TUESDAY: Aon Corporation (AON), Eagle Materials Inc. (EXP), InterActiveCorp (IACI), Oshkosh Truck (OSK), Paxar Corporation (PXR), Ryanair Holdings (RYAAY), Tenet Healthcare (TNH), Tyco International (TYC), Vishay Intertechnology, Inc. (VSH).
  • WEDNESDAY: Dean Foods (DF), Duke Energy Corporation (DUK), Sunoco (SUN), Swift Energy (SFY), THQ Inc (THQI), Time Warner Inc. (TWX).
  • THURSDAY: Clorox (CLX), Harrah’s Entertainment (HET), Kos Pharmaceuticals (KOSP), The Gillette Company (G), Toll Brothers (TOL), Viacom (VIA).
  • FRIDAY: Cardinal Health, Inc. (CAH).

    *Current Holdings In Bold

On the economic front we have potential market movers with:

The Following Sections Are Now On Our Home Site:

The Growth Stock Landscape
What We Like – What We Have
This Week’s Scans:
SETUPS
BREAKOUTS
BASE BUILDING
SHORTS

This Week’s Word On Discipline:


“In the last analysis, our only freedom is the freedom to discipline ourselves.” —Bernard Baruch

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Who Knows, Who Cares?

Traders,

Who cares if the sky cares to fall in the sea
Who cares what banks fail in Yonkers
Long as you’ve got a kiss that conquers?
Ella Fitzgerald

Our current position:



BUYER’S EDGE INTACT

In this week’s edition you will find:

  • Where We Are
  • What Was Important About Last Week
  • What We Are Watching For This Week
  • A Word On Discipline

The following sections can now be found on our home site:

Where We Are:

Taking a look at the overall markets:

The Nasdaq rallied to a 4-year high. Over the past few weeks we’ve watched money flow into technology and cyclical type stocks, this is the result.

What everyone wants to know is – will it last?

Our response is – who knows, who cares?

Our job as traders involves reacting to whatever the market dictates to us. We don’t “hold and hope”, or try to answer questions as if we were astrologers.

The strategy we use involves historically tested methods. We simply measure the market environment and place our bets accordingly. Energy spent ‘hoping’ and obsessing over ‘what ifs’ is just a waste.

Action this past week was mostly lackluster. While new highs were made, leadership continues to come from Energy and Homebuilders.

Our major indicators of price and volume continue to support the Green Flag we use to signify a buyer’s edge.

Our minor indicators of New Highs – New Lows, The Advance Decline Line, The VIX, and Investors Intelligence remain bearish.

The way we see things, either these bearish indicators will alter course to come in line with a market that moves higher, or continue to point down and serve as a bellwhether for lower price action.

While we see no major reasons to be bears, we also NOTHING worth buying at this juncture. We’re making money with positions established over the past months, and won’t get nervous until price and volume give their warning.

Inside the tape:

Most earnings reports for the second quarter have been great. Though interestingly, tech giants Microsoft, Intel, Google, and Yahoo have all had the wind knocked out them after not performing as well as hoped.

It’s not that the tech giants had poor earnings, it’s that the market wasn’t impressed. It’s not the news that’s important, so much as the reaction. Strong markets will reject negative news. Bad markets will decline on good news.

We could argue that the market as a whole didn’t seem to care about the earnings reports from its top names, but the fact remains that these top names are important, and they’re exhibiting weakness.

This week will be the climax of earnings reports, and we will be watching closely to see how the reactions come in line with the reports.

Technically speaking:

The major averages held relatively tight ranges for the week, and all are trading above their major moving averages:

The Dow Industrial Average ($INDU), +0.10%, is still technically the weakest of the averages, and settled in an indecisive “doji” candlestick chart formation.

The S&P 500 ($SPX), +0.47%, inched to another new 4-year high.

Nasdaq ($COMPQ), +1.06%, moved modestly higher for a 4-year high.

Russell 2000 ($RUT), +2.12%, edged out last week’s bearish candlestick for a new high.

Volume indications continue to portray a buyer dominated environment as the major averages notched in three days of accumulation a piece. Only the Nasdaq had one day of distribution.

The number of New Highs across the exchanges are NOT supporting new highs in the major averages. This is a clear sign of weakness. New Lows have held a steady and quiet pace with low numbers.

The Advance/Decline Line continues to show bearish divergence.

Investors Intelligence remains in a state of bearishness with too many bullish advisors.

Key chart action for the week:


Charts courtesy of Stockcharts.com

Consumer Cyclicals ($CYC) continue to work their way towards the year’s high as they outperform Consumer Staples ($CMR), which have been consolidating in base breakout fashion.

The Semiconductor Index ($SOX) continue to make their way towards the critical 500 level where a major trendline is in place.

Banks ($BKX) failed to make a new high for the week as the index works through overhead resistance.

Broker Dealers ($XBD) continue to blaze their way north to new highs.

Retail ($RLX) broke out to new highs.

Internet stocks ($IIX) remain sluggish and relatively weak, though not necessarily bearish.

Healthcare ($HCX) broke out to a new high before pulling back. The index is at a crucial juncture. To double top or breakout?, that is the question.

Biotech ($BTK) soared to new highs before pulling back to leave a bearish tail on the week. A nice and quiet pullback would be in the Bulls best interest, whereas high volume selling would be a red flag.

REIT’s ($DJR) failed to hit a new high though remain in a strong uptrend.

Homebuilders ($DJUSHB) hit a new high.

Transportation ($TRAN) broke its bearish chart formation, though remains in a year long trading range.

Airlines ($XAL) were quiet for the week.

Defense ($DFX) hit another new high.

Energy ($IXE) hit another new high.

Utilities ($UTY) pulled back for the week.

The top 10 industry groups from the 6 month RS screen are:

  1. GROCERY STORES
  2. SEMICONDUCTOR-SPECIALI
  3. SEMICONDUCTOR-INTGRTD
  4. SEMICONDUCTOR EQUIP MA
  5. SEMICONDUCTOR-BROAD LI
  6. TECHNICAL SERVICES
  7. RESIDENTIAL CONSTRUCTI
  8. DEPARTMENT STORES
  9. HEAVY CONSTRUCTION
  10. INTERNET INFO PROVIDER


What Was Important About Last Week

STOCKS:

  • Microsoft (MSFT) announced earnings of $3.7 billion for its fiscal fourth quarter, up 38% from a year ago, and ahead of Wall Street forecasts.
  • IBM (IBM) announced earnings of $1.83 billion in the second quarter, up about 5% from a year ago, though revenue slid nearly 4% to $22.3 billion. The company easily beat Wall Street forecasts.
  • Citibank’s (C) revenue slid 3% from a year ago to $20.17 billion, falling well below Wall Street expectations.
  • Charles Schwab (SCH) reported a 65% jump in second-quarter earnings.
  • No. 1 chip maker Intel (INTC) announced second-quarter earnings up16% to $2 billion, Sales were up 15% to $9.23 billion. The company beat estimates by a small margin, though the analystdisappointedpointed by profit margins and many felt the stock was over priced.
  • Yahoo! (YHOO) said second-quarter earnings were six times as much as a year ago at $755 million, (due largely to the sale of an unidentified investment [GOOG?]. Revenue was up 51% to a record $1.25 billion, but the company still was short of Wall Street expectations.
  • Merrill Lynch (MER) reported earnings were up 6% from a year ago to $1.14 billion, beating Wall Street expectations.
  • GM (GM) lost $286 million in the second quarter, well short of Wall Street expectations.
  • Ford (F) said second-quarter profits were down 19% from a year ago.
  • Johnson & Johnson said second-quarter earnings were up almost 9% from a year ago to $2.68 billion, beating Wall Street expectations.
  • EBay (EBAY) reported earnings of $291.6 million for the quarter, up 53% from a year ago. Sales were up 40% to $1.09 billion. Excluding one-time items, the company beat Wall Street estimates.
  • Google (GOOG) said its second quarter earnings were $342 million, this is 5 times as much as a year ago and ahead of Wall Street estimates.
  • AT&T (T) announced its second-quarter earnings tripled from a year ago. Excluding one-time items, the company beat Wall Street estimates. AT&T is wasiting to be acquired by SBC Communications.
  • Kodak (K) said it lost $146 million in the second quarter, well short of Wall Street forecasts.
  • Drug maker Merck (MRK) said its second quarter earnings fell 59% from a year ago.
  • Shipping firm UPS (UPS) said its second quarter earnings rose 21%, though appears to be losing market share to FedEx.
  • No. cell phone maker Nokia (NOK), reported its earnings rose 15% in the quarter.

ECONOMY:

  • New U.S. home construction was stagnant in June.
  • Building permits were up 2.4% in June.
  • Greenspan said the U.S. is on “firm footing,” – with economic growth andinflation contained. He did not appear concerned over the impact of higher oil prices or a potential decline in housing.
  • China’s economy grew 9.5% in the second quarter, well ahead of economists’ forecasts.
  • New claims for unemployment benefits fell sharply last week to 303,000.
  • The Conference Board announced said its index of leading economic indicators rose 0.9% in June after being flat in May.
  • The Philadelphia Fed said its index of mid-Atlantic factory activity came in at 9.6 in July, a rebound.


What We Are Watching For This Week:

Key earnings releases:

  • MONDAY: Altera Corporation (ALTR), BellSouth Corporation (BLS), j2 Global Communications (JCOM, Pitney Bowes Inc. (PBI), Texas Instruments (TXN), Xerox Corporation (XRX).
  • TUESDAY: AFLAC Incorporated (AFL), Amazon.com, Inc. (AMZN), Biogen Idec Inc. (BIIB), Black & Decker Corporation (BDK), CHICAGO MERCANTILE HLDGS INC (CME), Electronic Arts (ERTS), Flextronics (FLEX), ImClone Systems Incorporated (IMCL), International Paper Co. (IP), LCA-Vision (LCAV), Lockheed Martin (LMT), RF Micro Devices, Inc. (RFMD), Southwestern Energy (SWN), United States Steel Corp. (X), Valero Energy Corp. (VLO), Websense (WBSN).
  • WEDNESDAY: Agrium Inc. (AGU), Amerada Hess (AHC), Applebee’s International (APPB), ConocoPhillips (COP), Garmin Ltd. (GRMN), HCA (HCA), Internet Security Systems (ISSX), LSI Logic (LSI), Monster Worldwide (MNST), Pixelworks (PXLW), Placer Dome (PDG), Pulte Homes Inc. (PHM), Sprint Corp (FON), Starbucks (SBUX), The Boeing Company (BA), Ultra Petroleum Corp (UPL), WellPoint, Inc. (WLP), Xcel Energy (XEL).
  • THURSDAY: Activision (ATVI), Aetna Inc. (AET), American International Group (AIG), Anglogold Ashanti Limited (AU), Apache Corporation (APA), Beazer Homes USA Inc. (BZH), Bristol-Myers Squibb (BMY), Celgene Corp. (CELG), Cognizant Technology Solutions (CTSH), DaimlerChrysler (DCX), ExxonMobil Corporation (XOM), Investment Technology Group (ITG), Invitrogen Corporation (IVGN), KLA-Tencor (KLAC), Marathon Oil Corporation (MRO), Nextel Partners (NXTP), Northrop Grumman (NOC), Patterson-UTI Energy, Inc. (PTEN), Penn National Gaming (PENN), Phelps Dodge (PD), Potash Corporation of Saskatchewan Inc. (POT), Raytheon (RTN), The Nasdaq Stock Market, Inc (NDAQ), Varian Semiconductor Equipment Associates Inc. (VSEA), Waste Management (WMI), Wendy’s International (WEN).
  • FRIDAY: American Electric Power (AEP), Baker Hughes Incorporated (BHI), Chevron (CVX), Vornado Realty Trust (VNO),

On the economic front we have potential market movers with:

The Following Sections Are Now On Our Home Site:

The Growth Stock Landscape

What We Like – What We Have

This Week’s Scans:

This Week’s Word On Discipline:

“On which side is discipline most rigorously enforced? …In which army is there the greater constancy both in reward and punishment? By means of these considerations I can forecast victory or defeat.” — Sun Tzu

In The Face Of Nothing

Traders,

Reality has always had too many heads
Some things last longer than you think they will
Bob Dylan “Cold Irons Bound”

Our current position:

Buyer’s Edge Intact

In this week’s edition you will find:

  • Where We Are
  • What Was Important About Last Week
  • What We Are Watching For This Week
  • A Word On Discipline

The following sections can now be found on our home site:

Where We Are:

Taking a look at the overall markets:

This past week was a good one if you were a bull.

With seven straight days of gains, the S&P 500 hit a 4-year high, nearly every sector participated, news on the economy couldn’t be better, and earnings reports didn’t pull many surprises. Not much to complain about.

And after careful consideration we raised the Green Flag. The only catch is we se NOTHING to buy.

Our strategy is centered around setups in individual names, not the overall market. As much we put into speculating on the direction of the overall market, we know it’s a tough game to play.

We gauge overall market strength to let us know how friendly an environment it is for stocks meeting our fundamental and technical requirements. Ideally, we want to see continued market strength pave the way for future setups.

We no institutional support marked for technology issues. This is a a crucial and major step for us to have conviction for this environment.

Semiconductor industry groups now hold places in the top-five slots of 6-month relative strength.

The Banks are also showing technical improvement.

Leadership continues from Energy, Real Estate, Homebuilders, and Broker Dealers. This focus doesn’t get us terribly excited about things, but it’s where we’re making money.

Going into the new week we have strong indication that a pullback of some sort is in order.

The Russell 2000 blazed the way for breakouts, and it could also lead us down as it posted a bearish candlestick on the weekly chart.

We also have bearish divergence from the New Highs – New Lows Line, as well as the Advance Decline Line.

Pullbacks are watched for evidence of distribution. If we see a predominance of sellers we’re likely to hoist the Yellow Flag back up.

We also continue to have bearish signals from Investors Intelligence and the Volatility Index. These are contrarian indicators that hold their water, yet are difficult to time.

Some argue that the VIX doesn’t work anymore. This case may be made from looking at the past year, though looking over the past 12 years it can be seen that historical levels are indeed in play. Without any explanation of any inherent changes in the volatility of CBOE OEX options trading, we’re not so quick to dismiss it.

Our game plan for the week is to manage current positions while waiting to see what transpires in the way of new setups.

Technically speaking:

All of the major indexes are above their 50 and 200-day moving averages, and from a trend stand point, are looking the strongest they have all year.

The Dow Industrial Average ($INDU), +1.83%, is technically the weakest of the major indexes as it faces overhead resistance in its path for new highs for the year.

The S&P 500 ($SPX), +1.33%, hit a new 4-year high while closing strong.

The Nasdaq ($COMPQ), +2.08%, is less than 35 points away from a new 4-year high.

The Russell 2000 ($RUT), +0.24%, continued its push into new high territory before closing at the at the bottom of its weekly range to form a bearish chart candle.

The Volume situation is highlighted by two days of accumulation a piece for the Dow, S&P 500, and Nasdaq.

New Highs hit record levels for the year, though the Highs – Lows line is currently showing bearish divergence.

The Advance/Decline Line is also showing bearish divergence.

Investors Intelligence continues to show a significant number of bullish avisors to bearish advisors. This contrarian indicator is bearish, as the majority usually get it wrong.

Key chart action for the week:


Charts courtesy of Stockcharts.com

Consumer Staples ($CMR) and Consumer Cyclicals ($CYC) performed well for the week, with the staples now showing a slight lrelativeealtive strength. Both indexes remain within trading ranges for the year.

The Semiconductor Index ($SOX) almos broke outrokeout to a new 52-week high.

Banks ($BKX) smashed an eight week trading range, and rests less than 3 points from a new high.

Broker Dealers ($XBD) maintainstrengthtrenght for the seventh straight week.

Retail ($RLX) just broke outrokeout to a new high.

Internet ($IIX) had a positive week, though was not able to take out last month’s high.

Computer Technology ($XCI) broke through a long-term bearish trendline.

Healthcare ($HCX) continues to trade just shy of new highs.

Biotech ($BTK) had another big week and is approaching its 4-year high.

REIT’s ($DJR) lost ground for the week, though remains trend up.

Homebuilders ($DJUSHB) were strong as a new high was notched in.

Transportation ($TRAN) despite gains on the week, the sector remains in a bearish teconditionndidtion, though is not a short candidate.

Airlines ($XAL) continued to bounce off a major trendline. We still see the potential for a cyclical move higher due to the sewillingnessingness to shake negative news and chart opportunity.

Defense ($DFX) marched to another new high.

Basis Materials ($A1BSC) continues to trade in a bearish holding pattern.

Energy ($IXE) just barely made a new high. We are seeing profit taking in individual names.

Utilities ($UTY) hit another new high, though closed at the bottom of its range for the week.

The top 10 industry groups from the 6 month RS screen are:

  1. GROCERY STORES
  2. SEMICONDUCTOR-SPECIALI
  3. SEMICONDUCTOR-BROAD LI
  4. SEMICONDUCTOR-INTGRTD
  5. SEMICONDUCTOR EQUIP MA
  6. INTERNET INFO PROVIDER
  7. DATA STORAGE DEVICES
  8. TECHNICAL SERVICES
  9. DEPARTMENT STORES
  10. INTERNET SERVICE PROVI

What Was Important About Last Week

STOCKS:

General Electric (GE) said that had a 24% increase in earnings for its second quarter as revenue rose 13%. However, the company guided lower for the rest of the year.

DreamWorks (DWA) reported it expects to lose money for the quarter, and for the year it expects to earn between 80 and 90 cents a share, well below Wall Street’s expectations of $1.39.
Genentech (DNA) reported making 30 cents a share exfor the forthe second quarter, which is a 58% increase from last year, and 4 cents above the consensus estimate.

Ameritrade (AMTD) reported third quarter earnings were up 20% from a year ago as it met Wall Street expectations. Trading volume was down, though revenue was higher higher due partly to higher interest income from customer loans.

Apple (AAPL) said its third qearningsrrnings hit a company-record of $320 million, which is more than five times higher than last year’s performance. The results were .37 a share, and .06 ahead of Wall Street expectations.

Southwest Airlines (LUV) reported a 41% increase in net income for the second quarter as it blew past Wall Street estimates.

United Health (UNH) announced earnings of 61 cents a share for the second-quarter, up 30% and a .01 above an analyst consensus.

ECONOMY:

The U.S. trade deficit fell by 2.7% in May as exports were up 0.1% and imports fell 0.9%. This was a surprise to economists.

Core consumer prices rose 0.1% in June.

Core producer prices dropped 0.1%.

Industry output increased 0.9% for the best gain in over a year as it smashed economists expectations.

Capacity utilization rose 80% for its highest level since December of 2000.

The Empire Manufacturing Index came in at its highest level for the year.

Retail sales were up 1.7%, beating expectations of 1%.

Initial jobless claims rose by 16,000 to a seasonally adjusted level of 336,000.

What We Are Watching For This Week:

Key earnings releases:

  • MONDAY: 3M Company (MMM), Bank of America Corporation, (BAC), Steel Dynamics (STLD).
  • TUESDAY: American Home Mortgage Investment Corp. (AHM), Amgen (AMGN), Check Point Software Technologies (CHKP), Ford Motor Company (F), Gilead Sciences (GILD), Intel Corporation (INTC), Johnson & Johnson (JNJ), Kraft Foods (KFT), Motorola Inc. (MOT), Novellus Systems, Inc. (NVLS), RadioShack Corporation (RSH), Steel Technologies (STTX), The Cheesecake Factory (CHK), TRAVELZOO INC (TZOO), Wells Fargo & Company (WFC), Yahoo, Inc. (YHOO).
  • WEDNESDAY: AT&T (T), Capital One Financial Corp. (COF), E*TRADE Financial Corp. (ET), Eastman Kodak Company (EK), eBay (eBay), General Dynamics (GD), General Motors Corp. (GM), Honeywell (HON), J.P. Morgan Chase & Co (JPM), Macromedia (MACR), Pfizer (PFE), Ryland Group (RYL), United Technologies (UTX).
  • THURSDAY: Caterpillar Inc. (CAT), D.R. Horton (DHI), DELTA AIR LINES INC DEL (DAL), Google (GOOG), Illinois Tool Works Inc. (ITW), MedImmune (MEDI), Merck & Co., Inc. (MRK), Microsoft (MSFT), Nextel Communications (NXTL), Nokia (NOK), Nucor (NUE), Reliance Steel (RS), SBC Communications (SBC), Schering-Plough (SGP), The Coca-Cola Company (KO), TriQuint Semiconductor (TQNT), Union Pacific (UNP), Vitesse Semiconductor (VTSS), Xilinx, Inc. (XLNX).
  • FRIDAY: Halliburton Company (HAL), Schlumberger (SLB), Silicon Laboratories Inc. (SLAB).

On the economic front we have potential market movers with:

The Following Sections Are Now On Our Home Site:

The Growth Stock Landscape
What We Like – What We Have
This Week’s Scans:

This Week’s Word On Discipline:

Your own mind is a sacred enclosure into which nothing harmful can enter except by your promotion.” —
Ralph Waldo Emerson

A Breath Of Fresh Air

Welcome to this week’s edition of The Growth Stock Report!

Traders,

Market winds changed course for the week as buyers boosted the overall technical condition to their favor.

Our current position:

MARKET IN LIMBO

In this week’s edition you will find:

  • Where We Are
  • What Was Important About Last Week
  • What We Are Watching For This Week
  • A Word On Discipline

The following sections can now be found on our home site:

Where We Are:

Taking a look at the overall markets:

Thursday’s emotional lower open on the heels of terror attacks in London marked the lows for the week. Not even worse than expected employment figures could thwart upside momentum.

Strong markets reject negative news.

Small-caps led the charge with the Russell 2000 hitting new all time highs.

Firming the advance, Consumer Cyclicals were endorsed with heavy buying into technology issues. This is a change of pace from the past couple of months where money favored Consumer Staples.

Our conviction goes to where the technology names point us. The charts are looking good as critical levels are in play with the Nasdaq and Semiconductor Index facing potential breakouts.

It’s all about the breakout, but breakouts can lead to fakeouts. In order for us to raise the Green Flag we want to see well sponsored buying for new highs should they come.

This market continues to be a bullish environment for Energy, Homebuilders, and Real Estate. On a down note, these are not the sectors that usually lead cyclical moves up in equities.

We do continue to be encouraged by well bid Broker Dealers, but also want to see Banks shake their current trading range.

Two heavy points of evidence that keep weight on the Bears side of the scale are the contrarian indicators of Investors Intelligence and the CBOE Volatility Index. As mentioned in previous reports, extremes in these indexes more than often lead to corrections. Timing the corrections is not a mechanical operation, so we must keep it in perspective that the prospects of a significant broader move up in the major indexes is dimmed.

Regardless of indicators, price rules. Wherever the market takes us we’ll go. Our time frame for trading allows us to take advantage of opportunity and stay away from uncertainty.

Our portfolio has been behaving very nicely for us. We came into the week in a defensive stance, but are now looking to seize opportunity should it present itself.

Technically speaking:

The Dow Industrial Average ($INDU), +1.41%, is the weakest of the major indexes as it remains rangebound and tangled in its 20, 50, and 200-day moving averages.

The S&P 500 ($SPX) , +1.46%, and Nasdaq ($COMPQ), +2.70%, are back above their 20, 50, and 200-day moving averages, which are stacked in bullish form, with the 20 above the 50, and the 50 above the 200.

The leader of the major indexes is the Russell 2000 ($RUT), +2.97%, as it broke out to new highs.

Volume indications are now in the Bull’s favor with two days of accumulation a piece for the Dow and S&P 500, and three to the Nasdaq. One day of distribution was notched in for all three major indexes. It should also be recognized that Thursday’s accumulation was likely due to heavy trading in response to the London attacks.

New Highs on the major exchanges were robust, and an obvious sign of strength for this environment. New Lows remain quiet.

The Advance/Decline Line continues to trend in the Bulls favor.

Investors Intelligence remains bearish, with 53.9% Bulls and 21.4% Bears. With this contrarian indicator at extremes, the odds are we’ll see the Bulls burned somewhere. Where and when this might occur is not for us to speculate.

Key chart action for the week:


Charts courtesy of
Stockcharts.com

Consumer Cyclicals ($CYC) have picked up steam and are now showing relative strength over Consumer Staples ($CMR).

The Semiconductor Index ($SOX) had a strong run to the upside and are poised to make new highs for the year.

Banks ($BKX) had a positive week, though remain in a seven week trading range.

Broker Dealers ($XBD) continued their charge higher.

Retail ($RLX) is poised to breakout to new highs.

Internet stocks ($IIX) were relatively quiet as they bounced off their 50-day moving average. We have been used to this group providing leadership, but so far it’s not stepping up.

Healthcare ($HCX) was in step with the greater market as it looks to make new highs.

Biotech ($BTK) had a monster move to the upside.

REIT’s ($DJR) hit another new high. This has been a Bear killer.


Homebuilders ($DJUSHB) continued their upward advance. Another Bear killer.

Transportation ($TRAN) continues to hold technical weakness. We don’t expect any major moves from the sector any time soon. Both Bull and Bear camps have been frustrated here.

Airlines ($XAL) are facing a key technical decision with almost a three year trend line in play. We believe the upside to have better odds, and potentially a longer-term cyclical move.

Defense ($DFX) is consolidating nicely and set for new highs.

Energy ($IXE) cruised to another new high. No signs of weakness yet.

Basis Materials ($A1BSC) is technically unstable, and one of the worst performers fort he year.

Utilities ($UTY) made it five weeks in a row of new highs.

The top 10 industry groups from the 6 month RS screen are:

  1. GROCERY STORES
  2. CONSUMER SERVICES
  3. SEMICONDUCTOR-SPECIALI
  4. RESIDENTIAL CONSTRUCTI
  5. OIL GAS DRILLING EXPLO
  6. OIL GAS REFINING MRKTN
  7. SEMICONDUCTOR-INTGRTD
  8. DEPARTMENT STORES
  9. SEMICONDUCTOR-BROAD LI
  10. TECHNICAL SERVICES


What Was Important About Last Week

STOCKS:

  • Homebuilders reported the following reports on orders: D.R. Horton (DHI), 20% rise to 14,980 home orders and a 28.6% gain in home order value to $4.13 bil. M.D.C. Holdings’ (MDC) 14.2% rise to 4,832. Comstock’s (CHCI) order revenue was up 97.7% to $51.6 mil. Pulte Homes (PHM) reported a 26% order increase to 13,581 houses.

ECONOMY:

  • U.S. nonfarm payrolls were up 146,000 in June, lower than the 200,000 economists expected.
  • The unemployment rate fell to 5%, its lowest since September 2001.
  • The International Council of Shopping Centers and UBS said sales at 66 retail chains jumped 5.3% from a year ago for the best performance since May 2004.
  • Job claims rose 7,000 to 319,000 as the 4-week average slid for third week in a row to a 4-month low of 320,500.


What We Are Watching For This Week:

Key earnings releases:

  • MONDAY: Genentech, Inc. (DNA)
  • TUESDAY: Ameritrade Holding Corp. (AMTD), Infosys Technologies LTD (INFY), PepsiCo (PEP)
  • WEDNESDAY: Abbott Laboratories (ABT), Advanced Micro Devices (AMD), Apple Computer, Inc. (AAPL), Yum! Brands, Inc. (YUM)
  • THURSDAY: Fairchild Semiconductor International, Inc. (FCS), Fifth Third Bancorp (FITB), Genzyme Corporation (GENZ), Marriott International (MAR), Southwest Airlines (LUV), UnitedHealth Group Inc. (UNH)
  • FRIDAY: First Data (FDC), General Electric (GE)

On the economic front we have potential market movers with:

The Following Sections Are Now On Our Home Site:

The Growth Stock Landscape

What We Like – What We Have

This Week’s Scans:

This Week’s Word On Discipline:

“No evil propensity of the human heart is so powerful that it may not be subdued by discipline.” — Seneca

DISCLAIMER:
Past Performance Is Not Indicative of Future Returns. All commentary provided
by The Growth Stock Report is for educational purposes only. The analysts and
employees or affiliates of The Growth Stock Report may hold positions in the
stocks or industries discussed here. This information is NOT a recommendation
or solicitation to buy or sell any securities. Your use of this and all information
contained in The Growth Stock Report is governed by the Terms and Conditions
of Use. Opinions expressed are our present opinions only. This material is based
upon information that we consider reliable, but we do not represent that it
is accurate or complete, and that it should be relied upon, as such.

The Market Never Lies

Welcome to this week’s edition of The Growth Stock Report!

Traders,

Our bias remains negative.

Our current position:

MARKET VULNERABLE TO FURTHER SELLING

In this week’s edition you will find:

  • Where We Are
  • What Was Important About Last Week
  • What We Are Watching For This Week
  • A Word On Discipline

The Following sections can now be found on our home site:

Where We Are:

Taking a look at the overall markets:

Price-action for the week was mostly stagnant.

The trend remains the same with strength in Energy, Homebuilders, Real Estate, and Broker Dealers; and lackluster performance from Technology and Banking.

Despite our bias, our conviction for the short side of this market is minimal. As we see very little evidence mount to the Bulls favor, we also see little in the way to suggest this market is deteriorating.

Given our Red Flag warning, we would not be the least surprised to see things fall a part this summer.

Because this market has yet to fall a part, we must keep an open mind. Should the market speak we will listen. The market never lies.

As we monitor action from our open positions, our objectives lean towards preserving what we have, not trying to make something from nothing.

Technically speaking:

The major indexes were little changed for the week.

The Dow Industrial Average ($INDU), +0.05%, is currently parked below its major moving averages, while The S&P 500 ($SPX) , +0.245, and Nasdaq ($COMPQ), +0.20, remain below their 20-day averages and above their 50-day averages.

Looking at the bigger names in the indexes, The S&P 100 and the Nasdaq 100 are trading below their major moving averages.

Attempting to establish leadership, the Russell 2000 ($RUT), +2.00%, put in a sizable gain as it flirts with the year’s highs. The index is above its major averages and poised to breakout.

For the second week in a row, Volume goes to the Bears. Despite one solid day of accumulation, two convincing days of distribution for the S&P and Nasdaq are evidence of a poor market environment. We’re inclined to believe Tuesday’s accumulation was affected by end of the quarter portfolio dressing, in which fund managers buy stocks that did well to show clients they had them in their books. The cads.

New Highs for the week were resilient, and New Lows were stagnant. This is bullish, though not enough to get us excited.

The Advance/Decline Line also gave us a bullish indication as it broke its bearish divergence established a weak ago.

Investors Intelligence remains bearish with 55.1% Bulls and 19.1% Bears. With this contrarian indicator at extremes, the odds are we’ll see the Bulls burned somewhere. Where and when this might occur is not for us to speculate.

Key chart action for the week:


Charts courtesy of
Stockcharts.com

Consumer Staples ($CMR) and Consumer Cyclicals ($CYC) continue to trade in a bearish technical mode under their major moving averages.

The Semiconductor Index ($SOX) was little changed for the week as it finds support at its 50-day moving average.

Banks ($BKX) pierced the resistance of a 6-week trading range only to fall a part and close towards the bottom of that range..

Broker Dealers ($XBD) maintained their status as a “hot” sector in this environment..

Internet stocks ($IIX) closed lower to find support at their 50-day moving average. We mentioned in an earlier report that we saw potential for a bearish right shoulder pattern to trace out.

Telecommunications ($XTX) showed relative strength as it gained ground. This sector continues to hold breakout potential.

Healthcare ($HCX) traded lower and is now below its 50-day moving average. Given the wash out of individual growth stock names in the sector last week, we no longer recognize this area as having potential.

Biotech ($BTK) came just shy of a new high for the year. Unlike the broader health related industry, this sector is showing us strength.

REIT’s ($DJR) remain on track after breaking out three weeks ago.


Homebuilders ($DJUSHB) also made way north and are technically healthy.

Transportation ($TRAN) bounced back from its landslide a week ago, though continues to hold its bearish head-and-shoulders pattern.

Defense ($DFX) hit an all time high. The trend here has been unarguably up since March of 2003.

Energy ($IXE) held its bullish stance with a decent gain. So far the sector breakout made two weeks ago is sticking.

Utilities ($UTY) hit a new high. This sector goes where the bond prices do.

The top 10 industry groups from the 6 month RS screen are:

  1. CONSUMER SERVICES
  2. GROCERY STORES
  3. SEMICONDUCTOR-SPECIALI
  4. DEPARTMENT STORES
  5. OIL GAS REFINING MRKTN
  6. APPAREL STORES
  7. GOLD
  8. OIL GAS DRILLING EXPLO
  9. INTERNET INFO PROVIDER
  10. RESIDENTIAL CONSTRUCTI



What Was Important About Last Week

STOCKS:

  • Nike (NKE) warned that its Q1 revenue growth would be lower than the expected 7%-9% range.
  • Walgreen’s (WAG)
  • Cardinal Health (CAH) warned its earnings for fiscal 2006 will fall short of current expectations.
  • International Paper (IP) lowered its second-quarter earnings forecast below Wall Street estimates. Weak sales of packaging and printing paper, along with high costs for energy and materials are to blame.
  • Oracle (ORCL) reported earnings of 26 cents a share which was 3 cents better than an analyst consensus was looking for and the biggest gain in over 2 years.

ECONOMY:

  • The Federal Reserve raised its target for the federal-funds rate to 3.25% from 3% to make it nine increases in a row.
  • The Institute for Supply Management reported its index of factory activity rose in June to break a six-month losing streak, though remains below its 2004 high.
  • U.S. consumer confidence to its highest level in three years as it was boosted by an improving labor market; rising stock prices. Steady gas prices may have also contributed.
  • The International Air Transport Assoc announced May air freight traffic fell1.6% from a year ago. This is the first fall in over 2 years and due to a rise in oil prices.
  • The University of Michigan said its consumer sentiment index rose at the end of June.
  • Personal income and spending growth was slightly lower in May, but the national savings rate rose for the first time since December.
  • The Purchasing Management Association of Chicago’s index of area business activity was lower lower in June.Jobless claims fell 6,000 to 310,000, for the lowest level since Feb. 19.

What We Are Watching For This Week:

Key earnings releases:

  • MONDAY: Holiday
  • TUESDAY: none
  • WEDNESDAY: Ruby Tuesday (RI), Schnitzer Steel Industries, Inc.(SCHN)
  • THURSDAY: Accenture (ACN), ALCOA Inc (AA)
  • FRIDAY: none

On the economic front we have potential market movers with:

The Following Sections Can Now Be Found On Our Home Site:

The Growth Stock Landscape

What We Like – What We Have

This Week’s Scans:

This Week’s Word On Discipline:

“There is only one sort of discipline, perfect discipline. ” — George S. Patton

DISCLAIMER:
Past Performance Is Not Indicative of Future Returns. All commentary provided
by The Growth Stock Report is for educational purposes only. The analysts and
employees or affiliates of The Growth Stock Report may hold positions in the
stocks or industries discussed here. This information is NOT a recommendation
or solicitation to buy or sell any securities. Your use of this and all information
contained in The Growth Stock Report is governed by the Terms and Conditions
of Use. Opinions expressed are our present opinions only. This material is based
upon information that we consider reliable, but we do not represent that it
is accurate or complete, and that it should be relied upon, as such.