Archive for October, 2005|Monthly archive page

Do Nothing

Traders,

Nothing ever change, oh no

Nothing ever change

The Specials, Do Nothing

Our current position:

BUYER’S EDGE NOT 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 broader market remains poised to bounce.

Whether a bounce marks the start of a new leg up, or fizzles out, is to be determined.

We like what volume indications are telling us.

We like the fact that Broker Dealers are holding up.

We like the fact that Technology as a group has refused to break down.

We don’t like the technical condition of Growth Stocks as a group.

We don’t like the fact that Semiconductors have fallen a part.

We don’t like the fact that we are rotating out of leadership from Energy. Markets led by Energy are prone to be in the last stage of a cycle before turning bad.

Our mode of operation continues to be, for the most part, wait and see.

Doing nothing is as much a decision as buying and selling.

Doing nothing at this stage of the game is in our best interest. There is no reason to step into an uncertain market to risk healthy profits made on the year.

Technically speaking:

The Dow Industrial Average ($INDU), +1.84%, is trading under its major moving averages as it attempts to negate a bearish head and shoulders pattern.

The S&P 500 ($SPX), +1.60%, is trading under its major moving averages as it looks to make the third low in an upward trending channel.

Nasdaq ($COMPQ), +0.37%, is trading above its 200-day average and below its 50-day average as it maintains a neutral triangle pattern for the year.

Russell 2000 ($RUT), +0.41%, is trading onits 200-day moving average as it remains triangled for the year.

Volume indications with a follow through day in the books and a strong accumulation day Friday, we have evidence to suggest institutions are defending the buy side.

New Highs – New Lows is leaning to the Bears. The ratio has moved off lows for the year.

Investors Intelligence is showing a ratio of 1.53 to the Bulls. Markets tend to turn sour with a dominance of bullish money managers.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 20+-year Note Holdr (TLT) is trading trend down below its major moving averages.

The U.S. Dollar Index ($USD) continues to consolidate in month long pattern.

The Gold Miners Index ($XAU) is trading above its major moving averages after pulling back from an all time high made six weeks ago.

The Dow Jones AIG Commodity Index ($DJAIG) is pulling back from new highs made a month ago.

Consumer Staples ($CMR)maintains a year long trading base. Consumer Cyclicals ($CYC) is attempting to make a stand after hitting a yearly low two weeks ago.

Technology ($DJUSTC) was little changed for the week as it trades above its 200-day average and below its 50-day average.

The Semiconductor Index ($SOX) broke down below to a new low for the year, well below its major moving averages.

Banks ($BKX) had a strong week as they closed above its major moving averages.

Broker Dealers ($XBD) maintain relative strength, trued up above its major moving averages.

Retail ($RLX) continues to consolidate below its major moving averages.

Internet ($IIX) continue to consolidate above its major moving averages.

Healthcare ($HCX) hit a new low for the year, well below its major moving averages.

Biotech ($BTK) are consolidating just below its 50-day moving average. Theindex possesses relative strength.

REIT’s ($DJR) are trying to turn around after trending down for two months.

Homebuilders ($DJUSHB) are trading under the major moving averages.

Transportation ($TRAN) is poised to breakout after consolidating for the year.

Airlines ($XAL) remain under a key trend line, sandwiched between the major moving averages.

Defense ($DFX) hit anew low for the year, and is trading between its major moving averages.

Energy ($IXE) had a strong week while rebounding from threeweeks of declines.

Utilities ($UTY) are trading between their major moving averages.

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

What Was Important About Last Week

STOCKS:

  • Microsoft (MSFT) announced earnings of $3.14 billion for its fiscal first quarter, up 24% from a year ago.
  • The world’s biggest oil company Exxon Mobil (XOM), reported a third-quarter profit of $9.92 billion, this is up 75% from a year ago, and a record for a U.S. company.
  • American Express (AXP) reported a 17% jump in earnings.
  • Merck (MRK) reported a 7.2% gain in earnings.
  • Amazon (AMZN) said it expects fourth quarter sales to be between $2.86 billion and $3.16 billion, up from $2.54 billion a year ago, and in line with analysts’ predictions for $3.08 billion. The stock dropped over 5% on the news.
  • DaimlerChrysler (DCX) said earnings fell 21%
  • Oil producer BP (BP) reported a 34% rise in earnings.
  • Lockheed Martin (LMT) posted a 39% increase in earnings and raised its outlook for the year.
  • Boeing (BA) announced earnings of $1.01 billion for the quarter, twice what it earned a year ago. However, excluding one time sales the company’s earnings disappointed Wall Street.
  • ConocoPhillips (COP) said its third-quarter profit was 89% higher from a year ago to $3.8 billion as it beat forecasts.
  • Sony (SNE) announced profits almost half of what they were a year ago due to weak electronics sales, a Hollywood slump and one-time charges.
  • Bristol-Myers (BMY) reported earnings of $964 million in the third quarter, up 27%
    from a year ago, though just missed Wall Street forecasts.

ECONOMY:

  • President Bush named Ben Bernanke to succeed Alan Greenspan as chairman of the Federal Reserve.
  • Existing home sales held steady at a seasonally adjusted annual rate of 7.28 million in September, this is the same rate as August, and the second highest on record.
  • New home sales rose in September after a slump in August.
  • Gross domestic product grew 3.8% in the third quarter, up from a 3.3% in the second
    quarter. This is the 15th-straight quarter of positive growth and the ninth-straight quarter of a GDP growth rate of 3% or more – the longest stretch since the mid-1980s.

Key earnings releases:

  • MONDAY: Cognizant Technology Solutions (CTSH), Valero Energy Corp. (VLO
  • TUESDAY: ), BJ SVCS CO (BJS), CB RICHARD ELLIS GROUP INC (CBG), Eagle Materials Inc. (EXP), Electronic Arts (ERTS), Electronic Data Systems (EDS), Entergy (ETR), Qwest Communications (Q), Steel Technologies (STTX), UBS (UBS).
  • WEDNESDAY: Activision (ATVI), Cell Genesys (CEGE), CIGNA (CI), Dean Foods (DF), Duke Energy Corporation (DUK), Pan American Silver (PAAS), Peet’s Coffee & Tea (PEET), Time Warner Inc. (TWX).
  • THURSDAY: Boyd Gaming (BYD), Cimarex Energy Co. (XEC), Clorox (CLX), Expedia, Inc. (EXPE), LoJack (LOJN).
  • FRIDAY: Checkpoint Systems (CKP), Noble Energy, Inc. (NBL), Wild Oats Markets (OATS).

On the economic front we have potential market movers with:

  • MONDAY: Personal Income, Personal Spending, Chicago PMI
  • TUESDAY: Auto Sales, Truck Sales, Construction Spending, ISM Index, FOMC policy announcement
  • WEDNESDAY: Crude Inventories
  • THURSDAY: , Initial Claims, Productivity-Prel, Factory Orders, ISM Services
  • FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate

The Following Sections Are Now On Our Home Site:

This Week’s Word On Discipline:

“A colt is worth little if it does not break its halter. ” — proverb

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When the stars begin to fall

Traders,

Shake down the stars, pull down the clouds,

Turn off the moon, do it soon

Frank Sinatra, Shake Down the Stars

Our current position:

MARKET VULNERABLE

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 broader markets ended the week little changed.

Despite earnings season at high tide, price action gives us little to digest.

Our measures of market strength continue to advise us to stay away from new breakouts. Given the dearth of new breakouts, this is not hard to abide by.

We have a certified follow through day in the books.

Follow through days are a mark of strong buying that occur at the beginning of the fourth after a potential market bottom. Research tells us that by four days short covering is a less likely motive for buying as selling pressure dries up.

Follow through days are strong indicators, but of course not full-proof.

Our follow through day from Wednesday appears vulnerable, as Thursday gave us another round of heavy selling.

We’re still looking for a bounce to shed light on what areas of strength might emerge that would lead to buying opportunities in the event of a return to a healthy market. This can be a very slow process.

Relative strength winners for the week were in Broker Dealers, Banks, and Technology.

While Growth Stocks as a group are weak, their dominant trend remains up. Energy and Materials have been whacked, though have not crosses the bearish line to be deemed “has beens.”

Growth Stocks are usually that last to fall in a bad market. When we see these stars fall, it will give us strong conviction that the bull is terminal.

The S&P, from a chartists perspective, looks like it has a good shot at forming the third low in an upward trending trend line.

We are not pure technicians, though entertain ourselves with the analysis.

Price and volume are at the core of what we look for to measure strong and weak environments.

We will wait as long as it takes for the edge to return before committing to the long side of this market.

If the market continues to nose dive, we expect to see short setups present themselves, though our methods for shorting are very limited, and could take weeks to emerge.

Technically speaking:

The Dow Industrial Average ($INDU), -0.70%, is below all its major moving averages in a bearish head and shoulders pattern.

The S&P 500 ($SPX), -0.59%, is below all its major moving averages, and attempting to make the third bounce of a trend line.

Nasdaq ($COMPQ), +0.84%, is under its 50-day average and above its 200-day average, the index is trading in a triangle, and has shown relative strength against the other major indexes in that it managed a gain for the week.

Russell 2000 ($RUT), -0.07%, is below all its major moving averages with no clarity of price action pattern.

Volume indications remain bearish, however, we have a follow through day in the books, which appears vulnerable.

New Highs – New Lows is trend down, just off the weakest levels of the year.

Advance Decline Line is off its lows and showing no divergence to indicate a bias.

Investors Intelligence indicates more bulls than bears at a ratio of 1.54. This contrarian’s indicator continues to flash red.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 20+-year Note Holdr (TLT) is below all its major moving averages and is trying to reverse a two-month trend down.

The U.S. Dollar Index ($USD) is trading above all its major moving averages and is poised to breakout of a cup and handle into overhead resistance from two years ago.

The Gold Miners Index ($XAU) declined to its 50-day moving average as pressure from the U.S. Dollar created a weak environment for Gold.

The Dow Jones AIG Commodity Index ($DJAIG) declined to its 50-day moving average, with the trend still up.

Consumer Staples ($CMR) is below all its major moving averages, as it remains in a year long consolidation pattern. Consumer Cyclicals ($CYC) fell further on the week and now has its moving averages arranged trend down with the 20 below the 50 which is below the 200.

Technology ($DJUSTC) is showing relative strength after posting a small gain on the week. The index is between its 50 and 200 day averages.

The Semiconductor Index ($SOX) dipped below its 200-day moving average for the week and left a tail bullish tail there.

Banks ($BKX) are attempting a bounce, and are facing resistance under its major moving averages.

Broker Dealers ($XBD) remain trend up as they hold above the 50-day moving average.

Retail ($RLX) remains a weak spot in the broader markets as the index consolidates below its major moving averages.

Internet ($IIX) is consolidating above its major moving averages in a display of relative strength.

Healthcare ($HCX) continues its dive as it trades below all its major moving averages.

Biotech ($BTK) is attempting to find a low after pulling back from all time highs made five weeks ago. The sector is showing relative strength.

REIT’s ($DJR) is putting up a fight at its 200-day moving average.

Homebuilders ($DJUSHB) is below all its major moving averages and poised to trend higher in what would start looking like a bearish right shoulder.

Transportation ($TRAN) is consolidating with its major moving averages as it trades in a triangle.

Airlines ($XAL) continue to bounce, and are facing resistance under a long term trend line.

Defense ($DFX) continues to consolidate in multi-month base.

Energy ($IXE) fell for the third week in a row, and is attempting to make a stand at its 200-day moving average.

Utilities ($UTY) fell for the third week in a row, and is flirting with its 200-day moving average.

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

What Was Important About Last Week

STOCKS:

  • International Business Machines (IBM) said its third-quarter earnings fell 2.5% with lower revenue from its personal-computer business.
  • Citigroup (C) announced its earnings increased 35% in the third quarter, boosted by the sale of its Travelers Life & Annuity and other international insurance businesses.
  • Charles Schwab (SCH) said its quarterly earnings rose above $200 million for the first time since the dot-com boom.
  • Google (GOOG) announced quarterly earnings up 7 fold as it beat expectations.
  • eBay (EBAY) disappointed in its quarterly earnings and guided lower.
  • Yahoo! (YHOO) posted better than expected earnings.

ECONOMY:

  • PPI came in at 1.9% vs. expectations of 1.2%.
  • Housing starts came in at 2,108K vs. expectations of 1,975K.
  • Leading indicators came in at -0.7% vs. expectations of -0.5%.

Key earnings releases:

  • MONDAY: j2 Global Communications (JCOM), Merck & Co., Inc. (MRK), Schering-Plough (SGP), Texas Instruments (TXN).
  • TUESDAY: Ameritrade Holding Corp. (AMTD), BellSouth Corporation (BLS), CHICAGO MERCANTILE HLDGS INC (CME), DuPont (DD), Halliburton Company (HAL), Murphy Oil Corporation (MUR), Pixelworks (PXLW), United States Steel Corp. (X).
  • WEDNESDAY: Baidu (BIDU), Biogen Idec Inc. (BIIB), ConocoPhillips (COP), Garmin Ltd. (GRMN), Jones Apparel Group Inc. (JNY), L-3 Communications Holdings (LLL), Moody’s Corporation (MCO), Newmont Mining Corporation (NEM), Pulte Homes Inc. (PHM), The Boeing Company (BA), The Nasdaq Stock Market, Inc. (NDAQ), WellPoint, Inc. (WLP).
  • THURSDAY: Apache Corporation (APA), Barrick Gold (ABX), Black & Decker Corporation (BDK), Burlington Resources, Inc. (BR), ExxonMobil Corporation (XOM), Honda Motor Co. Ltd. (HMC), ImClone Systems Incorporated (IMCL), Kendle (KNDL), Marathon Oil Corporation (MRO), Microsoft (MSFT), Olympic Steel (ZEUS), Penn National Gaming (PENN), Phelps Dodge (PD), Raytheon (RTN), Southwestern Energy (SWN), The Dow Chemical Company (DOW), Vitesse Semiconductor (VTSS), Waste Management (WMI), XM Satellite Radio (XMSR).
  • FRIDAY: Archer Daniels Midland Company (ADM), Baker Hughes Incorporated (BHI), Chevron (CVX).

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: Consumer Confidence, Existing Home Sales
  • WEDNESDAY: Crude Inventories
  • THURSDAY: Durable Orders, Initial Claims, Help-Wanted Index, New Home Sales
  • FRIDAY: Chain Deflator-Adv., Employment Cost Index, GDP-Adv., Mich Sentiment-Rev.

The Following Sections Are Now On Our Home Site:

This Week’s Word On Discipline:

“ Do not fear mistakes — there are none.” –Miles Davis

What's real too hard to believe…

Traders,

On we go to where who knows

To a place where there’s still non-believers

What will it take for heaven sakes

For those who find what’s real too hard to believe in

It’s that same old story again.

Stevie Wonder, Same Old Story

Our current position:

MARKET VULNERABLE

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:

Recent seller domination in the broader markets has our Red Flag hoisted.

We’re sitting mostly in cash, with no reason to step back up to the plate unless conditions improve.

We’re waiting for a bounce to give us an idea of what sectors might turn into leaders should the market resume an uptrend.

Times of market correction serve as a reset for our measures of sector strength.

Energy has been the top dog for the past several months, though is showing signs of weakness.

Given the market’s historical tendency to turn weak after prolonged leadership from Energy, we should not be surprised to see a very rough environment for stocks as we finish the year.

Despite historical tendencies, we will trade what is, and not what should be.

The market has knack of shaking out traders that go with the herd.

Perhaps we’ll look back at this market correction as a time that shook out the bulls.

Perhaps we’ll see the market rebound to suck in a new crop of bulls to be spit out.

Perhaps the market will top and we’ll head into a cyclical move down as the “I told you so” bears proclaim the bubble of 2000 was only the beginning.

Who knows what will happen?

Why would you trust someone who claimed to know?

What would you least expect the market to do?

Amateur traders feel the need to know.

Professional traders know the market will do whatever it wants, whenever it wants.

Flexibility in bias pays in this business. Some people won’t accept this.

Our strategy involves a hit and run method. We lock in profits and hold on to our cash when the odds are against us.

It’s not rocket science.

Technically speaking:

The Dow Industrial Average ($INDU), -0.05%, is below all of its major moving averages and has formed a bearish head and shoulders pattern.

The S&P 500 ($SPX), -0.78%, is trading below all of its major moving averages, though has tested below an upward trend line and left a bullish tail.

Nasdaq ($COMPQ), -1.22%, %, is trading below all of its major moving averages, and remains in a triangle pattern for the year. Triangle patterns alone provide little indication of bias. We hate them.

Russell 2000 ($RUT), -1.74%, is trading just below its 200-day moving average, and is showing little evidence of pattern bias.

Volume indications continue to illustrate a seller dominated environment. Over the past two weeks the S&P 500 has made seven distribution days with no accumulation days. The Dow and Nasdaq have not performed much better.

.

New Highs – New Lows have slipped further down, with the Nasdaq marking a low for the year. This ratio for the NYSE and Nasdaq exchanges has been trending down for the past couple of months.

Investors Intelligence reports a predominance of bullish money managers over bearish money managers at a ration of 1.57. Markets have historically fallen apart with an excess of bulls.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 20+-year Note Holdr (TLT) %, is trading below all of its major moving averages , and broke below its upward trend line for the year.

The U.S. Dollar Index ($USD) is trading above all of its major moving averages, and is primed to breakout of a lower base. Should the index breakout, it faces overhead resistance from two years ago.

The Gold Miners Index ($XAU) is trading above its major moving averages, and has pulled back after setting a new high two weeks ago. There is no clear bias we see in the classic $DXC/$XAU struggle. Should gold gain a clear edge, we will likely see buying opportunities in the near future.

The Dow Jones AIG Commodity Index ($DJAIG) is trading above all of its major moving averages, and is pulling back from a new high three weeks ago.

Consumer Staples ($CMR) continue to consolidate as Consumer Cyclicals ($CYC) take a tumble further below its major moving averages. This is a bearish sign for the overall market.

Technology ($DJUSTC) is attempting to establish support at its 200-day moving average. The index has been surprisingly durable in relative strength, though not bullish.

The Semiconductor Index ($SOX) are attempting to establish support on the 200-day moving average. They are offering relative strength, though are not bullish.

Banks ($BKX) are trading below the major moving averages, and have bounced off the neckline of a bearish head and shoulders pattern.

Broker Dealers ($XBD) have slipped below the 50-day moving average, though remain a pocket of relative strength.

Retail ($RLX) is trading below all of its major moving averages, and has yet to show any signs of bullishness after a couple of months of the bears in power.

Internet ($IIX) is trading between its 50 and 200-day moving averages, and is showing modest relative strength.

Healthcare ($HCX) is attempting to establish support at its 200-day moving average.

Biotech ($BTK) is consolidating just below its 50-day moving average.

REIT’s ($DJR) are attempting to establish support at its 200-day moving average.

Homebuilders ($DJUSHB) are trading below the major moving averages.

Transportation ($TRAN) is consolidating in a year long bias with no clear bias intact.

Airlines ($XAL) have bounced after trading below a major trend line.

Defense ($DFX) continues to consolidate in a three month base.

Energy ($IXE) is trading below its 50-day moving average as it declined for the second week in a row.

Utilities ($UTY)

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

What Was Important About Last Week

STOCKS:

  • Alcoa (AA) reported third-quarter earnings of $289 million as it beat street expectations.
  • Genentech (DNA) said it earned $359.4 for the quarter as it beat Wall Street forecasts.
  • Apple Computer (AAPL) announced its
    quarterly profit quadrupled as it surpassed Wall Street expectations.
  • Advanced Micro Devices (AMD) said quarterly profits rose 73% as it beast street expectations.
  • General Electric (GE) said quarterly profits rose 15%, with mixed reactions from Wall Street.

ECONOMY:

  • Consumer prices were up 1.2% in September with a record 12% increase in energy prices.
  • Retail sales rose 0.2%.
  • Industrial production fell 1.3%

Key earnings releases:

  • MONDAY: Citigroup Inc. (C), General Motors Corp. (GM).
  • TUESDAY: 3M Company (MMM), Johnson & Johnson (JNJ), Merrill Lynch (MER), Yahoo, Inc. (YHOO).
  • WEDNESDAY: Amgen (AMGN), E*TRADE Financial Corp. (ET), Eastman Kodak Company (EK), eBay (EBAY), General Dynamics (GD), J.P. Morgan Chase & Co (JPM), Washington Mutual (WM),
  • THURSDAY: Ford Motor Company (F), McDonalds Corporation (MCD), Nucor (NUE), Pfizer (PFE), XTO Energy Inc. (XTO).
  • FRIDAY: Caterpillar Inc. (CAT), Schlumberger (SLB), Xerox Corporation (XRX).

On the economic front we have potential market movers with:

  • MONDAY: NY Empire State Index
  • TUESDAY: Core PPI, PPI.
  • WEDNESDAY: Building Permits, Housing Starts, Crude Inventories, Fed’s Beige Book
  • THURSDAY: Initial Claims, Leading Indicators, Philadelphia Fed
  • FRIDAY: none

The Following Sections Are Now On Our Home Site:

This Week’s Word On Discipline:

“ Freedom is not procured by a full enjoyment of what is desired, but by controlling the desire.” — Epictetus

Every reason that's not enough

Traders,

Every chip from every cup

Every promise given up

Every reason that’s not enough

Is falling, falling at your feet

Bono and Daniel Lanois, Falling at Your Feet

Our current position:

MARKET VULNERABLE

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:

Nearly every sector posted a loss for the week as institutional strength selling pounded the markets.

Our leadership in Energy appears top-like, as a high volume turn around from new highs suggests a punctuation to a power move that has occurred over the past two years.

Bearish comments from a Federal Reserve president are attributed to the market’s slide. We’re not always so quick to trade news releases, though unless the market can prove otherwise, inflation appears to be a legitimate concern for market players.

Banks have been trading in bearish technical fashion for the past few months, and are poised to fall apart, and potentially lead broad market price action lower.

The Technology sector is giving no clear directional signal, though if recent consolidation in the Semiconductors is successfully broken to the upside it will be encouraging for the broader markets.

Broker Dealers continue to possess relative strength, and have not shown any signs of significant trouble. This is encouraging as BD’s hold weight insofar as overall market sentiment.

Bearish trends in volume patterns, Highs and Lows, Investor’s Intelligence, and The Vix continue to warn of a market due to correct.

We could subjectively say the market has already corrected, so we now ask – will the correction resolve itself? … or will it turn into a new bear market?

We make no claims to know what the market will do, and make a point in never taking seriously those who do.

Our mission is to measure the market environment for its friendliness to specific industry groups, and play individual stocks in accordance to our rules.

Recent strength in Energy and Materials is characteristic of a bull market at the end of the road.

Wherever Technology trends, so usually does the broader market.

Because we are not seeing anything setting up from ideal Technology sector Growth Stocks, we cannot be surprised if the market fails to produce anything worth buying for some time.

Gold Miners have broken out of a two year base, and may offer setups in the near future.

Technically speaking:

The Dow Industrial Average ($INDU), -2.62%, has formed a bearish head and shoulders pattern and is testing its neckline. Obvious technical patterns have a history of frustrating those who trade them.

The S&P 500 ($SPX), -2.68%, has formed a third bottom at an upward trend line. A break below 1181 would likely trigger further selling.

Nasdaq ($COMPQ), -2.85%, is triangled for the year, and trading at the support level of its 200-day moving average. Triangles tend to frustrate traders playing either side of the market.

Russell 2000 ($RUT), -3.51%, is trading at the support of its 200-day moving average. The index maintains relative strength over the other majors, with no clear technical indications.

Volume indications marked heavy seller dominance for the week. The scale is unarguably tipped to the Bears.

.

New Highs – New Lows dipped to lows not seen since the Spring. We’re touching into negative territory.

Investors Intelligence portrays bullish dominance with the number of Bulls over 49% and the number of Bears over 27%. This contrarian indicator has suggested a correction due for the past several months.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 20+-year Note Holdr (TLT), broke south of an upward trend line, though left a bullish tail in the process. Bonds tend to turn before stocks, and from this perspective, poor performance from bonds over the last six months could be a precursor to lower stock prices.

The U.S. Dollar Index ($USD) is in a potential lower base. Breakouts from lower bases are challenged with overhead resistance.

The Gold Miners Index ($XAU), is maintaining ground after breaking out of a two year base. The sector is poised for further upside and may provide buying opportunities given the proper setups from individual stocks.

The Dow Jones AIG Commodity Index ($DJAIG) pulled back after soaring to new highs last week. This is a relative strength winner over the past couple of months.

Consumer Staples ($CMR), maintain a tight year long trading range, and hold the relative strength edge over the Consumer Cyclicals ($CYC) which are testing the neckline of a head and shoulders pattern.

Technology ($DJUSTC) dipped below a very tight three month range. Recent consolidation was encouraging, though no breakout means no upside potential.

The Semiconductor Index ($SOX) have been oscillating in a three month range. No directional signal in place.

Banks ($BKX) dipped below a head and shoulders neckline. Another break below 94 may trigger further selling. This has been a weak area for the market, and may lead the action down for the entire market.

Broker Dealers ($XBD) remain strong as they experienced relatively light selling vs. the broader market.

Retail ($RLX) has been trend down for two months.

Internet ($IIX) scratched a new 9-month high, though has no solid bias insofar as technical analysis.

Healthcare ($HCX) broke out to a bull trap as recent selling wrecked its uptrend. This is a bad sign for bulls.

Biotech ($BTK) broke out to a new high though reversed a bullish signal with a high volume turn around.

REIT’s ($DJR) have been trend down for the past two months.

Homebuilders ($DJUSHB) have also been trend down for the past two months.

Transportation ($TRAN) is trendless while tangled in its major moving averages.

Airlines ($XAL) has traded back to a long term trend line that served as support before the bottom fell out for the sector.

Defense ($DFX) hit a new high, though faces a potential bull trap situation if price action drops further below its 50-day moving average.

Energy ($IXE) was hammered in a high volume wash out that often goes in hand with tops. What kind of top, is difficult to say, though we believe it will be some time before new highs are notched in again.

Utilities ($UTY) hit a new high, though reversed course to close the week with a loss as a monthly low was achieved.

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

What Was Important About Last Week

STOCKS:

  • General Motors (GM) and Ford (F) were put on Standard & Poor’s CreditWatch.
  • Clorox (CLX) said high energy prices would
    restrain profits in its fiscal second quarter.
  • BP (BP) said the shutdown in productivity from the hurricanes
    would reduce third quarter profits by about $700 million.
  • Lexmark (LXK) reduced its third-quarter profit estimates by half due to an
    unexpected drop in revenue.
  • General Electric (GE) raised its
    profit forecast for the rest of the year.
  • Major U.S. retailers reported mediocre September sales growth, citing
    hurricanes and high gasoline prices as negative influences on consumer spending.

ECONOMY:

  • Dallas Fed President Richard Fisher spooked stocks with the comment, “The
    inflation rate is near the upper end of the Fed’s tolerance zone, and
    shows little inclination to go in the other direction.”
  • Nonfarm Payrolls outside fell by 35,000 last month, the first decline since May
    2003.
  • The unemployment rate, rose to 5.1%, the highest in four months, though better than expected.
  • U.S. factory orders rose 2.5% in August for the third gain in four months. This was better than economists’ expectations.

Key earnings releases:

  • MONDAY: ALCOA Inc (AA), Genentech, Inc. (DNA).
  • TUESDAY: Advanced Micro Devices (AMD), Apple Computer, Inc. (AAPL).
  • WEDNESDAY: Fastenal (FAST), Monsanto Company (MON),
  • THURSDAY: Fairchild Semiconductor International, Inc. (FCS), Tribune (TRB), Winnebago (WGO).
  • FRIDAY: General Electric (GE), Knight Ridder (KRI), UnitedHealth Group Inc. (UNH).

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: FOMC Minutes.
  • WEDNESDAY: Crude Inventories.
  • THURSDAY: Export Prices ex-ag., Import Prices ex-oil, Initial Claims, Trade Balance, Treasury Budget.
  • FRIDAY: Core CPI, CPI, Retail Sales, Retail Sales ex-auto, Capacity Utilization, Industrial Production, Mich Sentiment-Prel., Business Inventories.

The Following Sections Are Now On Our Home Site:

This Week’s Word On Discipline:

“ Keep away from people who belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.” ” –Mark Twain

Bulls on Parade!

Traders,

Come wit it now!

Bulls on parade!

Rage Against The Machine, Bulls On Parade

Our current position:

MODEST UPSIDE BIAS
*This week’s blog report will be abreviated, please refer to our home site for Growth Stocks update.
The end of the month often brings out buying from money managers that want dress their portfolios up with the best performing stocks so they can show their clients they’re hip.

With the overall technical structure of the market looking like it wants to go higher, we hesitate to believe recent strenght is durable.

This market continues to be great if you’re in Energy and Material oriented stocks.

This market continues to be spotty if you’re anywhere else.

We replaced our bearish Red Flag with our cautious Yellow Flag because the evidence now stacks up to a modest bullish bias.

We have no idea who will show up to buy or sell in the coming weeks.

As mentioned before, we are seeing a split environment of heavy selling and heavy buying.

Should the markets move sideways on high volume we will consider this bearish.

We should be back in full blog form for the next edition.