Archive for April, 2006|Monthly archive page

Six Months

Traders,

the imitation picks you up like a habit

riding in the glow of the tv static

taking out the trash to the man

give the people something they understand

Elliott Smith, “Junk Bond Trader”

Our current position:

BUYERS BEWARE

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 are on our home site:

Where We Are:

Taking a look at the broader market:

The Dow ticked in a new six-year high as Banks broke out.

Weekly chatter danced around the Fed and the fact that May tips off an historically bad season for the markets.

The talking suits argue endlessly, “Will they raise rates more than one more time over the next six months?”

Who knows. So far bonds are telling us some serious restructuring is in the midst. Bonds tend to lead equities. Equities tend to lead the economy. The economy tends to lead the fed.

On the month of May: The six month period beginning this month has for the past 50 years produced practically no gains.

One could argue quite well that obeying the market’s historical tendencies is just as practical as the price and volume indicators we follow.

Our price and volume indicators have had us waiving the caution flag for well over a month.

The Hi/Lo ratio continues to show bearish divergence against the broader market.

If this market were truly strong, why isn’t that being reflected with healthy numbers of new highs?

And we are not comfortable in an environment led by Energy stocks.

Energy stocks tend to lead the crude oil prices.

“During the seventeen years between 1986 and 2002, the price of West Texas Intermediate crude oil averaged $20.53/bbl. In 2003, the average price for oil reached $31.14/bbl., in 2004 it was $41.44/bbl., in 2005 it was $56.47/bbl., and during the first three months of 2006 the price has averaged $63.35/bbl. On Friday, the price rose above $75/bbl., an all-time high in nominal terms,” say Brian S. Wesbury and Bill Mulvihill

And we really don’t like to see the Computer Technology Index ($XCI) collapse below its major moving averages as it did last week.

Yes, economic data remains strong, but that’s exactly when markets top out.

So far earnings season isn’t providing much stimulus either. Microsoft (MSFT) may be just one stock, but it speaks for a dismal environment. Tech giants such as Intel (INTC) and Dell (DELL) have been giving us the same message as Mr. Softie.

To feel better about the market’s upward momentum, we’d like to see all of the above change.

And we don’t see how that will happen any time over the next six months.

We’re not so foolish as to pick a top. But all we can say is this environment is not favorable to our Growth Stock strategies.

When the market’s ready we’ll be there. Until then, the focus goes on preserving capital.

Technically speaking (for the week):

The Dow Industrial Average
($INDU), +0.17%, hit a fresh six-year high for the week.

The S&P 500
($SPX), -0.05%, consolidated just below a recent high for the week.

Nasdaq
($COMPQ), -0.87%, gradually declined to just above its 50-day moving average.

Russell 2000
($RUT), -0.98%, gradually declined to its 20-day moving average.

Volume indications gave us a couple of distribution day a pice on the major indexes, though total volume for the past two weeks goes to the bulls.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) moved to a new four year high.

The U.S. Dollar Index
($USD) collapsed below its major moving averages for the second week in a row.

The Gold Miners Index
($XAU) extended last week’s gain, though did not hit a new high.

The Dow Jones AIG Commodity Index
($DJAIG) pulled back, though remains above its 20-day moving average.

Consumer Staples
($CMR) regained ground above its 50-day moving average though has lagged behind its counterpart, Cyclicals, for the past coup0le of months.

Consumer Cyclicals
($CYC) pulled back gently, as it trades above all its major moving averages.

Technology
($DJUSTC) retreated to its 50-day moving average, as it continues to trend sideways for the year.

The Semiconductor Index
($SOX) consolidated around its 50-day moving average as it continues to lag the overall market.

Banks
($BKX) broke out to a new high.

Broker Dealers
($XBD) sold off to close below its 20-day moving average.

Retail
($RLX) consolidated just above its 50-day average.

Healthcare
($HCX) continued trade bleow its major moving averages.

Biotech
($BTK) consolidated below its 50-day average and above its 200-day average.

REIT’s
($DJR) also >) consolidated below its 50-day average and above its 200-day average.

Homebuilders
($DJUSHB) fell further below its major averages for a new low on the year.

Transportation
($TRAN) puled back gently to its 20-day average.

Airlines
($XAL) are attempting to rebound on a key trend line as the index remains in a multi year triangle pattern.

Defense
($DFX) pulled back gently to its 20-day average.

Energy
($IXE) pulled back to its 20-day average.

Utilities
($UTY) rallied to the resistance mark of its 50-day average.

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

  1. GOLD
  2. SEMICONDUCTOR-INTGRTD
  3. INTERNET SERVICE PROVI
  4. INDUSTRIAL METALS MINE
  5. STEEL IRON
  6. BASIC MATERIALS WHOLES
  7. INDUSTRIAL ELECTRICAL
  8. PRINTED CIRCUIT BOARDS
  9. SEMICONDUCTR-MEMORY CH
  10. FARM CONSTRUCTION MACH

What Was Important About Last Week

STOCKS:

  • Microsoft (MSFT) reported Q3 (Mar) earnings of $0.32 per share, excluding $0.03 legal charge – missing analysts’ expectations by a penny. Revenues rose 13.3% year/year to $10.9 bln, also shy of expectations (consensus $11.04 bln). Looking ahead, MSFT issued downside EPS guidance for Q4, sees EPS of $0.30 (consensus $0.34) on revenues of $11.5-11.7 bln (consensus $11.67 bln). The company also issued downside EPS guidance for FY07, sees EPS of $1.36-1.41 (consensus $1.53) on revenues of $49.5-50.5 bln (consensus $49.52 bln).
  • McAfee (MFE) reported Q1 (Mar) earnings of $0.37 per share, $0.07 better than the Reuters Estimates consensus of $0.30. Revenues rose 15.4% year/year to $272 mln vs. the $261.9 mln consensus.
  • Flextronics (FLEX) reported Q4 (Mar) earnings of $0.16 per share, excluding non-recurring items, in line with the Reuters Estimates consensus of $0.16. Revenues fell 0.4% year/year to $3.6 bln (consensus $3.61 bln).
  • Pulte Homes (PHM) reported Q1 earnings climbed 21%, but slippage in new home orders has caused some concern.
  • Express Scripts (ESRX) reported Q1 (Mar) earnings of $0.70 per share, in line with the Reuters Estimates consensus.
  • Business Objects (BOBJ) reported Q1 (Mar) earnings of $0.33 per share, excluding non-recurring items, three cents better than the Reuters Estimates consensus.
  • Cendant (CD) reported Q1 (Mar) earnings of $0.16 per share, two cents better than the Reuters Estimates consensus.
  • Amazon.com (AMZN) reported Q1 (Mar) earnings of $0.12 per share, excluding non-recurring items, in line with the Reuters Estimates consensus. Revenues rose 19.8% year/year to $2.28 bln (consensus $2.23 bln).
  • AFLAC Inc. (AFL) , excluding non-recurring items, reported Q1 (Mar) earnings of $0.72 per share, two cents better than the Reuters Estimates consensus of $0.70; revenues were unchanged from the year-ago period at $3.56 bln.
  • Boyd Gaming (BYD) reported Q1 (Mar) earnings of $0.78 per share, surpassing analysts’ expectations by five cents. Total revenues rose 16.1% year/year to $646.5 mln vs the $655 mln consensus.
  • Netflix (NFLX) posted better than expected Q1 results, aided by 47% revenue growth.
  • Sun Microsystems (SUNW) reported a Q3 (Mar) loss of $0.06 per share, $0.01 better than the Reuters Estimates consensus of ($0.07) and in line with First Call consensus of ($0.06). Revenues rose 20.9% year/year to $3.18 bln (consensus $3.2 bln).
  • YUM! Brands (YUM) reported Q1 (Mar) earnings of $0.59 per share, two cents better than the Reuters Estimates consensus. Total revenues rose 1.5% year/year to $2.08 bln, which was shy of the $2.11 bln consensus.
  • Ford (F) reported dismal Q1 results, hurt by ongoing weakness in North America.

ECONOMY:

  • Real GDP increased 4.8% at an annual rate in Q1, a rebound from the 1.7% annual growth in Q4. Growth in Q1 was the fastest since Q3 2003. The GDP chain-weighted price index increased an annualized 3.3% in Q1. Nominal GDP (or aggregate demand) rose an annualized 8.2% in Q1.
  • The Chicago Purchasing Managers’ Index (PMI) pulled back to 57.2 in April versus 60.4 in March. The index has been above 50 for 36 consecutive months.
  • Federal Reserve Chairman Ben Bernanke testified before the Joint Economic Committee today on his outlook for the U.S. economy and monetary policy. On the economy, Chairman Bernanke was fairly upbeat, saying that “the prospects for maintaining economic growth at a solid pace in the period ahead appear good.” However, Mr. Bernanke warned that the housing market was showing signs of “softening” and could be a drag over the next two years.
  • New orders for durable goods increased by a more-than-expected 6.1% in March. Durable goods orders are up 17.7% in the past year – the fastest YOY gain since June 2000.
  • New single-family home sales surged 13.8% in March to 1.213 million units at an annual rate – the largest one-month percentage gain since 1993. This follows a 10.9% decline in February (originally -10.5%). New home sales are down 7.2% in the past year.
  • Housing Data:
  • The median price of a new home fell a non-seasonally adjusted 6.5% in March and is down 2.2% in the past year.
  • At the current sales pace, the supply of new homes fell to 5.5 months in March versus 6.3 months in February. From 1970-2000 the inventory of new homes on the market averaged 6.4 months.
  • Existing home sales rose 0.3% in March to 6.92 million units at an annual rate. This was higher than consensus forecasts of 6.65 million. Nonetheless, existing home sales are down 0.7% in the past 12 months.
  • The median sales price of an existing home was $218,000 in March, unchanged from February’s level and 7.4% higher than a year ago. As the chart nearby shows, this YOY change is in sharp contrast to the CPI, which shows housing costs (23.2% of overall CPI) rising just 2.8% in the past year. We believe the CPI significantly understates actual inflation because it underestimates housing costs.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Chesapeake Energy Corporation (CHK), Fisher Scientific International (FSH), Southwestern Energy (SWN), m Technologies Inc. (ZOOM).
  • TUESDAY: Accredited Home Lenders Holding Co. (LEND), Alcan Inc. (AL), Allied Waste Industries, Inc. (AW), Caremark Rx, Inc. (CMX), Eagle Materials Inc. (EXP), Entergy (ETR), Macrovision (MVSN), Oshkosh Truck (OSK), Verizon (VZ), WMS Industries Inc. (WMS).
  • WEDNESDAY: Barrick Gold (ABX), Career Education (CECO), CIGNA (CI), Clorox (CLX), Cognizant Technology Solutions (CTSH), Dean Foods (DF), Garmin Ltd. (GRMN), Glamis Gold Ltd (GLG), Patterson-UTI Energy, Inc. (PTEN), Starbucks (SBUX), TEEKAY SHIPPING MARSHALL ISLND (TK), Time Warner Inc. (TWX), Whole Foods Market (WFMI).
  • THURSDAY: Activision (ATVI), Anglogold Ashanti Limited (AU), Kerr-McGee (KMG), Quest Software Inc. (QSFT), Swift Energy (SFY), UBS (UBS), Wild Oats Markets (OATS).
  • FRIDAY: Alliant Techsystems Inc. (ATK), Cimarex Energy Co. (XEC), Harmony Gold Mining (HMY), LoJack (LOJN), THQ Inc (THQI).

On the economic front we have potential market movers with:

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

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Nothing is more harmful to the service, than the neglect of discipline; for that discipline, more than numbers, gives one army superiority over another.”
George Washington

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Too tight

Traders,

Baby, don’t get too tight with me

Yes, you’re far too tight for me

I got your messages

And how can I resist

But if you come around

Don’t slap the cuffs upon my wrist

Baby you’re tight for me

(I warn you) yeah

Far too tight for me

Yeah

Rolling Stones, “Too Tight”

Our current position:

BUYERS BEWARE

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 are on our home site:

Where We Are:

Taking a look at the broader market:

Explosive, high volume moves have inspired a wave of bullishness throughout the media, as new highs were set in place on the Dow, S&P 500 and Nasdaq.

Federal reserve comments seem to have market players believing we’re near the end of an interest rate tightening policy.

As revealed in the minutes from the FOMC’s most recent meeting:

Most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy,” the minutes said.

The biggest moves were in Energy and Metals stocks.

It was a good week to be a bull in just about every sector.

We also saw a significant increase in our Hi/Lo Ratio, which while appearing to be turning up, continues to show bearish divergence against the major indexes for the year.

We’d be more than happy to wave our Green Flag and give the all clear to load up our accounts with hot Growth Stocks – but we won’t do that because acting on emotions is disastrous to trading.

We want the smoke created by the market’s knee-jerk response to the FOMC minutes to clear before getting a better temperature of the market air.

We are also keeping a close watch on bond yields, which if continue to rise may impact stocks adversely as they have historically signaled shifts in risk perception.

We are also tuned into the fact that rising Energy prices tend to weigh on earnings growth – which is the prime driver of Growth Stocks.

The only thing we like about rising Energy prices is taking advantage of the profits they have given us as stock holders.

Technically speaking:

The Dow Industrial Average
($INDU), +1.88%, hit a six-year high.

The S&P 500
($SPX), +1.72%, pushed over the roof of a six-week trading range for a new high.

Nasdaq
($COMPQ), +0.72%, hit a new high.

Russell 2000
($RUT), +2.80%, roared to a new high after pulling back for two weeks.

Volume indications side with the bulls for the week as the Nasdaq made three accumulations days, and the Dow and S&P 500 had two accumulation days.

The Hi/Lo Ratio marked significant improvement in hitting levels not seen in more than a month. The indicator has yet to approach highs set earlier in the year, which has created bearish divergence.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) traded in a narrow range, unable to extend three weeks of gains.

The U.S. Dollar Index
($USD) traded further below its major moving averages.

The Gold Miners Index
($XAU)

The Dow Jones AIG Commodity Index
($DJAIG) made it five weeks in a row of gains as it settled near its all-time highs.

Consumer Staples
($CMR) bounced off an upward trend-line to put the brakes on three weeks of declines.

Consumer Cyclicals
($CYC) roared to a new high.

Technology
($DJUSTC) came close, though was unable to achieve new highs in step with the major indexes.

The Semiconductor Index
($SOX) advanced to close on its 50-day moving average, as it continues to hold relative weakness against the market for the past month.

Banks
($BKX) hit a new high.

Broker Dealers
($XBD) hit a new high.

Retail
($RLX) was a market laggard as it posted a loss on the week, struggling to stay above its major moving averages.

Healthcare
($HCX) was little changed for the week as it continues to trade below its major moving averages.

Biotech
($BTK) was little changed for the week as it continues to trade between its major moving averages.

REIT’s
($DJR) retraced lost ground to close on the resistance level of the 50-day moving average.

Homebuilders
($DJUSHB) continues to consolidate below its major moving averages.

Transportation
($TRAN) just barely made a new high before pulling back. Volume on the index has been high for the past week.

Airlines
($XAL) fell a part to close below its major moving-averages.

Defense
($DFX) hit a new high.

Energy
($IXE) charged to a new high.

Utilities
($UTY) rallied after suffering from four straight weeks of declines below its major moving averages.

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

  1. GOLD
  2. SEMICONDUCTOR-INTGRTD
  3. STEEL IRON
  4. INDUSTRIAL METALS MINE
  5. BASIC MATERIALS WHOLES
  6. FARM CONSTRUCTION MACH
  7. INTERNET SERVICE PROVI
  8. DRUG DELIVERY
  9. INDUSTRIAL ELECTRICAL
  10. CATALOG MAIL ORDER HOU

What Was Important About Last Week

STOCKS:

  • Schlumberger (SLB), the world’s largest oil services firm, posted a 38% increase in Q1 earnings.
  • 3M (MMM) topped the Q1 EPS estimate by a penny and raised its full-year outlook.
  • Google (GOOG) reported Q1 (Mar) earnings of $2.29 per share, $0.31 better than the Reuters Estimates consensus. Total revenues including Traffic Acquisition Costs rose 79.1% year/year to $2.25 bln vs. the $2.15 bln consensus. Revenues excluding Traffic Acquisition Costs came in at $1.527 bln vs. $1.44 bln First Call consensus.
  • Nasdaq Stock Market (NDAQ) reported Q1 (Mar) earnings of $0.16 per share, which includes $13.6 mln in expenses and may not be comparable to the Reuters Estimates consensus of $0.11. Revenues rose 119.9% year/year to $396.2 mln (consensus $359.8 mln).
  • Intel (INTC) reported a bad Q1 report and cut its full-year outlook.
  • eBay (EBAY) reported Q1 (Mar) earnings of $0.24 per share, in line with the Reuters Estimates consensus. Total revenues rose 34.7% year/year to $1.39 bln, also matching Wall Street’s expectations.
  • Apple (AAPL) reported Q2 (Mar) earnings of $0.50 per share, seven cents better than the Reuters Estimates consensus. Total revenues rose 34.4% year/year to $4.36 bln vs. the $4.5 bln consensus.
  • Qualcomm (QCOM) reported Q2 (Mar) earnings of $0.41 per share, excluding non-recurring items, in line with the Reuters Estimates consensus. Total revenues rose 34.4% year/year to $1.83 bln vs. the $1.81 bln consensus.
  • United Technologies (UTX) beat estimates by three cents and boosted its FY06 outlook
  • Amgen (AMGN) fell short of earnings expectations despite a 17% rise in Q1 profits.
  • IBM (IBM) reported Q1 (Mar) earnings of $1.08 per share, which excluding non-recurring items. Total revenues fell 9.8% year/year to $20.66 bln (consensus $20.64 bln).
  • Texas Instruments (TXN) reported Q1 (Mar) earnings of $0.33 per share, in-line with the Reuters Estimates consensus.
  • Yahoo! (YHOO) reported Q1 (Mar) earnings of $0.11 per share, in line with the Reuters Estimates consensus. Total revenues ex-TAC rose 32.5% year/year to $1.09 bln vs the $1.08 bln consensus.
  • Freeport McMoRan (FCX) announced profits nearly double on surging copper and gold prices.
  • Unitedhealth (UNH) reported a 21% increase in earnings on a 58% jump in revenues.
  • Charles Schwab (SCHW) reported a 68% increase in Q1 net income.

ECONOMY:

  • The Consumer Price Index (CPI) rose 0.4% in March versus a 0.1% increase in February. The gain was in-line with consensus expectations. The 12-month change in the CPI decelerated to 3.4% last month from 3.6% in February.
  • Energy prices rose 1.3% in March after falling 1.2% in February. Food and beverage prices rose 0.1%. Excluding food and energy, the “core” CPI in March was up 0.3% (0.34% unrounded), above consensus estimates and the largest one-month gain since November 2001. “Core” consumer prices are up 2.1% in the past year.
  • The producer price index for finished goods (PPI) rose 0.5% in March after a 1.4% drop in February. Finished good prices are up 3.5% in the past year. Excluding food and energy, the “core” PPI increased by a less than expected 0.1% last month. While the YOY gain was steady at 1.7%, the three-month annualized change was 3.1%.
  • Housing starts fell 7.8% in March to 1.960 million units at an annual rate. This is the lowest level since March 2005. A 12.0% decline in single family starts accounted for the entire decline. Multi-unit starts rose 15.7% last month.
  • New building permits declined 5.5% in March to an annualized 2.059 million units. Building permits have been above the two million mark for over two years.
  • Housing completions surged in March, increasing 7.8% to 2.218 million units at an annual rate – a record high.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: American Express Company (AXP), Ameritrade Holding Corp. (AMTD), Biosite Incorporated (BSTE), Caterpillar Inc. (CAT), Kimberly Clark (KMB), Xerox Corporation (XRX), Yum! Brands, Inc. (YUM).
  • TUESDAY: AFLAC Incorporated (AFL), Amazon.com, Inc. (AMZN), AT&T (T), ImClone Systems Incorporated (IMCL), j2 Global Communications (JCOM), Northrop Grumman (NOC), Panera Bread (PNRA), TradeStation Group, Inc. (TRAD), Websense (WBSN).
  • WEDNESDAY: Akamai Technologies Inc. (AKAM), Applebee’s International (APPB), ConocoPhillips (COP), Pulte Homes Inc. (PHM), Xilinx, Inc. (XLNX).
  • THURSDAY: Aetna Inc. (AET), Beazer Homes USA Inc. (BZH), Bebe Stores (BEBE), Black & Decker Corporation (BDK), Bristol-Myers Squibb (BMY), CONSOL Energy (CNX), Harrah’s Entertainment (HET), Microsoft (MSFT), Nexen (NXY), Paxar Corporation (PXR), Phelps Dodge (PD), The Dow Chemical Company (DOW), Waste Management (WMI), XM Satellite Radio (XMSR),
  • FRIDAY: Chevron (CVX), Coventry Health Care, Inc (CVH).

On the economic front we have potential market movers with:

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

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Some people regard discipline as a chore. For me, it is a kind of order that sets me free to fly.” –– Julie Andrews

Let it pass

Traders,

So if you see me, look surprised

Well, well, well, if you don’t

Oh, just pass me by

And I may, I may even brush your sleeve

Oh, as you turn around, turn around and leave

Elvis Costello, “Either Side of the Same Town”

Our current position:

BUYERS BEWARE

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 are on our home site:

Where We Are:

Taking a look at the broader market:

Stocks as a market were little changed for the holiday shortened week.

Developments over the past few weeks have returned the dominant theme from last year of strength in Energy and Commodity related issues.

Taking a look at the big picture there are key influences to consider.

The 10-yr note yield is above 5.00% for the first time in nearly four years.

The price of Gold hit a 25-year high.

Crude futures are near $70 per barrel and cocked in a cup-and-handle to potentially head higher.

All of the above have the potential to play a psychological role and change the perceptions of risk for market players.

What will become of the Nasdaq? The highly speculative index is up more than 5.0% for the year.

Strength from the following areas look appealing:

Telecom ($XTC ), Internet ($INX) and Disk Drives ($DDX) are slightly off highs as the Hardware ($HWI) Index looks poised to breakout of a more than one-year-long base.

But –

The market has been experiencing distribution and the Hi/Lo Ratio plunged to new yearly lows.

The reality for Growth Stock players is that this has been a weak market.

It’s an image vs. substance game.

The images the major indexes have been giving us with new highs, has been out of step with the lack of substance in new highs from individual stocks.

We trade what is, and not what should be.

The market is like a banquet. Act graciously.

When appetizing setups present themselves, help yourself.

If a delicious setup should pass you by, or hasn’t been passed at all, patiently wait.

Should an attractive setup mislead you, and leave a nasty taste in your mouth, move on to something else.

If what is served doesn’t look good, politely let it pass.

Technically speaking:

The Dow Industrial Average
($INDU), +0.16%, is attempting to reverse direction after undercutting its 50-day moving average.

The S&P 500
($SPX), -0.49%, closed on its 50-day moving average as it puts in two days of consolidation on the mark.

Nasdaq
($COMPQ), -0.55%, is showing relative strength against the Dow and S&P 500 as it remains above its 50-day moving average.

Russell 2000
($RUT), -0.66%, is trading in step with the Nasdaq as it remains above its 50-day average.

Volume indications tilted to the bears, with all of the major indexes posting heavy selling Tuesday.

The Hi/Lo Ratio fell a part as the number of new lows in individual stocks drove the NYSE and Nasdaq indicators to new lows on the year.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) pushed higher for the third straight week to a new high for the year.

The U.S. Dollar Index
($USD) continues to struggle below its major moving averages.

The Gold Miners Index
($XAU) is trading above its major moving averages, poised to break out of a cup-and-handle pattern.

The Dow Jones AIG Commodity Index
($DJAIG) put in its fifth week of rallying, and is above its major moving averages.

Consumer Staples
($CMR) declined for the third straight week, and is parked above its 200-day moving average and below its 50-day average.

Consumer Cyclicals
($CYC) was little changed on the week as it trades above its major averages, showing relative strength to the Staples.

Technology
($DJUSTC) is trading above its major averages, in tune with the Nasdaq.

The Semiconductor Index
($SOX) is showing relative weekness in the tech sector as it trades below its 50-day average, though above its 200-day average.

Banks
($BKX) is trading above its major moving averages as it trades in a four-week consolidation pattern.

Broker Dealers
($XBD) maintains a tight up-trend pattern. The thing looks like it will break off sharply at some juncture, but just when is not for us to call.

Retail
($RLX) closed just above its 50-day moving average. The index has been mostly consolidating for four weeks.

Healthcare
($HCX) declined further below its major moving averages. This sector is just a fat-old-loser in this market.

Biotech
($BTK) is trading above its 200-day average and below its 50-day average.

REIT’s
($DJR) have been steadily losing ground fro the past couple of weeks and are now below the 50-day averages and above the 200-day average.

Homebuilders
($DJUSHB) continue to possess relative weakness as they closed above the major moving averages, which have served as resistance for more than two months.

Transportation
($TRAN) continues to hold a solid uptrend in the same fashion as the Broker Dealers.

Airlines
($XAL) continue to consolidate and flirt with breaking out of more than a year-long base.

Defense
($DFX) continues to hold an up trending pattern above its major moving averages.

Energy
($IXE) pulled back for the week as it appears poised to break out of a two-and-a-half month long cup-and-handle pattern.

Utilities
($UTY) sold off the for the fourth straight week below its major moving averages.

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

  1. GOLD
  2. SEMICONDUCTOR-INTGRTD
  3. STEEL IRON
  4. INTERNET SERVICE PROVI
  5. FARM CONSTRUCTION MACH
  6. CATALOG MAIL ORDER HOU
  7. INDUSTRIAL METALS MINE
  8. DRUG DELIVERY
  9. BASIC MATERIALS WHOLES
  10. PRINTED CIRCUIT BOARDS

What Was Important About Last Week

STOCKS:

  • McDonald’s (MCD) posted a global comparable sales increase for the 35th straight month.
  • Alcoa (AA) reported record first quarter earnings and revenue, beating analysts’ estimates.
  • Tribune Co. (TRB) topped EPS estimates by two cents, but Q1 profits fell 29% from last year.
  • Advanced Micro Devices (AMD) reported Q1 (Mar) earnings of $0.38 per share, which includes option expense of $15 mln as well as a $20 mln expense associated with note redemption. Total revenues rose 8.6% year/year to $1.33 bln, matching Wall Street’s forecasts.
  • Lam Research (LRCX) reported Q3 (Mar) earnings of $0.65 per share, three cents better than the Reuters Estimates consensus. Total revenues rose 22.1% year/year to $437.4 mln (consensus $424.7 mln).
  • Genentech (DNA) reported a 48% gain in Q1 earnings.
  • Emulex (ELX) announced that it expects to report Q3 revenues of about $88-$89 million for Q3, compared to the range of $106-$108 million projected during management’s Q2 conference call in January.
  • California Pizza Kitchen (CPKI) announced that Q1 revenues increased 17.6% to $129.7 mln (consensus $128.86 mln). Comparable restaurant sales increased approximately 6.4%

ECONOMY:

  • Retail sales rose 0.6% in March, slightly above consensus estimates of a 0.5% gain. This follows an upwardly revised 0.8% decline in February (originally -1.3%). Retail sales are up 7.9% in the past year.
  • Auto sales increased 1.6% in March versus a 2.8% drop in February. Excluding autos, retail sales rose 0.4% last month and are 9.2% higher than a year ago.
  • Gasoline service station sales decreased 0.1% in March – the fifth decline in the past six months. Retail sales excluding autos and gasoline rose 0.4% in March and are up 8.7% on a YOY basis.
  • Import prices fell 0.4% in March after a 0.5% decrease in February. Excluding a 0.7% decline in petroleum prices, import prices fell 0.3% last month. In the past year, import prices are up 4.5% and non-petroleum import prices have increased 1.1%.
  • Export prices rose 0.2% in March versus a 0.1% increase in February. Non-agricultural prices also rose 0.2% last month. Export prices are up 2.2% in the past 12 months and non-ag export prices have risen 2.3%.
  • Initial claims for unemployment benefits rose 12,000 to 313,000 last week. However, the less volatile, four-week moving average fell 1,500 to 307,500. Continuing claims declined for the third consecutive week to 2.424 million. This is the lowest level since January 2001.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Citigroup Inc. (C ), Knight Ridder (KRI)
  • TUESDAY: Amgen (AMGN), Gilead Sciences (GILD), Merrill Lynch (MER), Motorola Inc. (MOT), TRAVELZOO INC (TZOO), Washington Mutual (WM), Wells Fargo & Company (WFC), Yahoo, Inc. (YHOO).
  • WEDNESDAY: Abbott Laboratories (ABT), Apple Computer, Inc. (APPL), AT&T (T), CBOT HLDGS INC (BOT), E*TRADE Financial Corp. (ET), eBay (EBAY), General Dynamics (GD), Genzyme Corporation (GENZ), Intel Corporation (INTC), J.P. Morgan Chase & Co (JPM), Kraft Foods (KFT), NYSE Group (NYSE), Outback Steakhouse (OSI), Pfizer (PFE), QUALCOMM Inc. (QCOM), Steel Dynamics (STLD), The Coca-Cola Company (KO), United Technologies (UTX).
  • THURSDAY: Broadcom (BRCM), Fairchild Semiconductor International, Inc. (FCS), Google (GOOG), Merck & Co., Inc. (MRK), MedImmune (MEDI), Newmont Mining Corporation (NEM), Schering-Plough (SGP), The Nasdaq Stock Market, Inc. (NDAQ), Union Pacific (UNP), XTO Energy Inc. (XTO).
  • FRIDAY: 3M Company (MMM), Ford Motor Company (F), Halliburton Company (HAL), RadioShack Corporation (RSH), Schlumberger (SLB), Wyeth (WYE).

On the economic front we have potential market movers with:

  • MONDAY: NY Empire State Index, Net Foreign Purchases
  • TUESDAY: Building Permits , Housing Starts , PPI , FOMC Minutes
  • WEDNESDAY: Core CPI , CPI , Crude Inventories
  • THURSDAY: Initial Claims , Leading Indicators , Philadelphia Fed
  • FRIDAY: none

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Right discipline consists, not in external compulsion, but in the habits of mind which lead spontaneously to desirable rather than undesirable activities.” – Bertrand Russell

One drop of water

Traders,

Another turning point;
a fork stuck in the road.

Time grabs you by the wrist;
directs you where to go.

So make the best of this test
and don’t ask why.

It’s not a question
but a lesson learned in time.

Green Day, “Time of Your Life”

Our current position:

BUYERS BEWARE

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 are on our home site:

Where We Are:

Taking a look at the broader market:

It’s the drop of water that makes the vase overflow.

A visual scan of the broad market indexes tells us the bull is alive with new highs pegged in.

Strength in Technology and Small Caps is providing a crucial bullish confirmation for the broader market.

Friday’s intraday turnaround from new highs would be considered bearish violence if it weren’t for the low volume.

Things on the surface appear to be going the way of the bull, but the weak spots must be examined.

The Dow Industrial Average is flashing a warning sign with five days of distribution over the past two weeks.

The Hi/Lo Ratio has been sending weak vital signs all year.

We want declines to occur on light volume and advances to occur on heavy volume.

To recognize better odds in individual stock opportunities we want to see the numbers of new highs firm up to support highs on the indexes.

Calling tops is not an easy nor wise thing to do.

We have short-term and near term tops that historically have different characteristics.

Longer-term tops tend to occur on heavy volume and often come on the heels of positive news.

Friday’s positive Employment Report inspired a negative reaction from the market.

How the market reacts to news is important. Strong markets will ignore negative news and rally, weak markets will sell off on positive news.

It’s not our call to say whether or not Friday’s reaction is the final drop to make the vase overflow, but watching the water will give us good indications over what may be on the horizon.

Technically speaking:

The Dow Industrial Average
($INDU), +0.10 %, ended the week little changed above its major moving averages.

The S&P 500
($SPX), +0.05%, also ended the week little changed above its major moving averages.

Nasdaq
($COMPQ), -0.03%%, hit another multi year high before turning around on an intraday reversal Friday.

Russell 2000
($RUT), -1.18%, also hit another multi year high before turning around on an intraday reversal Friday.

Volume indications tilt slightly to the bulls for the week with the Nasdaq 100 scoring three accumulation days. Countering the accumulation, five distribution days have been recorded for the Dow Industrials over the past two weeks.

The Hi/Lo Ratio continues to illustrate bearish divergence.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) shot up to a three-year high.

The U.S. Dollar Index
($USD) slid to a two-month low before rebounding to resistance at its 50 and 200 day averages.

The Gold Miners Index
($XAU) rallied ofr the fourth week in a row as it attempts to regain the year’s high set in January.

The Dow Jones AIG Commodity Index
($DJAIG) continues to flirt with its major moving averages while posting mosdest gains for the fourth week in a row.

Consumer Staples
($CMR) declined for the second week in a row as it holds on to a still intact uptrend.

Consumer Cyclicals
($CYC) shot up to a new high.

Technology
($DJUSTC) posted a strong rally before turning around sharply in Friday’s action the index has yet to post a new high with the broader market over the past months.

The Semiconductor Index
($SOX) rallied to find resistance at its 50-day moving average.

Banks
($BKX) were little changed for the week as they hold ground above the major moving averages.

Broker Dealers
($XBD) hit another new high.

Retail
($RLX) hit a new high for the year.

Healthcare
($HCX) posted a second straight week of heavy selling to close below the 200-day moving average.

Biotech
($BTK) fell below a year-long upward channel line.

REIT’s
($DJR) lost ground, though maintain an uptrend above the major moving averages.

Homebuilders
($DJUSHB) tested the upper portion of a two-month trading range, maintaining relative weakness over the market for the past few months.

Transportation
($TRAN) hit another new high in a solid uptrend.

Airlines
($XAL) continued its consolidation pattern above a multi-year trend line.

Defense
($DFX) continued to consolidate at multi-year highs

Energy
($IXE) posted a rally as it attempts to regain new highs set in the beginning of the year.

Utilities
($UTY) slid for the second straight week to new lows for the year.

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

  1. GOLD
  2. SEMICONDUCTOR-INTGRTD
  3. DRUG DELIVERY
  4. INTERNET SERVICE PROVI
  5. STEEL IRON
  6. PRINTED CIRCUIT BOARDS
  7. CATALOG MAIL ORDER HOU
  8. FARM CONSTRUCTION MACH
  9. INDUSTRIAL METALS MINE
  10. INVESTMNT BROKERAGE-NA

What Was Important About Last Week

STOCKS:

  • Wal-Mart (WMT) March same-store sales will be up just 1.3% – at low end of Wal-Mart’s forecast.
  • Gymboree (GYMB) posted a better than expected same-store sales report, the retailer raised its EPS guidance.
  • Gap (GPS) reported a 13% decline in March same-store sales.
  • Bed Bath & Beyond (BBBY) delivered fiscal Q4 (Feb.) earnings of $0.67 per share. Revenues rose 14.8% year/year to $1.69 bln vs. the $1.64 bln consensus. Comparable store sales for Q4 increased by approx. 6.3%.
  • Immucor (BLUD) announced $0.25 in fiscal Q3 (Feb.) profit per share. Its result surpassed the Reuters Estimates consensus by two cents. Sales increased 24.3% year/year to $47.1 mln vs. the $46.9 mln consensus.
  • Aeropostale (ARO) posted a 9.3% decline in March comparable store sales, vs. the -2.8% Briefing.com consensus estimate.
  • Hot Topic (HOTT) reported that same-store sales decreased 12.7% in March (vs. the -11% Briefing.com consensus). The co. also announced that it expects to post a Q1 loss of $0.01-0.04 per share; at this point, the consensus estimate is pegged at a profit of $0.03.
  • American Eagle (AEOS) announced that its comparable store sales rose 3.0% (vs. the +3.7% Briefing.com consensus) in March.
  • Check Point (CHKP) lowered its Q1 outlook due in part to slower industry growth.

ECONOMY:

  • As expected, non-farm payrolls increased by 211,000 jobs in March. Payrolls were revised down by a total of 34,000 in January and February.
  • The household survey reported that employment increased by 384,000 last month, while the labor force increased 203,000. As a result,
  • The unemployment rate fell to a 4 1/2-year low of 4.7%.
  • Average hourly earnings increased 0.2% in March after an upwardly revised 0.4% gain in February (originally +0.3%). Average hourly earnings are up 3.4% in the past year.
  • The ISM non-manufacturing business barometer rose to 60.5 in March versus 60.1 in February. This was above consensus estimates of 59.0. The ISM non-manufacturing index continues to signal a booming U.S service sector.
  • The ISM manufacturing index pulled back to 55.2 in March versus 56.7 in February. The consensus expected a slight increase to 57.5. According to the ISM, the March level is historically consistent with 4.5% growth in real GDP.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: ALCOA Inc (AA), Schnitzer Steel Industries, Inc. (SCHN),.
  • TUESDAY: Genentech, Inc. (DNA),
  • WEDNESDAY: Circuit City Stores Inc. (CC), Harley-Davidson (HDI), Lam Research (LRCX).
  • THURSDAY: Infosys Technologies LTD (INFY), Jos. A. Bank Clothiers (JOSB), The New York Times Company (NYT), Tribune (TRB).
  • FRIDAY: Knight Ridder (KRI).

On the economic front we have potential market movers with:

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

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Genius at first is little more than a great capacity for receiving discipline.” – George Eliot

Down by the Sea

Traders,

Yonnies in the wind,

We’re ruggin’ up for winter

Putting out the bins

In cold and windy weather

Men At Work, “Down by the Sea”

Our current position:

BUYERS BEWARE

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 are on our home site:

Where We Are:

Taking a look at the broader market:

Who cares about what happened last week?

What will be, will be.

The Fed raised rates another quarter-point and gave no indication of policy change. Rates will head higher, and the market will either support it, or crumble over an economy that turns rocky.

The Nasdaq hit a multi-year high. That doesn’t mean it won’t turn around and cruise south for a few years.

Would we say it was weakness in the Semiconductors that gave its warning? Or perhaps a lack of new highs in individual names whispering the limits?

It’s anybody’s guess. And the lucky ones who guess right will be quick to tell you they’re smarter than the market.

We make no such claims.

The market is a sea, and our accounts mere vessels in it.

We keep a tight watch on our data flow as a sailor would changes in winds.

We scan thousands of stocks every week to find the ones ripe for explosive gains. We measure the strength of top earning stocks for their capacity to weather different environments.

Our beloved Growth Stocks sway with the whims of crowd psychology, and will rise and fall on the heels of the execution buttons hit by major players.

When the sea is friendly we make friends. When the sea is cold and lacking we keep our distance.

When we’re given small pockets of opportunity we take it respectfully. When we’re given nothing we do nothing. When we’re given hordes of favorable trades – we get fat and relaxed.

No particular type of weather stays forever, and it’s up to the individual trader to get from point A to B as efficiently as possible.

Technically speaking:

The Dow Industrial Average
($INDU), -1.51%, was trend-down for the week as it closed just below its 20-day moving average.

The S&P 500
($SPX), -0.62%, is consolidating just above its 20-day moving average.

Nasdaq
($COMPQ), 1.17%, hit a multi-year high as it moved out of a two-and-a-half month base.

Russell 2000
($RUT), 1.50%, hit a new high.

Volume Indications: The week’s data tilts to the bears after the Dow notched in three distribution days. For the other major indexes, a day of distribution with the Fed announcement was followed up by a day of accumulations.

The Hi/Lo Ratio continues to show bearish divergence.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) moved higher to levels not seen since spring of ’04.

The U.S. Dollar Index
($USD) remains in a year long consolidation pattern.

The Gold Miners Index
($XAU) rallied to reclaim ground above its 50-day moving average, though is around half-way back to highs made earlier in the year.

The Dow Jones AIG Commodity Index
($DJAIG) rallied for the third straight week after hitting a major trend-line.

Consumer Staples
($CMR) declined to below its 20day average though maintains a bullish uptrend.

Consumer Cyclicals
($CYC) rallied to a multi-year high.

Technology
($DJUSTC) poked out of a two-month trading base, above its major moving averages.

The Semiconductor Index
($SOX) was mostly unchanged for the week as it continues to lag the market.

Banks
($BKX) pulled back to close below its 20-day moving average.

Broker Dealers
($XBD) hit a new high.

Retail
($RLX) pulled back to its 20-day moving average.

Healthcare
($HCX) sold off to below its 50-day moving average.

Biotech
($BTK) is consolidating beneath its 50-day average.

REIT’s
($DJR) remain in a solid up-trend.

Homebuilders
($DJUSHB) are flirting with the resistance of their 50-day moving average after hitting a pivotal low four weeks ago.

Transportation
($TRAN) remains trend-up.

Airlines
($XAL) are consolidating in a handle, poised to break out of a three month base.

Defense
($DFX) hit a new high.

Energy reclaimed ground above its 50-day moving average, and has recovered a little more than half the distance from highs made earlier in the year.
($IXE)

Utilities
($UTY) fell south of its major moving averages to hit a new low for the year.

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

  1. GOLD
  2. DRUG DELIVERY
  3. SEMICONDUCTOR-INTGRTD
  4. PRINTED CIRCUIT BOARDS
  5. DIAGNOSTIC SUBSTANCES
  6. GAMING ACTIVITIES
  7. STEEL IRON
  8. CATALOG MAIL ORDER HOU
  9. MACHINE TOOLS ACCSORIE
  10. INVESTMNT BROKERAGE-NA

What Was Important About Last Week

STOCKS:

  • Red Hat (RHAT) delivered fiscal Q4 (Feb) earnings of $0.13 per share. Its top line grew 37.0% year/year to $78.7 mln vs. the $78.4 mln consensus.
  • Lennar Corp. (LEN) beat Q1 consensus estimates and reaffirmed its full-year forecast.
  • Ameritrade (AMTD) announced that it expects its earnings per share for the quarter ending March 31, 2006 to exceed the high of its previous guidance (which was $0.19, excluding a one-time gain on the disposal of its investment in Knight Capital Group).
  • Paychex (PAYX) reported fiscal Q3 (Feb) earnings of $0.30 per share — a penny below the Reuters Estimates consensus. Revenues rose 15.2% year/year to $430.6 mln vs. the $426.4 mln consensus.
  • Mohawk (MHK) cut its first quarter earnings guidance.
  • Cognos (COGN) reported Q4 (Feb.) earnings of $0.48 per share, a dime ahead of the Reuters Estimates consensus. Revenues fell 1.2% year/year to $253.1 mln vs. the $238.3 mln consensus.
  • Genesis Microchip (GNSS) said that it projects Q4 revs of $60-61 mln, vs. its previously-guided $62-67 mln range and vs. the $65.3 mln consensus estimate. The co. expects Q4 operating expenses to be in the previously-announced range of $26.5-28 mln.
  • Ruby Tuesday (RI) reported fiscal Q3 (Feb) earnings of $0.50 per share, $0.04 ahead of the Reuters Estimates consensus. Revenues rose 17.1% year/year to $338.6 mln vs. the $334.4 mln consensus.
  • Walgreen (WAG) posted a Q2 profit of $0.51 per share that was a penny shy of estimates.

ECONOMY:

  • The FOMC hiked interest rates for the 15th consecutive time (to 4.75%), and released a somewhat more transparent statement that signaled possibly more rate hikes are on the way.
  • New single-family home sales fell a whopping 10.5% in February, while January was revised to show a 5.3% decline instead of the originally reported 5.0% drop. New home sales are down 13.4% in the past 12 months.
  • The median price of a new home has fallen 2.9% from year-ago levels, but median new home prices are up 2.6%
  • The Chicago Purchasing Managers’ Index (PMI) jumped to 60.4 in March versus 54.9 in February. The index has been above 50 for over three years. The employment component rose to 55.6 in March, its highest level in 11 months.
  • New orders for durable goods increased by a greater-than-expected 2.6% in February. Durable goods orders are up 8.1% in the past year.
  • The final revision to fourth quarter real GDP boosted growth to a 1.7% annualized rate from the previous estimate of 1.6%.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Jos. A. Bank Clothiers (JOSB).
  • TUESDAY: none
  • WEDNESDAY: Christopher & Banks (CBK), Monsanto Company (MON).
  • THURSDAY: Constellation Brands, Inc. (STZ), Pier 1 Imports, Inc. (PIR), Research In Motion Limited (RIMM), Rite Aid Corporation (RAD).
  • FRIDAY: 99 CENTS Only (NDN), ABN Amro Holdings (ABN).

On the economic front we have potential market movers with:

  • MONDAY: Auto Sales, Truck Sales, Construction Spending, ISM Index.
  • TUESDAY: none
  • WEDNESDAY: ISM Services, Crude Inventories.
  • THURSDAY: Initial Claims.
  • FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Wholesale Inventories, Consumer Credit.

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” – Aristotle