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

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