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

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