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

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