Archive for May, 2006|Monthly archive page

Down pogo, up pogo

Traders,

Oh I like to spread you out
Touching whoevers behind
Jump pogo…..bounce pogo
Down pogo, up pogo
System of a Down, “Bounce”

Our current position:

SELLER’S EDGE 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 are on our home site:

Where We Are:

Taking a look at the broader market:

There’s no reason to complicate stock market speculation.

The purpose of this blog is not show you how smart we are, nor lay down propaganda – but to carefully and thoroughly gather evidence for lucid decisions.

It has been said by many wise traders before us that successful speculation is about observing, not thinking.

A chart of the S&P 500 over the past several years shows significant corrections occur every six months or so.

After two weeks of “overdue” selling, the S&P 500 has reversed on a trend-line established in August of 2004.

From a technical standpoint, the recent low is crucial. Should the market hold above it, there’s no hard evidence to suggest we’re in a new phase down.

Should the market break south of the trend-line, we’ll deem the market as experiencing more than just a normal correction.

We’re waving the Red Seller’s Bias Flag because the bellwether Technology sector remains technically vulnerable.

The major moving averages (the 50 and 200 dailies) that once served as support are now marking resistance.

Heavy selling volume from institutional grade accounts has left an “air of the bear” across nearly every sector.

News wise, second- quarter earnings season is two months away, and the next Fed meeting is about five weeks away.

Due to lack of stimulus, we might not see a whole lot of action in the coming weeks.

Technically speaking:

The Dow Industrial Average
($INDU), +1.2 %, regained its 50-day moving average after two weeks of heavy selling.

The S&P 500
($SPX), +1.0 %, dipped below its 200-day moving average before posting a gain on the week as it continues to trade below its 50-day average. The index is trying to reverse on a key upward trend line.

Nasdaq
($COMPQ), 0.8%, rallied after two losing weeks, though is trading well below its major moving averages. The index is trying to reverse on a key upward trend line.

Russell 2000
($RUT), 1.0%, closed below its 50-day and above its 200-day averages.

Volume indications are dominated by heavy bearish distribution over the past three weeks..

Hi/Lo Ratio is off yearly lows, though remains in bearish territory.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) is consolidating above its 50-day average as it maintains a solid uptrend.

The U.S. Dollar Index
($USD) has been ticking upward for the past two weeks after a month of heavy selling.

The Gold Miners Index
($XAU) rallied after two straight weeks of loses. The index is trading below its 50-day average and above its 200-day average.

The Dow Jones AIG Commodity Index
($DJAIG) is consolidating above its major moving averages.

Consumer Staples
($CMR) regained its 50-day average after tow weeks of loses.

Consumer Cyclicals
($CYC) also regained its 50-day average after two weeks of losses.

Technology
($DJUSTC) continued its role as a relative strength loser while rallying well below its major moving averages.

The Semiconductor Index
($SOX) continued its slide south to post its third weekly loss.

Banks
($BKX) consolidated on its 50-day average as it holds onto an uptrend.

Broker Dealers
($XBD) reversed above its 200-day average as it trades below its 50-day average.

Retail
($RLX) posted its third straight weekly loss as it found resistance at its 200-day average.

Healthcare
($HCX) rebounded after four weeks of losses, though remains below its major moving averages.

Biotech
($BTK) also rebounded after four weeks of losses, though remains below its major moving averages.

REIT’s
($DJR) reversed after undercutting its 200-day average, as it now looks to the 50-day average as resistance.

Homebuilders
($DJUSHB) closed the week little changed as it consolidates below its major moving averages.

Transportation
($TRAN) consolidated just below its 50-day average as it holds on to an uptrend.

Airlines
($XAL) consolidated just below its 2000 day average after hitting anew low for the year.

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

Energy
($IXE) closed little changed for the week as it trades above its 200-day average and below its 50-day average.

Utilities
($UTY) posted a modest gain to close between its major moving averages as it continues to consolidate for the year.

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

  1. GOLD
  2. INTERNET SERVICE PROVI
  3. STEEL IRON
  4. INDUSTRIAL METALS MINE
  5. MACHINE TOOLS ACCSORIE
  6. CATALOG MAIL ORDER HOU
  7. ADVERTISING AGENCIES
  8. GENERAL CONTRACTORS
  9. PRINTED CIRCUIT BOARDS
  10. BEVERAGES-SOFT DRINKS

What Was Important About Last Week

STOCKS:

  • Computer Sciences (CSC) reported Q4 (Mar) earnings of $1.16 per share, $0.03 better than the Reuters Estimates consensus. Total revenues were unchanged from the year-ago period at $3.88 bln. Co issued downside guidance for Q1, sees EPS in the mid $0.60 range (consensus $0.68) and revenues of $3.4-3.5 bln (consensus $3.72 bln).
  • Chico’s FAS(CHS) reported Q1 (Apr) earnings of $0.29 per share, in line with the Reuters Estimates consensus. Total revenues rose 94.0% year/year to $392 mln (consensus $399.6 mln).
  • Nordson Corp(NDSN) reported Q2 EPS of $0.64. Total revenues rose 12% year/year to a record $231.8 mln vs. $229.27 mln Reuters Estimates consensus.
  • Network Appliance (NTAP) reported Q4 (Apr) earnings of $0.23 per share, in line with the Reuters Estimates consensus of $0.23. Revenues rose 32.4% year/year to $598 mln vs. the $585.4 mln consensus.
  • TiVo (TIVO) reported a Q1 (Apr) loss of $0.13 per share, $0.09 better than the Reuters Estimates consensus of ($0.22). Revenues rose 450% year/year to $55.1 mln vs. the $50.5 mln consensus.
  • Blue Coat Systems (BCSI) reported Q4 (Apr) earnings of $0.07 per share, two cents worse than the Reuters Estimates consensus of $0.09; revenues rose 26.4% year/year to $35.9 mln vs the $35.2 mln consensus.
  • Medtronic (MDT) reported Q4 (Apr) earnings of $0.62 per share, in line with the Reuters Estimates consensus. Revenues rose 10.8% year/year to $3.08 bln vs. the $3.07 bln consensus.

ECONOMY:

  • New single-family home sales unexpectedly jumped 4.9% in April to a 1.198 million unit level, the second consecutive monthly increase. While March new home sales were downwardly revised to 1.142 million units, they were still 12% higher than in February.
  • Existing home sales fell 2.0% in April to 6.76 million units at an annual rate. This was lower than consensus forecasts of 6.79 million. Existing home sales are down 5.7% in the past 12 months.
  • The median price of a new home rose to a non-seasonally adjusted $238,500 in April, up 0.9% in the past year.
  • The median sales price of an existing home was $223,000 in April, 4.2% higher than a year ago. This is the slowest YOY gain in the median price of an existing home in over five years.
  • New orders for durable goods fell by a more-than-expected 4.8% in April. But this decline follows a 6.6% increase in March and a 3.6% gain in February. Durable goods new orders are up a strong 11.3% in the past year.
  • Transportation orders slid 12.7% in April. Excluding transportation, new orders fell 1.1% after a 3.5% gain in March, and are up 10.3% in the past year. Excluding defense, orders declined 3.8% in April versus a 6.3% surge in March.
  • Shipments of durable goods fell 0.9% last month. Shipments of non-defense capital goods, ex aircraft (a proxy for capital investment) rose 0.9% in April, and are an annualized 10.5% higher than the Q1 average.
  • Personal income increased 0.5% in April, after an identical increase in March. Personal income is up 5.4% in the past year. Wages and salaries jumped 0.9% and are up annualized 7.7% in the last three months and 5.3% in the past year.
  • Personal consumption increased 0.6% last month after a 0.5% gain in March. Consumption is up 6.2% in the past year.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: none
  • TUESDAY: Albertson’s (ABS)
  • WEDNESDAY: Dress Barn (DRBN), Tiffany & Co. (TIF)
  • THURSDAY: : Ciena Corporation (CIEN), Dollar General Corp. (DG), H.J. Heinz Company (HNZ), Wind River Systems (WIND).
  • FRIDAY: none

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: Consumer Confidence
  • WEDNESDAY: Chicago PMI, Crude Inventories, FOMC Minutes
  • THURSDAY: Auto Sales, Truck Sales, Initial Claims, Productivity-Rev., Construction Spending, ISM Index
  • FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Factory Orders

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Practice yourself, for heaven’s sake in little things, and then proceed to greater.” – Epictetus

Advertisements

Words don't matter anymore.

Traders,

Have a listen lend an ear

Here’s a song now if ya care

We can all just hum along

Words don’t matter anymore

Stone Temple Pilots, “Adhesive”

Our current position:

SELLER’S EDGE 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 are on our home site:

Where We Are:

Taking a look at the broader market:

The Dow had its biggest one-day drop in three years so the media has been telling us it’s because inflation data was worse than expected.

The media is always looking for a theme to make for a better read.

Sure inflation data was bad, but institutions have been giving us a steady message for weeks that they’re not supporting this market.

We sincerely doubt fund managers caught the inflation headlines and started unloading.

It’s a given news events will inspire emotional knee-jerk reactions, but these reactions are usually short lived of sturdier trends..

We suspect this market will rebound – for a time. Just how long a time is the question.

As mentioned in previous reports, the next six months is historically rough for the markets.

A poor technical condition with heavy downside volume and new lows dominating the highs has been illustrating this.

The Technology sector is taking on profound bearish character as its major moving averages are now positioned as resistance instead of support.

Recent upside leadership in Financial and Energy stocks has cooled abruptly. Only the coming sessions will tell us if they’ll regain momentum.

REIT’s have been serving as leadership to the downside.

Going to the monthly charts of S&P 100 stocks (which are the heavy weight blue chips) we see a market that is showing potential for Consumer Staples.

Consumer Stapes (or Durables) have historically been later stage bull market favorites. If there’s any upside to this market it’s likely to be here.

Because we are seeing conflict between a bearish Technical sector and potentially bullish Consumer Staples sector, it’s very possible we’ll get a market averaged with sideways momentum.

Stagnant markets are an intermediate-term trader’s nightmare.

To sum things up, the best thing to with your accounts right now is to stay in cash until opportunity presents itself.

Technically speaking:

The Dow Industrial Average
($INDU), -2.08%, dropped to close below its 50-day moving average.

The S&P 500
($SPX), -1.87%, dipped below its 200-day moving average before closing just above that mark for the week.

Nasdaq
($COMPQ), -2.22%, closed below its 200-day moving average.

Russell 2000
($RUT), -2.68%, closed below its 50-day and above its 200-day averages.

Volume indications flashed two distribution days a piece for the Dow and Nasdaq with one distribution day each for the S&P 500 and Russell 2000 indexes. All major indexes had an accumulation day for options expiration Friday.

Hi/Lo Ratio continues to be dominated by the Lows.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) pulled back for the week as it continues to trend well above its major moving averages.

The U.S. Dollar Index
($USD) rebounded after hitting yearly lows, though remains well below its major moving averages.

The Gold Miners Index
($XAU) had a heavy sell off, though remains above its major moving averages.

The Dow Jones AIG Commodity Index
($DJAIG) sold off after hitting a new high last week, as it it continues to trade above its major moving averages.

Consumer Staples
($CMR) sold off for the second week in a row, and is trading below its 50-day average and above its 200-day average.

Consumer Cyclicals ($CYC) also sold off for the second week in a row closed just below its 50-day average

Technology
($DJUSTC) dropped further below its major moving averages.

The Semiconductor Index
($SOX) spiked below its 200-day moving average before rebounding to close just short of this mark.

Banks
($BKX) closed on the 50-day average line.

Broker Dealers
($XBD) slid further below its 50-day average as it remains above its 200-day average.

Retail
($RLX) spiked below its 200-day average before closing above this mark.

Healthcare
($HCX) declined for the fourth week in a row as it trades well below its major moving averages.

Biotech
($BTK) hit a new low as it trades well below its major moving averages.

REIT’s
($DJR) declined further below its 50-day moving average as it continues to trade above its 50-day average.

Homebuilders
($DJUSHB) lost ground for the sixth week in a row while representing relative weakness against the broader market.

Transportation
($TRAN) lost ground for the second week in a row as it closed on its 50-day moving average.

Airlines
($XAL) have traced out a bearish head-and-shoulders pattern as it closed just under its 200-day average.

Defense
($DFX) declined for the second week in a row and is now trading below its 50-day average and above its 200-day average.

Energy
($IXE) also declined for the second week in a row and is now trading below its 50-day average and above its 200-day average.

Utilities
($UTY) closed below their major moving averages as the 50-day attempts to build momentum under the 200-day.

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

  1. GOLD
  2. INTERNET SERVICE PROVI
  3. INDUSTRIAL METALS MINE
  4. CATALOG MAIL ORDER HOU
  5. ADVERTISING AGENCIES
  6. BEVERAGES-SOFT DRINKS
  7. GENERAL CONTRACTORS
  8. STEEL IRON
  9. SEMICONDUCTOR-INTGRTD
  10. MACHINE TOOLS ACCSORIE

What Was Important About Last Week

STOCKS:

  • Dell (DELL) said it will start using AMD’s (AMD) server chips instead of Intel’s (INTC).
  • Dell (DELL) reported Q1 (Apr) earnings of $0.33 per share, in line with the Reuters Estimates consensus of $0.33. Total revenues rose 6.2% year/year to $14.22 bln vs. the $14.21 bln consensus.
  • Wal-Mart (WMT) posted record Q1 sales and earnings.
  • Agilent (A) reported Q2 (Apr) earnings of $0.34 per share, in line with the Reuters Estimates consensus. Total revenues rose 12.0% year/year to $1.43 bln vs. the $1.41 bln consensus.
  • Autodesk (ADSK) reported Q1 (Apr) earnings of $0.32 per share, in line with the Reuters Estimates consensus of $0.32. Total revenues rose 22.8% year/year to $436.0 mln vs. the $431.3 mln consensus.
  • Marvel (MARVL) reported Q1 (Apr) earnings of $0.44 per share, excluding non-recurring items, $0.02 better than the Reuters Estimates consensus of $0.42. Revenues rose 42.9% year/year to $521.2 mln vs. the $516.7 mln consensus.
  • Hewlett-Packard (HPQ) beat second-quarter estimates and issued promising third quarter guidance.
  • Applied Materials (AMAT) reported Q2 (Apr) earnings of $0.26 per share, three cents better than the Reuters Estimates consensus of $0.23; revenues rose 20.8% year/year to $2.25 bln vs. the $2.14 bln consensus.
  • Nordstrom (JWN) reported Q1 (Apr) earnings of $0.48 per share, $0.03 better than the Reuters Estimates consensus of $0.45. Total revenues rose 8.0% year/year to $1.79 bln vs. the $1.77 bln consensus.
  • Gymboree (GYMB) beat first quarter estimates by $0.07 and gave a reassuring forecast.
  • Gap (GPS) announced Q1 earnings dropped 17%, but it remains upbeat about its second half prospects.
  • Abercrombie & Fitch (ANF) reported earnings of $0.62 per share, $0.08 better than the Reuters Estimates consensus of $0.54. Revenues rose 20.2% year/year to $657.3 mln vs. the $649.2 mln consensus.
  • Compuware (CPWR) reported Q4 (Mar) earnings of $0.15 per share, two cents better than the Reuters Estimates consensus of $0.13. Total revenues fell 2.9% year/year to $309.5 mln vs. the $309.9 mln consensus.

ECONOMY:

  • The Consumer Price Index (CPI) rose a more-than-expected 0.6% in April, versus a 0.4% increase in March. The 12-month change in the CPI accelerated to 3.5% last month from 3.4% in March.
  • Energy prices jumped 3.9% in April and are up 17.8% in the past year. Food and beverage prices were flat last month.
  • The producer price index for finished goods (PPI) jumped 0.9% in April after a 0.5% gain in March. Finished good prices are up 4.0% in the past year. Excluding food and energy, the “core” PPI increased by a less than expected 0.1% last month and the YOY gain fell to 1.5%.
  • Housing starts fell 7.4% in April to 1.849 million units at an annual rate. This is the lowest level since November 2004. Single family starts declined 5.6% and multi-unit starts slid 15.1%.
  • New building permits declined 5.4% in April to an annualized 1.984 million units. This is the first month that building permits have been below the two million mark in over two years.
  • Housing completions fell 6.6% April to 2.077 million units after reaching a record high of 2.223 million units in March.
  • Industrial production increased 0.8% in April after a 0.6% increase in March. Industrial production is up 4.8% in the past 12 months and 7.3% at an annualized rate in the past six months.
  • Manufacturing production also increased 0.8% in April, while manufacturing production excluding motor vehicles jumped 0.9%. In the past year, manufacturing production is up 5.5%, but 5.7% when motor vehicle output is removed. Utility and mining output both increased 0.9% last month.
  • Capacity utilization jumped to 81.9% in April, the highest level since July 2000.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Lowe’s Companies (LOW), The Wet Seal, Inc. (WTSLA),
  • TUESDAY: Borders Group Inc. (BGP), Computer Sciences Corporation (CSC), Medtronic Inc. (MDT), Toll Brothers (TOL),
  • WEDNESDAY: AutoZone Inc. (AZO), Blue Coat Systems (BCSI), Dollar Tree Stores (DLTR), Michaels Stores (MIK), PAYLESS SHOESOURCE INC (PSS), PETCO ANIMAL SUPPLIES (PETC), Williams-Sonoma (WSM).
  • THURSDAY: Big Lots, Inc. (BLI), Chico’s FAS, Inc. (CHS), Patterson Dental (PDCO), Pioneer Drilling Company (PDC), PolyMedica (PLMD), United Natural Foods (UNFI).
  • FRIDAY: none

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: none
  • WEDNESDAY: Durable Orders, New Home Sales, Crude Inventories
  • THURSDAY: Chain Deflator-Prel., GDP-Prel., Initial Claims, Existing Home Sales, Help-Wanted Index
  • FRIDAY: Personal Income, Personal Spending, Mich Sentiment-Rev.

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“When things are steep, remember to stay level-headed.” – Horace

Do not go gentle into that good night.

Traders,

Though wise men at their end know dark is right,

Because their words had forked no lightning they
Do not go gentle into that good night.
Dylan Thomas, “Do Not Go Gentle Into That Good Night”

Our current position:

SELLER’S EDGE 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 are on our home site:

Where We Are:

Taking a look at U.S. Equities:

The market has nose-dived on Fed comments, with the Nasdaq losing more than 4% for the week, and the Russell more than 5%.

The sinking words from the Fed were simply, “some further policy tightening may yet be needed.”

The market’s reaction is based on the perception that continued rising interest rates will work against the earnings potential of companies.

The Fed also said, its policy is contingent of future economic data.

If the economy remains robust, we get higher interest rates. If the economy softens, we likely get a pause on interest rates but less earnings growth.

From a fundamental perspective it appears the market is at an inflection point of a lose-lose situation.

From a technical perspective, we’ve monitored weakness in the Hi/Lo Ratio and Nasdaq price-action for weeks, and have warned this is not an ideal environment for Growth Stocks.

When it comes to the market we put more emphasis on the technical side of things.

Incoming data on the economy can turn things any which way, but it’s always our charts and inter-market relations that illuminate reality.

The key question we face now is this a pullback or a longer-term top?

The answer may become clear as we monitor the degree of selling vs. buying in the coming sessions. Pullbacks will occur on lighter downside volume. Tops usually come with institutional grade selling with four or more distribution days in a three week period.

The Dow and Russell currently have four distribution days booked past three weeks.

We also want to watch how individual sectors hold up. We always like to see Technology lead things. Technology has so far led us lower.

Just as markets have a tendency to suck in buyers at the top, they suck in sellers at the bottom. Perhaps we won’t see upside until the market can shakes loose some hands.

Technically speaking:

The Dow Industrial Average
($INDU), -1.7 %, remains above its upward trending major moving averages.

The S&P 500
($SPX), -2.6 %, closed below its 50-day moving average and at the bottom of an upward trending channel.

Nasdaq
($COMPQ), -4.2 %, hit a new low for the year, closing well below its 50-day moving average.

Russell 2000
($RUT), -5.0 %, closed below its 50-day moving average and an upward trending channel.

Volume indications for the week were decidedly bearish after two days of distribution a piece on the Dow, Russell and Nasdaq. For the past three weeks the scale is now tilted to the bears.

The Hi/Lo Ratio for the NYSE and Nasdaq were slammed to new lows for the year. Bearish divergence for this ratio against the market was a precursor to this for a couple months.

Key chart action for the week:

Charts courtesy of Stockcharts.com

*Major moving averages are the 50 and 200 day simple moving averages.

The 10-year Note Yield
($tnx) ticked to a new high for the year.

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

The Gold Miners Index
($XAU) posted a loss as it trades well above its major averages.

The Dow Jones AIG Commodity Index
($DJAIG) broke north of a cup-and-handle pattern.

Consumer Staples
($CMR) just barely poked to a new high before closing out with a loss on the week.

Consumer Cyclicals
($CYC) hit a new high before closing retreating for a loss on the week.

Technology
($DJUSTC) dropped off to below its 200-day moving average.

The Semiconductor Index
($SOX) sold off to close on its 200-day moving average.

Banks
($BKX) pulled back as they continue to trade above the major moving averages.

Broker Dealers
($XBD) hit a two month low.

Retail
($RLX) closed below its 50-day average and an upward trending channel line.

Healthcare
($HCX) continued its slide below the major moving averages.

Biotech
($BTK) drifted below its major moving averages, closing in on the year’s low.

REIT’s
($DJR) turned south from its 50-day moving average as the index holds a six-month range.

Homebuilders
($DJUSHB) slipped further below their major moving averages.

Transportation
($TRAN) hit a new high before pulling back to close with a loss above its major moving averages.

Airlines
($XAL) retreated to the 200-day average after finding resistance at the 50-day average.

Defense
($DFX) sold off to its 50-day average.

Energy
($IXE) hit a new high before retreating to close below last week’s low.

Utilities
($UTY) closed below its major moving averages.

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

  1. GOLD
  2. INTERNET SERVICE PROVI
  3. INDUSTRIAL METALS MINE
  4. STEEL IRON
  5. BASIC MATERIALS WHOLES
  6. INDUSTRIAL EQUIP WHOLE
  7. FARM CONSTRUCTION MACH
  8. PRINTED CIRCUIT BOARDS
  9. SEMICONDUCTOR-INTGRTD
  10. OIL GAS EQUIPMENT SVCS

What Was Important About Last Week

STOCKS:

  • Dell Computer (DELL) , the world’s largest PC maker, lowered Q1 forecasts as reduced pricing cut into revenue growth.
  • Walt Disney (DIS) reported Q2 (Mar) earnings of $0.37 per share, six cents better than the Reuters Estimates consensus of $0.31. Total revenues rose 2.5% year/year to $8.03 bln vs. the $8.19 bln consensus.
  • Kohl’s (KSS) beat analysts’ expectations by two cents, reporting Q1 (Apr) earnings of $0.48 per share. Total revenues rose 16.1% year/year to $3.18 bln vs. the $3.17 bln consensus.
  • Expedia (EXPE) reported Q1 (Mar) earnings of $0.15 per share, six cents worse than the Reuters Estimates consensus of $0.21. Total evenues rose 1.8% year/year to $493.9 mln, also missing expectations (consensus $544.4 mln).
  • JC Penney (JCP) beat expectations in the first quarter, also raised its Q2 and full year guidance.
  • American International Group (AIG) Q1 (Mar) earnings of $1.21 per share, $0.15 worse than the Reuters Estimates consensus of $1.36. Total revenues rose 0.2% year/year to $27.26 bln vs. the $0 bln consensus.

ECONOMY:

  • The Federal Open Market Committee increased the fed funds rate 25 bps to 5.0%. This is the 16th consecutive 25 bps rate hike by the Fed.
  • Retail sales rose 0.5% in April, below consensus estimates of a 0.8% gain. Retail sales are up 9.0% at an annual rate in the past six months and 6.6% in the past year.
  • Auto sales fell 0.4% in April versus a 1.0% increase in March. Excluding autos, retail sales rose 0.7% last month and 8.6% in the past year.
  • Gasoline service station sales jumped 4.6% in April but just an annualized 2.3% in the past six months. Retail sales excluding autos and gasoline rose 0.2% in April and 7.4% in the past year.
  • Import prices jumped 2.1% in April, the largest increase in the past 13 months. Excluding an 11.5% surge in petroleum prices, import prices were flat last month. Excluding all fuels (which includes natural gas), import prices rose 0.1% in April.
  • Export prices increased 0.6% in April versus a 0.2% increase in March. Non-agricultural prices increased 0.7% last month. A 1.9% increase in industrial supplies and materials prices and a 0.4% gain in capital goods accounted for much of the increase in non-agricultural prices. In the past year, non-agricultural export prices have risen 2.5%.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Agilent Technologies Inc. (A), Goldcorp (GG).
  • TUESDAY: Abercrombie & Fitch Co. (ANF), American Eagle Outfitters Inc (AEOS), Applied Materials (AMAT), BJ’s Wholesale Club (BJ), Deere & Company (DE), Hewlett-Packard (HPQ), Netease.com Inc (NTES), Staples, Inc. (SPLS), Wal-Mart Stores Inc. (WMT).
  • WEDNESDAY: BEA Systems (BEAS), Hot Topic (HOTT), Intuit (INTU), Men’s Wearhouse (MW), PetSmart (PETM).
  • THURSDAY: Autodesk, Inc. (ADSK), Dell, Inc. (DELL), Nordstrom (JWN).
  • FRIDAY: AnnTaylor Stores (ANN).

On the economic front we have potential market movers with:

  • MONDAY: NY Empire State Index, Net Foreign Purchases
  • TUESDAY: Building Permits, Core PPI, Housing Starts, NY Empire State Index, PPI, Capacity Utilization, Industrial Production
  • WEDNESDAY: Core 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:

“There are three things extremely hard: steel, a diamond, and to know one’s self.” – Benjamin Franklin

High Time

Traders,

The lines converging where you stand

They must have moved the picture plane
The leaves are heavy round your feet
You hear the thunder of the train Suddenly it strikes you
That they’re moving into range
And Doctor Strange Is always changing size
And it’s high time Cymbaline
It’s high time Cymbaline
Please wake me
Pink Floyd, “Cymbaline ”

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 bulls are glowing.

Action for the week was marked by solid performances across nearly every sector.

Fed Chairman Bernanke said the media misunderstood his congressional testimony last week.

Despite a weaker than expected employment report the market rallied. Positive reactions to negative news can only be considered characteristic of strong environments.

Though generally speaking, the economic news is very bullish.

“We are now in the midst of economic nirvana. Never in my wildest dreams could I have imagined such incredible economic news. First, despite higher gasoline prices, consumer confidence is near its highest level in almost four years. Second, business investment remains very robust, and has been growing at a 14.3% annualized rate, which represents the fastest pace in six years,” fund manager Louis Navellier said.

As far as our beloved Growth Stocks are concerned, the enthusiasm the broader market is receiving has not carrying over.

The Russell 2000 small cap index is actually showing warning signs as heavy selling has raided it for the past three weeks.

The Technology heavy Nasdaq is not keeping step with the broader market.

The hot Broker Dealer sector is showing its first signs of losing ground as a relative strength winner. This has been a leadership area, and could very well lead things down.

The Hi/Lo Ratio, while improved over the past few weeks, is still showing evidence of bearish divergence against the Dow and S&P 500.

And don’t forget it’s May. This is when we typically see funds unwind positions before the traditional slow time of the year. As mentioned last week, for the past 50 years very little gains have been made for the upcoming six month period.

Markets suck people in. They get people excited and convince them they need to hop on in fear of missing the boat. We suspect this is going on.

From a technical, fundamental and common sense perspective we see no point in jumping in here.

We’re not sellers either. Should this bull have further significant upside we’re likely to get an opportune pullback to get into ideal industry groups.

Technically speaking:

The Dow Industrial Average
($INDU), +1.85%, cruised to a new six year high.

The S&P 500
($SPX), +1.16%, hit a new high.

Nasdaq
($COMPQ), +0.86%, closed in positive territory after testing below its 50-day moving average.

Russell 2000
($RUT), +2.27%, hit a new high.

Volume indications are showing a mixed bag. The Dow and S&P 500 for the past three weeks show four accumulation days vs. three distributions days. The Nasdaq shows three accumulation days and three distribution days. The Nasdaq 100 shows four accumulation days and four distribution days. And the Russell 2000 shows two accumulation days and four distribution days. Topping patterns often show high volume, which this environment is certainly characterized by. Heavy selling in leading index Russell 2000 also is considered bearish for the market.

The Hi/Lo Ratio improved significantly on the NYSE for the week, though has yet to make a new high for they year. This is indicator continues to show bearish divergence against the Dow and S&P 500 indexes.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) extended on its year long trend up.

The U.S. Dollar Index
($USD) fell further.

The Gold Miners Index
($XAU) hit a new high.

The Dow Jones AIG Commodity Index
($DJAIG) posted a gain and has formed a cup-and-handle pattern.

Consumer Staples
($CMR) made gains, though did not take out the high for the year.

Consumer Cyclicals
($CYC) hit a new high.

Technology
($DJUSTC) continues to mostly consolidate for the year.

The Semiconductor Index
($SOX) made gains above its 50-day moving average, though did not take out the high for the year.

Banks
($BKX) hit a new high.

Broker Dealers
($XBD) edged higher, though did not make up for last week’s carnage as a first sign of relative weakness sets on for the index.

Retail
($RLX) is pointing up as a year-long cup-and handle pattern has formed.

Healthcare
($HCX) slipped lower under its major moving averages.

Biotech
($BTK) posted a modest gain as it attempts to trend up above its major moving averages.

REIT’s
($DJR) mostly consolidated for the week as it finds resistance at its 50-day moving average.

Homebuilders
($DJUSHB) dipped to a new low before posting a small gain on the week as the index continues to trade well below its major moving averages.

Transportation
($TRAN) hit a new high.

Airlines
($XAL) inched higher, though continues to trade below its 50-day average and above its 200-day average.

Defense
($DFX) hit a new high.

Energy

($IXE) consolidated for the week as it trades above its major moving averages, poised to move higher.

Utilities
($UTY) rallied above to close above the 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. PRINTED CIRCUIT BOARDS
  6. BASIC MATERIALS WHOLES
  7. INDUSTRIAL METALS MINE
  8. INDUSTRIAL EQUIP WHOLE
  9. INDUSTRIAL ELECTRICAL
  10. FARM CONSTRUCTION MACH

What Was Important About Last Week

STOCKS:

  • Chesapeake Energy (CHK) reported Q1 (Mar) earnings of $1.07 per share, which excludes non-recurring items. Total revenues rose 148.2% year/year to $1.94 bln vs. the $1.67 bln consensus.
  • Hovnanian Enterprises (HOV) lowered its Q2 and FY06 outlook. Co now sees Q2 EPS of $1.40-1.50 (consensus $1.68), down from $1.55 to $1.80, and sees FY06 EPS of $7.20-7.40 (consensus $7.92), down from $8.05-8.40.
  • Dollar Financial (DLLR) reported Q3 (Mar) earnings of $0.45 per share, $0.06 better than the Reuters Estimates consensus of $0.39. – Excluding non-recurring items.
  • THQ Inc. (THQI) Reported a fourth quarter loss. Following current trends for video game publishers, the company’s near-term outlook remains dour.
  • El Paso Corp. (EP) reported earnings more than triple in the first quarter, led by growth in its pipeline unit.
  • McKesson Corp (MCK) reported Q4 (Mar) earnings of $0.68 per share, in line with the Reuters Estimates consensus.
  • Activision (ATVI) surpassed analysts’ expectations by five cents, and reported Q4 (Mar) loss of $0.03 per share. Total revenues fell 7.7% year/year to $188.1 mln, also above forecasts (consensus $132.5 mln). Co issued downside guidance for Q1, sees a loss of $0.10 versus a consensus loss of $0.02, and sees revenues of $145 mln (consensus $171.09 mln).
  • Barrick Gold (ABX) reported first quarter profits more than tripled on surging prices and production.
  • Whole Foods (WFMI) announced third quarter profit rose 27%; the company also raised its same-store sales guidance.
  • Prudential Financial (PRU) reported Q1 (Mar) earnings of $1.38 per share, excluding non-recurring items, four cents better than the Reuters Estimates consensus of $1.34.
  • Starbucks (SBUX) reported Q2 (Mar) earnings of $0.16 per share, two cents better than the Reuters Estimates consensus of $0.14. Revenues rose 24.2% year/year to $1.89 bln (consensus $1.87 bln). Co issued in-line guidance for Q3, sees EPS of $0.17 (consensus $0.17), but raised its outlook for FY06. Co now sees EPS of $0.71-0.72, up from $0.68-0.70 (consensus $0.70).
  • Electronic Arts(ERTS) reported Q4 (Mar) earnings of $0.14 per share, five cents better than the Reuters Estimates consensus.
  • JDS Uniphase (JDSU) reported Q3 (Mar) net of breakeven, in line with the Reuters Estimates consensus of ($0.00). Total revenues rose 89.7% year/year to $315.5 mln (consensus $313.2 mln). For Q4, JDSU issued in-line guidance, sees revenues of $302-322 mln (consensus $316.88 mln).
  • Caremark (CMX) posted a 16% jump in Q1 profits, topping the consensus view by a penny.

ECONOMY:

  • Non-farm payrolls increased by 138,000 jobs in April, less than the expectations (consensus +200,000, First Trust Economics +205,000). Payrolls were revised down by a total of 36,000 in February and March. Manufacturing payrolls added 19,000 jobs, the largest gain in nearly two years.
  • The household survey reported that employment increased by 47,000 last month, while the labor force increased by 159,000. The unemployment rate held steady at a 4 1/2 – year low of 4.7%.
  • Average hourly earnings jumped 0.5% in April and 3.8% in the past year. This is the fastest YOY gain since July 2001.
  • Non-farm productivity increased at a 3.2% annual rate in the first quarter. Non-farm productivity is up 2.4% in the past year.
  • Manufacturing productivity continues to outpace the gains in the rest of the economy, growing an annualized 4.2% in Q1. Manufacturers have increased productivity by 4.1% in the past year as they adapt their business models to utilize new technology and compete in a global economy.
  • Non-farm unit labor costs increased a more-than-expected 2.5% at an annual rate in the first quarter. Manufacturing unit labor costs fell 2.6% at an annual rate in Q1 and slid 1.1% in the past year.
  • The ISM non-manufacturing business barometer jumped to 63.0 in April versus 60.5 in March. This was well above consensus estimates of 59.3 and First Trust Economics forecast of 61.0. Fourteen of 17 industry groups surveyed reported growth in April compared to 13 in March and just 10 in February. The new orders component increased to a two-year high of 64.6 last month.
  • The ISM Manufacturing index increased to 57.3 in April versus 55.2 in March. This was above consensus estimates of a 55.0 level.
  • Personal income is up an annualized 7.6% in the last three months and 6.0% in the past year. Wages and salaries rose 0.4% last month and an annualized 6.2% in the last three months.
  • Personal consumption jumped 0.6% last month after a 0.2% gain in February. Consumption is up 6.4% in the past year.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Cell Genesys (CEGE), Fluor Corporation (FLR), OSI Pharmaceuticals, Inc. (OSIP), Six Flags, Inc. (PKS), ValueClick, Inc. (VCLK),
  • TUESDAY: Baidu (BIDU), Hansen Natural (HANS), King Pharmaceuticals (KG), Walt Disney (DIS),
  • WEDNESDAY: an International Group (AIG), Autobytel.com (ABTL), Federated Department Stores Inc. (FD), Mittal Steel Company (MT), Toyota Motor Corporation (T M).
  • THURSDAY: Agnico-Eagle Mines Limited (AEM), EchoStar Communications Corp. (DISH), Expedia, Inc. (EXPE), Kohl’s (KSS), The Knot (KNOT), Urban Outfitters (URBN), Viacom (VIA).
  • FRIDAY: none

On the economic front we have potential market movers with:

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

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Slow and steady wins the race.” – Aesop