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

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