The Faces Of Things

Traders,

Facts are simple and facts are straight
Facts are lazy and facts are late
Facts all come with points of view
Facts don’t do what I want them to
Facts just twist the truth around
Facts are living turned inside out
Facts are getting the best of them
Facts are nothing on the face of things
Facts don’t stain the furniture
Facts go out and slam the door
Facts are written all over your face
Facts continue to change their shape
The Talking Heads, “Remain In Light”

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:

Perception is reality for most traders.

On the face of things, you could see the some 3% losses on the major indexes as proof positive of a weak market.

You could also see Thursday’s sharp turnaround off lows as a capitulation type move common in turning points.

But just as the death of the face of the insurgency in Iraq, Abu Musab al Zarqawi, doesn’t mean the war is over – we can’t take this week’s stock market action as decisive.

This is a weak market. And while Thursday’s turnaround could easily mark a significant low for the market, it’s lack of upside volume takes some of its credibility away.

This camp won’t become bullish until we see a follow-through-day (FTD) in the books.

FTD’s occur after four days from a low, and within no more than seven days. They are marked by heavy volume with at least a 1.7% price gain. This tells us institutional money is supporting the market. The four day wait omits misreading any heavy short covering as real buying.

FTD’s have been solid indicators for intermediate-term trading. Nothing is certain in the markets, but acting without a solid edge is like playing a slot machine.

We will simply let the market dictate our moves, and are not so foolish as to let the face of things sway us from reality.

Technically speaking:

The Dow Industrial Average
($INDU), -3.2%, put in a key reversal day Thursday after undercutting its 200-day moving average to close positive. The index is testing the lower end of its upward trending channel.

The S&P 500
($SPX), -2.8%, closed just below its 200-day moving average after putting in a key reversal day.

Nasdaq
($COMPQ), -3.8%, continues to show relative weakness against the other indexes as it trades below its major moving averages. The index tested below it’s upward trending channel.

Russell 2000
($RUT), -4.9%, closed on its 200-day moving average, as it tests the bottom of an upward trending channel.

Volume indications favored the bears as each index scored two distribution days, and the Russell one extra.

Hi / Lo Ratio was off recent lows, though continued to register in bearish territory.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) continued upon a now month-long decline, though is technically trend-up.

The U.S. Dollar Index
($USD) rebounded after consolidating in a month-long range. The index is tracking below its major moving averages.

The Gold Miners Index
($XAU) is attempting to reverse on its 200-day moving average.

The Dow Jones AIG Commodity Index
($DJAIG) is holding above its 200-day moving average.

Consumer Staples
($CMR) is trading under its 50-day averagae and above its 200-day average.

Consumer Cyclicals
($CYC) is also trading under its 50-day averagae and above its 200-day average.

Technology
($DJUSTC) continues to take the brunt of heavy selling as it trends well below its major moving averages.

The Semiconductor Index
($SOX) reflects a weak envorinemtn for technology stocks as it trades well below its major moving averages.

Banks
($BKX) are showing relative strength as the index trades above its major moving averages.

Broker Dealers
($XBD) reversed on its 200-day moving average, and has been consolidating for the last three weeks.

Retail
($RLX) is trading below its major moving averages.

Healthcare
($HCX) is consolidating below its major moving averages.

Biotech
($BTK) is trading below its major moving averages.

REIT’s
($DJR) is showing relative strength as it goes trend-up for the third week to close above its 50-day moving average.

Homebuilders
($DJUSHB) continued to slide well below its major moving averages.

Transportation
($TRAN) continues to pull back modestly as it tracks below its 50-day and above its 200-day averages.

Airlines
($XAL) consolidated below its major moving averages.

Defense
($DFX) is attempting to reverse on its 200-day moving average.

Energy
($IXE) is also attempting to reverse on its 200-day moving average. The sector is showing technically bearish signs with a rounding top and lower high recently in place. An upward trend line has been violated.

Utilities
($UTY) is poised to move higher as it forms the right side of a base.

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

  1. INTERNET SERVICE PROVI
  2. DRUG RELATED PRODUCTS
  3. MACHINE TOOLS ACCSORIE
  4. SPECIALTY RETAIL OTHER
  5. STEEL IRON
  6. AUTO DEALERSHIPS
  7. GAMING ACTIVITIES
  8. PUBLISHING – NEWSPAPER
  9. FOOD – MAJOR DIVERSIFI
  10. CATALOG MAIL ORDER HOU

What Was Important About Last Week

STOCKS:

  • Texas Instruments (TXN) issued upside guidance for Q2 (Jun), sees EPS of $0.40-0.43, excluding $0.05-0.06 in gains but including $0.04 in option expense; the Reuters Estimates consensus is $0.40. Co also sees Q2 revenues of $3.63-3.78 bln, up from previous guidance of $3.46-3.75 bln (consensus $3.62 bln).
  • Xilinx (XLNX) reaffirmed Q1 guidance of 1-5% sequential revenue growth, or roughly $477-496 mln (consensus $488 mln.
  • National Semiconductor (NSM) reported Q4 (May) earnings of $0.41 per share (Excluding a $0.07 charge), $0.03 better than the Reuters Estimates consensus. Total revenues rose 22.6% year/year to $572.6 mln vs. the $565 mln consensus.
  • Novellus Systems (NVLS) raised its Q2 EPS outlook to $0.37-$0.40, above the Reuters Estimates consensus of $0.28, and increased its previous revenue guidance of $375 mln to a range of $400-$410 mln.
  • Take-Two Interactive (TTWO) reported Q2 (Apr) loss of $0.47 per share, excluding non-recurring items, $0.36 worse than the Reuters Estimates consensus of ($0.11). Revenues rose 19.4% year/year to $265.1 mln vs. the $258.6 mln consensus.
  • BMC Software (BMC) reported Q4 (Mar) earnings of $0.35 per share (Excluding non-recurring items), $0.06 better than the Reuters Estimates consensus.
  • H&R Block (HRB) reported Q4 (Apr) earnings of $1.79 per share, excluding an after tax charge of two cents per share, $0.02 better than the Reuters Estimates consensus.
  • Bob Evans (BOBE) reported Q4 (Apr) earnings of $0.47 per share (Excluding non-recurring items), $0.10 better than the Reuters Estimates consensus.
  • Smithfield Foods (SFD) fiscal fourth-quarter profit dropped 99%, hurt by
    depressed pork margins and lower live-hog prices due to oversupply in the
    U.S.

ECONOMY:

  • The ISM non-manufacturing index pulled back in May to 60.1 versus 63.0 in April. The three month average of the ISM non-manufacturing index is 61.2, while the six month average is 60.3 and the 12-month average is 59.2. This indicates economic expansion in the services sector of the economy. Thirteen of the 17 industry groups surveyed reported growth in May compared to 14 in April. The new orders component fell to 59.6 last month from a five-year high of 64.6 in April.
  • The Bush administration raised its forecast for both U.S. economic
    growth and consumer-price inflation in 2006, and indicated both would be
    slower next year.
  • The European Central Bank raised its key interest rate by a quarter of
    a percentage point to 2.75% in a move aimed at keeping inflation at
    bay, and ECB President Jean-Claude Trichet suggested further increases
    could be needed.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Lehman Brothers Holdings Inc. (LEH).
  • TUESDAY: Best Buy Co., Inc. (BBY).
  • WEDNESDAY: none
  • THURSDAY: Bear Stearns (BSC), KB Home (KBH), Pier 1 Imports, Inc. (PIR).
  • FRIDAY: Winnebago (WGO).

On the economic front we have potential market movers with:

  • MONDAY: Treasury Budget,
  • TUESDAY: Business Inventories, Core PPI, PPI, Retail Sales, Retail Sales ex-auto
  • WEDNESDAY: Core CPI, CPI, Crude Inventories, Fed’s Beige Book
  • THURSDAY: Initial Claims, NY Empire State Index, Net Foreign Purchases, Capacity Utilization, Industrial Production, Philadelphia Fed
  • FRIDAY: Current Account, Mich Sentiment-Prel.

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Discipline must come through liberty. We do not consider an individual disciplined only when he has been rendered as artificially silent as a mute and as immovable as a paralytic. He is an individual annihilated, not disciplined. ” – Maria Montessori

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