Archive for July, 2006|Monthly archive page

Stumbling Bear or Bull?

Traders,

We’ll stumble through the yard
We’ll stumble through the yard
We’ll stumble through the A-P-T
We’ll stumble through the yard
REM “Stumble”

Our current position:

SELLERS’ 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:

Everything is all a matter of perspective,

With the major indexes a mixed bag for the week, Bulls can look at recent action as stumbling before trending higher, and Bears could say we’re stumbling before heading lower.

Comments from the Fed, as well as earnings reports from key companies did little to suggest a dominant direction taking form.

The hard evidence of price and volume suggests down will be the path of least resistance.

With indexes trading below their major moving averages, and heavy selling soaking the charts red, our analysis is firm.

The S&P 500 point & figure chart illustrates a break below the 1220 area would be a significant mark. These charts are used to filter the noise by allowing a trader to focus on the most significant moves, and are a good tool for volatile markets.

In looking at the sectors:

Technology and Homebuilders continue to lead to the downside.

Consumer Index ($CMR) continues to hold up in a year-long trading range, but the Cyclical Index ($CYC) cruised to another new low.

Transportation continues to sputter as it tested below its 200-day moving average.

Drugs are poised to break north of a year long base.

On the commodities front, the Gold and Silver Index ($XAU) and Oil Services Index ($OSX) have formed bearish head-and-shoulder patterns. These patterns have historical tendencies to mark tops, but they are also known to fail.

Technically speaking:

The Dow Industrial Average
($INDU), +1.20%, hit a new low for the year as it traded below its 50-day average for the week.

The S&P 500
($SPX), +0.33%, tested the resistance of its 50-day moving average, though was little changed for the week.

Nasdaq
($COMPQ), -0.83%, hit a new low for the year as its trend down remains intact.

Russell 2000
($RUT), -1.37%, tested the resistance of its 50-day moving average, as its trend remains down.

Volume indications continue to be bearish.

Key chart action for the week:

Charts courtesy of Stockcharts.com

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

  1. MOVIE PRODUCTION THEAT
  2. FOOD – MAJOR DIVERSIFI
  3. BEVERAGES-SOFT DRINKS
  4. DRUG RELATED PRODUCTS
  5. SPECIALTY RETAIL OTHER
  6. MACHINE TOOLS ACCSORIE
  7. FOOD WHOLESALE
  8. LODGING
  9. TOYS GAMES
  10. AUTO PARTS

What Was Important About Last Week

STOCKS:

  • Intel Corp (INTC) reported Q2 (Jun) earnings of $0.15 per share, two cents better than the Reuters Estimates consensus of $0.13. Total revenues fell 13.2% year/year to $8.01 bln vs. the $8.22 bln consensus.
  • Qualcomm(QCOM) reported Q3 (Jun) earnings of $0.42 per share, excluding option expense, in line with the Reuters Estimates consensus. Total revenues rose 43.6% year/year to $1.95 bln vs. the $1.95 bln consensus.
  • Motorola (MOT) reported Q2 (Jun) earnings from continuing ops of $0.31 per share, two cents better than the Reuters Estimates consensus of $0.29. Revenues rose 29.4% year/year to $10.88 bln vs. the $10.13 bln consensus.
  • Apple Computer (AAPL) reported Q3 (Jun) earnings of $0.54 per share, $0.10 better than the Reuters Estimates consensus. Revenues rose 24.1% year/year to $4.37 bln vs. the $4.39 bln consensus. AAPL reports iPod shipments of 8.1 mln, which was below the 8.23 mln street expectation, but reported Mac shipments of 1.33 mln, above the 1.2 mln street expectation. Co issued downside guidance for Q4, sees EPS of $0.46-0.48 (consensus $0.51) on revenues of $4.5-4.6 bln (consensus $4.9 bln).
  • eBay (EBAY)reported Q2 (Jun) earnings of $0.24 per share, in line with the Reuters Estimates consensus. Revenues rose 29.9% year/year to $1.41 bln vs. the $1.41 bln consensus. Co issued downside guidance for Q3, sees non-GAAP EPS of $0.22-0.23 (consensus $0.24) on revenues of $1.355-1.430 bln (consensus $1.44 bln).
  • International Business Machines (IBM) reported Q2 (Jun) earnings of $1.30 per share, a penny better than the Reuters Estimates consensus. Total revenues fell 1.7% year/year to $21.89 bln vs. the $21.93 bln consensus.
  • Yahoo! (YHOO) reported Q2 (Jun) GAAP earnings of $0.11 per share, in line with the Reuters Estimates consensus. Revenues fell 28.7% year/year to $1.12 bln vs. the $1.14 bln consensus.

ECONOMY:

  • Ben Bernanke, as he delivered part two of his semiannual report on monetary policy to the House Financial Services Committee. The Fed is still in the “data dependency” mode, though suggested past tightening is beginning to slow the economy.
  • Housing starts fell 5.3% in June to 1.850 million units at an annual rate. Single family starts declined 6.5%, while multi-unit starts rose 0.3%.
  • New building permits declined 4.3% in June to an annualized 1.862 million units – the lowest level in over three years.
  • Housing completions jumped 6.4% to 2.017 million units in June.
  • The Consumer Price Index (CPI) rose 0.2% in June after a 0.4% increase in May. The CPI has increased 5.1% at an annualized rate in the past three months and 4.3% in the past year.
  • Energy prices fell 0.9% in June but are up 23.3% in the past year. Food and beverage prices increased 0.3% last month. Excluding food and energy, the “core” CPI was up 0.3% in June – the fourth consecutive month that “core” inflation has increased at a 0.3% rate. The 12-month change in the “core” CPI was 2.6% in June – the fastest YOY gain since 2001.
  • The producer price index for finished goods (PPI) rose 0.5% in June after a 0.2% gain in May. Finished good prices are up 4.9% in the past year. Excluding food and energy, the “core” PPI increased 0.2% last month, while the YOY gain remained at 1.9%.
  • Intermediate goods prices increased 0.7%, while “core” intermediate prices jumped 0.8%. Crude prices fell 1.7% last month but “core” crude prices surged 1.7%. Pipeline price pressures remain elevated. In the past year, “core” intermediate prices have increased 7.2% and “core” crude prices have risen 33.7%.
  • Industrial production increased 0.8% in June after an upwardly revised 0.1% gain in May (originally -0.1%). Industrial production is up 7.4% at an annual rate in the past three months and 4.5% in the past year.
  • Manufacturing production also increased 0.8% in June, while manufacturing production excluding motor vehicles rose 0.5%. In the past year, manufacturing production is up 5.7%; or 5.9% when motor vehicle output is removed. Mining output rose 1.2% and utility output increased 0.7%.
  • Capacity utilization jumped to 82.4% in June, the highest in six years.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: American Express Company (AXP), Kraft Foods (KFT), Merck & Co., Inc. (MRK), Netflix (NFLX), Texas Instruments (TXN).
  • TUESDAY: 3M Company (MMM), Amazon.com, Inc. (AMZN), AT&T (T), Boyd Gaming (BYD), DuPont (DD), McDonalds Corporation (MCD), Panera Bread (PNRA), XTO Energy Inc. (XTO).
  • WEDNESDAY: Applebee’s International (APPB), General Motors Corp. (GM), P.F. Chang’s China Bistro, Inc. (PFCB), Phelps Dodge (PD), Pulte Homes Inc. (PHM), Taser International, Inc. (TASR), The Boeing Company (BA).
  • THURSDAY: Aetna Inc. (AET), Blockbuster Inc. (BBI), Bristol-Myers Squibb (BMY), ExxonMobil Corporation (XOM), Newmont Mining Corporation (NEM), Pixelworks (PXLW), Sony Corporation (SNE), XM Satellite Radio (XMSR).
  • FRIDAY: Chevron (CVX), Coventry Health Care, Inc (CVH), Waste Management (WMI).

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: Consumer Confidence, Existing Home Sales
  • WEDNESDAY: Crude Inventories, Fed’s Beige Book
  • THURSDAY: Durable Orders, Initial Claims, Help-Wanted Index, New Home Sales
  • FRIDAY: Chain Deflator-Adv., Employment Cost Index, GDP-Adv., Mich Sentiment-Rev.

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Self-discipline, as a virtue or an acquired asset, can be invaluable to anyone.”– Duke Ellington

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Looking Down

Traders,

Looking down the barrel of a gun
Son of a gun son of a bitch
Getting paid getting rich
Beastie Boys “Looking Down The Barrel of a Gun”

Our current position:

SELLERS’ 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 can now be found on our home site:

Where We Are:

Taking a look at the overall markets:

Tension in the Middle East.

Uncertainty over it, ad what it could mean to the global economy made for heavy selling on Wall Street this week. Markets hate uncertainty.

With an apparent lack of concern over earnings and economic fundamentals, the media attention is on Hezbollah, the Lebanese Islamic group that was founded in 1982 to fight the Israeli occupation in southern Lebanon.

Fear of escalation in the region – perhaps Iran sending ships to block oil in the gulf – is enough for market players to take cover.

Though the U.S. would promptly erase Iran’s military should any aggression occur, anything can happen in war, and how far violent sentiment will go is anybody’s guess.

We don’t guess at the Growth Stock Report. We wait for conditions to line up to our favor.

There’s plenty of reason to be bearish on this market.

Economic data continues to point to a slow down.

Major earnings reports are around the corner, but the most important insight will be in companies’ forward looking statements.

With all of the major indexes below their major moving averages, we are in a convincingly weak market. If you wanta be a bull, you wanta see the moving averages serve as support not resistance. It’s that simple.

Technology and Homebuilders are our leaders to the downside.

Energy stocks are challenging highs for the year, but are lagging behind Crude Oil prices. Typically the stocks will lead the commodity, but tension in the Middle East is the likely driver for crude, with the stocks telling us it’s not a new cyclical move – yet.

Technically speaking:

The Dow Industrial Average ($INDU), -3.17%, crumbled to just off its June lows, and is below its major moving averages.

The S&P 500 ($SPX), -2.31%, sunk below its major moving averages.

Nasdaq ($COMPQ), -4.35%, hit a new low for the year.

Russell 2000 ($RUT), -3.96%, also sunk below its major moving averages.

Volume indications three clear distribution days on the S&P 500 tells us institutional selling is at hand.

New Highs – New Lows is treading in bearish territory.

Key chart action for the week:

Charts courtesy of Stockcharts.com

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

  1. STEEL IRON
  2. MOVIE PRODUCTION THEAT
  3. MACHINE TOOLS ACCSORIE
  4. DRUG RELATED PRODUCTS
  5. AIR DELIVERY FREIGHT S
  6. SPECIALTY RETAIL OTHER
  7. BEVERAGES-SOFT DRINKS
  8. FOOD – MAJOR DIVERSIFI
  9. TRUCKING
  10. TOYS GAMES

What Was Important About Last Week

STOCKS:

  • Genentech (DNA) reported Q2 (Jun) earnings of $0.56 per share (excluding non-recurring items), $0.12 better than the Reuters Estimates consensus. Revenues rose 44.0% year/year to $2.2 bln vs. the $2.12 bln consensus.
  • Ruby Tuesday(RI) beat expectations by two cents, with earnings of $0.53 per share. Total revenues rose 23.3% year/year to $364.3 mln vs. the $361.1 mln consensus.
  • Alcoa (AA) reported Q2 (Jun) earnings of $0.90 per share, four cents better than the Reuters Estimates consensus. Revenues rose 18.9% year/year to $7.96 bln, which was below the $8.14 bln consensus.

ECONOMY:

  • Import prices rose 0.1% in June after jumping 1.4% in May. Excluding a 1.4% decline in petroleum prices, import prices increased 0.4% last month. Excluding all fuels (which includes natural gas), import prices rose 0.7% in June.
  • Export prices increased 0.8% in June and a 0.6% increase in May. Non-agricultural prices increased 0.6% last month. In the past year, non-agricultural export prices have risen 4.6%.
  • Retail sales unexpectedly fell 0.1% in June, below consensus estimates of a 0.4% gain. Retail sales are up 7.4% at an annual rate in the past six months and 5.9% in the past year.
  • Auto sales fell 1.4% in June after a 2.1% drop in May. Excluding autos, retail sales rose 0.3% last month and are up 8.5% in the past year.
  • Gasoline service station sales jumped 1.1% in June and 20.4% in the past year. Sales excluding autos and gas rose 0.1% in June and 7.0% in the past year.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Citigroup Inc. (C), Harley-Davidson (HDI).
  • TUESDAY: Johnson & Johnson (JNJ), Merrill Lynch (MER), The Coca-Cola Company (KO), Wells Fargo & Company (WFC), Yahoo, Inc. (YHOO).
  • WEDNESDAY: Abbott Laboratories (ABT), E*TRADE Financial Corp. (ET), General Dynamics (GD), Intel Corporation (INTC), J.P. Morgan Chase & Co (JPM), Motorola Inc. (MOT), Rambus Inc. (RMBS), Washington Mutual (WM), Yum! Brands, Inc. (YUM).
  • THURSDAY: Amgen (AMGN), D.R. Horton (DHI), Google (GOOG), Microsoft (MSFT), Pfizer (PFE), Wyeth (WYE).
  • FRIDAY: Halliburton Company (HAL), Schlumberger (SLB).

On the economic front we have potential market movers with:

  • MONDAY: NY Empire State Index, Capacity Utilization, Industrial Production
  • TUESDAY: Core PPI, PPI, Net Foreign Purchases
  • WEDNESDAY: Building Permits, Core CPI, CPI, Housing Starts, Crude Inventories
  • THURSDAY: Initial Claims, Leading Indicators, Philadelphia Fed, FOMC Minutes
  • FRIDAY: none

The Following Sections Are Now On Our Home Site:

This Week’s Word On Discipline:

“Take the pains required to become what you want to become, or you might end up becoming something you’d rather not be. That is also a daily discipline and worth considering. ” — Donald Trump

Heart of the Summer

Traders,

Stoppin’ on the red
You’re goin’ on the green
‘Cause tonight’ll be like nothin
‘You’ve ever seen
And you’re barrelin’ down the boulevard
Lookin’ for the heart of Saturday night
Tom Waits “Heart of Saturday Night”

Our current position:

VERY CAUTIOUS UPSIDE BIAS

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 can now be found on our home site:

Where We Are:

Taking a look at the overall markets:

Traders are finding no shortage of stimulation this summer as the search for the heart of this market goes on.

Lows made on the major indexes in early June will prove pivotal as the dominating market themes, which have been historically bearish for stocks, continue to light up the headlines.

Pulsating to the tune of a slowdown, economic growth has clearly weakened. June auto sales were weak. May construction spending is down. The June ISM manufacturing index fell to 53.8 from 54.4 in May. And retail chain store data and ISM services index are both soft.

Stocks, our favorite leading indicator of the economy, are confirming that things are not so good.

Poorly bid Technology issues continue to weigh down the major indexes, when we’d prefer to see them serve as fuel.

In particular, Semiconductors ($SOX) have been in a sharp decline since March. Semiconductors are important for their ubiquitous presence throughout various industries, and weakness in the sector simply tells us the lack of interest represents a soft environment for growth.

However, we are seeing support for Consumer Staples ($CMR), as they have been consolidating nicely on the weekly chart.

Also, Drugs ($DRG) are showing resilience with a narrow trading range established for the year. The latest manufacturing report highlighted that shipments of pharmaceutical products continued to increase. BCA Research says a decisive reversal of the past two years is a significant vote of confidence for the sector.

Energy stocks are relative strength winners for the summer, and counter intuitively, Transportation ($TRAN), which tends to sag on high Energy prices, has formed a bullish cup-and-handle formation.

We’re anticipating some kind of resolve here where either Energy or Transportation gives in and sells off. Should Transportation pick up pace to the upside, we’ll interpret it as a bullish sigh for stocks.

The Yellow Flag is out because we do have confirmed indication of institutional support for the market in a Follow Through Day. But if Friday’s heavy selling becomes the norm in the coming sessions, we’re going Bearish again.

Technically speaking:

The Dow Industrial Average ($INDU), -0.5%, flirted with its 50-day moving average all week before dipping decisively below it on high volume Friday.

The S&P 500 ($SPX), -0.4%, also flirted with its 50-day moving average all week before dipping decisively below it on high volume Friday.

Nasdaq ($COMPQ), -1.9%, traveled further below its major moving averages, which are now serving as resistance.

Russell 2000 ($RUT), -2.1%, closed below its 50-day average and above its 200-day average.

Volume indications are providing a modest upside bias after a Follow Through Day June 21 followed by a massive upside pressure day June 29 weigh in heavier than the two bearish distribution days made within the past two weeks.

New Highs – New Lows is flirting with positive readings as it keeps pace with the major averages.

Key chart action for the week:

Charts courtesy of Stockcharts.com

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

  1. STEEL IRON
  2. AIR DELIVERY FREIGHT S
  3. DRUG RELATED PRODUCTS
  4. LODGING
  5. TRUCKING
  6. MOVIE PRODUCTION THEAT
  7. MACHINE TOOLS ACCSORIE
  8. BEVERAGES-SOFT DRINKS
  9. SPECIALTY RETAIL OTHER
  10. GAMING ACTIVITIES

What Was Important About Last Week

STOCKS:

  • Hot Topic (HOTT) said same-store sales fell 3.4% in June, which was less than a 4.1% decline estimated by Thomson Financial. Co same-store sales for the quarter so far are down 4.6% but total sales for the quarter are up 7% to $107.2 mln.
  • The Men’s Wearhouse(MW) said its U.S. same-store sales were up 3.7% in June, which was better than the 3.2% estimated by Thomson Financial. Co also said total sales in the current quarter to date are at $346.9 mln.
  • Zumiez (ZUMZ) said June same store sales rose 12.4% versus a 10.7% increase the previous year and better than the Briefing.com consensus of 9.3%.

ECONOMY:

  • Non-farm payrolls increased by 121,000 jobs in June, less than consensus expectations of 175,000. Net payrolls revisions added just 3,000 jobs in the previous two months.
  • The household survey reported much stronger job growth, increasing by 387,000 last month. The labor force gained 330,000. As a result, the unemployment rate fell below 4.6% (4.598%), a low for this cycle.
  • The ISM non-manufacturing business barometer pulled back to 57.0 in June versus 60.1 in May. Nonetheless, this signals continued robust expansion in the services sector of the economy. While fourteen of the 16 industry groups surveyed reported growth in June, the new orders component retreated to 56.6 last month, the second consecutive monthly decline after reaching a five-year high of 64.6 in April.
  • The ISM Manufacturing index pulled back to 53.8 in June, its lowest level since May 2005. The June reading was below consensus estimates of a 55.0.

Key earnings releases:

  • MONDAY: ALCOA Inc (AA), Schnitzer Steel Industries, Inc. (SCHN).
  • TUESDAY: California Pizza Kitchen (CHPK), Genentech, Inc. (DNA), Ruby Tuesday (RI).
  • WEDNESDAY: Smart & Final Inc. (SMF).
  • THURSDAY: Marriott International (MAR), PepsiCo (PEP), Tribune (TRB).
  • FRIDAY: General Electric (GE).

On the economic front we have potential market movers with:

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

The Following Sections Are Now On Our Home Site:

This Week’s Word On Discipline:

“That government is best which governs the least, because its people discipline themselves. ” —Thomas Jefferson.