Archive for August, 2006|Monthly archive page

Forty Winks

Traders,

The right to work is traded in for the right to refuse admission
Don’t pass out now, there’s no refund(when)
Did you find out what you were missing
The crowd is taking forty winks minus ten percent
Elvis Costello, Clubland

Our current position:

NO 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 are on our home site:

Where We Are:

Taking a look at the broader market:

Summer market action continues to form its traditional low volume, low volatility mold as the chess board is quietly setting up for heavier action this fall.

Strength in big caps has been the biggest surprise as S&P 100 is poised for new highs.

In particular, strength in defensive issues is apparent as the Consumer Staples ($CMR) is just off its highs.

Weakness in the riskier Technology, and all-important Transportation, is taking away from the Bull’s prowess as downtrends in their respective indexes remain intact.

Looking at specific sector action, we see the following coming into play.

The Gold and Silver Index ($XAU) is positioned to reverse a bearish head-and-shoulders pattern, and subsequently fill a price gap left on the charts from May’s sell-off.

Retail ($RLX) is in a dangerous technical situation, just off support at its key 400 price level.

Telecoms ($XTC) remain in solid shape after pulling back gently from new highs.

Healthcare ($HCX) has held a strong uptrend above its major averages as it approaches May’s highs, as Pharmaceuticals ($DRG) is poised to breakout of a two-year base.

Biotechnology ($BTK) is also well positioned to break north of a lower base consolidation.

REIT’s ($DJR) are also poised to make new highs.

We’re looking at the Defense Index ($DFX) for potential shorting opportunities as a transfer of political power from Republicans to Democrats in the coming years is more than often apparent in the charts before it actually happens.

Energy (XE) is also threatening new highs as it trades within a year-long base – but keep an eye on the Oil Services ($OSX) as it continues to trace out a bearish-head-and-shoulders pattern.

Looking at next week, the all important Employment data to be released Friday may set a tone in price action for months to come.

Technically speaking:

The Dow Industrial Average
($INDU), -0.9%, is trading comfortably above its major moving averages and is well poised to head higher after pulling back gently.

The S&P 500
($SPX), -0.6%, is also trading comfortably above its major moving averages and is well poised to head higher after pulling back gently.

Nasdaq
($COMPQ), -1.1%, is trading below its 200-day average and above its 50-day average while struggling to reverse from a steep downtrend.

Russell 2000
($RUT), -1.7%, is also trading below its 200-day average and above its 50-day average after consolidating for a couple months.

Volume indications tell us buyers are in control of this market.

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

  1. BEVERAGES-SOFT DRINKS
  2. CATV SYSTEMS
  3. TELECOM SERVICES DOMES
  4. MEAT PRODUCTS
  5. DRUG RELATED PRODUCTS
  6. FOOD – MAJOR DIVERSIFI
  7. SHIPPING
  8. BROADCASTING – TV
  9. OIL GAS PIPELINES
  10. PAPER PAPER PRODUCTS

What Was Important About Last Week

STOCKS:

  • National Semiconductor(NSM) announced that it is lowering its revenue outlook for the first quarter of fiscal 2007, ending August 27, 2006. The co now anticipates that Q1 revenues will be down approximately 6% sequentially from the $572.6 mln in revenues that were achieved in Q4 (roughly $538.24 mln vs. $558.51 mln consensus).
  • Toll Brothers (TOL) said its net dropped 19% during its fiscal third quarter as sales dropped 48%.
  • Lowe’s (LOW) reported its second-quarter earnings rose 11%, but the Home Depot rival cut its outlook for the year, saying that high energy prices and a slowing housing market are dragging down consumer spending.
  • Chico’s FAS (CHS) reported Q2 (Jul) earnings of $0.30 per share, in line with the Reuters Estimates consensus of $0.30. Revenues rose 18.0% year/year to $404.7 mln vs. the $414.4 mln consensus.
  • Williams-Sonoma (WSM) said its second-quarter profit rose 15% from a year ago but the company cut its full-year outlook for the second time in six weeks amid flagging demand, especially at its Pottery Barn stores.

ECONOMY:

  • New single-family home sales fell a more-than-expected 4.3% in July to 1.072 million units. Consensus had expected sales to be 1.100 million.
  • The median price of a new home fell to a non-seasonally adjusted $230,000 in July – 0.3% higher than a year ago.
  • New orders for durable goods fell 2.4% in July, well below the consensus estimates of a 0.5% decline. This decline follows an upwardly revised 3.5% increase in June (originally +2.9%). New orders for durable goods are up 9.7% in the past year.
  • Transportation orders fell 9.6% in July, highlighted by a 7.0% decline in motor vehicle orders and a 10% drop in civilian aircraft orders. Excluding transportation, new orders increased 0.5% in July, and are up 14.6% in the past year.
  • Shipments of durable goods fell 1.3% last month but are up 7.9% in the past year. Shipments of non-defense capital goods, ex aircraft (a proxy for business CAPEX) jumped 1.3% in July, and are up 10.2% in the past year.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: none
  • TUESDAY: none
  • WEDNESDAY: none
  • THURSDAY: H&R Block, Inc. (HRB), Tiffany & Co. (TIF), Wind River Systems (WIND).
  • FRIDAY: none

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: Consumer Confidence, FOMC Minutes,
  • WEDNESDAY: Chain Deflator-Prel., GDP-Prel., Crude Inventories,
  • THURSDAY: Initial Claims, Personal Income, Personal Spending, Chicago PMI, Factory Orders, Help-Wanted Index
  • FRIDAY: Auto Sales, Truck Sales, Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Mich Sentiment-Rev., Construction Spending, ISM Index

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“There is only one type of discipline, perfect discipline.” – George S. Patton

No bias mode

Traders,

Our current position:

NO BIAS

Taking a look at the broader market:

Despite multiple accumulation days on the major indexes, we remain in no bias mode due to counter bearish evidence in place.

All major indexes are above their 50-day averages.

Leadership is of defensive character, with Consumer Staples, Banking, Healthcare, Pharmaceuticals and Energy making for an attractive refuge from a beaten broader market over the past month.

Technology and Transportation have yet to reverse their downward channel trends, and is our bearish leadership.

Given the month of August is notorious for institutional money sidelined due to fund managers on vacation – we feel the best course of action is to sit tight.

There are a number of stocks ready to go in our Setups section, but unless they breakout it’s only further reason to remain in cash.