Step Right Up

Traders,

Everyone’s a winner, bargains galore
That’s right, you too can be the proud owner
Of the quality goes in before the name goes on
— Tom Waits, “Step Right Up”

Our current position:

BUYERS’ 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:

End of the quarter buying from portfolio managers may be attributed to recent strength, but the reality is we’re in a well supported market for longs.

This week we’re waiting on Employment Data Friday. And in coming weeks we we’ll flooded with Earnings Reports from companies.

Employment Data and Corporate Earnings are always threats to price trends.

Forecasts for third quarter operating earnings for the S&P 500 are for a healthy 14% gain. With an absence of warnings from companies, there is no reason to believe news will be in line with expectations.

The market climate remains the same with Big Cap and Consumer Staple issues better bid for than Small Cap and Consumer Cyclical issues.

Bearish divergence in the Advance/Decline Line will be a forewarning of weakness unless corrected.

Where weakness in Technology and the Semiconductor Index continues to weigh on bullish enthusiasm, strength in Banks and Telecommunications is encouraging.

We have seen the best opportunities in Healthcare, Drugs and Biotech.

At this point we will remain bullish until we have reason to believe otherwise.

Technically speaking:

The Dow Industrial Average
($INDU), 1.5 %, remains trend up, just off an all time high.

The S&P 500
($SPX), 1.6 %, also remains trend up.

Nasdaq
($COMPQ), 1.8 %, is trend up.

Russell 2000
($RUT), 1.0 %, continues to consolidate in a lower base.

Volume indications continue to weigh to the Bulls favor, though heavy distribution on the Russell 2K was put in Friday.

Key chart action for the week:

Charts courtesy of Stockcharts.com

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

  1. MEAT PRODUCTS
  2. PERSONAL SERVICES
  3. LONG-TERM CARE FACILIT
  4. HOSPITALS
  5. PACKAGING CONTAINERS
  6. DRUG RELATED PRODUCTS
  7. CATV SYSTEMS
  8. DISCOUNT VARIETY STORE
  9. DEPARTMENT STORES
  10. CHEMICALS-MAJOR DIVERS

What Was Important About Last Week

STOCKS:

  • Red Hat (RHAT) reported Q2 earnings of $0.11 per share, excluding non-recurring items, in line with the Reuters Estimates consensus of $0.11.
  • Paychex (PAYX) reported Q1 earnings of $0.35 per share, $0.01 better than the Reuters Estimates consensus of $0.34.
  • Dress Barn (DBRN) reported Q4 earnings of $0.35 per share, $0.04 better than the Reuters Estimates consensus of $0.31.
  • PMC-Sierra (PMCS) said it now expects Q3 revs to be in the range of $114-$116 mln (consensus $123.8 mln), down from its previous outlook announced on the July 20 of $122-$124 mln.

ECONOMY:

  • The Chicago Purchasing Managers’ Index (PMI) jumped to 62.1 in September, the highest level since July 2005. The Chicago PMI has averaged 59.1 in the last 12-months, well above the 30-year average of 54.7.
  • Personal income increased 0.3% in August, after a 0.5% gain in July. Personal income is up 9.4% in the past year. Wages and salaries increased 0.1% last month, and are 7.7% higher than a year ago.
  • Existing home sales fell a less-than-expected 0.5% in August to 6.30 million units at an annual rate. This is the lowest level since January 2004. Existing home sales are down 12.6% in the past 12 months.
  • The median sales price of an existing home was $225,000 in August, 1.7% lower than a year ago. This is the first YOY decline since 1995.
  • New single-family home sales jumped 4.1% in August to 1.050 million units versus 1.009 million units in July (originally 1.072 million). Consensus had expected sales to be 1.040 million.
  • The median price of a new home rose to a non-seasonally adjusted $237,000 in August, but was 1.3% lower than a year ago.
  • At the current sales pace, the supply of new homes fell to 6.6 months in August versus 7.0 months in July. From 1970-2000 the inventory of new homes averaged 6.4 months.
  • New orders for durable goods unexpectedly fell 0.5% in August after a downwardly revised 2.7% decline in July (originally -2.5%). New orders are up just 3.8% in the past year.
  • Transportation orders rose 3.7% in August, in large part due to a 4.4% increase in motor vehicle and parts orders. Excluding transportation, new orders fell 2.0% in August and July’s data was downwardly revised to show no gain (originally +0.5%). New orders excluding transportation are up 5.8% in the past year.
  • Shipments of durable goods jumped 1.9% last month and are up 6.9% in the past year. Shipments of non-defense capital goods, ex aircraft (a proxy for business CAPEX) rose 0.3% in August, and are up an annualized 6.3% thus far in Q3 versus the average level of Q2.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: none
  • TUESDAY: Pepsi Bottling Group (PBG)
  • WEDNESDAY: Immucor (BLUD)
  • THURSDAY: Constellation Brands, Inc. (STZ), Marriott International (MAR), Vail Resorts (MTN)
  • FRIDAY: none

On the economic front we have potential market movers with:

  • MONDAY: Construction Spending, ISM Index,
  • TUESDAY: Auto Sales, Truck Sales,
  • WEDNESDAY: Factory Orders, ISM Services, Crude Inventories
  • THURSDAY: Initial Claims
  • FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Consumer Credit

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“A colt is worth little if it does not break its halter.”

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