Tight Grins

Traders,

Oh! stupid with your ups and downs
Your maggot brain, your grins and frowns
Super stupid you’re here today
You’ve lost the fight and the winner is fear
— Funkadelic, “Super Stupid”

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:

The Bull grins, but not widely.

As the Dow hits a record high, and volume continues to support buyers, we maintain our Green Flag bias.

We also see a pullback imminent as leading indexes face the bearish divergence of advance decline ratios.

A Pullback will test our newly acquired long positions and let us know where the real strength is.

As earnings season kicks off this week we’re likely to see some shifting from institutional players.

From a technical perspective, strength in Big Caps, and in particular the Bankng Index, continue to set the pace. Any breakdown from this leadership will be a significant blow to the bear’s cause.

Leadership from the Telecom Index is also showing bearish divergence, often evident where trends end. We see this as a likely leader for a broader market pullback.

Meanwhile, the Semiconductor Index fails to rally with the broader market as it consolidates below its 200-day average. This is troublesome coming from a sector that typically provides the backbone for a strong market.

Transportation is also underperforming the market, which suggests the selling of the inversely related Energy sector may only be a near-term correction and not the start of a cyclical move.

Technically speaking:

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

The S&P 500
($SPX), 1.0 %, cruised to new multi-year highs.

Nasdaq
($COMPQ), 1.8 %, continues to lag behind the Dow and S&P as it closed below a year high. The index is above its major moving averages, though the trend is questionable with the 50-day below the 200-day average.

Russell 2000
($RUT), 2.0 %, also continues to lag behind the Dow and S&P as it closed below a year high. The index is above its major moving averages, though the trend is questionable with the 50-day below the 200-day average.

Volume indications remain bullish.

Key chart action for the week:

Charts courtesy of Stockcharts.com

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

  1. PERSONAL SERVICES
  2. DRUG RELATED PRODUCTS
  3. MEAT PRODUCTS
  4. DISCOUNT VARIETY STORE
  5. PACKAGING CONTAINERS
  6. REIT HEALTHCARE FACILI
  7. CATV SYSTEMS
  8. HOSPITALS
  9. LONG-TERM CARE FACILIT
  10. REIT – RESIDENTIAL

What Was Important About Last Week

STOCKS:

  • Starbucks Corp. (SBUX) reported Sep same store sales increase 6.0%, Briefing.com consensus +3.6%.
  • Immucor Inc. (BLUD) reported Q2 earnings of $0.18 per share, $0.01 better than the Reuters Estimates consensus of $0.17. Revenues rose 20.3% year/year to $51 mln vs the $49.1 mln consensus.
  • American Eagle (AEOS) raised Q3 EPS guidance to $0.61-0.63 vs $0.59 consensus, up from $0.56-0.58 prior guidance.
  • Valero Energy (VLO) issued downside guidance for the third quarter, seeing earnings per share of $2.25 to $2.35 versus $2.48 Reuters Estimates consensus.

ECONOMY:

  • Non-farm payrolls rose a less-than-expected 51,000 in September. Revisions added 62,000 net jobs in the previous two months.
  • The household survey showed 271,000 new jobs last month after adding 250,000 in August. The unemployment rate fell to 4.6% (unrounded 4.58%): lowest level in 5 years.
  • Average hourly earnings increased 0.2% in September after an upwardly revised 0.2% in August (originally +0.1%). Average hourly earnings are up 4.0% in the past year, well above the 25-year average of 3.3%.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: none
  • TUESDAY: ALCOA Inc (AA), Genentech, Inc. (DNA)
  • WEDNESDAY: Ruby Tuesday (RI), Yum! Brands, Inc. (YUM)
  • THURSDAY: Genzyme Corporation (GENZ), PepsiCo (PEP)
  • FRIDAY: General Electric (GE)

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: Treasury Budget, Treasury Budget — Release TBA, Wholesale Inventories, Treasury Budget
  • WEDNESDAY: Crude Inventories, FOMC Minutes
  • THURSDAY: Initial Claims, Trade Balance, Fed’s Beige Book
  • FRIDAY: Export Prices ex-ag., Import Prices ex-oil, Retail Sales, Retail Sales ex-auto, Mich Sentiment-Prel., Business Inventories

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“”Nothing is more harmful to the service, than the neglect of discipline; for that discipline, more than numbers, gives one army superiority over another.” – George Washington

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