Archive for December, 2006|Monthly archive page

Familiar Tunes

Traders,

fate comes a-knockin‘, doors start lockin
your old time connection, change your direction
ain’t gonna change it, can’t rearrange it
can’t stand the pain when it’s all the same to you, my friend
Aerosmith “Same Old Song and Dance”

Market Bias:

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:

Stocks ending their last trading week of the year sing familiar tunes with little change in trend from the last few months.

The Dow Industrials topped 12,500 for the first time to punctuate a classic year-end rally.

Like everyone else, we’re looking for the action to top-out somewhere. We won’t dare declare where. But when we see the signs we’ll act accordingly.

The New Year could just as easily attract a new crop of buyers as it could sellers.

The Dow rally that began in 2002 is the fourth longest since 1900. But of the 20 or so rallies occurring the last 100 years it is below average in magnitude.

This market favors big-caps as the Dow and S&P 500 attracts higher bids than their Nasdaq and Russell 2K counterparts.

Consumer stocks hit new highs as Cyclicals hesitate to break out of year long bases.

We see two key areas of concern as we head into the new year:

Transportation stocks crumbled from a bullish cup-and-handle pattern in an undeniable show of failure that could take the juice away from the bulls. But Airlines have held up well, and remain poised to break out of a lower base.

Semiconductor stocks struggle amidst tangled moving averages in a show of indecisiveness.

And standing out as bright spots for bulls:

Telecoms hit new highs.

Banking stocks hit a new high before pulling back sharply.

Other trend-forming action comes from:

Gold Mining stocks are showing bullish traits counter to the struggling Dollar Index.

Energy stocks were little changed for the week, and remain in bullish form as they test the support of a recent key breakout.

Technically speaking:

The Dow Industrial Average

($INDU), +1%, inched above the psychological 12,500 mark, an all-time high.

The S&P 500

($SPX), +0.5%, is trend up, well above its major moving averages.

Nasdaq

($COMPQ), +0.6%, is struggling relative to the broader market as it trades just above its 50-day moving average.

Russell 2000

($RUT), +0.9%, consolidates above its 50-day moving average.

Volume indications remain favorable to buyers despite modest distribution in the last week of the trading year.

Key chart action for the week:

Charts courtesy of Stockcharts.com

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

What Was Important About Last Week

STOCKS:

There were no significant earnings releases for the week.

ECONOMY:

  • The Commerce Department reported November new-home sales climbed 3.4%, rising for the third time in six months and beating economists’ expectations for a 1.6% increase.
  • Existing home sales increased 0.6% in November to an annual rate of 6.28 million, better than the 0.8% drop expected by the consensus.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: none
  • TUESDAY: none
  • WEDNESDAY: Sonic Corp. (SONC)
  • THURSDAY: Constellation Brands, Inc. (STZ), Monsanto Company (MON)
  • FRIDAY: Global Payments Inc. (GPN)

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: ISM Index, FOMC Minutes
  • WEDNESDAY: Construction Spending, Auto Sales, Truck Sales
  • THURSDAY: Factory Orders, ISM Services,
  • FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“The first and the best victory is to conquer self.” – Plato

Blow off their heads

Traders,

The chessboard’s filling up with red
We make more profits when we blow off their heads
— Dead Kennedy’s “Kill the Poor”

Market Bias:

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 word is out. The Dow hit an all time high.

On the heels of better than expected economic news, everything is nearly picture perfect.

And as the general public seems to have taken little notice in the Bull’s steady climb, we’re wondering when the masses might be pulled in for something like a blow-off top to occur.

And when we say things are nearly perfect, we should emphasize the one flaw we see in price-action could prove to be the loose thread that unravels it all.

The Semiconductor Index struggles, just barely above its major moving averages. This area of weakness, until corrected, holds an ominous spell over the market.

We firmly believe that the market ultimately goes wherever Tech takes us. And Semis are the heavy-weight of the sector.

But our Yellow Caution Flag won’t come out until we see heavy selling volume.

All other Technology groups hold firm with the exception of Disk Drives parked in a dodgy cup-and-handle pattern.

We are also witnessing what may be the beginning of sector rotation.

Energy charges higher, attracting capital inflows that green-light individual CAN SLIM type setups for our subscribers.

Banks also breakout to new highs as Broker Dealers hesitate to rally out of a tight, month-long consolidation pattern.

Retail quietly ticked to a new high despite economic data depicting a strong November for consumer spending.

The Dollar rallies off a key low, though is vulnerable to further selling as it trades below its major moving averages.

With Gold poised to take out the right side of a bearish head-and-shoulders pattern, we suspect it will do so as it trends counter to the Dollar.

Utilities hit new highs.

Consumer Staples hold a dominant edge over a Consumer Cyclical Index on the cusp of breaking out of more than a year-long cup-and-handle pattern.

Healthcare and Biotechnology want to trend higher in apparent stability after consolidating for weeks, as Pharmaceuticals slop around between major moving averages.

Transportation, Airlines and Defense pull back quietly, a common action before breakout acceleration occurs.

Technically speaking:

The Dow Industrial Average
($INDU), +1.12%, rallied to an all-time high.

The S&P 500
($SPX), +1.22%, rallied to a multi-year high.

Nasdaq
($COMPQ), +0.81%, finished the week at the top of a month-long trading range, poised to break out.

Russell 2000
($RUT), +0.02%, also finished the week at the top of a month-long trading range, poised to break out.

Volume indications over the past month favors buyers, though topping patterns are usually accompanied by heavy volume, like Friday’s action.

Key chart action for the week:

Charts courtesy of Stockcharts.com

What Was Important About Last Week

STOCKS:

  • Adobe Systems (ADBE) reported Q4 earnings of 0.33 per share, in line with estimates.
  • Quicksilver (ZQK) reported earnings of 0.51 per share, in line with estimates.
  • ADC Telecom (ADCT) reported earnings of 0.38 per share, and guided lower for 07.
  • CKE Restaurants (CKR) reported earnings of 0.17 per share, on cent above estimates.

ECONOMY:

  • The Consumer Price Index was unchanged in November, compared to a 0.2% expected increase.
  • Industrial production increased 0.2% for November, beating the “no change” estimate.
  • Manufacturing also increased 0.2% for November, as the growth rate trends upward,
  • Retail sales rose 1% for November, better than the expected 0.2% increase.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: FuelCell Energy, Inc. (FCEL), Hovnanian Enterprises, Inc. (HOV), Oracle (ORCL)
  • TUESDAY: Circuit City Stores Inc. (CC), Darden Restaurants (DRI), Morgan Stanley (MS), Palm, Inc. (PALM)
  • WEDNESDAY: Bed Bath & Beyond Inc. (BBBY), Biomet, Inc. (BMET), CarMax, Inc (KMX), FedEx (FDX), Jabil Circuit, Inc. (JBL), Nike (NKE), Paychex (PAYX)
  • THURSDAY: General Mills, Inc. (GIS), Red Hat, Inc. (RHT)
  • FRIDAY: Walgreen (WAG)

On the economic front we have potential market movers with:

  • MONDAY: Current Account
  • TUESDAY: Housing Starts, Building Permits, PPI, Core PPI
  • WEDNESDAY: Crude Inventories,
  • THURSDAY: Chain Deflator-Final, GDP-Final, Initial Claims, Leading Indicators, Philadelphia Fed
  • FRIDAY: Durable Orders, Personal Income, Personal Spending, Mich Sentiment-Rev.

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“The first and the best victory is to conquer self.” — Plato

Spin again and roll on

Traders,

Great big wheel is away up High
Carry you way up in the Sky;
Wheel of Life will spin again and roll on.
— Woody Guthrie “Wheel of Life”

Market Bias:
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:

When nothing appears able to break this Bull’s back, there’s not much to complain about these days.

But even the fiercest of bulls eventually get tired, It’s common sense that this market will eventually put in a sizable retreat, though the way that happens may not be that common.

On the heels of a light corporate news week, and a less than shocking Employment report, we take notice that there’s not a whole lot of chatter about the major indexes pegging in highs.

As the Dow inches toward an all-time high, we believe it won’t be until everyone acknowledges it that it will be over. As the last buyers are lured in, sellers will be in control.

The Dollar puts in a relief rally after media pundits scream its all over. Meanwhile The Gold & Silver Index pullback in bullish cup-and-handle mode, threatening to take out a bearish right shoulder on the weekly chart.

Hints of the next market phase will likely come from the Telecom and REIT leadership, which until broken, only confirm this bull’s character.

New money flowing into Energy and Industry Metals could be our next leadership, which has historically been a bearish sign for the broader market as companies paying higher prices for their respective commodities a hindrance to profits.

But as Crude Oil prices have far to go before reversing a downtrend, we recognize new breakouts from CANSLIM type Growth Stocks in the Energy and Industry Metal sectors could be telling of another up leg in Energy. Commodity stocks tend to lead their underlying commodities.

The Homebuilders that lead the market’s decline over the summer attempt to reverse losses, but find massive overhead resistance.

The Consumer Index dominates its Consumer Staples counterpart with another new high for the year.

The Semiconductor Index flirts with breaking to highs not seen since the spring before shying away. This sector continues to stick out like a sore thumb for its inability to rally with the market. We continue to believe that the market will eventually go where the chip makers go.

Banks reverse a bearish rounding top pattern and are now poised to break out of a cup-and-handle.

Broker Dealers, Defense and Transportation, all cocked in cup-and-handle mode, vie to be the next sector to breakout.

Airlines ready to launch from a lower base could be hindered by higher Energy prices, but the environment remains positive for the industry.

Retail inched toward a new high, though backed off as the sector fails to build momentum comparable to the major indexes.

Technically speaking:

The Dow Industrial Average
($INDU), 0.9%, shied away from making all time highs, though closed the week near session highs.

The S&P 500
($SPX), 0.9%, moved to a new multi-year high

Nasdaq
($COMPQ), 1.0%, consolidated near its highs for the week.

Russell 2000
($RUT), 1.5%, poked its way to a new high for the year.

Volume indications show two distribution days for the S&P500 this week, while the environment for the past month illustrates buyer dominance. Further distribution will confirm weakness.

Key chart action for the week:

Charts courtesy of Stockcharts.com

What Was Important About Last Week

STOCKS:

  • National Semiconductor (NSM) reported earnings in line with estimates at 0.27 per share, though revenue was down almost 8% from a year ago.
  • Interdigital Communications (IDCC) expects Q4 revenue about $3-4M vs. previous expectations of under $70M.
  • Henry Schein (HSIC) lowered its earnings guidance to nearly 10 cents below a previous consensus of 0.79 per share.
  • Eli Lilly (LLY) believes its 2007 earnings will rise between 1 and 8% from new treatments involving diabetes and depression.
  • Merck (MRK) believes its 2007 earnings will rise between 5 an 14% from cost cutting and vaccine sales.

ECONOMY:

  • Non-farm payrolls rose to 132,000, beating expectations.
  • The Household survey also beat expectations, reporting 277,000 new jobs for November. The labor force rose to 383,000, with a slight rise to the unemployment rate to 4.5%.
  • ISM non-manufacturing rose to 58.9 for November, the highest level in six month. Expectations for this measure of growth in the services sector were for a drop to 55.5, from October’s reading of 57.1.
  • The European Central Bank raises its key interest rate a quarter point to 3.5%.
  • Initial jobless claims fell 34,000 for the week. Analysts point to Thanksgiving skewing data as the four-week average rises to 328,750.
  • New York City voted to outlaw most trans fats from its restaurants.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: none
  • TUESDAY: Best Buy Co., Inc. (BBY), Dollar General Corp. (DG), Goldman Sachs (GS)
  • WEDNESDAY: none
  • THURSDAY: Adobe Systems (ADBE), Pier 1 Imports, Inc. (PIR), Quiksilver (ZQK)
  • FRIDAY: j2 Global Communications (JCOM)

On the economic front we have potential market movers with:

  • MONDAY: Wholesale Inventories
  • TUESDAY: Trade Balance, Treasury Budget, FOMC policy statement
  • WEDNESDAY: Business Inventories, Retail Sales, Crude Inventories
  • THURSDAY: Export Prices ex-ag., Import Prices ex-oil, Initial Claims
  • FRIDAY: CPI, Core CPI, NY Empire State Index, Net Foreign Purchases, Capacity Utilization, Industrial Production

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“It is better to conquer yourself than to win a thousand battles. Then the victory is yours. It cannot be taken from you, not by angels or by demons, heaven or hell.”– Buddha

The Breakout Club

Traders,

Don’t mess with the bull young man, you’ll get the horns.
— From the movie “The Breakfast Club”

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:

Market players feel the steam leaving the Bull’s engine with the Dow and Naz declining for the second week in a row.

After two days of institutional grade selling we are on the cusp of hoisting our Yellow Caution Flag.

For the uptrend to continue we want selling volume to dry up.

With price-action relatively stable against worse than expected ISM data, we perceive buyers as resilient. But we keep it in perspective that much of recent buying has come from Pension Funds with long-term agendas that have little to do with the monthly data.

Friday’s Employment data will be a biggie, but more importantly the market’s reaction to it.

Meanwhile, we witness the beginning of potential new trends as price-action from key sectors suggests significant vulnerability to The Bull.

The Dollar drop grabs headlines as pundits square off over its economic effects. We’ll argue it’s bullish for equities, giving foreigners bargain prices for the U.S. market. But if a sharp decline ensues, knee-jerk reactions from around the world will be troubling.

We’re watching Gold for an indication of buyers flocking there for refuge.

So far, Gold and the Gold & Silver Mining Index remain considerably below their highs on the year, but appear to be forming the right sides of solid long-term bases to launch from.

Energy and Commodities firm up base patterns. Natural Gas leads with a new high.

Looking at key sector action:

Where Tech and Small Cap issues breaking out bodes well for The Bull, they risk being sucker moves if the Cyclical Index doesn’t join in.

What doesn’t break out will hold us back

The almighty Semiconductor Index shows relative weakness trading considerably below the year’s highs. An unbiased zigzag pattern raises caution.

Banks putting in a technically bearish rounding top runs the risk becoming a failed breakout.

Broker Dealers also flirt with a failed breakout.

Retail fights to stay above its 50-day moving average.

REITs poke into new high territory as the index tears along in a multi-year uptrend.

Utilities join with a new highs of their own.

Transportation remains another key sector needed to join the breakout club, and posses as a potential breakout candidate with a cup-and-handle pattern.

Airline and Defense also possess lower bases characteristics that tend to lead to breakouts.

Technically speaking:

The Dow Industrial Average
($INDU), -0.7%, pulled back for the second week in a row while remaining above its major moving averages.

The S&P 500
($SPX), -0.3%, also pulled back for the second week in a row while remaining above its major moving averages.

Nasdaq
($COMPQ), -1.9%, declined, though remains above its recent breakout point.

Russell 2000
($RUT), -1.4%, also declined as it hesitates to move forward after breaking out to yearly highs two weeks ago.

Volume indications show heavy volume on the week amounting to two distribution days a piece for the Dow and Naz, though overall volume for the past month indicates institutional sponsorship for this bull market.

Key chart action for the week:

Charts courtesy of Stockcharts.com

What Was Important About Last Week

STOCKS:

  • Wal-Mart (WMT) said same store sales will likely place their first decline in 10 years.
  • H&R Block (HRB) reported a loss of 0.49 per share vs. estimates of 0.32 per share. Revenues were down 6.9% from a year ago.
  • Cheesecake Factory (CAKE) beat earrings estimates by 0.02 at 0.30 per share.
  • America Eagle Outfitters (AEOS) reported same store sales up 10% and reaffirmed guidance.
  • Chico’s FAS (CHS) reported earnings of 0.24 per share, which was in-line with estimates.
  • Dress Barn (DBRN) reported earnings 0.03 per share better than expectations at 0.40 per share.

ECONOMY:

  • The Institute of Supply Management’s manufacturing index fell to 49.9 in November. This is the first reading below 50 since spring of 2003.
  • Durable goods orders fell 8.3% in October. This was far worse than expectations.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: none
  • TUESDAY: AutoZone Inc. (AZO), Toll Brothers (TOL), Wind River Systems (WIND)
  • WEDNESDAY: none
  • THURSDAY: America’s Car-Mart, Inc. (CMRT), National Semiconductor (NSM),
  • FRIDAY: none

On the economic front we have potential market movers with:

  • MONDAY: none
  • TUESDAY: Productivity-Rev., Factory Orders, ISM Services
  • WEDNESDAY: Crude Inventories
  • THURSDAY: Initial Claims, Consumer Credit
  • FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate,

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“No iron chain, or outward force of any kind, can ever compel the soul of a person to believe or to disbelieve.” – Thomas Carlyle