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

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