Cloudy Forecasts

Traders,

We lie on a cloud – we lie
— U2 “Another Time, Another Place”

Market Bias:

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:

With price-action cooling on the major indexes, forecasts for lower earnings cloud the Bull’s outlook.

Wherever earnings go, the market eventually follows.

S&P 500 earnings are on track for a 10% increase for Q4. About two-thirds of the companies are still due to report. So far the trend is “things are good, but not what they were for the preceding periods.”

We anticipate month-end window dressing to give the indexes a boost early this week, but in the big picture new trends taking form suggest our so called “confirmed rally” is seriously challenged.

The Nasdaq 100 closed the week below its 50-day moving average. Technology as a group crumbles despite the Semiconductors’ modest rally off a three-month low.

We see key shifts in sentiment taking place.

The U.S. 10-year Note Rate closed above its 50-day moving average for the first time in about six-months.

Commodity Stocks regain territory above major MA’s, poised to break out of a nearly year-long base.

We suspect The Gold & Silver Miners Index will win out over the struggling U.S. Dollar Index.

CANSLIM opportunities have been few, but we’re ready to surf the next wave whether it be Long or Short.

Technically speaking:

The Dow Industrial Average

($INDU), -0.6%, on the the verge of breaking its uptrend, remains above its major MA’s.

The S&P 500

($SPX), -0.6%, reversed course sharply after hitting a new high. Support of 50-day MA will be first downside test.

Nasdaq

($COMPQ), -0.6%, clings to its 50-day MA, on the cusp of a failed breakout situation.

Russell 2000

($RUT), -0.4%, traces out a two month consolidation pattern, poised to break out or down from its 50-day MA.

Volume indications weighs to the bears as the Dow posts two days of distribution and the S&P 500, Nasdaq and Russell 2K each post one day of distribution. The S&P 500 and Nasdaq each gave us two days of accumulation for the week, but their distribution days out shined them.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The U.S. Dollar Index inched higher as it fights the major resistance mark of its 40-week MA.

Gold miners pushed higher, closing just under its major MA’s.

The Consumer and Cyclical stock indexes both pulled back gently.

Light pullbacks in Banks, Broker Dealers and Retail demonstrate potential areas of resilience in the face of a market correction.

Hardware and Disk Drives’ struggle with major MA’s make them strong candidates for further selling.

Healthcare pulls back somewhat swiftly, though a strong uptrend keeps its form.

REIT‘s show no signs of significant selling pressure.

Transportation finds support at its 50-day MA as a nearly year-long base has formed.

Airlines retreated back into their lower base where it faces a critical support test.

Energy stocks as a group attempt to rally while technically neutral between major MA’s. Oil Service stocks weigh the sector’s bulls down, unable to regain ground above its major MA’s.

What Was Important About Last Week

STOCKS:

  • Microsoft (MSFT) reported Q2 earnings of $0.26 per share, $0.03 better than the Reuters Estimates consensus of $0.23. Revenues rose 6.0% year/year to $12.5B vs. the $12B consensus.
  • Texas Instruments(TXN) reported Q4 earnings of $0.39 per share, $0.01 better than the Reuters Estimates consensus of $0.38. Revenues fell 7.9% for the year to $3.46B vs. the $3.43B consensus.
  • ConocoPhillips posted a 13% drop in earnings as its refining and marketing margins tightened. Revenue fell 19% to $41.5B.
  • Yahoo (YHOO) reported Q4 earnings of $0.16 per share, $0.03 better than the Reuters Estimates consensus. Revenues rose 15.0% for the year to $1.23B vs. the $1.22B consensus.
  • eBay (EBAY) reported Q4 earnings of $0.31 per share, $0.03 better than the Reuters Estimates consensus of $0.28. Revenues rose 29.4% for the year to $1.72B vs. the $1.67B consensus.
  • Advanced Micro Devices (AMD) reported Q4loss of $0.04 per share, $0.12 worse than the Reuters Estimates consensus of $0.08. Revenues rose 31.2% for the year to $1.77B vs. the $1.74B consensus..
  • Qualcomm (QCOM) reported Q1 earnings of $0.43 per share, $0.01 better than the Reuters Estimates consensus of $0.42; revenues rose 16.0% for the year to $2.02B vs the $2.07B consensus.
  • Amgen (AMGN) reported Q4 earnings of $0.93 per share, $0.01 worse than the Reuters Estimates consensus of $0.94. Revenues rose 17.2% for the year to $3.84B vs the $3.76B cnsensus.

ECONOMY:

  • New single-family home sales increased 4.8% in December to an annual rate of 1.120M. This was stronger than the 1.052M consensus and the fastest rate of sales since April 2006. The growth in new home sales was mainly due to strength in the Northeast and Midwest.
  • Existing home sales declined 0.8% in December to an annual rate of 6.22M, a slightly worse than the 0.5% decrease consensus.
  • New orders for durable goods increased 3.1% in December, slightly better than the consensus. New orders excluding transportation increased 2.3%, which was much better than expectations of a 0.5% gain.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Phelps Dodge (PD), Schering-Plough (SGP), Tyson Foods (TSN), Verizon (VZ)
  • TUESDAY: 3M Company (MMM), Burger King (BKC), General Motors Corp. (GM), Jones Lang LaSalle (JLL), Merck & Co., Inc. (MRK), Sony Corporation (SNE), United States Steel Corp. (X), Wyeth (WYW)
  • WEDNESDAY: CBOT HLDGS INC (BOT), Google (GOOG), Kraft Foods (KFT), Pulte Homes Inc. (PHM), Starbucks (SBUX)
  • THURSDAY: Electronic Arts (ERTS), ExxonMobil Corporation (XOM), Investment Technology Group (ITG), Starwood Hotels & Resorts (HOT), Valero Energy Corp. (VLO)
  • FRIDAY: Harmony Gold Mining (HMY), Wendy’s International

On the economic front we have potential market movers with:

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

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“The secret of discipline is motivation. When a man is sufficiently motivated, discipline will take care of itself.” –Sir Alexander Paterson

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