Reason to believe a correction is near

Traders,

Maybe I’m amazed at the way you pulled me out of time
And hung me on a line
— Paul McCartney “Maybe I’m Amazed”

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:

The Bull’s resilience amazes its worshippers while frustrating the disbelievers. Markets tend to do that.

Our warning signs of distribution and a lagging Technology sector remain in place.

While timing a correction is beyond us, we know history tells us there is always some sort of reversion to the mean.

As soon as we see the mass media quacking over new highs we’ll have more reason to believe a correction is nearer.

With 25% of the S&P 500 companies reporting earnings last week, nothing stood out.

But as far as price action, the Transportation Index breaking out of a nearly year-long base adds weight to the Bull’s position.

Technically speaking:

The Dow Industrial Average

($INDU), +1.3%, climbs to another new high.

The S&P 500

($SPX), +1.8%, climbs to another new high.

Nasdaq

($COMPQ), +1.7%, shows relative weakness while mostly consolidating above its 50-day MA, below its high of two weeks ago.

Russell 2000

($RUT), +2.7%, broke out of a three-month consolidation pattern.

Volume indications favored the bulls for the week as all major indexes posted accumulation.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The U.S. Dollar Index and the Gold Miners Index changed little for the week. A move in the Miners index above 150 would signal a bearish reversal.

The Cylcical Index climbed easily to new highs as the Consumer Index closed just below its high of a week ago. No clear dominance of either index is clear for the last month.

Semiconductors tick higher, though remain below the 50-day MA.

Telecom cruises to a new high.

Hardware and Disk Drives represent Technology’s weakest sectors as they struggle beneath their 50-day MA’s.

Banks, Broker Dealers and Retail hold a strong up-trends.

Healthcare regained its high made two weeks ago.

REITs look almost too happy with what might look like the beginning of a parabolic move up.

Energy reclaims its 50-day MA, roughly half way from its high made two months ago to its low made three weeks ago.

What Was Important About Last Week

STOCKS:

  • Google (GOOG) reported Q4 earnings of $3.18 per share, $0.27 better than the Reuters Estimates consensus of $2.91. Revenues including Traffic Acquisition Costs rose 67.0% year/year to $3.21 bln vs. the $3.14 bln consensus.
  • Amazon.com (AMZN) reported Q4 earnings of $0.23 per share, $0.02 better than the Reuters Estimates consensus of $0.21. Revenues rose 33.9% year/year to $3.99 bln vs. the $3.78 bln consensus. Gross margins were 21.3% vs. 22.1% street expectation. Co issued upside guidance for Q1, sees revenues of $2.85-3.00 bln (consensus $2.77 bln).
  • Starbucks(SBUX) reported Q1 earnings of $0.26 per share, in-line with the Reuters Estimates consensus of $0.26. Revenues rose 21.8% year/year to $2.36 bln vs. the $2.35 bln consensus.
  • Gilead Sciences(GILD) reported Q4 earnings of $0.78 per share, $0.10 better than the Reuters Estimates consensus of $0.68. Revenues rose 47.6% year/year to $899.2 mln vs. the $847.7 mln consensus.
  • Plum Creek Timber (PCL) reports Q4 earnings of $0.32 per share, excluding $0.07 gain, $0.02 worse than the Reuters Estimates consensus of $0.34; revenues fell 3.1% year/year to $379 mln vs the $374.3 mln consensus.

ECONOMY:

  • Real GDP increased at an annual rate of 3.5% in Q4, beating the consensus forecast of 3.0%. Real GDP was up 3.4% versus a year ago.
  • Non-farm payrolls rose 111,000 in January vs. expectations of a gain of 150,000. November and December were revised up a total of 81,000.
  • The unemployment rose to 4.6%. A extreme weather in January kept 153,000 more people out of work this January versus January 2006. Removing the weather effect, the unemployment rate would have been 4.5%, the same as November and December.
  • The ISM Manufacturing index declined to 49.3 in January from 51.4 in December (the consensus expected 51.7).

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Cognizant Technology Solutions (CTSH), Randgold Resources Limited (GOLD), Ryanair Holdings (RYAAY),
  • TUESDAY: InterActiveCorp (IACI), The Cheesecake Factory (CAKE), Tyco International (TYC)
  • WEDNESDAY: Dean Foods (DF), Sara Lee (SLE), Sunstone Hotel Investors Inc. (SHO), Walt Disney (DIS)
  • THURSDAY: Aetna Inc. (AET), Palomar Medical Technologies, Inc. (PMTI), Panera Bread (PNRA), Qwest Communications (Q), Tribune (TRB), Waste Management (WMI)
  • FRIDAY: Coventry Health Care, Inc (CVH)

On the economic front we have potential market movers with:

  • MONDAY: ISM Services
  • TUESDAY: none
  • WEDNESDAY: Productivity-Prel, Crude Inventories, Consumer Credit
  • THURSDAY: Initial Claims, Wholesale Inventories
  • FRIDAY: none

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Keep away from people who belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.” — Mark Twain

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