Distribution threatens corrective action

Traders,

Threaten no more
To secure peace is to prepare for war
— Metallica “Don’t Tread On Me”

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

CANSLIM SETUPS

Where We Are:

Taking a look at the broader market:

Sellers dominate as Friday’s heavy distribution threatens corrective action.

From a technical standpoint, a lagging Technology sector puts the breaks on the broader market. Until we see better sponsorship from the Bulls – we’ll give pause.

Price-action on the Semiconductor Index has been in a slump for more than a year. Any high volume move below the 450 level will mark a significant breakdown on the Point & Figure chart.

Growth stocks show promise with the Russell 2K attracting institutional sponsorship. As CANSLIM traders we couldn’t be happier.

Technically speaking:

Volume indications show no strong bias for the past two weeks.

The Dow Industrial Average

($INDU), -0.6%, sells off on high volume after hitting a new high Wednesday.

The S&P 500

($SPX), -0.7%, sells off on high volume after hitting a new high Wednesday.

Nasdaq

($COMPQ), -0.6%, sells off on high volume as it lags the major indexes under its high hit three weeks ago.

Russell 2000

($RUT), -0.3%, shows relative strength against the other major indexes, though posted distribution after hitting a new high Thursday.

Charts courtesy of Stockcharts.com

The U.S. Dollar Index struggles in a downtrend for the past year as it threatens to turn down from its 40-week MA.

The Gold & Silver Mining Index pushes above its major moving averages as it shows potential to reverse a bearish head-and-shoulder pattern.

The Consumer and Cyclical indexes pull back from new highs for the week.

The Semiconductor Index turns down hard from the resistance of its 50-day MA.

Banks show corrective character in gaping down after posting a new high.

Broker Dealers fail to hit a new high with other major indexes.

Retail hits a new high, though erased two days of modest gains in its Friday sell off.

Computer Tech, Hardware and Disk Drives show weakness in trading below their 50-day MA’s.

Biotechnology holds firm with its potential to launch from a bullish basing pattern.

Transportation pulls back gently after breaking out of its year-long base.

Airlines dangle ominously beneath the 50-day MA with its recent base breakout in jeopardy.

Energy stocks trade on the 50-day MA with no clear bias.

What Was Important About Last Week

STOCKS:

  • Cisco Systems (CSCO) reported Q2 earnings of $0.33 per share, $0.02 better than the Reuters Estimates consensus of $0.31. Revenues rose 27.3% year/year to $8.44B vs the $8.28B consensus.
  • Computer Sciences Corp. (CSC) reported Q3 earnings of $0.85 per share, excluding non-recurring items, $0.02 better than the Reuters Estimates consensus of $0.83. Revenues rose 1.7% year/year to $3.64B vs the $3.64B consensus.
  • Cheesecake Factory (CAKE) reported Q4 earnings of $0.26 per share, $0.02 better than the Reuters Estimates consensus of $0.24. Revenues rose 9.8% year/year to $360M vs the $353M consensus.
  • Las Vegas Sands (LVS) reported Q4 earnings of $0.37 per share, excluding non-recurring items, $0.06 better than the Reuters Estimates consensus of $0.31. Revenues rose 27.1% year/year to $636M vs the $551M consensus.
  • National Semiconductor (NSM) lowered Q3 revenue guidance. It sees revs down 14-15% vs prior guidance for revs to decline 8-11%. The guidance implies revenue of roughly $426-431M vs $454M Reuters consensus.
  • Toyota Motor (TOY) posted the best quarterly performance in its 74-year history, with earnings up 7.3% to $3.55B for the fiscal third quarter. Revenue was up 15% to $51B. Sales in North America rose 19% when compared with a year ago, while European sales leapt 24% on demand for the Yaris compact.
  • IAC/InterActiveCorp’s (IACI) earnings fell 85% due to a $214 million write-down at its discounts business. Its Internet segment, which includes Ask.com, extracted higher revenue per search during the quarter.
  • Broadcom (BRCM) reported Q4 earnings of $0.31 per share, excluding non-recurring items, in-line with the First Call consensus of $0.31. Revenues rose 12.5% year/year to $923M vs the $911M consensus.
  • McAfee (MFE) reported Q4 earnings of $0.36 per share, excluding non-recurring items, $0.02 better than the Reuters Estimates consensus of $0.34. Revenues rose 20.5% year/year to $305M vs the $290M consensus. Co issued in-line guidance for Q1.
  • Walt Disney Co. (DIS) reported Q1 earnings of $0.50 per share, excluding non-recurring items, $0.11 better than the Reuters Estimates consensus of $0.39. Revenues rose 9.8% year/year to $9.72B vs the $9.49B consensus.
  • Akamai Technologies (AKAM) reported Q4 earnings of $0.27 per share, excluding non-recurring items, $0.01 better than the Reuters Estimates consensus of $0.26. Revenues rose 52.0% year/year to $125.7M vs the $121.5M consensus.

ECONOMY:

  • The Institute for Supply Management said its index of service-sector business rose to 59.0 from December’s 56.7. Any reading above 50 is indicative of growth.
  • Non-farm productivity (output per hour) increased at a 3.0% annual rate in the fourth quarter, better than a consensus expected gain of 2.0%. Non-farm productivity increased 2.1% in 2006 (Q4/Q4).
  • Productivity grew 2.2% while compensation grew at a 7.3% rate (9.8% after adjusting for inflation). Unit labor costs grew at a 5.0% rate.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Banco Santander-Chile (SAN), Yum! Brands, Inc. (YUM)
  • TUESDAY: Anglogold Ashanti Limited (AU), Applied Materials (AMAT), Choice Hotels International, Inc. (CHH), UBS (UBS), Whole Foods Market (WFMI), Wyndham Worldwide (WYN)
  • WEDNESDAY: Garmin Ltd. (GRMN), MGM MIRAGE (MGM), Network Appliance (NTAP), NutriSystem (NTRI), P.F. Chang’s China Bistro, Inc. (PFCB)
  • THURSDAY: Allied Waste Industries, Inc. (AW), Biogen Idec Inc. (BIIB), Bob Evans Farms (BOBE), Buffalo Wild Wings, Inc. (BWLD), California Pizza Kitchen (CPKI), Olympic Steel (ZEUS), Reliance Steel (RS), TheStreet.com (TSCM), Winston Hotels (WXH).
  • FRIDAY: Sierra Pacific Resources (SRP)

On the economic front we have potential market movers with:

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“No evil propensity of the human heart is so powerful that it may not be subdued by discipline.” – Seneca

CANSLIM SETUPS

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