Archive for July, 2005|Monthly archive page
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
Where We Are:
This is all great, but the reality is the S&P 100 and Nasdaq 100 are not following.
The number of New Highs – New Lows is not supporting higher index levels either.
The number of Growth Stocks hitting new highs is also posting relatively low numbers.
This market continues to be driven by Energy and Real Estate issues.
While we have witnessed money flow into technology and cyclicals, the technical conditions of these sectors is sluggish.
Our concerns over the lack of performance from technology issues will either pass in time or worsen in light of a deteriorating market. Technology is the backbone of a healthy market.
Just as the stock market serves as a leading indicator of the economy, markets led by Energy are often reflecting an economy that will hit the top of its cycle months down the road.
Because we are not seeing heavy selling, and the trend remains up, we continue to wave the Green Flag.
Given market conditions, we have not seen a whole opportunity from individual stocks, though have been ringing the cash register nonetheless.
All of the major indexes are trading above their major moving-averages which are stacked “trend-up”, with the 20-days above the 50-days, which are above the 200-days. This is no major trading signal to us, but a recognition of the nature of the rally that began in April.
The Dow Industrial Average ($INDU), -0.10%, continues to be the most vulnerable of the major indexes with significant overhead resistance to be reckoned with.
The S&P 500 ($SPX), +0.04%, marched to a new high, and closed the week with a bearish “doji” chart candlestick.
Nasdaq ($COMPQ), +0.23%, also hit a new high and closed with a bearish “doji” candlestick.
Russell 2000 ($RUT), +0.29%, followed the pattern of the S&P and Naz by hitting a new high and closing with a bearish “doji.”
It should be noted that we don’t place a whole credence in charting candlesticks unless they occur on high volume and/or relatively large trading ranges.
Volume indications continue to portray a buyer’s bias with the S&P 500 and posting two days of accumulation a piece. The Dow had one day of accumulation and one day of distribution.
New Highs – New Lows is telling us that the though the major indexes are moving higher, the number of individual issues doing so is not increasing. Highs – Lows for The New York Stock Exchange hit its peak July 11th, and has been showing bearish divergence ever since.
The Advance/Decline Line is giving us no signal at present.
Investors Intelligence continues to show a significant number of Bulls over Bears. From a historical perspective this is not good for buyers. We have yet to max out the scale here, and recognize the number of Bulls could easily increase before serving as a tradable warning.
Key chart action for the week:
Charts courtesy of Stockcharts.com
The 10-year Note Holdr (TLT) continues to trend down after coming shy of its high made 2003.
The U.S. Dollar Index ($DXC) and The Gold Miners Index ($XAU) have been trading sideways over the past five weeks, with the Dollar poised to break out of a lower base and the Gold Miners bearish in head-and-shoulders fasion. We don’t see a setup in either vehicle. We recognize the difference between generic patterns and opportunity.
The Dow Jones Commodity Index ($DJAIG) continues trading in an eight week range. To breakout or fall apart?
Consumer Cyclicals ($CYC) have outperformed the Consumer Staples ($CMR) over the past couple of months, but for the week the Staples held a modest edge. Neither index has broken out to new highs, though the Staples are close.
The Semiconductor Index ($SOX) failed to take out last week’s high. Going forward the 500 area will serve as an important resistance mark.
Internet stocks ($IIX) remain sluggish as a group. With significant overhead resistance the index closed the week in “doji” form.
Telecoms ($XTC) remain in strong technical form as they came within a hair of Juanuary’s high.
Healthcare ($HCX) broke out to a new high.
Biotech ($BTK) failed to take out last week’s high, though remains trend-up.
REIT’s ($DJR) hit another new high. For what many media pundits deemed “a bubble”, we saw an opportunity.
Transportation ($TRAN) crept past last week’s high and is holding ground after knocking out its bearish condition.
Airlines ($XAL) were quiet as a group and are “triangled” in a lower base formation.
Defense ($DFX) hit another new high.
Energy ($IXE) hit another new high.
Basis Materials ($A1BSC) was lackluster while holding ground near the half-way point from this year’s high.
Utilities ($UTY) edged out last week’s high, though are just shy the year’s high. We assume this sector will continue to go in step with the price of bonds over the long run.
The top 10 industry groups from the 6 month RS screen are:
- GROCERY STORES
- SEMICONDUCTOR EQUIP MA
- HEAVY CONSTRUCTION
- SEMICONDUCTOR-BROAD LI
- TECHNICAL SERVICES
- DEPARTMENT STORES
- INDUSTRIAL EQUIP WHOLE
- INTERNET SERVICE PROVI
What Was Important About Last Week
- No. 1 mobile-phone chip maker Texas Instruments (TXN), reported earnings up 42% to $628 million as it beat Wall Street estimates.
- American Express (AX) announced its second-quarter earnings were up 16% from a year ago to $1.01 billion, beating Wall Street estimates.
- Amazon.com (AMZN) said it earned $52 million in the second quarter, which is slightly down from last year, though ahead of Wall Street expectations.
- Verizon (VZ) posted second-quarter profits of $2.11 billion, up 18% from a year ago.
- British Petroleum (BP) reported earnings up 29% to $4.98 billion, though warned the third quarter is off to a slow start.
- The Chicago Mercantile Exchange (CME) announced second-quarter earnngs of $2.36 a share, up 42% from a year earlier, though 2 cents below Wall Street forecasts.
- Building Materials (BMHC) posted earnings of $2.28 a share, up 148% from a year ago and better than estimates.
- Valero Energy (VLO) said it earned $3.06 a share, up 34% from a year ago and 12 cents above Wall Street expectations.
- Legg Mason (LM) reported earnings up 22% to 93 cents a share, but 7 cents below forecasts.
- The world’s biggest oil company, Exxon Mobil (XOM) announced earnings up 32% was a penny short of Wall Street forecasts.
- The No. 3 oil company, Royal Dutch Shell (RD) said earnings were up 35%, though also fell short of estimates.
- Sony (SNE) reported a loss for its second-quarter loss and lowered its guidance for the full-year.
- MGM Mirage (MGM) posted earnings up 24%, 2 cents over Wall Street expectations.
- Boeing (BA) said second-quarter earnings made for a $566 million profit, which was much better than Wall Street forecasts.
- Sprint (FON) reported second-quarter earnings more than doubled to $600 million, beating Wall Street expectations.
- The U.S. economy grew at a 3.4% annualized rate in the second-quarter, slightly down from the first quarter’s 3.8% rate.
- Sales of pre-owned homes rose 2.7% in June to a seasonally adjusted annual rate of 7.33 million units, a new record.
- New home sales in increased 4% in June to a seasonally adjusted annual rate of 1.374 million units.
- Consumer Confidence dipped slightly, falling short of economists’ expectations.
- Orders for durable goods in the U.S. were up 4% in June, beating economists’ forecasts.
- The beige book gave indication of a helathy economy.
What We Are Watching For This Week:
Key earnings releases:
- MONDAY: LoJack (LOJN), Macrovision (MACR), Statoil ASA (STO), Unocal (UCL).
- TUESDAY: Aon Corporation (AON), Eagle Materials Inc. (EXP), InterActiveCorp (IACI), Oshkosh Truck (OSK), Paxar Corporation (PXR), Ryanair Holdings (RYAAY), Tenet Healthcare (TNH), Tyco International (TYC), Vishay Intertechnology, Inc. (VSH).
- WEDNESDAY: Dean Foods (DF), Duke Energy Corporation (DUK), Sunoco (SUN), Swift Energy (SFY), THQ Inc (THQI), Time Warner Inc. (TWX).
- THURSDAY: Clorox (CLX), Harrah’s Entertainment (HET), Kos Pharmaceuticals (KOSP), The Gillette Company (G), Toll Brothers (TOL), Viacom (VIA).
- FRIDAY: Cardinal Health, Inc. (CAH).
*Current Holdings In Bold
On the economic front we have potential market movers with:
- MONDAY: Construction Spending, ISM Index.
- TUESDAY: Auto Sales, Truck Sales, Personal Income, Personal Spending, Factory Orders.
- WEDNESDAY: ISM Services.
- THURSDAY: Initial Claims.
- FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Consumer Credit.
This Week’s Word On Discipline:
“In the last analysis, our only freedom is the freedom to discipline ourselves.” —Bernard Baruch