Archive for September, 2005|Monthly archive page

Psychos and Casinos

Traders,

Well, the money’s pouring down and the people all look down

And it’s floating out of town

I hit the second deck and I spent my paycheck

And my wife that I just met, she’s looking like a wreck

Wilco, Casino Queen

Our current position:

Market Vulnerable to Further Downside

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 can now be found on our home site:

Where We Are:

Taking a look at the overall markets:

Within a week, the broader market turned from propitious to pigeon-hearted.

We interpret back to back distribution days as a signal to heed caution.

Our Red Flag is out because market conditions are not supportive of buyers. This does not mean we anticipate a collapse.

We avoid long-term market speculation, and concern ourselves with what is going on NOW.

The turning point for the week occurred on the Fed’s announcement to raise interest rates a quarter point.

Hurricane Rita’s effect on price action won’t be clear until the weather in Texas clears.

We’re not so quick to blame heavy selling on Rita, though there clearly is logic to Energy buying given the concentration of oil industry assets in the Gulf.

Banks led the charge south for the week, and could be key if we see further breakdown from that sector in that Banks represent the largest weighting in the S&P 500.

Technology issues were down, though from a technical perspective, have not turned bearish. There’s hope.

Traders long Energy and select Basic Materials continue to enjoy success.

Going into next week, we won’t be surprised to see a broad market bounce. And if the market does bounce, we’ll keep track of volume for an indication of what side of the market institutional players are taking.

Volume considerations indicate there may be significant battle of institutional sentiment in play. Often when heavy buying is followed up by heavy selling consolidation takes place, as no clear trend is established.

Whatever happens, we’ll place our bets accordingly.

And for this week’s read: Psychopaths could be best financial traders?

Technically speaking:

The Dow Industrial Average ($INDU), -2.09%, found support at a lower trend line, and is now below its major moving averages.

The S&P 500 ($SPX), -1.83%, is now below its major moving averages.

Nasdaq ($COMPQ), -2/01%, is sandwiched below its 50-day moving average, and above its 200-day moving average.

Russell 2000 ($RUT), -2.46%, is also sandwiched below its 50-day moving average, and above its 200-day moving average.

Volume indications turned down. Back to back distribution days are never a good sign for the market. Volume over the past two weeks tilt the scale slightly to the bears.

New Highs – New Lows broke down to negative territory for the first time since May for a strong bearish signal.

Investors Intelligence continues to show a dominance of bullish money managers when tends to be bearish.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 20+-year Note Holdr (TLT), found support at a lower trend line, and is sandwiched below its 50-day moving average, and above its 200-day moving average.

The U.S. Dollar Index ($USD), advanced for the second week in a row, and is poised to launch from a lower base.

The Gold Miners Index ($XAU), broke out to new highs, and is a relative strength winner over the past two weeks.

The Dow Jones AIG Commodity Index ($DJAIG), hit an all time high.

Consumer Staples ($CMR), fell apart, and faired far worse for the week than Consumer Cyclicals ($CYC). Both vehicles are below their major moving averages.

Technology ($DJUSTC), has held up relatively well to the broader market, and is sandwiched below its 50-day moving average, and above its 200-day moving average.

The Semiconductor Index ($SOX), broke below its 50-day average, though remains above its 200-day average. The sector is not showing any technical bias.

Banks ($BKX), were whacked by sellers, and have found support at its head-and-shoulders-neckline.

Broker Dealers ($XBD), continue to hold technical strength on the back of stellar earnings reports from sector key players.

Retail ($RLX), poured down and remain a relative strength loser over the past month.

Internet ($IIX), are exhibiting durability in a weak market.

Healthcare ($HCX), have negated a breakout to new highs made two weeks ago. We have turned our bullish bias to neutral.

Biotech ($BTK), hit a new high, then turned down. It’s still trend up here.

REIT’s ($DJR), have now made a lower high, and are vulnerable to further downside.

Homebuilders ($DJUSHB), have also made a lower low and are vulnerable.

Transportation ($TRAN), is below its major moving averages. No solid directional signal.

Airlines ($XAL), continue their path down. So much for a trend line bounce.

Defense ($DFX), fell south of its multi-week consolidation, and is vulnerable to breaking its uptrend.

Energy ($IXE), rocketed to yet another new high.

Utilities ($UTY), hit a new high then turned down, erasing last week’s gains. The sector is still trend up.

The top 10 industry groups from the 6 month RS screen are:

  • INDUSTRIAL EQUIP WHOLE
  • SEMICONDUCTOR-INTGRTD
  • DRUG MANUFACTURERS OTH
  • SEMICONDUCTR-MEMORY CH
  • DRUG DELIVERY
  • SEMICONDUCTOR-BROAD LI
  • GOLD
  • HEALTHCARE INFO SVCS
  • BIOTECHNOLOGY
  • INVESTMNT BROKERAGE-NA

What Was Important About Last Week

STOCKS:

  • Procter & Gamble (PG) maintained its profit forecast for the quarter which ends in September.
  • Nike (NKE) reported earnings of $432.3 million for its first quarter, a 32% increase from a year ago.
  • Goldman Sachs (GS) said earnings were $1.62 billion for the fiscal third quarter, up 84% from a year ago.
  • Morgan Stanley (MWD) announced earnings down 83% from a year ago, due to a one-time heavy charge. Results still beat Wall Street forecasts.
  • Oracle (ORCL) reported fiscal first quarter profits slightly higher from a year ago, as it met Wall Street forecasts.

ECONOMY:

  • The Fed raised the federal funds rate by a quarter percentage point to 3.75%.
  • Crude-oil prices posted their biggest one-day gain on record, and closed the week above $62 a barrel.
  • U.S. home construction and permits for new construction declined for the second straight month, but are still near historically high levels.

What We Are Watching For This Week

Key earnings releases:

  • MONDAY: Jabil Circuit, Inc. (JBL), Walgreen (WAG)
  • TUESDAY: Lennar Corporation (LEN), Paychex (PAYX)
  • WEDNESDAY: Red Hat, Inc. (RHAT), Research In Motion Limited (RIMM)
  • THURSDAY: PepsiCo (PEP)
  • FRIDAY: Novamerican Steel (TONS)

On the economic front we have potential market movers with:

  • MONDAY: Existing Home Sales
  • TUESDAY: Consumer Confidence, New Home Sales
  • WEDNESDAY: Durable Orders,
  • THURSDAY: Chain Deflator-Final, GDP-Final, Initial Claims, Help-Wanted Index
  • FRIDAY: Personal Income, Personal Spending, Mich Sentiment-Rev., Chicago PMI

The Following Sections Are Now On Our Home Site:

This Week’s Word On Discipline:

“ If you do not conquer self, you will be conquered by self.” — Napoleon Hill