Archive for February, 2006|Monthly archive page

Narrow Daylight

Traders,

Narrow daylight entered my room

Shining hours were brief

Winter is over

Summer is near

Are we stronger than we believe?

Diana Krall, “Narrow Daylight”

Our current position:

BUYERS’ EDGE INTACT

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:

Evidence collected for the week gave us modest glimpses of a bull wanting to push higher.

We had a new high for the Dow Industrial Average, and almost one for the S&P 500.

New highs were also marked for Banks, Biotechnology, Broker Dealers, Consumer Staples, Defense, REITs and Transportation.

It’s a huge plus to have banks rearing their head.

But it appeared Tech names weren’t invited to the party.

As the price action on the Tech indexes, $NDX and $DJUSTC, continues to wind up in a narrow range, we’re likely to see a strong move develop either way.

Periods of low volatility are followed by periods of high volatility.

Should tech crumble, it’s likely to provide less Growth Stock trading opportunities.

This market is favoring Consumer Staples over the Cyclicals, which means money is going towards safer, less risky issues. The things people always need like food, and not the more speculative things like trendy tech fashions is the difference here.

On a bearish note, we are not seeing a healthy number of new highs being made. Markets that don’t produce strong numbers of individual new highs in step with the averages are telling us things aren’t as great as they appear.

We’re also keeping a tight watch on Homebuilders.

Should the market head south it will need a sector to lead the action. This has been the market’s weakness, and is a likely candidate.

Technically speaking:

The Dow Industrial Average
($INDU), +3.29%, pulled back into the base it launched from last week and left a bullish tail.

The S&P 500
($SPX), +1.96%, came within kissing distance to a new high as it traded mostly sideways above its major moving averages.

Nasdaq
($COMPQ), +1.17%, held a tight range for the week as price action wound itself into a triangle. Periods of low volatility often turn into periods of high volatility.

Russell 2000
($RUT), +2.81%, also held a tight range for the week as it flirted with new highs.

Volume indications gave us modest accumulation days for the major indexes, though two days of distribution for the Russell is a sign of caution.

Hi/Lo Ratio The NYSE and Nasdaq exchanges are not producing healthy numbers of highs to match what was achieved in January. An inability to produce strong numbers is a sign of weakness for this market.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The 10-year Note Yield
($tnx) remained in a tight range as it made five weeks in a row of consolidation.

The U.S. Dollar Index
($USD) was little changed as it has now retraced half the losses made since November.

The Gold Miners Index
($XAU) was little changed as it appears to remain in pullback mode since making highs three weeks ago.

The Dow Jones AIG Commodity Index
($DJAIG) was little changed as it attempts to rebound from over a two month low made last week.

Consumer Staples
($CMR) tip-toed to a new high as it creeps out of a year-long base.

Consumer Cyclicals
($CYC) lost modest ground for the week as it remains bound in a two-month range.

Technology
($DJUSTC) traded in a narrow range as it forms a triangle. To break out or break down?

The Semiconductor Index
($SOX) continued its modest slide as it flirts with the support level of the 50-day moving average.

Banks
($BKX) hit a new high for the week as it launched from a year-long base.

Broker Dealers
($XBD) hit another new high for the week.

Retail
($RLX) pulled back to its 50-day moving average as it continues to consolidate in a three-month base.

Healthcare
($HCX) flirted in year-high territory as it remains poised to come out of a base created for the last two months.

Biotech
($BTK) hit another new high.

REIT’s
($DJR) hit another new high for the week.

Homebuilders
($DJUSHB) rallied after hitting a two-month low last week.

Transportation
($TRAN) hit another new high for the week.

Airlines
($XAL) traded in a tight range as it trades just above its 50-day moving average.

Defense
($DFX) hit another new high for the week.

Energy
($IXE) rallied after hitting a six-week low last week. The index is trading on its 50-day average.

Utilities
($UTY) traded sideways in a narrow range just above its 50-day moving average.

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

  1. GOLD
  2. DRUG DELIVERY
  3. INVESTMNT BROKERAGE-NA
  4. PRINTED CIRCUIT BOARDS
  5. INVESTMNT BROKERAGE-RE
  6. NETWORKING COMMUN DVCS
  7. RAILROADS
  8. INTERNET SERVICE PROVI
  9. INDICES DOW TRANSPORTA
  10. ASSET MANAGEMENT

What Was Important About Last Week

STOCKS:

  • Medtronic (MDT) reported fiscal Q3 (Jan.) earnings of $0.55 per share, in-line with the Reuters Estimates consensus.
  • Express Scripts (ESRX) reported Q4 earnings of $0.77 per share, excluding non-recurring items, $0.03 ahead of the Reuters Estimates consensus.
  • With Q4 earnings of $0.37 per share, excluding non-recurring items, Viacom (VIA.B) checked in $0.09 below the Reuters Estimates consensus.
  • Salesforce.com (CRM) announced fiscal Q4 (Jan.) earnings of $0.05 per share, in-line with the Reuters Estimates consensus.
  • Matching analysts’ expectations, Gap (GPS) reported Q4 (Jan) earnings of $0.39 per share.
  • Marvell (MRVL) grew its bottom line 67% in Q4, reporting EPS of $0.42 which was a penny better than the consensus after backing out non-recurring items.
  • Nordstrom (JWN) reported Q4 (Jan) earnings of $0.69 per share, two cents better than the Reuters Estimates consensus of $0.67.
  • BEA Systems (BEAS) reported Q4 (Jan) earnings of $0.12 per share, excluding non-recurring items, in-line with the Reuters Estimates consensus.

ECONOMY:

  • The Consumer Price Index (CPI) rose a more-than-expected 0.7% in January following a 0.1% decline in December. The YOY gain in the CPI accelerated to 4.0% last month from 3.4% in December.
  • New orders for durable goods fell 10.2% in January – the largest decline since July 2000. Durable goods orders are up 5.4% in the past year.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Cablevision Systems Corp. (CVC), Giant Industries(GI), Lowe’s Companies (LOW), Newmont Mining Corporation (NEM), Universal Health Services (UHS), ValueClick, Inc. (VCLK).
  • TUESDAY: Autodesk, Inc. (ADSK), BJ’s Wholesale Club (BJ), Cal Dive International (CDIS), Dynamic Materials (BOOM), Southwestern Energy (SWN).
  • WEDNESDAY: American Eagle Outfitters Inc (AEOS), AutoZone Inc. (AZO), Chico’s FAS, Inc. (CHS), PetsMart (PETM), Vivendi Universal (V), Walter Industries (WLT), William Lyon Homes (WLS).
  • THURSDAY: Costco Wholesale Corporation (COST), Del Monte Foods (DLM).
  • FRIDAY: Compania de Minas Buenaventura (BVN).

On the economic front we have potential market movers with:

  • MONDAY: New Home Sales
  • TUESDAY: Chain Deflator-Prel., GDP-Prel., Chicago PMI, Consumer Confidence, Existing Home Sales
  • WEDNESDAY: Auto Sales, Truck Sales, Personal Income, Personal Spending, Construction Spending, ISM Index, Crude Inventories
  • THURSDAY: Initial Claims
  • FRIDAY: Mich Sentiment-Rev., ISM Services

The Following Sections Are On Our Home Site:

This Week’s Word On Discipline:

“Knowing is not enough, we must apply. Willing is not enough, we must do.” – Johann Wolfgang von Goethe

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