A Bull Until Otherwise


i’m just a spook in the wheel
just a part of the puzzle
— Circle Jerks “Deny Everything”

Market 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


Where We Are:

Taking a look at the broader market:

The Bull makes progress as an increasing number of pundits denounce its strength.

We’d be more concerned if the crowd were confident about new highs ticking in daily.

However, recent distribution in the major indexes raises some caution. Should the Nasdaq put in a heavy downside day this week it will be bear some significance.

Despite the Russell 2K demonstrating relative weakness, it’s uptrend not technically corrupted.

Though May tends to be a poor month for equities, we’d never trade off that unless it we’re backed by our indicators.

This is a Bull until proven otherwise.

Technically speaking:

The Dow Industrial Average

($INDU), +2.3%, tip-toed to a new high.

The S&P 500

($SPX), +1.4%, also eased higher.


($COMPQ), +1.8%, proved itself to be as popular as the Dow and S&P 500.

Russell 2000

($RUT), +0.5%, shows relative weakness in failing to make a new high.

Volume indications for the week exhibited bearishness. The Dow notched in a day of distribution and showed the Bulls loosing steam as new highs were backed with lower volume. The S&P 500 posted a solid day of distribution, and the Nasdqaq posted one heavy day of distribution with two modest days of accumulation.

Key chart action for the week:

Charts courtesy of Stockcharts.com

The U.S. Dolar Index ($DXC) rallied modestly off recent lows.

The Gold & Silver Miners Index ($XAU) rallied sharply above its major moving averages.

The Consumer Index ($CMR) and The Cyclical Index ($CYC) easily hit new highs.

The Technology Index ($DJUSTC) hit a new high.

The Semiconductor ($SOX) just about matched last week’s high.

The Software Index ($GSO) shows relative weakness in failing to make a new high.

Telecom Index ($XTC) maintains dominance with another high.

The Banking Index ($BKX) mostly consolidated for the week as its industry groups scored poorly in the 52-week relative strength rankings.

The Broker Dealer Index ($XBD) charged to last winter’s high. No technically sound base poses a warning to buyers.

The Retail Index ($RLX) failed to make a new highs as it struggles above its 50-day MA.

The Healthcare Index ($HCX) eased to a new high.

Biotechnology Index ($BKX) pulled back modestly. No new high.

Pharmaceutical Index ($DRG) pulled back modestly before resuming an uptrend late week.

The REIT Index ($DJR) consolidated for another week below the 50-day MA.

The Transportation Index ($TRAN) put in a rally toward the end of the week, but no new high.

The Airline Index ($XAL) rallies modestly off recent lows.

The Defense Index ($DFX) hit a new high.

The Energy Index ($IXE) hit a new high.

What Was Important About Last Week


  • Applebee’s (APPB) reported Q1 (Mar) earnings of $0.36 per share, excluding non-recurring items, $0.03 better than the Reuters Estimates consensus of $0.33. Revenues fell 0.3% year/year to $337.6 mln (consensus $351.6 mln). March comparable sales fell 2.7%, compared to street estimates for -1.3%; April comparable sales fell 0.7%, compared to street estimates for -1.1%.
  • Yum! Brands(YUM) reported Q1 (Mar) earnings of $0.70 per share, $0.06 better than the Reuters Estimates consensus of $0.64. Revenues rose 6.6% year/year to $2.22 bln vs. the $2.15 bln consensus; Q1 blended same store sales fell 3.0%. Co issued in-line guidance for FY07, sees EPS of $3.23 up from prior guidance of $3.21 (consensus $3.23).
  • Chipotle Mexican Grill (CMG) reported Q1 (Mar) earnings of $0.38 per share, $0.06 better than the Reuters Estimates consensus of $0.32. Revenues rose 26.3% year/year to $236.1 mln vs. the $227.9 mln consensus. Comparable restaurant sales increased 8.3%, compared to 19.7% in the prior year period. Co sees FY07 comparable restaurant sales increases in the mid- to high-single digits.
  • Starbucks (SBUX) posted an 18% year/year rise in Q2 (Mar) earnings of $0.19 per share, in line with the Reuters Estimates consensus of $0.19. Revenues rose 19.6% year/year to $2.25 bln (consensus $2.3 bln); same-store sales rose 4.0% vs. Briefing.com Benchmark consensus of +4.3%. Co reaffirmed guidance for FY07, sees EPS of $0.87-0.89 (consensus $0.89), and reiterated 20% revenue growth.


  • Non-farm payrolls increased 88,000 in April. Revisions to February and March subtracted 26,000 from payroll growth. Combined, payrolls in April were 62,000 higher than reported a month ago. The consensus expected gain was 100,000. Sectors performing well in April included education and health (+53,000), professional and business services (+24,000), leisure and hospitality (+22,000) – particularly restaurants and bars (+25,000) – and government (+25,000). Manufacturing payrolls shrunk by 19,000 in April. Construction payrolls dropped by 11,000 after last month’s surprising 50,000 gain. Residential construction payrolls contracted by 4,000; non-residential by 6,000. Retail payrolls declined by 26,000, with all the drop attributable to general merchandise stores.
  • The unemployment rate ticked up to 4.5%. Un-rounded, the rate was 4.457%.
  • Average hourly earnings increased 0.2% and are up 3.7% versus a year ago, still consistent with nominal wage gains in the late 1990s.
  • The ISM non-manufacturing business barometer (a measure of production growth in the services sector) increased to 56.0 in April from 52.4 in March. The consensus expected a smaller gain to 53.0. (Readings above 50 signal expansion.)
  • The new orders index increased to 55.5 in April, the highest level in three months, from 53.8 in March. The employment component rose to 51.9 from 50.8. The prices paid component ticked up to 63.5, the highest level in eight months.
  • The ISM Manufacturing index increased to 54.7 in April from 50.9 in March. The consensus expected a slight gain to 51.0. (Readings higher than 50 signal expansion.)
    The activity-related components of the index showed widespread strength. The index for production rose to 57.3, the highest in twelve months; the index for new orders jumped to 58.5, the highest in fourteen months; the employment index increased to 53.1, the highest in eight months; the orders backlog index went to 54.5, highest in twelve months; and the new export orders measure rose to 57.0, the highest in six months. The prices paid index increased to 73.0 from 65.5, the fourth consecutive rise, indicating rising inflation in the manufacturing sector.
  • Non-farm productivity (output per hour) increased at a 1.7% annual rate in the first quarter, versus a consensus expectation of 0.7%.
  • Non-farm productivity in the fourth quarter was revised up to 2.1% from 1.7% and is up 1.1% from a year ago. Real (inflation-adjusted) compensation per hour in the non-farm sector declined at a 1.5% annual rate in the first quarter, a combination of a nominal gain of 2.3% and a 3.8% annualized increase in the consumer price index (CPI).
  • Unit labor costs – the gap between compensation and output – increased at a 0.6% rate in Q1, much less than the consensus expected gain of 3.8%.In the manufacturing sector, first quarter growth rates for productivity (2.7%), compensation (5.5%), and unit labor costs (2.7%) were all higher than for the non-farm sector as a whole.

What We’re Looking For This Week

Key earnings releases:

  • MONDAY: Flamel Technologies (FLML), Fluor Corporation (FLR), Guitar Center (GTRC), j2 Global Communications (JCOM), Kinross Gold (KGC)
  • TUESDAY: Cisco Systems (CSCO), Duke Energy Corporation (DUK), Holly (HOC), Macrovision (MVSN), Priceline.com (PCLN), Randgold Resources Limited (GOLD), Tyco International (TYC), Walt Disney (DIS), Youbet.com (UBET).
  • WEDNESDAY: Barr Pharmaceuticals, Inc. (BRL), Toll Brothers (TOL), Whole Foods Market (WFMI)
  • THURSDAY: Biovail Corporation (BVF), California Pizza Kitchen (CPKI), EchoStar Communications Corp. (DISH), King Pharmaceuticals (KG), THQ Inc (THQI), Urban Outfitters (URBN), webMethods, Inc. (WEBM)
  • FRIDAY: Goldcorp (GG), Petrobras (PBR)

On the economic front we have potential market movers with:

  • MONDAY: Consumer Credit,
  • TUESDAY: Wholesale Inventories,
  • WEDNESDAY: Crude Inventories, FOMC policy statement
  • THURSDAY: Export Prices ex-ag., Import Prices ex-oil, Initial Claims, Trade Balance, Treasury Budget,
  • FRIDAY: Core PPI, PPI, Retail Sales, Retail Sales ex-auto, Core PPI, Business Inventories

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This Week’s Word On Discipline:

“Lack of discipline leads to frustration and self-loathing.” – Marie Chapian