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SELLER’ 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
Where We Are:
Taking a look at the broader market:
Broad market declines are no surprise to us.
We saw the writing on the wall with recent distribution combined with the technical vulnerability of key sectors as mentioned in last week’s commentary.
Some say it was the Treasury yield hitting 5%, others blame China – but it’s all connected.
Our analysis focuses entirely on U.S. equities. Simple price and volume analysis lets us know when things are happy or sad.
Given the summer season being a traditionally slow time for stocks, we’re not expecting much in the way of institutional buying to buoy the market.
The majority of sectors remain above their major moving averages. At this juncture we anticipate tests of these critical support levels.
Key sectors such as Energy and Telecoms show relative strength, and will be watched closely for their ability to maintain leadership.
We also expect an increase in volatility as is typical on the heels of heavy selling.
What happens next week is any one’s guess.
The market has a tendency of doing exactly what most don’t expect it to.
The last thing’ you’d expect right now is a rally.
As long as up days are sponsored by decreased volume, and down days by increased volume, we will hold our bearish bias.
The Dow Industrial Average
($INDU), -1.8%, nose-dives for the week as it looks to its 50-day SMA at 13,100 for support.
The S&P 500
($SPX), -1.9%, falls to the support of its 50-day SMA at 1,490.
($COMPQ), -1.5%, also finds support at its 50-day SMA at 2,550
($RUT), -2.1%, is a relative-strength loser as it holds its 50-day SMA at 825.
Volume indications three distribution days in a row for the Dow spells trouble. Lump in two distribution days a piece for the other major indexes and it’s a clear bearish bias.
Key chart action for the week:
Charts courtesy of Stockcharts.com
The U.S. Dollar Index ($DXC) picks up a head of steam as it closes convincingly above its 50-day SMA.
The Gold & Silver Miners Index ($XAU) plunges below its major MA’s as it holds a year-long trading range.
The Consumer Index ($CMR) retreats to its 50-day SMA while the Cyclical Index ($CYC) shows relative strength with a close clear above its 50-day SMA.
The Technology Index ($DJUSTC) shows relative strength as it holds above its 50-day SMA.
The Semiconductor ($SOX) crashes below its 50-day SMA, though pulls a reversal as it closes above it, erasing tow days of losses.
The Software Index ($GSO) finds support at its 50-day SMA.
Telecom Index ($XTC) holds its uptrend with a relatively modest decline for the week.
The Banking Index ($BKX) tries to find support at 50-day and 200-day SMA’s.
The Broker Dealer Index ($XBD) holds ground above its major SMA’s.
The Retail Index ($RLX) finds support at its 50-day SMA.
The Healthcare Index ($HCX) nose-dives to below its 50-day SMA.
Biotechnology Index ($BKX) also crashes below its 50-day SMA.
Pharmaceutical Index ($DRG) gets slaughtered as it finds support at its 200-day SMA.
The REIT Index ($DJR) struggles below its major MA’s.
The Transportation Index ($TRAN) finds support at its 50-day SMA.
The Airline Index ($XAL) consolidate below the major MA’s.
The Defense Index ($DFX) shows relative strength as it trades above its major MA’s.
The Energy Index ($IXE) also shows relative strength as it trades above its major MA’s.
What Was Important About Last Week
- National Semiconductor (NSM) reported Q4 (May) earnings of $0.28 per share, $0.05 better than the Reuters Estimates consensus of $0.23. Co issued upside guidance for Q1, sees Q1 revs up 1-4% sequentially, or roughly $460.5-474.1 mln vs. $460.98 mln consensus.
- ADC Telecommunications (ADCT) reported Q2 (Apr) earnings of $0.35 per share, excluding non-recurring items, $0.12 better than the Reuters Estimates consensus of $0.23. Revenues fell 2.4% year/year to $349.4 mln vs the $333 mln consensus. Co issued in-line guidance for FY07, sees EPS of $0.86-0.91, ex items vs. $0.86 consensus.
- Shuffle Master (SHFL) reported Q2 (Apr) GAAP earnings of $0.10 per share, may not be comparable to the Reuters Estimates consensus of $0.13. Revenues rose 3.0% year/year to $44.6 mln vs the $43.3 mln consensus.
- Guess? (GES) reported Q1 (Apr) earnings of $0.38 per share, $0.09 better than the Reuters Estimates consensus of $0.29. Revenues rose 42.3% year/year to $377.9 mln vs the $331.6 mln consensus. Co issued upside guidance for Q2, sees EPS of $0.31-0.33 vs. $0.27 consensus.
- Sigma Designs (SIGM) reported Q1 (Apr) earnings of $0.20 per share, includes multiple non-recurring items and stock based compensation expense, may not be comparable to the Reuters Estimates consensus of $0.27. Revenues rose 15.3% year/year to $36 mln vs the $34.2 mln consensus.
- Bob Evans Farms (BOBE) reported Q4 (Apr) earnings of $0.42 per share, excluding non-recurring items, $0.05 better than the Reuters Estimates consensus of $0.37. Revenues rose 5.3% year/year to $418.4 mln vs the $409.7 mln single estimate.
- Non-farm productivity (output per hour) increased at a 1.0% annual rate in the first quarter, a downward revision from the original estimate of 1.7% but equal to the consensus expectation.
- Non-farm productivity is up 1.0% versus a year ago.Real (inflation-adjusted) compensation per hour in the non-farm sector declined at a 1.0% annual rate in the first quarter, an upward revision from the previously estimated -1.5% rate.
- Unit labor costs were upwardly revised to show a 1.8% rate of increase in Q1.In the manufacturing sector, first quarter growth rates for productivity (2.4%), compensation (6.9%), and unit labor costs (4.5%) were all higher than for the non-farm sector as a whole.
- The ISM non-manufacturing business barometer (a measure of production growth in the services sector) increased to 59.7 in May, the highest level in thirteen months.
- The consensus expected a slight decline to 55.8 from 56.0 in April. (Levels above 50 signal expansion; levels below 50 signal contraction.)The new orders index increased to 57.4 in May, the highest level in eight months, from 55.5 in April.
- The employment component rose to 54.9, the highest in a year.The prices paid component rose to 66.4, the highest level in nine months.
- The trade deficit in goods and services shrunk to $58.5 billion in April from a revised $62.4 billion in March. The consensus had expected $63.5 billion.Exports increased $0.3 billion in April and were revised up by $3 billion for March.
- Exports are up 10.9% versus last year.Imports declined $3.6 billion in April after an $8.1 increase in March. Imports are up 5.0% versus last year.
- Pharmaceutical imports declined $1.2 billion in April, auto imports fell $1.0 billion and capital goods imports went down $0.6 billion (primarily due to lower imports of telecommunications equipment and computer accessories).
- The merchandise trade deficit with Mexico contracted by $1.5 billion while the deficit with China increased by $2.1 billion. However, as opposed to the overall trade figures, the country-by-country numbers are not seasonally adjusted.
What We’re Looking For This Week
Key earnings releases:
- MONDAY: Jos. A. Bank Clothiers (JOSB), Take-Two Interactive Software (TTWO),
- TUESDAY: Lehman Brothers Holdings Inc. (LEH)
- WEDNESDAY: none
- THURSDAY: Adobe Systems (ADBE), Bear Stearns (BSC), Del Monte Foods (DLM), Goldman Sachs (GS)
- FRIDAY: Winnebago (WGO)
On the economic front we have potential market movers with:
- MONDAY: none
- TUESDAY: Treasury Budget
- WEDNESDAY: Export Prices ex-ag., Import Prices ex-oil, Retail Sales, Retail Sales ex-auto, Business Inventories, Crude Inventories, Fed’s Beige Book
- THURSDAY: Core PPI, Initial Claims, PPI, Core PPI
- FRIDAY: Current Account, CPI, Net Foreign Purchases, Capacity Utilization, Industrial Production, Capacity Utilization, Mich Sentiment-Prel.
- The Growth Stock Landscape
- What We Like – What We Have
- This Week’s Scans: • SETUPS • BREAKOUTS • BASE BUILDING • SHORTS
This Week’s Word On Discipline:
“If I want to be great I have to win the victory over myself… self-discipline.”– Harry S. Truman