Though wise men at their end know dark is right,
- 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 U.S. Equities:
The market has nose-dived on Fed comments, with the Nasdaq losing more than 4% for the week, and the Russell more than 5%.
The sinking words from the Fed were simply, “some further policy tightening may yet be needed.”
The market’s reaction is based on the perception that continued rising interest rates will work against the earnings potential of companies.
The Fed also said, its policy is contingent of future economic data.
If the economy remains robust, we get higher interest rates. If the economy softens, we likely get a pause on interest rates but less earnings growth.
From a fundamental perspective it appears the market is at an inflection point of a lose-lose situation.
From a technical perspective, we’ve monitored weakness in the Hi/Lo Ratio and Nasdaq price-action for weeks, and have warned this is not an ideal environment for Growth Stocks.
When it comes to the market we put more emphasis on the technical side of things.
Incoming data on the economy can turn things any which way, but it’s always our charts and inter-market relations that illuminate reality.
The key question we face now is this a pullback or a longer-term top?
The answer may become clear as we monitor the degree of selling vs. buying in the coming sessions. Pullbacks will occur on lighter downside volume. Tops usually come with institutional grade selling with four or more distribution days in a three week period.
The Dow and Russell currently have four distribution days booked past three weeks.
We also want to watch how individual sectors hold up. We always like to see Technology lead things. Technology has so far led us lower.
Just as markets have a tendency to suck in buyers at the top, they suck in sellers at the bottom. Perhaps we won’t see upside until the market can shakes loose some hands.
The Dow Industrial Average
($INDU), -1.7 %, remains above its upward trending major moving averages.
The S&P 500
($SPX), -2.6 %, closed below its 50-day moving average and at the bottom of an upward trending channel.
($COMPQ), -4.2 %, hit a new low for the year, closing well below its 50-day moving average.
($RUT), -5.0 %, closed below its 50-day moving average and an upward trending channel.
Volume indications for the week were decidedly bearish after two days of distribution a piece on the Dow, Russell and Nasdaq. For the past three weeks the scale is now tilted to the bears.
The Hi/Lo Ratio for the NYSE and Nasdaq were slammed to new lows for the year. Bearish divergence for this ratio against the market was a precursor to this for a couple months.
Key chart action for the week:
Charts courtesy of Stockcharts.com
*Major moving averages are the 50 and 200 day simple moving averages.
The 10-year Note Yield
($tnx) ticked to a new high for the year.
The U.S. Dollar Index
($USD) continues its slide below the major moving averages.
The Gold Miners Index
($XAU) posted a loss as it trades well above its major averages.
The Dow Jones AIG Commodity Index
($DJAIG) broke north of a cup-and-handle pattern.
($CMR) just barely poked to a new high before closing out with a loss on the week.
($CYC) hit a new high before closing retreating for a loss on the week.
($DJUSTC) dropped off to below its 200-day moving average.
The Semiconductor Index
($SOX) sold off to close on its 200-day moving average.
($BKX) pulled back as they continue to trade above the major moving averages.
($XBD) hit a two month low.
($RLX) closed below its 50-day average and an upward trending channel line.
($HCX) continued its slide below the major moving averages.
($BTK) drifted below its major moving averages, closing in on the year’s low.
($DJR) turned south from its 50-day moving average as the index holds a six-month range.
($DJUSHB) slipped further below their major moving averages.
($TRAN) hit a new high before pulling back to close with a loss above its major moving averages.
($XAL) retreated to the 200-day average after finding resistance at the 50-day average.
($DFX) sold off to its 50-day average.
($IXE) hit a new high before retreating to close below last week’s low.
($UTY) closed below its major moving averages.
The top 10 industry groups from the 6 month RS screen are:
- INTERNET SERVICE PROVI
- INDUSTRIAL METALS MINE
- STEEL IRON
- BASIC MATERIALS WHOLES
- INDUSTRIAL EQUIP WHOLE
- FARM CONSTRUCTION MACH
- PRINTED CIRCUIT BOARDS
- OIL GAS EQUIPMENT SVCS
What Was Important About Last Week
- Dell Computer (DELL) , the world’s largest PC maker, lowered Q1 forecasts as reduced pricing cut into revenue growth.
- Walt Disney (DIS) reported Q2 (Mar) earnings of $0.37 per share, six cents better than the Reuters Estimates consensus of $0.31. Total revenues rose 2.5% year/year to $8.03 bln vs. the $8.19 bln consensus.
- Kohl’s (KSS) beat analysts’ expectations by two cents, reporting Q1 (Apr) earnings of $0.48 per share. Total revenues rose 16.1% year/year to $3.18 bln vs. the $3.17 bln consensus.
- Expedia (EXPE) reported Q1 (Mar) earnings of $0.15 per share, six cents worse than the Reuters Estimates consensus of $0.21. Total evenues rose 1.8% year/year to $493.9 mln, also missing expectations (consensus $544.4 mln).
- JC Penney (JCP) beat expectations in the first quarter, also raised its Q2 and full year guidance.
- American International Group (AIG) Q1 (Mar) earnings of $1.21 per share, $0.15 worse than the Reuters Estimates consensus of $1.36. Total revenues rose 0.2% year/year to $27.26 bln vs. the $0 bln consensus.
- The Federal Open Market Committee increased the fed funds rate 25 bps to 5.0%. This is the 16th consecutive 25 bps rate hike by the Fed.
- Retail sales rose 0.5% in April, below consensus estimates of a 0.8% gain. Retail sales are up 9.0% at an annual rate in the past six months and 6.6% in the past year.
- Auto sales fell 0.4% in April versus a 1.0% increase in March. Excluding autos, retail sales rose 0.7% last month and 8.6% in the past year.
- Gasoline service station sales jumped 4.6% in April but just an annualized 2.3% in the past six months. Retail sales excluding autos and gasoline rose 0.2% in April and 7.4% in the past year.
- Import prices jumped 2.1% in April, the largest increase in the past 13 months. Excluding an 11.5% surge in petroleum prices, import prices were flat last month. Excluding all fuels (which includes natural gas), import prices rose 0.1% in April.
- Export prices increased 0.6% in April versus a 0.2% increase in March. Non-agricultural prices increased 0.7% last month. A 1.9% increase in industrial supplies and materials prices and a 0.4% gain in capital goods accounted for much of the increase in non-agricultural prices. In the past year, non-agricultural export prices have risen 2.5%.
What We’re Looking For This Week
Key earnings releases:
- MONDAY: Agilent Technologies Inc. (A), Goldcorp (GG).
- TUESDAY: Abercrombie & Fitch Co. (ANF), American Eagle Outfitters Inc (AEOS), Applied Materials (AMAT), BJ’s Wholesale Club (BJ), Deere & Company (DE), Hewlett-Packard (HPQ), Netease.com Inc (NTES), Staples, Inc. (SPLS), Wal-Mart Stores Inc. (WMT).
- WEDNESDAY: BEA Systems (BEAS), Hot Topic (HOTT), Intuit (INTU), Men’s Wearhouse (MW), PetSmart (PETM).
- THURSDAY: Autodesk, Inc. (ADSK), Dell, Inc. (DELL), Nordstrom (JWN).
- FRIDAY: AnnTaylor Stores (ANN).
On the economic front we have potential market movers with:
- MONDAY: NY Empire State Index, Net Foreign Purchases
- TUESDAY: Building Permits, Core PPI, Housing Starts, NY Empire State Index, PPI, Capacity Utilization, Industrial Production
- WEDNESDAY: Core CPI, Crude Inventories
- THURSDAY: Initial Claims, Leading Indicators, Philadelphia Fed
- FRIDAY: none
- 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:
“There are three things extremely hard: steel, a diamond, and to know one’s self.” – Benjamin Franklin