Yeah, we have seen it a thousand times.
Is it so sweet to the taste, this load of junk?
— Uncle Ho , Solid
- 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 overall markets:
Events over the past week have sparked a “hell yeah” response from traders.
Whenever the market rallies on a rate hike and weak employment report – it sends the signal that market players don’t care about bad news.
Recent strength in the Technology sector is most encouraging – we love to see leadership from this speculative industry.
A breakout from the Transportation sector is another key event.
There is also leadership in Biotech taking form.
In looking at the nature of markets from a historical perspective, Healthcare and Biotech issues tend to do better in a weak economy. If this is where we’re heading, we expect to see a stronger trend established here.
We’re not so quick to raise the Green Flag because we still need to see technical barriers in the Dow Average and Banking sector overcome.
A major area of concern is Bonds – which have been crumbling for the past two months. A collapse would send a very bad message for the U.S. economy, and the equities market would no doubt suffer.
This is a stock pickers market. Trends may very well be short lived in response to conflicting signals.
We continue to cautiously stalk opportunity, and lock in profits as they come.
The Dow Industrial Average ($INDU), +1.23%, broke north of its major moving averages, though remains in a bearish head and shoulders pattern. A breakout above 10720 will likely trigger short covering.
The S&P 500 ($SPX), +1.16%, traded above its major moving averages as the third low in an upward trend becomes more discernable.
Nasdaq ($COMPQ), +3.81%, blasted above its major moving averages and is poised to head into new high territory for the year.
Russell 2000 ($RUT), +3.59%, is trading above its major moving averages and is also poised for new yearly highs.
Volume indications continued to pack in evidence to suggest recent broader market lows are supported by institutional money.
New Highs – New Lows continued to improve, and is presently in neutral territory after coming off the lows of the year.
Investors Intelligence the number of bullish money managers over bearish money managers improved. This contrarians’ indicator has been bullish for the majority of the year.
Key chart action for the week:
Charts courtesy of Stockcharts.com
The 20+-year Note Holdr (TLT) tumbled for the week, and may be an area of concern for the equities market should weakness endure.
The U.S. Dollar Index ($USD) broke out four month base.
The Gold Miners Index ($XAU) consolidated for the week, though are in trouble if the Dollar Index picks up upside traction.
The Dow Jones AIG Commodity Index ($DJAIG) slipped further below its 50-day moving average.
Technology ($DJUSTC) is poised to breakout of two year long base – which if successful would be a strong signal for the broader market.
The Semiconductor Index ($SOX) posted an impressive move off its recent lows, though remains below its 50-day moving average.
Banks ($BKX) are now trading above its major moving averages, though still possess a bearish head and shoulders technical pattern.
Broker Dealers ($XBD) hit a fresh high for the year.
Retail ($RLX) is trading above its major moving averages, though is technically neutral as far as pattern is concerned.
Internet ($IIX) is trading above its major moving averages and is closing in on new high for the year.
Healthcare ($HCX) is trading below all its major moving averages and is not offering much bias insofar as chart pattern.
Biotech ($BTK) hit a new high for the year.
REIT’s ($DJR) are sandwiched between major moving averages and are showing little signs of life.
Homebuilders ($DJUSHB) are also sandwiched between major moving averages and are showing little signs of life.
Transportation ($TRAN) broke out to new highs – a very strong sign for the broader market.
Airlines ($XAL) moved above a very key trendline. We’re looking at a potential cyclical low in place.
Defense ($DFX) remains range bound in a five month base.
Energy ($IXE) has been inching higher. We suspect consolidation may be in order after falling from its year highs. However, Oil Services hit new highs for the year – clearly strength has not been completely sapped from the sector, though it remains suspect.
Utilities ($UTY) are sandwiched between its major moving averages.
The top 10 industry groups from the 6 month RS screen are:
- SEMICONDUCTR-MEMORY CH
- DRUGS – GENERIC
- STAFFING OUTSOURCING S
- PRINTED CIRCUIT BOARDS
- SEMICONDUCTOR EQUIP MA
- INVESTMNT BROKERAGE-NA
- NETWORKING COMMUN DVCS
- INVESTMNT BROKERAGE-RE
- HEAVY CONSTRUCTION
What Was Important About Last Week
- Time Warner (TWX) posted third-quarter profits up 80% from a year ago, beating Wall Street forecasts.
- Valero Energy (VLO) reported quarterly profit almost double from a year ago as it beat Wall Street forecasts.
- Procter & Gamble (PG) announced earnings up 4% from a year ago.
- GM (GM) and Ford (F) each said their U.S. sales in October fell 26% from a year ago.
- Fed policy makers raised their target for the federal funds rate to 4%.
- Nonfarm payrolls grew by 56,000 jobs in October, this is half what economists expected.
- Federal Reserve Chairman Alan Greenspan said the U.S. economy was in
good shape, but warned of growing inflation risks.
- The ISM’s factory index posted its second-highest level of the year to mark 29th-straight increases.
- S&P 500 earnings, so far, are up 16.1% from a year ago – beating expectations. According to Thomson Financial, The
third quarter was the ninth straight quarter of double-digit profit
growth, a streak matched only three other times in the past 55 years, in
1972-74, 1987-89 and 1992-95.
Key earnings releases:
- MONDAY: El Paso Corp. (EP), Netease.com Inc (NTES), Ryanair Holdings (RYAAY).
- TUESDAY: Alcan Inc. (AL), Blockbuster Inc. (BBI), EchoStar Communications Corp. (DISH), LAMAR ADVERTISING CO (LAMR), Toll Brothers (TOL).
- WEDNESDAY: King Pharmaceuticals (KG), Mittal Steel Company (MT), Swift Energy (SFY), Taro Pharmaceutical Industries (TARO), Whole Foods Market (WFMI).
- THURSDAY: Dell, Inc. (DELL), DreamWorks Animation SKG, Inc. (DWA), Kohl’s (KSS), Target Corporation (TGT).
- FRIDAY: none
On the economic front we have potential market movers with:
- MONDAY: Consumer Credit
- TUESDAY: none
- WEDNESDAY: Wholesale Inventories, Crude Inventories
- THURSDAY: Export Prices ex-ag., Import Prices ex-oil, Initial Claims, Trade Balance, Mich Sentiment-Prel., Treasury Budget
- 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: