Our current position:
Buyer’s 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 overall markets:
This past week was a good one if you were a bull.
With seven straight days of gains, the S&P 500 hit a 4-year high, nearly every sector participated, news on the economy couldn’t be better, and earnings reports didn’t pull many surprises. Not much to complain about.
And after careful consideration we raised the Green Flag. The only catch is we se NOTHING to buy.
Our strategy is centered around setups in individual names, not the overall market. As much we put into speculating on the direction of the overall market, we know it’s a tough game to play.
We gauge overall market strength to let us know how friendly an environment it is for stocks meeting our fundamental and technical requirements. Ideally, we want to see continued market strength pave the way for future setups.
We no institutional support marked for technology issues. This is a a crucial and major step for us to have conviction for this environment.
Semiconductor industry groups now hold places in the top-five slots of 6-month relative strength.
The Banks are also showing technical improvement.
Leadership continues from Energy, Real Estate, Homebuilders, and Broker Dealers. This focus doesn’t get us terribly excited about things, but it’s where we’re making money.
Going into the new week we have strong indication that a pullback of some sort is in order.
The Russell 2000 blazed the way for breakouts, and it could also lead us down as it posted a bearish candlestick on the weekly chart.
We also have bearish divergence from the New Highs – New Lows Line, as well as the Advance Decline Line.
Pullbacks are watched for evidence of distribution. If we see a predominance of sellers we’re likely to hoist the Yellow Flag back up.
We also continue to have bearish signals from Investors Intelligence and the Volatility Index. These are contrarian indicators that hold their water, yet are difficult to time.
Some argue that the VIX doesn’t work anymore. This case may be made from looking at the past year, though looking over the past 12 years it can be seen that historical levels are indeed in play. Without any explanation of any inherent changes in the volatility of CBOE OEX options trading, we’re not so quick to dismiss it.
Our game plan for the week is to manage current positions while waiting to see what transpires in the way of new setups.
All of the major indexes are above their 50 and 200-day moving averages, and from a trend stand point, are looking the strongest they have all year.
The Dow Industrial Average ($INDU), +1.83%, is technically the weakest of the major indexes as it faces overhead resistance in its path for new highs for the year.
The S&P 500 ($SPX), +1.33%, hit a new 4-year high while closing strong.
The Nasdaq ($COMPQ), +2.08%, is less than 35 points away from a new 4-year high.
The Russell 2000 ($RUT), +0.24%, continued its push into new high territory before closing at the at the bottom of its weekly range to form a bearish chart candle.
The Volume situation is highlighted by two days of accumulation a piece for the Dow, S&P 500, and Nasdaq.
New Highs hit record levels for the year, though the Highs – Lows line is currently showing bearish divergence.
The Advance/Decline Line is also showing bearish divergence.
Investors Intelligence continues to show a significant number of bullish avisors to bearish advisors. This contrarian indicator is bearish, as the majority usually get it wrong.
Key chart action for the week:
Charts courtesy of Stockcharts.com
Consumer Staples ($CMR) and Consumer Cyclicals ($CYC) performed well for the week, with the staples now showing a slight lrelativeealtive strength. Both indexes remain within trading ranges for the year.
The Semiconductor Index ($SOX) almos broke outrokeout to a new 52-week high.
Banks ($BKX) smashed an eight week trading range, and rests less than 3 points from a new high.
Broker Dealers ($XBD) maintainstrengthtrenght for the seventh straight week.
Retail ($RLX) just broke outrokeout to a new high.
Internet ($IIX) had a positive week, though was not able to take out last month’s high.
Computer Technology ($XCI) broke through a long-term bearish trendline.
Healthcare ($HCX) continues to trade just shy of new highs.
Biotech ($BTK) had another big week and is approaching its 4-year high.
REIT’s ($DJR) lost ground for the week, though remains trend up.
Homebuilders ($DJUSHB) were strong as a new high was notched in.
Transportation ($TRAN) despite gains on the week, the sector remains in a bearish teconditionndidtion, though is not a short candidate.
Airlines ($XAL) continued to bounce off a major trendline. We still see the potential for a cyclical move higher due to the sewillingnessingness to shake negative news and chart opportunity.
Defense ($DFX) marched to another new high.
Basis Materials ($A1BSC) continues to trade in a bearish holding pattern.
Energy ($IXE) just barely made a new high. We are seeing profit taking in individual names.
Utilities ($UTY) hit another new high, though closed at the bottom of its range for the week.
The top 10 industry groups from the 6 month RS screen are:
- GROCERY STORES
- SEMICONDUCTOR-BROAD LI
- SEMICONDUCTOR EQUIP MA
- INTERNET INFO PROVIDER
- DATA STORAGE DEVICES
- TECHNICAL SERVICES
- DEPARTMENT STORES
- INTERNET SERVICE PROVI
What Was Important About Last Week
General Electric (GE) said that had a 24% increase in earnings for its second quarter as revenue rose 13%. However, the company guided lower for the rest of the year.
DreamWorks (DWA) reported it expects to lose money for the quarter, and for the year it expects to earn between 80 and 90 cents a share, well below Wall Street’s expectations of $1.39.
Genentech (DNA) reported making 30 cents a share exfor the forthe second quarter, which is a 58% increase from last year, and 4 cents above the consensus estimate.
Ameritrade (AMTD) reported third quarter earnings were up 20% from a year ago as it met Wall Street expectations. Trading volume was down, though revenue was higher higher due partly to higher interest income from customer loans.
Apple (AAPL) said its third qearningsrrnings hit a company-record of $320 million, which is more than five times higher than last year’s performance. The results were .37 a share, and .06 ahead of Wall Street expectations.
Southwest Airlines (LUV) reported a 41% increase in net income for the second quarter as it blew past Wall Street estimates.
United Health (UNH) announced earnings of 61 cents a share for the second-quarter, up 30% and a .01 above an analyst consensus.
The U.S. trade deficit fell by 2.7% in May as exports were up 0.1% and imports fell 0.9%. This was a surprise to economists.
Core consumer prices rose 0.1% in June.
Core producer prices dropped 0.1%.
Industry output increased 0.9% for the best gain in over a year as it smashed economists expectations.
Capacity utilization rose 80% for its highest level since December of 2000.
The Empire Manufacturing Index came in at its highest level for the year.
Retail sales were up 1.7%, beating expectations of 1%.
Initial jobless claims rose by 16,000 to a seasonally adjusted level of 336,000.
What We Are Watching For This Week:
Key earnings releases:
- MONDAY: 3M Company (MMM), Bank of America Corporation, (BAC), Steel Dynamics (STLD).
- TUESDAY: American Home Mortgage Investment Corp. (AHM), Amgen (AMGN), Check Point Software Technologies (CHKP), Ford Motor Company (F), Gilead Sciences (GILD), Intel Corporation (INTC), Johnson & Johnson (JNJ), Kraft Foods (KFT), Motorola Inc. (MOT), Novellus Systems, Inc. (NVLS), RadioShack Corporation (RSH), Steel Technologies (STTX), The Cheesecake Factory (CHK), TRAVELZOO INC (TZOO), Wells Fargo & Company (WFC), Yahoo, Inc. (YHOO).
- WEDNESDAY: AT&T (T), Capital One Financial Corp. (COF), E*TRADE Financial Corp. (ET), Eastman Kodak Company (EK), eBay (eBay), General Dynamics (GD), General Motors Corp. (GM), Honeywell (HON), J.P. Morgan Chase & Co (JPM), Macromedia (MACR), Pfizer (PFE), Ryland Group (RYL), United Technologies (UTX).
- THURSDAY: Caterpillar Inc. (CAT), D.R. Horton (DHI), DELTA AIR LINES INC DEL (DAL), Google (GOOG), Illinois Tool Works Inc. (ITW), MedImmune (MEDI), Merck & Co., Inc. (MRK), Microsoft (MSFT), Nextel Communications (NXTL), Nokia (NOK), Nucor (NUE), Reliance Steel (RS), SBC Communications (SBC), Schering-Plough (SGP), The Coca-Cola Company (KO), TriQuint Semiconductor (TQNT), Union Pacific (UNP), Vitesse Semiconductor (VTSS), Xilinx, Inc. (XLNX).
- FRIDAY: Halliburton Company (HAL), Schlumberger (SLB), Silicon Laboratories Inc. (SLAB).
On the economic front we have potential market movers with:
- MONDAY: none
- TUESDAY: Building Permits, Housing Starts
- WEDNESDAY: none
- THURSDAY: Initial Claims, Leading Indicators, Philadelphia Fed, FOMC Minutes
This Week’s Word On Discipline:
“Your own mind is a sacred enclosure into which nothing harmful can enter except by your promotion.” —Ralph Waldo Emerson