- 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:
Our analysis has been like a broken record since the market broke out in September – but it’s no reason to get creative.
As complicated as the market is, we find it’s simplicity that keeps us sane.
The Dow has rallied for five straight weeks. Friday’s distribution day is the second in as many weeks, an possibly the first step to a correction that will happen sooner or later.
On the news front, over 70% of companies are reporting above Wall Street forecasts, with aggregate operating earnings gain up 18% to 19%. This is well above expectations.
Perhaps of most interest is the record short interest on the NYSE. We’re not so sure what to think of this other than the fact that the market has a tendency of finding a way to burn the most amount of people.
Gauging the volume and ferocity of a pullback will be critical in diagnosing the health of this bull leg.
Looking at key sector action:
The Technology sector was cool for the second week in a row as it shied from year-highs. Semiconductors represent primary weakness here, as Software and Telecoms represent the strength.
Broker-Dealers, Defense and Biotechnology are cocked in bullish cup-and-handle patterns.
Airlines are poised to launch out of a lower-base.
Energy moves of its low of the year.
REITs, Retail, Healthcare and Utilities continue to hit new highs.
The Dow Industrial Average
($INDU), 0.7 %, refuses to alter its up trajectory since breaking out five weeks ago.
The S&P 500
($SPX), 0.6 %, remains trend-up with the Dow.
($COMPQ), 0.4 %, came close to yearly highs before inching off.
($RUT), 0.5 %, possesses lower relative strength to its index peer as it has yet to hit a year high in this bull leg.
Volume indications the last two weeks the Dow notched in three distribution days to two accumulation days, though across the major indexes, buying has weighed in heavier than sellers.
Key chart action for the week:
Charts courtesy of Stockcharts.com
The top 10 industry groups from the 6 month RS screen are:
- TOYS GAMES
- REIT HEALTHCARE FACILI
- PACKAGING CONTAINERS
- LONG-TERM CARE FACILIT
- DISCOUNT VARIETY STORE
- CATV SYSTEMS
- REIT – DIVERSIFIED
- HEALTH CARE PLANS
- REIT – RESIDENTIAL
What Was Important About Last Week
- Amazon.com (AMZN) reported Q3 (Sep) earnings of $0.05 per share, $0.02 better than the Reuters Estimates consensus of $0.03. Revenues rose 24.0% year/year to $2.31 bln vs. the $2.25 bln consensus.
- Symantec(SYMC) reported Q2 (Sep) earnings of $0.26 per share, $0.01 worse than the First Call consensus of $0.27. Revenues rose 7.0% year/year to $1.28 bln vs. the $1.29 bln consensus.
- Microchip Technology (MCHP) reported Q2 (Sep) earnings of $0.36 per share, in line with the Reuters Estimates consensus of $0.36. Revenues rose 17.9% year/year to $267.9 mln vs. the $269.7 mln consensus.
- Logic (LSI) reported Q3 (Sep) earnings of $0.16 per share, $0.07 better than the Reuters Estimates consensus of $0.09. Total revenues rose 2.3% year/year to $493 mln vs. the $489.4 mln consensus.
- Analog Devices (ADI) guided Q4 revenues to the range of $640-$645 mln (consensus $667 mln), which is approximately 3% below 3Q06 revenue of $663.7 mln.
- Centex (CTX) reported Q2 (Sep) earnings of $0.70 per share, $0.01 worse than the Reuters Estimates consensus of $0.71. Revenues fell 3.0% year/year to $3.32 bln vs. the $3.33 bln consensus.
- Texas Instruments (TXN) reported Q3 (Sep) earnings of $0.45 per share, in line with the Reuters Estimates consensus of $0.45. Revenues rose 1.7% year/year to $3.76 bln vs. the $3.8 bln consensus.
- Amgen (AMGN) reported Q3 (Sep) earnings of $1.04 per share, $0.06 better than the Reuters Estimates consensus of $0.98. Revenues rose 14.5% year/year to $3.61 bln (consensus $3.62 bln).
- Kraft Foods (KFT) reported Q3 (Sep) earnings of $0.46 per share, a penny better than the Reuters Estimates consensus of $0.45. Revenues rose 2.3% year/year to $8.24 bln vs. the $8.26 bln consensus.
- Real GDP increased 1.6% in Q3, following a 2.6% annualized growth rate in Q2. The GDP chain-weighted price index increased an annualized 1.8% in Q3. Nominal GDP (or aggregate demand) rose an annualized 3.4% in Q3. This is the slowest real and nominal GDP growth since Q4 2002. In the past year, real GDP is up 2.9% and nominal GDP is up 5.8%.
- New single-family home sales rose 5.3% in September, to 1.07 million units at an annual rate, the 2nd consecutive monthly increase, and a sign that the housing market is stabilizing.
- The median price of a new home fell to a non-seasonally adjusted $217,000 in September – 9.7% lower than a year ago. This is the largest YOY decline in median sales price since 1970. At the current sales pace, the supply of unsold new homes fell to 6.4 months in September versus 6.8 months in August. From 1970-2000 the inventory of new homes for sale averaged 6.4 months.
- New orders for durable goods up 7.8% in September, completely reversing negative growth in July and August. New orders are up 14.1% in the past year.
- Transportation orders rose 27.6% in September, thanks to a 183.2% increase in non-defense aircraft orders. Excluding transportation, new orders rose 0.1% in September. New orders excluding transportation are up 6.2% in the past year.
- Shipments of durable goods were down 2.8% in September but YOY growth was up 4.2%. Shipments of non-defense capital goods, ex aircraft (a proxy for business CAPEX) fell 2.1% in September, but were up 5.6% at an annualized rate in Q3.
What We’re Looking For This Week
Key earnings releases:
- MONDAY: Anglogold Ashanti Limited (AU), BlackRock, Inc. (BLK), Verizon (VZ).
- TUESDAY: DreamWorks Animation SKG, Inc. (DWA), Eagle Materials Inc. (EXP), Eastman Kodak Company (EK), InterActiveCorp (IACI), Jones Lang LaSalle (JLL), Marathon Oil Corporation (MRO), UBS (UBS), Valero Energy Corp. (VLO)
- WEDNESDAY: Baidu (BIDU), Burger King (BK), Garmin Ltd. (GRMN), Time Warner Inc. (TWX)
- THURSDAY: Blockbuster Inc. (BBI), Computer Sciences Corporation (CSC), Electronic Arts (ERTS), MGM MIRAGE (MGM), Public Storage (PSA), Whole Foods Market (WFMI).
- FRIDAY: THQ Inc (THQI).
On the economic front we have potential market movers with:
- MONDAY: Personal Income, Personal Spending
- TUESDAY: Employment Cost Index, Chicago PMI, Consumer Confidence
- WEDNESDAY: Auto Sales, Truck Sales, Construction Spending, ISM Index, Crude Inventories
- THURSDAY: Initial Claims, Productivity-Prel, Factory Orders
- FRIDAY: Nonfarm Payrolls, Unemployment Rate, Hourly Earnings, Average Workweek, ISM Services
- 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:
“Practice yourself, for heaven’s sake in little things, and then proceed to greater.” – Epictetus