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:
We can come up with several good reasons why the market averages should sell off, though it’s our key indicators of price and volume that keep our green flag hoisted.
The market does not behave like a trained dog, or keep time like the clock on your computer. The market does whatever it wants, whenever it wants.
Sellers held the edge for the week, though their cause did not have much muscle behind it.
While modest losses were posted on the Dow, S&P 500, and Nasdaq, the Russell 2000 fell 2.5% as it dropped below its 20-day average.
The Russell has been acting as a leader for the past couple of months, and we’re watching it as a potential leader down. Technically this small cap index is comfortably above the base it launched from as well as its 50-day average.
Leadership from Energy remains strong, while leadership from Homebuilders and REITs took a tumble after Friday’s employment data gave cause to interest rate fears.
Tech stocks remain sluggish. While the Naz hit a new high, it failed to close strong.
Banks have deteriorated significantly. This is a clear and bad sign for the overall market.
Growth Stocks as a group failed to post a healthy number of highs, and we saw heavy distribution in Apparel Store stocks in response to a retail sales report.
It has been weeks since Growth Stocks have shown this kind of weakness.
Despite all of the negatives, the market won’t fall apart until heavy sellers push it there. These heavies are the institutions. We have no idea when or if this will occur, so we continue to go by our motto of trading what is and not what should be.
We are definitely encouraged by select Growth Stocks setting up, and will continue to trade accordingly. These situations are discussed on our home site.
Taking a look at the overall markets:
The S&P 500 ($SPX) , -o.63%, and Nasdaq ($COMPQ), -o.32%, hit fresh highs before declining to their 20-day moving averages, while The Dow Industrial Average ($INDU), -0.78%, remains technically the weakest of the major indexes as it failed to make a new high.
Russell 2000 ($RUT) , -2.50%, has been hardest hit, though remains well above its base breakout level.
Despite price declines on the major indexes, Volume Indications showed only one day of distribution on the Nasdaq, with the Dow posting two days of accumulation, and the S&P 500 having one day a piece of accumulation.
New Highs -New Lows continues to reflect weakness in the major indexes with bearish divergence.
The Advance/Decline Line held bearish divergence throughout the week.
Investors Intelligence reports an abundance of Bullish advisors over Bearish advisors. This contrarian indicator has been giving a warning sign for weeks now. While we never like to go with the crowd and have faith in the indicator, accurately timing signals from this is no science.
Meanwhile the CBOE OEX Volatility Index (VIX) has pushed off historical lows. This indicator has been bearish and stagnant for months. We suspect it will in fact correct to historical averages at some point in the future, reflecting fear and lower prices in the major indexes.
Key chart action for the week:
Charts courtesy of Stockcharts.com
The 10-year Note Holdr (TLT) continued to trend down and is parked just north of 91, which is in the area of its 200-day moving average and a trend-line.
The U.S. Dollar Index ($DXC) moved and closed below its 50-day moving average, while the Gold Miners Index ($XAU) pushed north of its 200-day moving average and a down trend-line. In the long run (months from now) we’re leaning for gold to win this classic tug of war.
The Dow Jones Commodity Index ($DJAIG) moved closer towards its March high and is poised to breakout.
Consumer Cyclicals ($CYC) held a modest edge in relative strength over the Consumer Staples ($CMR). Both indexes are set up for potential breakouts.
The Semiconductor Index ($SOX) moved higher before turning around to post a loss for the week. With the index at 471, we see the 500 level as a major decision zone where a key trend-line awaits.
Banks ($BKX) are looking ugly as the index continues to deteriorate and is trading below all of its major moving averages. A clear negative for the overall market.
Broker Dealers ($XBD) staged a second week of orderly price decline. This is a market leader and is so far showing no signs of serious trouble.
Retail ($RLX) was hammered on the heels of a poorly received sales report for the industry. The trend is still technically up, though the momentum behind the move may not be over.
Internet stocks ($IIX) poked higher for the week though remain lackluster.
Healthcare ($HCX) hit a fresh high for the week though closed in negative territory. The trend has been up over the past three weeks, but the moves are less than impressive. We currently favor healthcare stocks, though are seeing a mixed picture from individual stocks and want to be selective with them.
Pharmaceuticals ($DRG) continue to trade in a range, though the index is edging its way up in base formation which would be encouraging.
Biotech ($BTK) hit a new high and is in consolidation mode. The sector made a nice move of late, and so far it’s sticking.
REIT’s ($DJR) were pounded Friday. The index is currently trend up and at its 50-day moving average. The 50 is very important going forward. At this juncture we don’t want to be owners of REITS if the 50-day average isn’t respected. Hit and run!
Homebuilders ($DJUSHB) were also hit with heavy distribution. Just as with the REITs, we want to see how it behaves around its 50-day average.
Transportation ($TRAN) gave back recent gains, though remains poised to breakout.
Airlines ($XAL) were hit and are now trading below their 50-day average. The index continues to grind out what may later be deemed a lower base. The action here is slow.
Defense ($DFX) had a modest pullback for the week.
Energy ($IXE) charged to another new high.
Basis Materials ($A1BSC) rose slightly, with much in the way of overhead resistance to be dealt with.
Utilities ($UTY) lost ground and the index is now below its 20-day average.
The top 10 industry groups from the 6 month RS screen are:
- TECHNICAL SERVICES
- SEMICONDUCTOR EQUIP MA
- INTERNET INFO PROVIDER
- GROCERY STORES
- SEMICONDUCTOR-BROAD LI
- HEAVY CONSTRUCTION
- INTERNET SERVICE PROVI
- DATA STORAGE DEVICES
What Was Important About Last Week
- Procter & Gamble (PG) reported earnings up 9% from a year earlier as it beat Wall Street estimates by one cent. The stock declined for the week.
- Comcast (CMCSK) announced second-quarter earnings up 64% from a year ago, due in part to demand for on-demand video and high-speed Internet service.
- Unilever (UL) posted second-quarter profits down 27% from a year ago, due largely to a write-down of its SlimFast franchise.
- Nonfarm jobs were up 207,000 for July, topping economists’ forecasts.
- Hourly wages posted their biggest gain in a year.
- The jobless rate came in at 5% for its lowest reading since September of 2001.
- The price of crude oil hit a new high and closed above $62 a barrel.
- The Institute for Supply Management’s factory index rose to 56.6 in July, its second straight gain, and its highest level since December. Economists were looking for a smaller gain.
- The Commerce Department U.S. said construction activity slowed in June as home construction declined for the spring.
- Retail sales in stores open a year ago, rose 3.7% from a year ago. This was a smaller gain than expected.
- Jobless claims fell 1,000 to 312,000 in the week ended July 30. The 4-week average fell 2,250 to 316,750. This is the lowest since February, and a 4-year low.
What We Are Watching For This Week:
Key earnings releases:
- MONDAY: Cimarex Energy Co. (XEC), ENERGY PARTNERS LTD (EPL), Dynegy Inc. (DYN), Fluor Corporation (FLR), Sonus Networks (SONS), Harmony Gold Mining (HMY), LAMAR ADVERTISING CO (LAMR).
- TUESDAY: Alliance Gaming Corp. (AGI), Berry Petroleum Company (BRY), Cisco Systems (CSCO), Clear Channel Communications (CCU), Coinstar, Inc (CSTR), EchoStar Communications Corp. (DISH), King Pharmaceuticals (KG), Sun Hydraulics (SNHY), Walt Disney (DIS).
- WEDNESDAY: China Mobile (CHL), Federated Department Stores Inc. (FD).
- THURSDAY: Dell, Inc. (DELL), DreamWorks Animation SKG, Inc. (DWK), Kohl’s (KSS), RED ROBIN GOURMET BURGERS INC (RRGB), Target Corporation (TGT), Urban Outfitters (URBN).
- FRIDAY: Petrobras (PBR).
On the economic front we have potential market movers with:
- MONDAY: none
- TUESDAY: Productivity-Prel, Wholesale Inventories, FOMC policy announcement.
- WEDNESDAY: Treasury Budget
- THURSDAY: Initial Claims, Retail Sales, Retail Sales ex-auto, Business Inventories.
- FRIDAY: Export Prices ex-ag, Import Prices ex-oil, Trade Balance, Mich Sentiment-Prel..
The Following Sections Are Now On Our Home Site:
- 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 will have to be rigid and iron discipline before we achieve anything great and enduring, and that discipline will not come by mere academic argument and appeal to reason and logic. Discipline is learnt in the school of adversity.”