Our bias remains negative.
Our current position:
MARKET VULNERABLE TO FURTHER SELLING
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
The Following sections can now be found on our home site:
Taking a look at the overall markets:
Price-action for the week was mostly stagnant.
The trend remains the same with strength in Energy, Homebuilders, Real Estate, and Broker Dealers; and lackluster performance from Technology and Banking.
Despite our bias, our conviction for the short side of this market is minimal. As we see very little evidence mount to the Bulls favor, we also see little in the way to suggest this market is deteriorating.
Given our Red Flag warning, we would not be the least surprised to see things fall a part this summer.
Because this market has yet to fall a part, we must keep an open mind. Should the market speak we will listen. The market never lies.
As we monitor action from our open positions, our objectives lean towards preserving what we have, not trying to make something from nothing.
The major indexes were little changed for the week.
The Dow Industrial Average ($INDU), +0.05%, is currently parked below its major moving averages, while The S&P 500 ($SPX) , +0.245, and Nasdaq ($COMPQ), +0.20, remain below their 20-day averages and above their 50-day averages.
Looking at the bigger names in the indexes, The S&P 100 and the Nasdaq 100 are trading below their major moving averages.
Attempting to establish leadership, the Russell 2000 ($RUT), +2.00%, put in a sizable gain as it flirts with the year’s highs. The index is above its major averages and poised to breakout.
For the second week in a row, Volume goes to the Bears. Despite one solid day of accumulation, two convincing days of distribution for the S&P and Nasdaq are evidence of a poor market environment. We’re inclined to believe Tuesday’s accumulation was affected by end of the quarter portfolio dressing, in which fund managers buy stocks that did well to show clients they had them in their books. The cads.
New Highs for the week were resilient, and New Lows were stagnant. This is bullish, though not enough to get us excited.
The Advance/Decline Line also gave us a bullish indication as it broke its bearish divergence established a weak ago.
Investors Intelligence remains bearish with 55.1% Bulls and 19.1% Bears. With this contrarian indicator at extremes, the odds are we’ll see the Bulls burned somewhere. Where and when this might occur is not for us to speculate.
Key chart action for the week:
Charts courtesy of Stockcharts.com
Consumer Staples ($CMR) and Consumer Cyclicals ($CYC) continue to trade in a bearish technical mode under their major moving averages.
The Semiconductor Index ($SOX) was little changed for the week as it finds support at its 50-day moving average.
Banks ($BKX) pierced the resistance of a 6-week trading range only to fall a part and close towards the bottom of that range..
Broker Dealers ($XBD) maintained their status as a “hot” sector in this environment..
Internet stocks ($IIX) closed lower to find support at their 50-day moving average. We mentioned in an earlier report that we saw potential for a bearish right shoulder pattern to trace out.
Telecommunications ($XTX) showed relative strength as it gained ground. This sector continues to hold breakout potential.
Healthcare ($HCX) traded lower and is now below its 50-day moving average. Given the wash out of individual growth stock names in the sector last week, we no longer recognize this area as having potential.
Biotech ($BTK) came just shy of a new high for the year. Unlike the broader health related industry, this sector is showing us strength.
REIT’s ($DJR) remain on track after breaking out three weeks ago.
Homebuilders ($DJUSHB) also made way north and are technically healthy.
Transportation ($TRAN) bounced back from its landslide a week ago, though continues to hold its bearish head-and-shoulders pattern.
Defense ($DFX) hit an all time high. The trend here has been unarguably up since March of 2003.
Energy ($IXE) held its bullish stance with a decent gain. So far the sector breakout made two weeks ago is sticking.
Utilities ($UTY) hit a new high. This sector goes where the bond prices do.
The top 10 industry groups from the 6 month RS screen are:
- CONSUMER SERVICES
- GROCERY STORES
- DEPARTMENT STORES
- OIL GAS REFINING MRKTN
- APPAREL STORES
- OIL GAS DRILLING EXPLO
- INTERNET INFO PROVIDER
- RESIDENTIAL CONSTRUCTI
What Was Important About Last Week
- Nike (NKE) warned that its Q1 revenue growth would be lower than the expected 7%-9% range.
- Walgreen’s (WAG)
- Cardinal Health (CAH) warned its earnings for fiscal 2006 will fall short of current expectations.
- International Paper (IP) lowered its second-quarter earnings forecast below Wall Street estimates. Weak sales of packaging and printing paper, along with high costs for energy and materials are to blame.
- Oracle (ORCL) reported earnings of 26 cents a share which was 3 cents better than an analyst consensus was looking for and the biggest gain in over 2 years.
- The Federal Reserve raised its target for the federal-funds rate to 3.25% from 3% to make it nine increases in a row.
- The Institute for Supply Management reported its index of factory activity rose in June to break a six-month losing streak, though remains below its 2004 high.
- U.S. consumer confidence to its highest level in three years as it was boosted by an improving labor market; rising stock prices. Steady gas prices may have also contributed.
- The International Air Transport Assoc announced May air freight traffic fell1.6% from a year ago. This is the first fall in over 2 years and due to a rise in oil prices.
- The University of Michigan said its consumer sentiment index rose at the end of June.
- Personal income and spending growth was slightly lower in May, but the national savings rate rose for the first time since December.
- The Purchasing Management Association of Chicago’s index of area business activity was lower lower in June.Jobless claims fell 6,000 to 310,000, for the lowest level since Feb. 19.
What We Are Watching For This Week:
Key earnings releases:
- MONDAY: Holiday
- TUESDAY: none
- WEDNESDAY: Ruby Tuesday (RI), Schnitzer Steel Industries, Inc.(SCHN)
- THURSDAY: Accenture (ACN), ALCOA Inc (AA)
- FRIDAY: none
On the economic front we have potential market movers with:
- MONDAY: Holiday
- TUESDAY: Factory Orders
- WEDNESDAY: ISM Services
- THURSDAY: Initial Claims
- FRIDAY: Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Wholesale Inventories, Consumer Credit
The Following Sections Can Now Be Found On Our Home Site:
This Week’s Word On Discipline:
“There is only one sort of discipline, perfect discipline. ” — George S. Patton
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