Trouble Waiting To Happen

Posted onAuthorGSRTrades

Traders,

I turned on the news to the Third World War
Opened up the paper to World War IV
Just when I thought it was safe to be bored
— Warren Zevon, Trouble Waiting to Happen

Our current position:

BUYERS’ 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

The following sections can now be found on our home site:

Where We Are:

Taking a look at the overall markets:

With buyers continuing to cast their votes in force, the market continues to improve its overall technical structure.

Outside of Hurricane Katrina, it was a very light news week for the markets.

We are encouraged to see technology shares well bid for. As goes the sentiment for technology, so usually goes the overall market.

Energy related stocks continue to lead the action.

The all important Semiconductors and Broker Dealers continue to point up.

Even the recently battered REITs and Homebuilders have turned around, though have lost ground in relative strength to the broader market.

Banks continue to appear fragile, while caught in a bearish head-and-shoulder pattern.

Individual stocks breaking out are sticking – so far. As intermediate-term breakout buyers, this is what we want to see.

We take things week by week.

As traders, it is very important to have a clear understanding of the time frame we trade in.

We can simultaneously respect and reject market mavens Warren Buffet and Bill Gross, who have bearish thoughts on the U.S. equity market, because our time frame is different than theirs.

Buffett and Gross base their strategy on fundamentals, while ours are primarily on technicals.

Buffett is a value player, Gross a bond strategist, but we’re growth stock players.

Our goal is to measure market strength on a week by week time frame, and take advantage of explosive growth stocks. When the climate for buyers turns bad, we’ll stop and hold our money.

Buffett and Gross may very well be right at some point, there very well may be trouble waiting to happen.

In the meantime, we’re happy with what we have.


There is no reason why we all can’t make money. But it’s impossible for us to make it at the same time.

Technically speaking:

The Dow Industrial Average ($INDU), +2.21%, sparked up for the week and is poised to take out its bearish right shoulder, which would be very bullish. The S&P 500 ($SPX), +1.93%, closed just shy of yearly highs. Nasdaq ($COMPQ), +1.61%, is trading above all its major moving averages. Russell 2000 ($RUT), +2.22%, is trading above all its major moving averages.

Volume indications: Overall volume was higher, with the Nasdaq making three accumulation days, and the S&P 500 and Dow making two accumulation days a piece, we have solid indication of institutional players in buy mode.

New Highs – New Lows: We had another strong week of upside sponsorship, though the ratio did not take out last week’s high, which gives bearish divergence on the week.

The Advance/Decline Line: There is bearish divergence evident in this week’s action.

Investors Intelligence: Continues to show more than half of money mangers as bullish.

Key chart action for the week:


Charts courtesy of Stockcharts.com

The 20+-year Note Holdr (TLT) posted a loss for the week, though remains within its upward trending channel.

The U.S. Dollar Index ($USD) rose slightly for the week, though has been trend down for two months.

The Gold Miners Index ($XAU) pushed higher for the week. The miners index is in the process of forming a base, while the commodity gold is showing a more bullish technical structure as it consolidates under its highs. Typically the miners lead the commodity.

The Dow Jones AIG Commodity Index ($DJAIG) pulled back after breaking out last week.

Consumer Cyclicals ($CYC) remain technically weaker than its counter part, Consumer Staples ($CMR), which is just under its yearly highs and is poised to breakout.

Technology ($DJUSTC) is poised to breakout of a two year base to new highs.

The Semiconductor Index ($SOX) are trend up, though face significant resistance at the 500 level.


Banks ($BKX) continue to trade in a bearish head-and-shoulder.


Broker Dealers ($XBD) broke out for the week.


Retail ($RLX) rebounded after five weeks of losses.

Internet ($IIX) took out its bearish right shoulder to make a bullish statement.

Healthcare ($HCX) broke out to a new high.

Biotech ($BTK) hit a new high.

REIT’s ($DJR) continued to recover ground lost after a few weeks of selling last month.Homebuilders ($DJUSHB) also continued to recover ground lost after a few weeks of selling last month.

Transportation ($TRAN) sold off for the sixth week in a row and is trading below its major moving averages.

Airlines ($XAL) remain vulnerable while trading below a major trend line.

Defense ($DFX) made up for last week’s selling and continues to consolidate in a two month range.

Energy ($IXE) hit another new high.


Utilities ($UTY) hit another new high.

The top 10 industry groups from the 6 month RS screen are:

What Was Important About Last Week

STOCKS:

  • Intel (INTC) and Texas Instruments (TXN) reported strong demand
    for notebook computers and cell phones.

ECONOMY:

  • 10,000 people left jobless by the storm filed for unemployment benefits last week, numbers are expected to increase.

What We Are Watching For This Week:

Key earnings releases:

  • MONDAY: Campbell Soup (CPB)
  • TUESDAY: Best Buy Co., Inc. (BBY), The Kroger Co. (KR), Vivendi Universal (V)
  • WEDNESDAY: none
  • THURSDAY: Adobe Systems (ADBE), Bear Stearns (BSC), Pier 1 Imports, Inc. (PIR)
  • FRIDAY: none

On the economic front we have potential market movers with:

The Following Sections Are Now On Our Home Site:

This Week’s Word On Discipline:

“Be more concerned with your character than with your reputation. Your character is what you really are while your reputation is merely what others think you are.” — John Wooden