Simmer down, and you won’t get no supper
Simmer down, and you know you bound to suffer
Simmer down, simmer, simmer, simmer right down
- 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:
As the broad market indexes retreat for the week we’re hearing the Talking Heads on TV come out and refresh us with every reason why we should be afraid the market’s run is over.
Awareness is good, but we should never confuse it with what it takes to make money.
For us making money comes from sticking to our strategy and following specific rules.
We’ve bought into this recent rally and have reaped the benefits.
When the market pulls back we are often tested with our positions, but have stops in place to take the worry out.
We can be right half the time and still make money, but we’re happy to say we’re right a lot more than half the time.
Leadership from Biotech, Broker Dealers, and Transportation continues to look promising.
New highs from the Oil Services and Materials (in particular Gold) is also providing opportunity.
With modest pullbacks in the works, we see nothing to be concerned with.
Should these modest pullbacks begin to occur on heavy volume – we’ll begin to see things otherwise.
Successful speculating is more about observing than it is thinking.
We’re sitting back and letting the strategy do the work.
The strategy works for us – we don’t work for the strategy.
The Dow Industrial Average ($INDU),-0.91%, pulled back for the second week in a row and is flirting with its 20-day moving average.
The S&P 500 ($SPX), -0.45%, hit a fresh high for the year before pulling back to its 20-day average.
Nasdaq ($COMPQ), -0.73%, hit a fresh high for the year before pulling back to its 20-day average.
Russell 2000 ($RUT), -0.26%, hit a fresh high for the year though continues to trade above its 20-day average.
Volume indications for the week gave us two days of distribution for the S&P 500. We’re looking at a buy side bias over the past three weeks, though have some concern over lower volume on the exchanges.
New Highs – New Lows Ratio has been consolidating over the past few weeks. The ratio os car from its highs made over the summer, which is not a good sign as new index highs have been achieved over the past few weeks.
Investors Intelligence reports that the number of bullish money managers increased over the week with the ratio now at 2.57 in favor of the bulls. This is a contrarians indicator that has been bearish for months. So what good is it? It has historical accuracy, though does not signal tops and bottoms as if it were an alarm clock. Tops and bottoms take time to be put in, markets tend to fall a part when everyone is bullish.
Key chart action for the week:
Charts courtesy of Stockcharts.com
The 10-year Note Yield ($tnx) edged above last week’s high as it flirts with a three year downward trend-line.
The U.S. Dollar Index ($USD) has been consolidating for five weeks now.
The Gold Miners Index ($XAU) had a huge week as it broke out to a fresh high.
The Dow Jones AIG Commodity Index ($DJAIG) shot to just shy of the year’s high before pulling back.
Technology ($DJUSTC) shot to a new high on the year before pulling back.
The Semiconductor Index ($SOX) shot to a new high on the year before pulling back.
Banks ($BKX) pulled back for the second week in a row.
Broker Dealers ($XBD) pulled back for the second week in a row.
Retail ($RLX) pulled back for the second week in a row.
Internet ($IIX) pulled back for the second week in a row.
Healthcare ($HCX) has been consolidating for five weeks while tangled in its major moving averages.
Biotech ($BTK) pulled back for the second week in a row.
REIT’s ($DJR) pulled back for the second week in a row.
Homebuilders ($DJUSHB) pulled back for the second week in a row.
Transportation ($TRAN) pulled back for the second week in a row.
Airlines ($XAL) has been consolidating for five weeks.
Defense ($DFX) remains near the year’s highs in a five month trading range.
Utilities ($UTY) edged above last weeks high as it trades above its major moving averages.
The top 10 industry groups from the 6 month RS screen are:
- DRUGS – GENERIC
- DRUG DELIVERY
- SEMICONDUCTR-MEMORY CH
- INVESTMNT BROKERAGE-RE
- STAFFING OUTSOURCING S
- ELECTRONICS WHOLESALE
- INDUSTRIAL EQUIP WHOLE
- INDUSTRIAL ELECTRICAL
- SECURITY PROTECTION SV
What Was Important About Last Week
- The world’s biggest computer-chip maker Intel (INTC) expects sales of between $10.4 billion to $10.6 billion in the quarter, down from an earlier range of $10.2 billion to $10.8 billion.
- The world’s biggest maker of chips for cell phones, Texas Instruments (TXN) said it expected to earn between 38 cents and 40
cents a share in the fourth quarter, better than an earlier estimated range of 36 cents to 40 cents.
- Toll Brothers (TOL) reported a 72% gain in fiscal fourth-quarter profit, though warned earnings for fiscal 2006 could fall below Wall Street forecasts due to a slowdown in the housing market
- The Bureau of Labor Statistics revised its measure of third-quarter productivity growth in the nonfarm business sector to a seasonally adjusted annual rate of 4.7% – up from an earlier reading of 4.1%. It is the fastest growth in productivity, a measure of output per worker hour, in two years.
Key earnings releases:
- MONDAY: VistaCare, Inc. (VSTA).
- TUESDAY: Best Buy Co., Inc. (BBY), Engineered Support Systems (EASI).
- WEDNESDAY: Winnebago (WGO).
- THURSDAY: Adobe Systems (ADBE).
- FRIDAY: Carnival Corporation & Carnival plc (CVL), Darden Restaurants (DRI).
On the economic front we have potential market movers with:
- MONDAY: Treasury Budget.
- TUESDAY: Retail Sales, Retail Sales ex-auto, Business Inventories, FOMC policy announcement.
- WEDNESDAY: Export Prices ex-ag., Import Prices ex-oil, Trade Balance, Crude Inventories.
- THURSDAY: Core CPI, CPI, Initial Claims, NY Empire State Index, Net Foreign Purchases, Net Foreign Purchases, Capacity Utilization, Industrial Production, Philadelphia Fed.
- FRIDAY: Current Account
- 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:
“In reading the lives of great men, I found that the first victory they won was over themselves… self-discipline with all of them came first.” – Harry S. Truman