Wednesday - November 30, 2005
Online Retailers, Calpine is Out, Wal-mart Spends and Cuts, ETFs Surge, Inverted Hammers, Disk Drive Stocks and a Strong Economy.
Good Day! After a big advance, stocks moved into mild corrective mode. The biggest gainers over the last few weeks were the biggest losers as traders took profits. So far, this decline is viewed as a correction within a larger uptrend. A few days of slight selling pressure is not enough to reverse four weeks of strong buying pressure.
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From Paul R. La Monica at CNNMoney: "Online retail bargains? Bah, humbug! 'Tis not the season to buy e-commerce stocks since strong holiday sales are already priced in" This list includes EBAY, AMZN, OSTK, REDE, NILE, PRVD.
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Calpine (CPN) will be removed from the S&P 500. This company has been in dire straits for over two years. What took so long?
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From the Wall Street Journal:
The world's biggest retailer lured droves of shoppers last weekend with an advertising campaign that started two weeks earlier than usual and door-buster discounts on hot items. Television cameras captured mosh pits of customers diving at the doors of the Bentonville, Ark., chain throughout the country the Friday after Thanksgiving. The draw: Lower prices than the competition, marking a reversal from the year-earlier holiday season, when Wal-Mart sought to preserve profit margins but in turn forfeited sales. The risk is that Wal-Mart's decision to rejoin the holiday cost-cutting campaign may harm its profitability. "Wal-Mart's much more aggressive stance got attention, but it remains to be seen how much it cost them on margin," Goldman Sachs analyst Adrianne Shapira wrote in a note to the company's clients on Monday.
Two things come out of this piece. First, Wal-mart’s margins will come under pressure from increased advertising and lower prices. Second, Wal-Mart is so big that this will likely affect other retailers. Shoppers may opt for the Wal-Mart nightmare to save a few bucks. Or, other retailers (BBY) will have to lower prices to stay close to Wal-Mart. It is going to be one competitive Christmas season and the January sales should offer some great bargains.
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JEN RYAN of DOW JONES NEWSWIRES reports: "ETFs Are Buzzing As Mutual Funds Lose Investments. Lately investors have been pouring more money into domestic and international exchange-traded funds than into the corresponding mutual funds." Just to back up Ms. Ryan, the table above shows the most active ETFs. Note that QQQQ averages over 90 million shares per day!.
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Western Digital (WDC) raised their guidance. The company sites strength in the electronics and computers. In addition, Seagate (STX) also got an upgrade and things are looking up for the disk drive group. Imation (IMN) is the strongest of the group and poised for a 52-week high.
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James Altucher of TheStreet.com notes that trading the inverted hammer can yield profitable results. This bullish candlestick pattern requires confirmation and my guess is that this holds the key to success.
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The economy is looking up as consumer confidence rose 1.7 points to 98.9, New Home Sales surged 13% and Durable Goods Orders advanced 3.4%. Strength in the economy translated into bond weakness as TLT fell sharply. Notice the rising wedge consolidation. Further weakness below 89.5 would be bearish for bonds.
On CBSMarketWatch, Drew Matus, an economist for Lehman Bros, notes: "Nothing in this data suggests to us that the economy is on the verge of slowing sharply in the near future. This means that we also continue to expect more tightening from the Fed."
By Arthur B. Hill - Wed 30-Nov-05 at 09:06AM in Market Musings
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Tuesday - November 29, 2005
Sentiment and overbought conditions, the Wal-Mart experience and the best Mutual Funds
Good day! There is a lot of talk about stocks being overbought and that there are too many bulls. This is the talk of those afraid to initiate new longs. Can’t say I blame them. However, those that are long should not worry about this chatter as long as the price action remains strong. One mild down day is not enough to reverse four strong weeks. Stocks can become overbought and remain overbought. In addition, sentiment can become too bullish and remain too bullish. Both the tape and the seasonal patterns are bullish. With prices trending higher, there is no reason to be short or to start picking a top. It seems that traders are way too eager to pick a top. You cannot time a trade based on overbought conditions and excessive bullish sentiment. At best, these serve as a warning not to take NEW longs or to wait for a pullback. Remember, the trend is your friend and the trend is clearly up.
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In a CNBC interview Monday, the Chairman of Wal-Mart, John Menzer, said, "We're seeing the customer actually shop less due to higher gas prices but buy more on each individual trip." That sounds like inventory buildup to me! For what it is worth, you will not catch me near a Wal-Mart. I find the stores over crowded and messy. It is not a nice shopping experience. Maybe that is why people are making fewer trips.
This next quote comes from CNNMoney and a Black Friday shopper: “Next up Sears, which I'd heard was giving away $10 gift cards to the first 200 customers when it opened at 6:00 a.m. On the way, I pass a Wal-Mart, glance over, shudder slightly and accelerate. I tried Wal-Mart on Black Friday a couple of years ago and still have the psychological scars to show for it. There might be amazing deals, but the mental toll there is just too much”. She echoes my sentiments.
On the price chart, WMT is running into a major resistance zone from broken support and the July high (~51). The stock is up around 20% the last 2-3 months and ripe for either a consolidation or a correction. RSI is also overbought for the first time since November 2004. I really think that the big support break around 51 engrained the long-term downtrend and this is one sharp reaction rally (bear market rally) for WMT. More importantly, the risk-reward ratio at current levels is not good and I would expect side ways price action at best.
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Timothy Middleman of MSN Money picks the seven best fund managers. The top line shows the fund and symbol, the second line shows the manager and YTD/5 Year return and the third line shows the top holdings.
Amana Mutual Funds Trust Growth (AMAGX)
Nicholas Kaiser 19%/3.9%
Top Holdings: AAPL, QCOM, ECA, AMX, RTP, BOBJ, PEP, AAUK and BMHC
JennDry Jennison 20-20 Focus (PTWBX)
Spiros Segalas, David A. Kiefer 20%/6.5%
Top Holdings: NXY, TXU, SU, HAL, GSF, DNA, GOOG, PD, SRE AND MO
Bridgeway Micro Cap (BRMCX)
John Montgomery 28.3%/20.8%
Top Holdings: CMTL, BMHC, ITRI, QSII, NSS, MIDD, PKD, RT, ASVI AND JCOM
James Balanced: Golden Rainbow (GLRBX)
Frank James, et al. 7.5%/8.3%
Top Holdings: CVH AND Assorted Treasuries
Ivy Asset Strategy (WASAX)
Michael L. Avery, Daniel J. Vrabac 19.8%/8.1%
Top Holdings: RIO, ABX, NEM, XOM, CX, GE and some foreign stocks.
Diamond Hill Focus Long-Short (DIAMX)
Ric H. Dillon Jr., Charles S. Bath 17.4%/11.6%
PD, DVN, COP, APA, APC, FLR, NSC, BR, D AND PHS.
CGM Realty (CGMRX)
G. Kenneth Heebner 22.5%/29.5%
ACI, CBG, CNX, GGP, LHO, EPR, SHO, CBL, HMT AND KPA
By Arthur B. Hill - Tue 29-Nov-05 at 09:45AM in Market Musings
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Monday - November 28, 2005
Investor sentiment, advisor sentiment and Dow overbought.
Market Musings
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Good Day! Investors are getting quite bullish and this most likely will translate into a correction or consolidation. The latest readings from Lowrisk.com registered 0% bears. Yes, you read right. Of those surveyed, 79% were bullish, 0% were bearish and 21% were neutral.
This chart shows bulls less bears over the last two years. As you can see, Net Bulls (bulls less bears) moved to its highest level in over two years. In fact, this is the highest level since July 2000 when the Dow was challenging 11000.
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A different picture emerges when I look at the sentiment readings from Investor’s Intelligence (courtesy the VTOReport.com). Net Bulls is only around 30% and well below the prior highs (Net Bulls equals bullish advisors less bearish advisors). The current reading is also well below that seen last December, which marked a real extreme. For bullish sentiment to reach an extreme, Net Bulls would have to move above 40% and this leaves room for further strength.
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Even though sentiment is getting frothy, recent breakouts in the major indices are bullish until proven otherwise. The Dow broke triangle resistance with a big move above 10700. Broken resistance turns into support and I would not question this breakout as long as 10600 holds.
The Dow may be strong, but it is also short-term overbought and ripe for a pullback. Notice that RSI moved above 70 for the first time since November 2004, exactly 52 weeks ago. However, this overbought reading did not mark the peak as the Dow forged two more higher highs (green carets). The Dow shows a lot of strength and this strength is unlikely to dissipate overnight. For now, I am watching the breakout at 10600 and a pullback into the 10700-10600 would allow a chance to partake in the uptrend with a better risk-reward ratio.
By Arthur B. Hill - Mon 28-Nov-05 at 01:20PM in Market Musings
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Tuesday - November 22, 2005
T-day, breadth strong overall, NYSE Net New Highs lagging, steel making a comeback.
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I will be taking off Wed-Fri and this blog will continue on Monday.
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Good day! The major stock indices remain strong with the broader non-tech part of the market strongest yesterday. The NYSE Composite closed at a new all time high and this does not happen in secular bear markets. The index not only recovered the October decline, but broken out to new highs and this is bullish. I will be watching the late October trendline and early November low for signs of a reversal.
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It was not that strong of a day, but Net New Highs on the Nasdaq moved above +100 for the fourth time this month. The 10-day SMA remains above zero and there is no cause for concern as long as this key breadth indicator remains positive.
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Net New Highs on the NSYE also finished in positive territory, but continue to lag Net New Highs on the Nasdaq. The 10-day SMA remains below the August trendline and below zero. A move into positive territory would turn this indicator bullish and give me more confidence in the current rally.
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On the Nasdaq, the volume of advancing stocks continues to outpace the volume of declining stocks. This simple measure of demand continues to favor the bulls. Until there is a sharp move below zero (like October – red oval), thinking bear is premature and the rally rides.
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The NYSE Composite quietly moved to a new all time high yesterday. Secular bear markets do not occur when such broad indices are recording ALL TIME highs. This index has done more than just recover from the October decline. The volume of advancing stocks continues to outpace the volume of declining stocks. The declines in November have been shallow (green box). Until there is a sharp decline below –500 in AD Volume Net, this indicator is firmly bullish.
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Is steel back? Steel stocks have been strong lately and the Materials sector has been strong since mid October. In fact, this is one of the top performing sectors since 19-Oct. US Steel (X) has participated and advanced above 40 on big volume yesterday. The short-term trend is clearly up, but the stock is nearing resistance from the February trendline and August low (broken support).
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By Arthur B. Hill - Tue 22-Nov-05 at 08:06AM in Market Musings
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Monday - November 21, 2005
Kodak, Gold, National Fuel Gas, Intervoice and American Eagle
Good day! The major stock indices may be overbought and near resistance, but there is certainly no signs of weakness. In fact, there have only been consolidation days in November.
The Dow Diamonds (DIA) has held its gains quite well and closed above its summer highs. Even though the stock is up around 5% in a few weeks, the bears do not have a leg to stand on as long as 106.5 holds. This move had power and the bulls have yet to relinquish control.
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Barron's is talking up Kodak (EK) as a turnaround play. Sorry, but I am not buying into this one. Kodak makes good cameras and I own one myself. However, this business is turning into a commodity business, if not already. There is just too much competition out there, especially for middle tier cameras. The big Asia produces are driving prices down, increases features and flooding the market. From the price chart, it is also clear that investors are NOT buying as the stock has not even formed a base yet. The S&P 500 is trading at a new high and EK is trading near a new low. Until this stock breaks the March trendline and moves above broken support at 25, I would steer clear. Falling prices are good for digital camera buyers, not stock buyers.
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Sandra Ward (Barron’s) interviews John Hathaway, a gold fund manager who is, surprise-surprise, bullish on gold. There are no arguments here. I will not go as far as the predict $1000 per ounce like Mr Hathaway, but the chart clearly points higher with 500 the minimum target and 620 the upper channel target at the end of 2006. Gold made another strong move over the last few weeks. This is especially impressive when one considers that the US Dollar Index also broke out and is moving higher. Gold is moving higher on its own and this further reinforces bullish resolve.
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NFG - National Fuel Gas surged above resistance in Aug-Sep and then corrected sharply in October. The decline returned to broken resistance and this level now offers support. After a few weeks of firmness, the stock gapped higher last week and moved up on good volume three days in a row. This solidifies support and keeps the uptrend in place.
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AEOS - American Eagle Outfitters is in a very competitive retail spot. The stock swooned in Aug-Sept and then firmed over the last two months. The pattern since mid Sep looks like a rising flag and the stock gapped lower last week. The gap is holding for the most part and further weakness below 22 opens the door to the teens - and I don't mean the teen shoppers. A move above 26 would fill the gap and be bullish.
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INTV - While the Nasdaq and S&P 500 moved to new highs last week, Intervoice moved lower and shows poor relative strength. The stock was turned back at 9.6 resistance in early November and failed to partake in the November rally. The stock opened strong on Friday, but closed weak with above average volume. Selling pressure is picking up and a move below 8.6 would be bearish. Conversely, a move above 9.6 would break resistance and be bullish.
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By Arthur B. Hill - Mon 21-Nov-05 at 10:50AM in Market Musings
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Friday - November 18, 2005
A Few Stock Breakouts
IAH - The Internet Architecture HOLDRS (IAH) broke consolidation resistance with a gap.
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FDRY - Foundry Networks broke falling flag resistance with a gap and sharp advance on good volume. Broken resistance around 13 turns into support and a pullback into this area could provide a chance to partake in the advance.
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IGT - International Gaming Tech broke falling wedge resistance with a big move on big volume. Upside volume continued strong early this week and the breakout looks valid. Watch 27 for signs of trouble.
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ITMN - Intermune broke falling flag resistance with a good November move on high volume. Watch 14 for signs of a failure.
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PBY - Pep Boys Manny did not partake in the November rally, but upside volume has been outpacing downside volume. On Balance Volume (blue line) moved to a new high yesterday and the stock is trading near trendline support. I would like to see at least a move above 13.55 before betting on a bounce.
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WDC - Western Digital broke resistance in early November and surged on big volume yesterday. There is trendline resistance near, but the hard drive group is looking good. Also checkout IMN, which remains the strongest of the group.
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By Arthur B. Hill - Fri 18-Nov-05 at 01:38PM in Market Musings
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Thursday - November 17, 2005
Market holding strong, Yahoo! winning the ad battle, gold surges and ESIO looks strong.
Good day! My wife and baby have rebounded, but now Alexander (4 1/2 year old son) and I have been hit with this 1-2 day stomach virus. Don’t worry, I will spare you the gory details. Even though I am not 100%, I can work for short periods and will post some charts today.
The major indices remain in short-term uptrends with the Nasdaq leading the way higher. Within the Nasdaq, the internet group is leading the way with Yahoo! surging on ad revenues. The early November gap in the Nasdaq held, last Thursday’s big gain is holding and the Nasdaq shows no signs of weakness. It may be overbought, but buyers are not giving up much ground and this shows strength.
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Standard & Poor's is adding Amazon to the S&P 500 and United Parcel Service to the S&P 100. This puts Amazon in the big leagues.
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Applied Materials posted better than expected 4th quarter results, but the stock fell after hours on fears that the future growth would not live up to expectations. Doubts on future growth is a recurring them among the big tech players. However, the Nasdaq is trading near its August high and does not seem to mind this "not-so-good" news.
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While Yahoo! profits are surging on rising ad revenues, newspapers are in a slump as circulation declines and ad revenues weaken. There are also a number of stories circulating how these newspaper stocks are attracting value investors. I think this is a case of stocks being cheap for a reason. There has been a fundamental shift as readers move from print media to the internet. I do not think the print media will dissappear, but newspapers must now share the ad market with the internet. What's more, the cost structure favors the internet model over the newspaper model - big time. In addition to editorial staff, newspapers require paper, printing and delivery. The internet is all electronic with no paper and no printing. What's more, the stories are uploaded once and this solves the delivery issue in one swoop. What a great business.
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Gold surged on inflation concerns and an announcement that Russia will increase its gold reserves. I think it is the Russian announcement that really fuelled gold. The iShares ~20-year T-Bond Fund (TLT) rose sharply yesterday and this pushed the 10-year T-Note Yield below 4.5%. Bonds would not rally and interest rates would not fall if inflation was a concern. In any case, gold surged as the Gold ETF (GLD) broke falling flag resistance. The upside target is to around 50 (500).
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Speaking of Gold, here is a chart of Barrick (ABX). The stock found support around 25 from the Aug-04 trendline and prior resistance. In addition, the Sep-Nov decline retraced 62% of the May-Sep advance. The stock moved higher on good volume the last few weeks and I expect a resistance challenge around 30.
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ESIO - Electro Scientific is showing strength. The stock surged in July, consolidated Aug-Oct and bounced on good volume in November. Support at 20.5-21 looks solid and I expect a break above 24.
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By Arthur B. Hill - Thu 17-Nov-05 at 07:50AM in Market Musings
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Wednesday - November 16, 2005
Sick day
I have a sick wife and baby that require tending today and will not be able to update the blog today. Sorry about any inconvenience and I hope to be up and running again tomorrow.
By Arthur B. Hill - Wed 16-Nov-05 at 08:41AM in General
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Tuesday - November 15, 2005
Dow at resistance, USD strong, Gold forms flag, Utilities and Energy weak, Industrial breakout and more.
Good Day. After a big move on Thursday and gap Friday morning, stocks took a breather and consolidated for two days. Consolidations show less buying pressure, but should not be interpreted as a sign of weakness. Even the strong need a rest and there is no reason to question underlying strength as long as last week’s lows hold.
Have a great trading day –Arthur Hill
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The US Dollar Index continues its rise with a close above 92. Broken resistance (91) usually turns into support and the index held the breakout without a pullback. This is what strong indices do: break resistance, hold the breakout and continue higher. A move towards 95 can be expected as long as 91 holds.
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Gold has been in a slump since mid October when the StreetTracks Gold ETF (GLD) peaked at 47.72. The decline looks like a falling flag, which is a mild correction. However, this correction does not end and the uptrend does not resume until there is a break above the upper trendline (47.1).
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The Dow is trading at resistance from its Jul-Sep highs. Even though the Dow formed a small white candlestick that signals indecision yesterday, the surge from 10150 to 10700 has yet to show any signs of weakness. Consolidation and flat trading show less strength, NOT weakness or selling pressure. It is perfectly normal to consolidate after an advance and the bulls have little reason for concern as long as 10520 holds
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The Dow Utilities remain relatively weak and broke rising flag support over the last three days. In contrast, the Dow Industrials broke resistance at 10600 over the last three days. Money is moving out Energy and Utilities - and into Finance and Technology.
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Speaking of Energy, the Energy SPDR (XLE) broke rising wedge support last week with a gap down on Thursday. The gap is holding and XLE would have to move above 50 to reverse this bearish development.
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The Industrials SPDR (XLI) broke triangle resistance with a gap-laden advance over the last three weeks. The stock consolidated around resistance at 30-30.2 and broke through with a surge last Thursday. Yes, Thursday was a key day for many stocks and indices - it is important that Thursday's gains hold.
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The 10-year T-Note Yield is meeting resistance near its March high and trading has turned quite choppy. However, the gap is holding and there is no reason to expect a fall in rates (rise in bonds) as long as TNX holds above 4.5%. TLT needs to break above 90 to reverse the current downtrend in bonds.
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The bond market is not concerned about inflation. My bond market inflation gauge is the TIP/TLT ratio. TIPs are indexed to inflation and TLTs are not. The ratio rises when inflationary fears rise as investors bid up the TIPs more than the TLTs. The ratio falls when inflationary fears subside as investors shun TIPs in favor or TLTs. The ratio rose from mid July to late September, stalled and broke support with a sharp decline the last few days. The move below 20 is bearish for the TIP/TLT spread and suggests that the bond market is NOT worried about inflation.
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Led by Dr Copper, the GS Industrial Metals Index ($GYX) moved to another new high yesterday. This index has been on a tear lately and there are no signs of weakness. This is also a good sign of economic strength as the demand for industrial metals remains brisk. Phelps Dodge (PD) broke falling flag resistance with a big move on Friday, but fell back on Monday. The blue trendline is still holding though.
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A George Soros fund is reported to have increased its technology holdings with positions in Intel, Amazon, Ebay and Microsoft.
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ACTL - Actel failed to hold its mid October gain and declined sharply in late October. The recovery was not that strong and the fell again over the last two days. This stock looks poised to break support at 13.
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By Arthur B. Hill - Tue 15-Nov-05 at 08:23AM in Market Musings
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Monday - November 14, 2005
Holding the uptrend and some stock charts.
Good Day! Stocks remain strong overall with a number of breakouts on Thursday. Even though volume and breadth are not overwhelmingly bullish, they are in the bullish camp and this is fueling a slow steady advance. Today, I am going to highlight a number of interesting charts with bullish or bearish setups, breakouts and break downs. Have a great trading day.
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ABT - Abbot Labs formed a triangle over the last few weeks and broke above the upper trendline with above average volume last week. The HealthCare sector has been lagging the overall market and has some catching up to do to return to favor. Back to ABT, this is the third bounce on good volume (green ovals) and there is a ton of support around 42. A move below this level would negate the triangle breakout.
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ARIA - Ariad Pharma is also making a break for it with a move above the September trendline and a gap high on big volume. The gap is bullish until proven otherwise with a move below last week's low.
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JBLU - Jet Blue comes across the bullish screens once again as it breaks the July trendline and challenges resistance at 20.
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XJT - Express Jet has a head-and-shoulders working, but is getting a good bounce off support. This is part of a strong airline and transport group. I will take the break above 9.5 as bullish until proven otherwise with a break below 8.4 support.
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LF - Leap Frog is not a happy camper. The Nasdaq surged in November, but LF moved lower and shows poor relative strength. The May-Sep advance retraced around 50% of the Sep-04 to May-05 decline and the stock broke the trendline extending up from May with the October decline. A move above 15 would resurrect the bulls.
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GD is part of a defense group that is coming under increasing selling pressure. The stock broke the April trendline in October and formed a rising flag over the last two weeks. Thursday's rally failed and the stock broke the lower flag trendline on Friday.
By Arthur B. Hill - Mon 14-Nov-05 at 08:16AM in Market Musings
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Friday - November 11, 2005
Bad breadth, is HPQ immune, money growth and Micrsoft resembles Coke
Good Day! Stocks caught a bid as the Finance sector pulled the market higher. Last week’s gaps held and the Nasdaq 100 closed at a 52-week high. The Nasdaq has yet to match this feat and the NYSE Composite remains well below its August high, which happens to be an all time high. The short-term trend is clearly bullish, but I am not impressed with breadth. Yesterday’s advance was big, but the AD Volume Ratio was 1.55 on the Nasdaq and 1.54 on the NYSE. The AD Ratios were similar and this is just not the stuff of overwhelming strength. Sure, the buyers are outgunning the sellers currently, but I will be watching support levels closely for signs of trouble. Have a great weekend and I will be back on Monday.
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The Dow Industrials broke above the trendline extending down from Mar-05.
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The Dow Utilities failed to partake in the rally and fell on the day. In addition, the Energy SPDR (XLE) declined. XLU and XLE were the strongest sectors in September and are the weakest sectors in November. XLE broke rising wedge support and this signals a continuation of the October decline.
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DELL issued a dim outlook and Cisco's forecast was weak. Perhaps they are working the estimates in hopes of beating! Scott Moritz of TheStreet.com notes that Cisco's growth is confined to share buybacks. Again, I wonder how much longer HPQ can hold up? DELL and LXK are in the tank and HPQ competes with both. Surely, HPQ hasn’t grabbed all the business.
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Had the market declined yesterday, the headlines would have read: market falls on DELL forecast, GM fiasco and trade gap. The market does what it is going to do. Once trading is over, pundits look for the reason. I will tell you the reason the stock market rose yesterday: more buyers than sellers. Sorry, I couldn't resist that one.
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Is it any surprise that Nvidia (NVDA) posted strong results? Just look at the price chart. It looks just a bit different than DELL's price chart. However, a dark cloud pattern formed at resistance and there was high volume selling pressure. This could be a case of buy-on-rumor and sell-on-news.
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The Wall Street Journal (click here) reports that value investors are "gobbling up Microsoft shares". Perhaps MSFT is cheap for a few reasons. Google is dominating the internet. Nintendo is gearing up for a price war with its next generation game console due out in 2006 (Chris Morris of CNNMoney). And finally, even Apple is starting to eat into Windows domination of the operating system. Last I heard, Linux was still around too. My feeling is that MSFT will go the way of Coca-Cola. The company will not go under, but the good times are well behind. Pepsi, Google and Apple are the choices of the new generation.
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MZM (money supply) has moved higher over the last few months. M2 growth is below the 2001-2002 levels, but is picking up again too.
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Uh oh. Herb Greenberg of CBS MarketWatch (click here) is going after Hansen Natural (HANS) again. The company reported a 100% increase in net sales. However, Greenberg thinks that competition will eat into this niche player that is priced to perfection. In addition, the law of large numbers will catch up. Greenberg also notes that their so-called healthy energy drinks are loaded with sugar and caffeine. Looking at the price chart, you can see that the stock has gone parabolic in October/November and the shorts are getting a big squeeze.
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By Arthur B. Hill - Fri 11-Nov-05 at 07:02AM in Market Musings
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Thursday - November 10, 2005
Blame game, investing in France, rise of the $US, inflation and selected stocks
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I have seen a few reports suggesting that the Jordan hotel blast rattled the bulls. Sorry, but I don't buy that. Violence in the Middle East is the norm, not the exception. It is already priced in to the market. In addition, another terrorist attack in the US or Europe is also likely priced into the market. Remember the London subway bombing? The market tanked on the open and rallied by the close. Unfortunately, terrorism is not new and it is here to stay.
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The politicians are jumping on the anti-oil bandwagon. Where were these politicians in 1998-1999 when oil was trading below $20 and profits were slim? The oil industry is just like any other. There are good times and bad. This just happens to be a good time for energy and the politicians should let the market forces work this one out. Time would be better spent promoting conservation and alternative fuels.
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A rising US Dollar concerns the chairman and CEO of Altria. This concern most likely extends past Altria and to other US multinationals. MMM is the first that comes to mind as a rising US Dollar will eat into profits. First, a strong US Dollar makes US produced good more expensive on the world market. Second, a rising US Dollar makes foreign goods cheaper for US importers. Third, profits earnings in foreign currencies become less as the value of the US Dollar rising. These can be hedged though. The combination of the first two points spurs imports and hinders exports. This acts as a break on the economy. When combined with rising interest rates, it is little wonder economist expect a slow down in 2006.
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The Arab Street Erupts: Why Paris and Why Now? By Louis-Vincent Gave. Here is an excerpt: France already has a 'minister for social cohesion' (Jean-Louis Borloo, one of the government's supposedly heavy-weights) and a 'minister for the equality of chance'. Which other country in the World sports two ministries whose entire task is to listen, and pander, to the grievances of a disaffected youth? Here is a link to the whole article: . http://www.rossputin.com/blog/index.php?blog=2 Just the fact that France has these two posts in the government shows that there is a problem
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This is from John Mauldin: France, and the other European countries with deteriorating demographic pictures, are not as safe a place for capital as they were in the past. And this is still not reflected in risk premiums.
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The earnings game remains the same. Companies are reporting good numbers, but guidance is weak. This was the case for Cisco (CSCO). Dell reports after the close today.
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Jon Markman of MSN (click here) reports that inflation is better than earnings for predicting stock market returns. Here is an excerpt: There do seem to be some better clues as to future market direction. Consumer-price inflation may be at the top of the list. (Ned) Davis researchers report that in the 49% of the years when inflation has been clocked at greater than 3.5%, stock-market returns have been sub-par, at 3.9% per year. When inflation has been less than 3.5%, returns have bulled forward at a 9.8% annual pace. The article is a great read and here is a link:
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Here are a few selections from my scans today:
Bullish tickers: cl, bmhc, jblu, ssri, stm, wdc, komg, azpn, ikn,
Bearish tickers: phtn, intv, yum, ryl
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By Arthur B. Hill - Thu 10-Nov-05 at 07:22AM in Market Musings
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Wednesday - November 09, 2005
Market Musings
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Good Day! Not much as changed as the Nasdaq continues to hold last Thursday's gap and work its way higher. Price action is looking similar to that seen in November 2004 and there are no signs of weakness yet. Sure, there is less strength and stocks are short-term overbought, but this is not enough reason to turn bearish. Good day and good trading. - Arthur Hill
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Bill Gates sounds the siren concerning a "sea of change" (click here) . Gates is referring to online software and services. This memo is no doubt aimed to compete with Google. I am sure we can also include Yahoo!, Ebay (internet telephony) and Amazon (online books). The memo also asserts that Microsoft needs to offer some free advertisement supported software and services. No wonder Microsoft took a stake in AOL. This is a major change. The rise of Apple (MAC) and dominance of Google (Sun's office) could mean that Windows will steadily loose market share in the coming years.
On the price chart, MSFT has woken up and this is driving both the Nasdaq and the Software HOLDRS higher. There is a ton of resistance around 27-28 though.
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The consumer discretionary sector was hit by a warning and downgrade in the home building industry group (Toll Brothers). Rising interest rates seem to be taking a bite out of the housing market. Should housing prices stall or decline, this could produce a domino affect in the economy and affect consumer spending, which drives 2/3 of GDP. This might not necessarily herald a recession, but could certainly be enough to slow growth and lead to sub-par returns in stocks.
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Cisco (CSCO) reports after the close today and Dell (DELL) reports after the close tomorrow. Judging by the price charts, these reports are not going to be pretty.
However, keep in mind that a lot of bad news is already priced in and we could get a classic sell-on-rumor (decline) and buy-on-news (bounce) situation.
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Jon Markman of TheStreet.com (click here) reports that the upcoming budget season is likely to bring cuts in defense spending. I would imagine that recent expenditures on hurricane relief, flu preparedness and the war in Iraq have zapped the budget and the biggest savings can come from big defense programs. Will congress see the light and exercise some fiscal responsibility or will it just be politics as usual?
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Corporate raider Carl Icahn announced a 9.3% position in Fairmont Hotels (FHR). Looks like a real estate grab.
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Barron’s Online (click here) interviewed David Swenson, the CEO of the Yale Endowment, and he outlined an asset allocation model for individuals.
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US Stocks - 30%
Foreign Stocks (developed) - 15%
Foreign Stocks (emerging) - 5%
Real Estate - 20%
US T-bonds - 15%
Inflation Protected US T-bonds - 15%.
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Here is an except from the Barron’s Online (click here) Electronic Q&A. It covers SFA and the manager paints a nice picture of growth. Q: What about Scientific-Atlanta's business? A: Their core business was set-top boxes. They were a supplier of equipment to the cable infrastructure companies in a duopoly with General Instruments, which is now a part of Motorola. But Scientific-Atlanta has a lot of cash on the balance sheet -- about $10 a share. It has a low-teens P/E if you back out the cash. And this is a company that is very focused on value creation. They are very astute acquirers of business and their own stock when it is depressed. Q: Where are its growth opportunities? A: Digital video recorders (DVRs), which have become a must-have for the cable subscriber. And they also are going into infrastructure for telecom companies to provide video services. In addition, high-definition television requires a new cycle of products. And international cable is a whole new opportunity. Cable companies, especially in Europe, haven't figured out how to provide broadband cable and cable telephony. They have only tapped maybe a quarter of their potential footprint. Q: What about earnings? A: We think Scientific-Atlanta can earn roughly $2.00 in calendar 2006. And when you take out the cash on the balance sheet and when you think about the opportunity looking out two or three years, Scientific-Atlanta could be a very big stock for us.
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Dynegy (DYN) broke falling wedge resistance with a gap and strong move on high volume.
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Ubiquitel (UPCS) is catching a bid within the triangle and a break above 9.5 would forge a 52-week high.
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SBA Comm (SBAC) broke triangle resistance with good volume.
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By Arthur B. Hill - Wed 09-Nov-05 at 08:10AM in Market Musings
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Tuesday - November 08, 2005
A contrarian item and various stock charts
Good Day! I am starting out with a contrarian item suggesting that too many advisors are bullish. Contrarian thinking is a tool, but one should not ignore the price chart or the obvious. The gaps from last Thursday are holding and there is no sign of weakness in the Nasdaq yet. The rest of today’s post features selective stock charts. Have a good trading day.
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Mark Hulbert of CBS MarketWatch reports the following: “As of Monday night, the HSNSI stood at 39.2%. As recently as mid October, it stood at minus 30.1%, which means that at that time the average newsletter editor that is part of this index was recommending that his clients allocate nearly a third of his equity portfolio to the short side of the market. In just 17 trading sessions, in other words, the average short-term market timer has increased his recommended exposure by 69.3 percentage points. This is hardly the stuff of which walls of worry are constructed.”
Wow, that is certainly a huge jump and no doubt has a lot to do with the bullish cycle that is upon us (Nov-Dec rally, January affect, October surge). Why is sentiment viewed as a contrarian indicator? Because those who are bullish have already bought and there are fewer buyers left to fuel an advance. This is why the wall of worry is bullish. It means that there are plenty of bears or hesitant bulls do buy and provide fuel for an advance.
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AESI formed an island reversal on 2-Nov and moved higher with good volume yesterday. This company is in the "threat detection business" with prospects for a government contract. The reversal and breakout are bullish, but this is not for the faint at heart.
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ELN is creeping higher and managed to break the upper trendline of a falling wedge. This stock is dependent on Biogen Idec's Tysabri, which Forbes thinks May Return To Market In 2006
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FILE broke triangle resistance with an advance over the last six days.
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AMAT formed an island cluster reversal (blue circle) in early November and the 3-Nov gap is holding. Upside volume was good and a break above 17.5 would d be bullish. This stock was also featured in Barron's CASH RICH article over the weekend.
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INTC broke the July trendline and mid October high with a gap and four day surge. However, volume was not impressive and I would expect another support test.
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CPRT is making its second bounce off support with big volume and a move above 25 would break triangle resistance.
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JBLU moved higher on good volume. I wonder about this stock because it has lagged the airline group and Dow Transports. Upside volume has been good lately and there are two levels to watch for a breakout: 19 and 20.
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OATS is finding support near the April consolidation and bounced on good volume the last two days. This is a turnaround story and the bounce affirms support at 10.5.
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By Arthur B. Hill - Tue 08-Nov-05 at 06:41AM in Market Musings
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Monday - November 07, 2005
Market Musings
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Dan Luskin of SmartMoney.com (click here) reports that volatility is dropping and his technical indicators suggest higher prices. Dan also like the political landscape, but I really find it hard to use politics to time the market.
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Barron’s (click here) leads off with 15 companies that are cash rich. These include: CMVT, NOVL, ASH, SLR, SNDK, LXK and KLAC.
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Barron’s (click here) also reports that "SonoSite (SONO) has built a better mousetrap -- a state-of-the-art, hand-held ultrasound diagnostic system. Investors will be beating a path to its door". Perhaps more importantly, the stock shrugged off a bad earnings report and bounced on big volume the last six days.
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Friday's employment report came up short on job growth. This is a problem for jobs, but not always a problem for stocks as long as profits can grow with fewer workers (i.e. productivity increases).
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BCA Research (click here) advises that the decline in bonds is nearing its end and an economic slow down is coming. Slower growth would put a bid back in bonds.
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Coca-Cola will stop producing vanilla coke and focus on cherry and lime. I thought vanilla coke was pretty good. But then again, I like a shot of vanilla in my latte as well. KO is missing the point here. Coke in general is on the way out and the company needs to come up with something completely new. It is hard to teach and old dog new tricks and Pepsi has captured the teen market.
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Bill Fleckenstein's Contrarian Chronicles (MSN Money) (click here) insinuates that Mercury Computer (MERQE) got a boost from its biggest shareholders at the end of October. Bill calls is tape painting and it is done to make end of month returns look better. Maybe it was just an oversold bounce as shorts covered or took profits ahead of earnings. In any case, the stock gapped lower on the first day of November and this wiped out any tape painting efforts. You can fool some people some of the time (short-term trend), but you can fool all the people all the time (long-term trend)
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William Gabrielski of TheStreet.com (click here) reports that Calpine's math adds up to a sell. CPN is trading around 2 and priced for failure. Looks like it has already been sold. This should at least serve as a warning to bottom pickers.
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Dan Fitzpatrick of RealMoney.com(click here) thinks the Nasdaq can break 2200 and move to multi-year highs. Thursday's gap better hold.
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John Spence of CBS MarketWatch(click here) reports that a silver group is against the creation of a silver ETF because it "would create a price squeeze in the metal because the fund would have to buy a large amount of silver to back the fund's shares prior to the launch". If this is the case, it would be prudent to let this new ETF settle before looking to buy into it.
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Pirate attack!? Yes, it is true. A Carnival (CCL) cruise ship came under attack by pirates off the coast of Somalia. The ship managed to outrun the pirates and there was no harm. Steer clear of the Somali coast.
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The US Dollar Index broke resistance at 91 and this could put pressure on commodities like oil and gold. Gold has been immune to strength in the US Dollar Index lately, but that could be changing as the StreetTracks Gold ETF (GLD) declined sharply last week.
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The Dow Industrials entered a resistance zone and turned indecisive on Friday.
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The Dow Utilities failed to partake in the rally over the last three weeks and formed a consolidation. Watch 405 up and 385 down.
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The Nasdaq gapped up and held the gap. Thursday's gap holds the short-term key for the bulls and it better hold.
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The NYSE Composite closed above its 50-day SMA on Thursday. Let's see if it can hold.
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The Russell 2000 ($RUT) moved into a resistance zone and formed two indecisive candlesticks over the last two days.
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The Energy SPDR (XLE) formed a rising wedge that retraced 62% of the prior decline and met resistance just below the October support break. Watch support at 48 for a bear signal.
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The Finance SPDR (XLF) formed a harami over the last two days and the market leader is getting weary.
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The Internet Architecture HOLDRS (IAH) gapped up on Thursday and a break above 35.6 resistance would be bullish. Without follow through, the consolidation holds and IAH is neutral at best.
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By Arthur B. Hill - Mon 07-Nov-05 at 10:22AM in Market Musings
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Friday - November 04, 2005
Market Musings
The Dow Transports is off to the races with a new all time high. However, the Dow Industrials is lagging far behind and this has created a blatant non-confirmation. Will the Dow Industrials catch up and confirm or will it drag the Dow Transports down?
The Nasdaq gapped up and formed a doji. Big open and then no follow through. In addition, the index is getting frothy.
This time around the Nasdaq 100 is leading as it challenges its summer highs.
The Retail HOLDRS (RTH) broke above resistance at 95 with a gap. This gap better hold.
The Semiconductor HOLDRS (SMH) gapped up to resistance around 35. The gap is bullish as long as it holds.
Oil prices jumped $2 and bond yields (rates) advanced above 4.6% - yet stocks also moved higher.
Monica Rvitisuvo of SmartMoney thinks that video game stocks are ripe for a move higher (ATVI, TTWO, ERTS). It’s beginning to sound a lot like Christmas.
Retail sales numbers for October were strong. This could buoy consumer confidence and the Retail HOLDRS (RTH).
Greenspan notes that the economy is still growing.
MCD moved higher on good volume and this big real estate holder could offer some value.
The Thai SET surged over the last three days and may have put in an important low around 680.
Starbucks (SBUX) still manages to deliver. This quarter, SBUX credited their "hand crafted espresso based beverages". Sounds like a work of art, not a drink.
James Cramer notes that the big story in pharma is Amgen's tumor drug, not Merck's trial outcome. AMGN moved higher on good volume.
James Altucher thinks that AS&E (ASEI) can win government contracts for its "threat detection technology".
Mark Hulbert notes that bond timers are bearish in record numbers. However, bonds keep falling.
Earlier this week Oracle announced a free version of its database software. Now, Oracle's CFO resigned after just 5 months on the job. Something is rotten in the Kingdom of Denmark.
The Nasdaq surged 16 points, yet the 20 most active included 8 declining issues. Say what?
By Arthur B. Hill - Fri 04-Nov-05 at 06:49AM in Market Musings
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Wednesday - November 02, 2005
Market Musings
The Dow formed a small falling flag over the last two days. Watch 10450-10500 for a breakout.
The Nasdaq formed its second harami in as many weeks and Monday's gap better hold.
Indecision gripped the market yesterday as a number of stocks and indices formed doji.
The S&P 100 is still meeting resistance from broken support.
The Internet HOLDRS (HHH) continues to lead the Nasdaq and formed a cup-with-handle over the last three months.
The more I hear about the yearend rally, but more I wonder if it will ever come.
James Stewart of SmartMoney notes that the Materials Sector should benefit from falling oil prices. The chart confirms this as the Materials SPDR (XLB) has shot higher the last few weeks.
The Institute for Supply Management (ISM) manufacturing index came in at 59.1 in October. Anything over 50 shows economic strength and this confirms the strong GDP numbers released on Friday.
In an effort to keep pace with Google, Microsoft is moving into web-based software. Windows and Office have the lion's share of the market. Yes, it is a commanding position, but also one with the most to loose.
When was the last time you saw a utility stock loose 20% in one month and 10% in one day? Look at TXU.
The US Dollar Index remains strong. This makes imports cheaper and exports dearer. Not a good combination for US based manufacturing.
Jon Markman notes that contrarians and value investors are circling the wagons around newspaper stocks (WPO, GCI, KRI, SSP and TRB).
The Nikkei closed at a four year high and is one of the strongest markets in the world right now.
John Berry of Bloomberg notes that the Fed may be on the road to a neutral stance. This makes sense as there is usually a period of flatness before a policy change.
Qualcom reports earnings today and this will affect the networking group and the Nasdaq.
The Dow Transports is off to the races with a new high, but the Dow Industrials is lagging and this creates a Dow Theory non-confirmation.
By Arthur B. Hill - Wed 02-Nov-05 at 06:13AM in Market Musings
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Tuesday - November 01, 2005
Market Musings
The Dow Transports broke above resistance with a long white candlestick and remains one of the strongest groups in the market.
The NYSE Composite moved above broken support at 7400 with good volume.
The S&P 500 closed above 1200 for the first time since 4-Oct.
The Dow Diamonds (DIA) broke pennant resistance intraday and then fell back.
The S&P 100 ETF (OEF) gapped up and formed a doji. Big move on the open and indecision the rest of the day. Also notice that the stock is meeting resistance from broken support.
The S&P Midcap ETF (MDY) formed a shooting star as intraday buying pressure faded.
SPY also gapped higher and formed a shooting star as intraday gains failed to hold.
The Retail HOLDRS (RTH) gapped higher to form and island reversal over the last few days. Still need a break above 95 to turn fully bullish.
Mighty DELL reduced its sales and profit outlook. The company is changing strategy and will start focusing higher margins instead of higher growth. This leaves the low end of the market to HP, Packard Bell and others. I really don't see how HPQ can maintain its recent gains with DELL and LXK tanking.
Oil moved below $60 and this put a bid into airlines and truckers.
Oracle is offering a free version of its database software. Chew on that one SAP.
The MSN Strategy Lab is starting a new round. Marketocracy founder Ken Kam is loading up on Energy with VLO, EPEX and PVX. He also thinks that ELAN and BIIB will move higher when Tysabri comes back on the market.
The S&P 500 was up 3% after the first 10 months of 2004. The index added another 8% in November and December to finish the year with an 11% gain. Is history destine to repeat itself? The six month bullish cycle just started and the January effect should kick in any day now. That is all grand, but keep and eye on the charts and 1170.
Real consumer spending fell 1 percent in August and 0.4 percent in September. This mini trend better reverse in October if the market is going to get its 4th quarter rally.
By Arthur B. Hill - Tue 01-Nov-05 at 07:09AM in Market Musings
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