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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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Posted by Arthur B. Hill at November 17, 2005 07:50 AM