Thursday - December 22, 2005
Merry Christmas and Happy New Year
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I am taking a break from the blog and will return on 3-Jan – fatter and happier! Happy Holidays and Happy New Year. See you in 2006.
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By Arthur B. Hill - Thu 22-Dec-05 at 05:56AM in General
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Wednesday - December 21, 2005
CSCO Lags, Hasbro Not So Happy and A Return to Growth
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Lack of follow through is the name of the game for some stocks. Cisco (CSCO) filled the November gap with a nice surge at the end of November. However, the stock failed to break resistance at 18. Instead, the stock broke support at 17.35 and remains flat at best. For the Nasdaq to get some traction, I would like to see Cisco take out 18 with good volume.
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Tis the season for toys and Hasbro, but the price chart looks rather ominous. The stock formed a rising wedge that returned to broken support at 20. Like the rest of the market, HAS consolidated the last four weeks and support at 20 holds the key. A break would be bearish. Should the stock hold support, look for a move above 21 to ignite the bulls.
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The Wall Street Journal reports: After years of strong performance by value stocks, those that are considered undervalued based on their earnings or assets, managers have become increasingly bullish on growth-oriented sectors such as health care and technology, according to the quarterly Investment Manager Outlook survey by Russell Investment Group. Managers also believe that the Federal Reserve will soon stop raising interest rates, and they are expressing more confidence in the U.S. consumer.
Judging from the chart above, it would appear that growth stocks have done pretty well the last few years. However, the pattern looks like a massive rising wedge. The bulls have nothing to fear as long as it rises. A move below the lower trendline and October low would break this rise and usher in a major trend reversal.
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By Arthur B. Hill - Wed 21-Dec-05 at 05:42AM in Market Musings
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Tuesday - December 20, 2005
Discounts Already, Iran and Europe, Look Out Google and Modest Returns
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Bloomberg reports: Macy's will keep its East Coast stores open until midnight starting tomorrow to lure shoppers. Sears, Roebuck & Co. is promoting ``The Big Finish'' sale with at least 50 percent off jewelry, cameras and video recorders. U.S. department stores are fighting to win sales in the final stretch of the holiday season. The companies have turned to price cuts and added incentives such as express gift wrapping to compete with Wal-Mart Stores Inc., which spurred sales in November by offering large discounts.
Is Macy’s competing with Wal-Mart? Sears, maybe, but not Macy’s. I don’t know how the logic flows. Wal-mart may have great prices, but the stores are a mess and I will not step foot in one during Christmas. However, I do think there is some merit in the big finish promotions. Early discounts point to disappointing sales. In addition, consumers will start seeing these discounts and wait for even more discounts. I think it is best to simply buy a gift card and let the bearer enjoy the post-Christmas sales!
The chart for the Retail HOLDRS (RTH) is still bullish. I am watching the blue trendline extending up from late October and December support at 96 for signs of trouble. The stock is meeting resistance near the August support break and a move below 96 would target a decline below 90. Ouch.
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CNNMoney reports: It's tempting to think of these different assets (bonds, stocks, commodities, real estate) as sitting on a seesaw, with one naturally rising as the other falls. But listen to bond market heavyweight Bill Gross and you might start to think of your investments as being spread across an air mattress as it's being inflated: Press down on one part and another pops up, but gradually everything gets higher and higher. Gross thinks this mattress is just about full, which could mean a long period, perhaps a decade, of low returns. "Almost all assets people can buy -- bonds, stocks or houses -- are back in the 4 percent to 6 percent mode," Gross says. "If people are expecting 10 percent-plus returns, they're in trouble."
After a sharp decline in 2002, the Dow put on a stellar performance in 2003. However, the Average has traded flat in 2004 and 2005. The Average has traded between 11000 and 9700 the last two years. The only way to milk a 10% return here would be to buy the bottom and sell the top. How likely is that? Not very. However, the Dow remains in an uptrend as long as the 2005 low holds. While returns might not be stellar with 11700 close at hand, a serious decline can be averted as long as 10000 holds.
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From Dr. Joe Duarte's Market Intelligence Report: As Iraq seems to be heading for some kind of stabilization, we now have a new crisis point in the Middle East, Iran. Iran is a bigger problem than Iraq, due to its higher level of political organization, and its increasingly tight relationship with Russia. Of course there is a North Korean connection, and Iran is also increasingly friendly with Venezuela and Cuba. What makes this situation more interesting, though, is that the Europeans, increasingly under siege by their own Muslim populations, as in France recently, suddenly have a major stake in how this works out. Furthermore, Europe's economies are flat, in the best of terms. Rising unemployment, questionable inflation, and a general feeling of "going nowhere," are pervasive in the E.U. In other words, Europe, which was against the U.S. invasion of Iraq, is not necessarily against taking serious action against Iran.
I agree with his assessment for the most part. However, I do not think Europe has the stomach for the military option. This was proven in the build up to Iraq. Had Europe and Russia joined American and the UK in the Iraq invasion, Iran would be having second thoughts about enriching uranium. Tough talk would hold water. However, the Iraq debacle proves that Iran has little to fear from Europe. The European diplomats can talk as tough as they want. Iran knows that when push comes to shove, Europe will not be doing the shoving, just the jaw-boning.
As you can see from the CAC 40 chart, the stock market in France is doing quite well and talk of a war with Iraq is not a factor. The index is challenging its 2002 highs and remains in a strong uptrend.
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David Kirkpatrick of FORTUNE reports: .....Yes, I love Google, but my first prediction is that a year from now we won't think that the search company is the invincible behemoth that we do now......One reason for this a new concept known as "community-powered search." Yahoo is forging an early lead over Google in this fast-evolving technology with its acquisition last week of del.icio.us for a rumored $35 million (the actual amount was undisclosed). Del.icio.us operates on principles similar to the popular MySpace. But whereas that social network site helps members find dates, form groups, and share music picks, del.icio.us helps members find hot information--websites that others have found useful. (News Corp. (Research) recently bought MySpace, for $580 million.)
How is this for a bullish chart? Yahoo! (YHOO) broke triangle resistance and the breakout is holding. As long as the stock holds above 39, the breakout must be considered bullish and higher prices are expected next year.
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By Arthur B. Hill - Tue 20-Dec-05 at 07:36AM in Market Musings
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Monday - December 19, 2005
Consolidate and Continue, XAU Holding Breakout and Internet HOLDRS Nearing Resistance
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After a nice big surge in November, the major indices have moved into a December funk for the second time in two years. At present, I consider the current this “funk” a trading range or consolidation after a sharp advance. Trading ranges can break either way and odds favor a continuation of the prior move, which was up. Moreover, consolidations often occur near the mid point of the entire move.
As the 2004 chart shows, the Nasdaq consolidated near the midpoints of the Aug-Dec advance and the Jan-Apr decline (black boxes).
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On this next chart the Nasdaq consolidated near the midpoint of the May-Jul advance. This consolidation lasted a month and ended with a breakout at 2100. As long as the December consolidation lows hold, the bulls are on firm footing and a continuation higher is expected. The advance from mid October to late November was one big move and there could still be another.
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The Internet HOLDRS (HHH) led the Nasdaq in November and then turned flat in December. The stock established short-term support at 66 and a move below this level would be negative. There is a lot of support around 60 from the prior consolidation and April trendline. I would not turn long-term bearish on this group unless HHH breaks 57.
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The Phila. Gold & Silver Index ($XAU) continues to hold its breakout and remains in bull mode. Though not exact, the same chart principles apply to XAU as with the Nasdaq. The breakout must be considered bullish as long as it holds. XAU formed a huge trading range and the breakout at 114 forged a new 52-week high. The index consolidated a bit and then moved higher in early December. Allowing for a little buffer and taking the May trendline into consideration, I will set support at 110 and remain bullish as long as it holds.
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By Arthur B. Hill - Mon 19-Dec-05 at 01:30PM in Market Musings
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Friday - December 16, 2005
Oracle Sales Rise, Lennar Beats, Program Trading and A China Rebound
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Therese Poletti of Mercury News reports: Oracle, the world's second-largest software developer, reported a 19 percent jump in fiscal second quarter revenues, but a 2 percent drop in net income due to acquisition costs and stock options expenses.The Redwood City business software giant said its customers running PeopleSoft products are renewing support contracts at a higher rate than when PeopleSoft was a stand-alone company. Oracle completed its acquisition of PeopleSoft in January.
I find this report more encouraging than the report fro HPQ, which reported higher earnings without a significant rise in revenue. ORCL is growing revenue and the costs mentioned look temporary. However, the stock still has its “technical” work cut out. ORCL gapped lower in September and never recovered from this gap. The stock has been stuck in a range with resistance at 13.1. A move above 13.1 would turn this chart bullish and I would stay out as long as it trades below this level.
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Dow Jones reports: Lennar Corp.'s (LEN) fiscal fourth-quarter net rose 53%, boosted by higher home deliveries The homebuilder also reaffirmed its fiscal 2006 earnings guidance of $9.25 a share, which is lower than the average analyst estimate Lennar's fiscal fourth-quarter income rose to $581.2 million, or $3.54 a share, from $379.7 million, or $2.29, a year earlier. Results were higher than Wall Street's average estimate of $3.34 a share, according to a survey of 16 analysts by Thomson First Call Revenue for the quarter ended Nov. 30, rose 42% to $5.03 billion from $3.55 billion a year earlier, higher than Wall Street's average estimate of $4.96 billion.
Don’t count the home-builders out too soon. The whole world is turning bearish on this group and yet they still seem to delivery at earnings time. Sure, it will stop one day, but tops can take a while to form. Lennar (LEN) bounced off the Aug-03 trendline and broke resistance at 60 with a strong move over the last week. The big trend is up and this breakout is simply a continuation of that trend.
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The Wall Street Journal Reports: Program trading in the week ended Dec. 9 accounted for 57.9%, or an average of 968 million shares daily, of New York Stock Exchange volume. Brokerage firms executed an additional 675.5 million daily shares of program trading away from the NYSE, with 1.4% of the overall total on foreign markets. Program trading is the simultaneous purchase or sale of at least 15 different stocks with a total value of $1 million or more.
Do you think these program trading platforms are based on fundamentals? I cannot speak for all, but my guess is that most of these algorithms are not based on fundamentals and have more to do with technical analysis. With more than 50% of the trading driven by program trading (non-fundamentals), traders ignore technical analysis at their own risk. This goes for investors as well.
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Jim Jubak of MSNMonday reports: Global growth means a risky 2006 global economy. China and India are likely to grow faster than expected in 2006. If that overheats the global economy, look for commodity and oil prices to spike.
On the price chart, the Shanghai Composite shows lots of support around 1000 and started to firm over the last seven months. A break above the September high would be bullish.
By Arthur B. Hill - Fri 16-Dec-05 at 06:21AM in Market Musings
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Thursday - December 15, 2005
Apple Is Not Finished, AK Steel and Sirius Seem Rational, Gold Corrects and RIMM Set for Long Battle
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Troy Wolverton of TheStreet.com reports: When Apple Computer introduced the flash-memory based iPod nano earlier this year, many analysts quickly dubbed it a "must have" gift for the holiday season. If Amazon.com customers are any indication, the analysts were correct. The e-tail giant allows customers to create "wish lists" on their site. Among the 44 most requested products in the company's electronics store are all four iterations of the iPod nano. But it's not just Apple's nanos that are in demand. Nine different iPod models -- representing all but one device in the company's digital music player lineup -- are listed among Amazon's most requested electronics products.
Apple is not about electronics, but rather religion. The iPod has set the stage for this stock to become a computer/electronic powerhouse for the next decade. In addition to the iPod sales, there will be subscription revenues from music sales and iPod add-ons. The halo effect will lead to a surge in Mac sales and this will lead to a new generation of Mac users. Sure, the stock is pricey and overbought, but you can bet that pundits will be buying the dips. On the price chart, I see support around 55-60, but doubt that the bulls will let this one fall so far and I would expect a bounce if the stock hits 65.
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John Shinal of CBSMarketWatch reports: Investors in Research in Motion Ltd. should be prepared to see the BlackBerry maker pay close to $1 billion if it settles its long-running legal battle with NTP for terms that are looking both reasonable and possible.A settlement with the small patent-holding company that won a patent-infringement case against RIM is more likely than it was a month ago, now that the two parties are talking through a mediator and after several more legal setbacks for RIM
This stock may go the way of Rambus (RMBS). Remember them? They are engrossed in legal battles and their whole future depends on the outcome of these battles. In contrast, the tobacco companies have legal battles, but they also have stable revenues and high profit margins to support these battles for a long time. RIMM is in the tech world and it is easy to fall from grace once you loose your footing. On the price chart, the stock broke support at 70 and this level turned into resistance. There is nothing bullish to report as long as 70 holds.
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James Dlugosch, editor of The Rational Investor newsletter, reports: Bar none my favorite stock for 2006 is Sirius Satellite Radio (SIRI) . That may be a surprise as SIRI does not look or feel like a value opportunity given its very small amount of current sales relative to its market capitalization. And yet in an environment of tight fisted conservative corporations and a risk averse market, I believe SIRI to present a fabulous contrarian opportunity to Rational Investors. Another favorite of mine for 2006 is AK Steel (AKS). In a market seeing valuations of whole number multiples of sales, AKS trades for a mere fifth of trailing sales. The company is expected to grow its earnings by 20% in 2006 and yet shares only trade for a mere 10 times the forward estimate of 77 cents per share.
On the price chart, AK Steel suffered a sharp decline early this year and then formed a triangle consolidation. Notice that there is support from broken resistance around 7. A break above the upper triangle trendline (9) would be bullish and open the door for another run above 15. A move below the lower trendline (6.5) would be bearish and target further weakness below 5.
On the price chart, SIRI failed at resistance with a bearish engulfing and gap down. This is a volatile stock and it found support just below 7 from the early November lows. There is some hope as long as 6.7 holds. Further weakness below 6.7 would be quite negative. Look for SIRI to fill the gap with a move above 7.5 to revive the bulls.
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Bloomberg Reports: Gold in New York plunged 2.8 percent, the biggest drop in a year, on speculation demand will slow from Japanese investors after the Tokyo Commodity Exchange increased the cost of trading the metal. The Tokyo exchange, the world's second-largest metals and energy futures market, boosted minimum deposits for trades to curb speculation after gold surged to a 24-year high of $544.50 an ounce on Dec. 12. Gold sold in yen climbed 18 percent in the five weeks ended Dec. 9. Tokyo gold trading last month was the most since February 2003 at 1.92 million contracts. Tokyo's higher margin payments have ``pulled some of the speculative interest out of the market,'' said Paul McLeod, vice president of precious metals at Commerzbank Securities in New York.
Excuses, excuses. There is always a reason somewhere. The New York Mercantile Exchange announced on 28-Nov that margins rates for the gold futures contract will increase to $1,500 from $1,000 for clearing and non-clearing members and to $2,025 from $1,350 for customers. This did not seem to affect the price of gold for some reason. Perhaps Gold just become overbought after RSI moved above 80 and it raced above the upper channel trendline. The decline is certainly sharp, but this just puts gold back into rising price channel that has been in place since September.
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By Arthur B. Hill - Thu 15-Dec-05 at 06:41AM in Market Musings
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Wednesday - December 14, 2005
Hewlett's Sales, Brookfield Homes Insider Buying and the Nikkei's Outside Reversal
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From Dow Jones: Hewlett-Packard Co. on Tuesday issued a 2006 sales forecast range with a midpoint that lagged Wall Street expectations, sending its shares lower even though the computer giant said profit would be higher than expected.
Surprise, surprise. Just look at the charts for DELL and LXK. HPQ might be able to cut costs to increase profits, but the real trick will be increasing sales. You can only cut costs so far. Investors should be wary of earnings growth in the absence of sales growth. On the price chart, HPQ formed a long white candlestick, doji and long black candlestick. The stock gapped down and closed weak on high volume yesterday. There is still support at 28.5, but downside volume is outpacing upside volume and the pattern over the last three days looks like a bearish evening doji star.
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Barron’s Online Report: An insider at Brookfield Homes (BHS) has been building up his stock holdings, perhaps demonstrating that there's little foundation for pessimism. In the past week, President and Chief Executive Officer Ian Cockwell snapped up 106,000 Brookfield shares in the open market at prices between $47.44 and $49.36. All told, he plunked down over $5 million for the stock. Cockwell now owns 461,829 shares of Brookfield altogether.
Nobody knows a company and its outlook more than the CEO and this is a clear vote of confidence. You can also see from the chart above that this stock has held up relatively well when one considers what happened to some of the other home-builders. Perhaps it was his buying that held it up! Upside volume continues to outpace downside volume and the stock gapped up two days ago. The bulls rule as long as the gaps holds.
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Is the Nikkei 225 finally getting tired? The index is up almost 50% since May and only suffered a minor correction in October. The index gapped up last week, but formed an outside reversal on Tuesday. A move below 15000 would fill the gap and make it a bearish exhaustion gap. While I would not be up for shorting the index, this could lead to a pullback into the 14000 area. There is support around 14000 from the August trendline, October resistance and the November consolidation. The time for a bullish heads up is when 10-day RSI dips below 50 (green circles).
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By Arthur B. Hill - Wed 14-Dec-05 at 02:16PM in Market Musings
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Tuesday - December 13, 2005
NDX Adds Google, The General Leads and Pfizer Surges
The Nasdaq 100 finally has Google (GOOG). The Nasdaq announced 11 new additions to the Nasdaq 100 and 11 deletions. The additions are not that surprising, but I was a bit surprised to see Novellus (NVLS) drop from the list.
New additions to the Nasdaq 100 and QQQQ
ACTIVISION-ATVI
CADENCE DESIGN-CDNS
CHECKFREE-CKFR
DISCOVERY HLDG-DISCA
EXPEDIA-EXPE
GOOGLE-GOOG
MONSTER-MNST
NII HOLDING-NIHD
NVIDIA-NVDA
PATTERSON UTI-PTEN
RED HAT-RHAT
URBAN OUTFITTER-URBN
Removed from the Nasdaq 100
CAREER EDUCATION-CECO
DOLLAR TREE-DLTR
INTERSIL-ISIL
INVITROGEN-IVGN
LEVEL 3 COMM-LVLT
MILLENIUM PHARMA-MLNM
MOLEX-MOLX
NOVELLUS-NVLS
QLOGIC-QLGC
SANMINA-SANM
SYNOPSYS-SNPS
SMURFIT-STONE-SSCC
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Google (GOOG) is a true powerhouse and deserves to be in the Nasdaq 100. I would imagine that this stock went on the fast track as the Nasdaq 100 could ill-afford to leave this high flyer out. The stock is in a clear uptrend, but also overbought as it moved above the upper channel trendline. This is not a bearish forecast, but should serve as an alert to longs to prepare for a consolidation or even a correction.
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Pfizer is up big today on big volume. This is still a bottom pickers play, but the stock formed a harami on Monday and then gapped higher on Tuesday. This confirms the harami. The stock is poised to form a long white candlestick and the high volume move solidifies support from the October and December lows.
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For clues on the large-caps, I am watching General Electric (GE). The stock broke resistance with a big gap in November and then corrected over the last few weeks. Volume on the correction was unusually high and the stock is firming around 35.2. A break above 36.2 would signal a continuation higher and be bullish for the large-cap dominated indices (OEX, SPX).
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By Arthur B. Hill - Tue 13-Dec-05 at 03:15PM in Market Musings
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Monday - December 12, 2005
SPX and NDX Daily Chart Analysis
The Nasdaq 100 remains in an uptrend and the current trading range is just a consolidation or rest within this uptrend. Just like December 2004, the index has turned indecisive in December 2005. NDX established support at 1670 with the 1-Dec gap and this holds the short-term key. A move below 1670 would open the door to a correction and the downside target would be broken resistance around 1620. I really see a support zone around 1600 (1590-1620). Keep in mind that the index forged an important breakout in early November and this turned the medium-term trend bullish. It would take a move below 1590 to undo this breakout and challenge my reason for turning bullish on the daily chart.
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The S&P 500 broke resistance around 1240-1245 and this breakout is holding. The index consolidated the last few weeks, but this should be viewed as a rest within the ongoing uptrend. The advance from mid October to end November was sharp and a consolidation is perfectly normal. A move below 1250 would turn the short-term trend bearish and argue for a deeper pullback with the first target around 1230. For now, there is no sense questioning the breakout and uptrend.
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By Arthur B. Hill - Mon 12-Dec-05 at 02:19PM in Market Musings
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Friday - December 09, 2005
Fed Funds versus Stocks, The Yield Curve and Newmont's Trading Range
Do interest rates really matter? The NYSE Composite did just fine from 1995 to 2000 when the Fed Funds rate stayed mostly above 5%. It was not until the Fed Funds rate began falling that the NYSE Composite started falling (2001). This is a clear case of the stock market moving lower when interest rates also moved lower.
Why is that? The Fed lowers interest rates when it sees economic weakness. Even though lower interest rates translate into a lower cost of capital for businesses, it appears that the economic weakness argument has been winning lately.
The Fed Funds rate bottomed in Sep-03 and the NYSE Composite turned up a few months before this bottom. Both have been rising since Jul-04 (almost 18 months). The Fed raises rates when it sees signs of economic strength and the stock market does not seem to mind higher rates as long as they are tied to economic growth.
The first rises (1% to 4%) were the easy part as the Fed Funds rate returns to normal (~5%). The increases from here (4%) will bring the rate closer and closer to 5%, which appears to be neutral territory. As long as rates rise, we can assume that the economy is in good shape or that the Fed sees inflation on the horizon. It could even be a little of both as both gold and stocks move higher.
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Another way to assess monetary policy is with the yield curve. This is done by subtracting a short-term yield from a long-term yield. In this example, I am subtracting the 13-week T-Bill Yield from the 10-Year T-Note Yield. Long-term rates should be higher than short-term rates and this creates a normal yield curve. When short-term rates are higher than long-term rates, the yield curve is inverted and this is bearish.
In the last ten years, the yield curve has only been inverted once (Aug-00 to Jan-01). This coincided with a major top in the NYSE Composite. Currently, the yield curve is still normal and the Fed is tightening. You can clearly see that the spread between the 10-year T-Note Yield and 13-week T-Bill Yield has narrowed significantly over the last several months. Many bond market pundits are calling for an end to this tightening phase as the spread approaches zero. That remains to be seen, but one thing is clear: the direction is down and the trend favors more tightening. Unless inflation gets out of hand, the Fed is unlikely to push this spread below zero and produce an inverted yield curve. If gold is warning of a serious uptick in inflation, then this spread could turn negative and the Finance sector would be hit pretty hard.
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Newmont (NEM) has formed the mother of all consolidations. Since NEM first broke above 35, gold has advanced from below 400 to above 500. However, NEM remains stuck in a long-term trading range. Did NEM secretly hedge production? Probably not, but the stock is not keeping up with gold, which broke its 2003 and 2004 highs. NEM is current challenging resistance and a breakout at 51 would be hugely bullish. The pattern looks like a sharp advance and (20-50) and long flag (35-50). A break above 51 would signal a continuation of the prior advance and project a move to around 65 (50 – 20 = 30, 35 + 30 = 65). We could also consider the trading range a large rectangle formation and a breakout would project a move to around 65 (50 – 35 = 15, 50 + 15 = 65).
By Arthur B. Hill - Fri 09-Dec-05 at 01:49AM in Market Musings
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Thursday - December 08, 2005
Finance and Internet Lead Lower, Dynegy Firms, OmniCell Challenges Resistance and Agrium Breaks Out
The Finance SPDR (XLF) led the market lower yesterday as interest rate sensitive issues bore the brunt of selling pressure. The Nasdaq is not so interest rate sensitive and held up a lot better. Relative weakness in the Finance SPDR (XLF) will weigh on the S&P 500 and NYSE Composite because this sector makes up around 20% of these indices. On the chart above, XLF failed to hold the 1-Dec and 6-Dec gaps (gray oval). In addition, the stock broke its prior lows and 30-period RSI on the 60 minute chart moved to its lowest level in months. All this amounts to a short-term trend change for XLF and this will weigh on the S&P 500.
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While the Finance SPDR (XLF) leads the S&P 500 lower, the Internet HOLDRS (HHH) is trying to pull the Nasdaq lower. This ETF does not include Google, but it did not need Google in November with a surge above 70. Now, however, I am seeing relative weakness as HHH gapped higher on 1-Dec and already filled this gap. Strong stocks hold their gaps and the Internet HOLDRS (HHH) is not showing strength. The stock also broke the trendline extending up from 1-Nov and 30-period RSI moved to its lowest level since October.
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So what was up on Wednesday? Dynegy (DYN) managed a small gain. The stock surged in early November and broke falling wedge resistance with good volume. The decline over the last few weeks occurred on lower volume and the stock is firming around 4.5. A break above the 30-Nov high (4.8) would get the bulls moving again.
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Agrium (AGU) surged above falling price channel resistance with good volume over the last two days. This is an agricultural-chemical company that competes with Monsanto, which reported good earnings.
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Omnicell (OMCL) is showing strength with a high volume surge over the last five days. The stock is challenging resistance around 11 and looks poised to breakout.
By Arthur B. Hill - Thu 08-Dec-05 at 06:30AM in Market Musings
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Wednesday - December 07, 2005
A Gap and a Shooting Star, Inflation Easying and Gold Surging, Pepsi Closing in on Coke, Will Google and Apple Surpass Microsoft?
Good day! Despite an afternoon sell-off, most stocks and indices finished on the plus side and the gaps are largely holding. The 1-Dec gap remains the most important gap. 15-day RSI on the QQQQ chart formed a small negative divergence over the last two weeks and this shows less momentum. In addition, the shooting star reflects a failed rally and this reinforces resistance around 42. However, I will return to the gap and long white candlestick for the final say. The bulls have the edge as long as these hold.
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From Dow Jones: U.S. economic growth and inflation will moderate in 2006, but so will the unemployment rate, according to a group of business leaders, academics and others gathering at a recent Chicago Federal Reserve symposium, the bank said Monday.
Somebody forgot to tell gold about moderating inflation. The StreetTracks Gold ETF (GLD) surged above 50 last week and above the upper channel trendline this week. The trend is clearly up, but getting overbought as RSI crosses 70 for the third time in the last few weeks (gray oval). As long as RSI holds its late November low, momentum is with the bulls. A move below 63 would open the door to a correction that could see GLD pull back to 48-49.
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From the Wall Street Journal: If things don't change, Coke CEO Neville Isdell could be remembered for being in charge when the King of Pop lost its throne. Pepsi is within striking distance in stock-market capitalization for the first time since Coke shares hit the market in 1919.
From the price chart, you can see that Coke’s market cap is roughly 1/2 what is was in 1998 and Pepsi’s market cap is almost double what it was in 1998. This comparison got me to thinking. In five years we may be able to swap Google for Pepsi and Microsoft for Coke. Or, perhaps even Apple (AAPL) will surpass Microsoft in five years. The Coke analogy goes to show that if you loose the young up and coming, you loose - period. Apple is clearly winning the hearts, minds and wallets of the hip.
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By Arthur B. Hill - Wed 07-Dec-05 at 06:48AM in Market Musings
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Tuesday - December 06, 2005
Elan, Doubling Up, Four Year Cycle, Gadget Boom and xBox
Ken Kam of Marketocracy is playing in the MSN Strategy Lab (click here). In his most recent update, he adds to his Elan (ELN) position and makes a great point about add-ons. First, he likes ELN because the FDA granted Tysabri priority review status. This means the FDA will complete its review in six months instead of 10 months. Ken thinks this is because the FDA knows that Tysabri fills a ”big unmet medical need”.
Bullbearinvestor.com highlighted ELN when the stock broke falling wedge resistance on 8-November. This breakout held and the stock surged on great volume a few days later. The stock has since consolidated and found support at 10. There is still a lot of risk, but the chart points to higher prices.
Ken first purchased ELN in early November and this is an add-on purchase at a higher price. He notes that some of his best trades come from second buys at higher prices. Once prices move higher, the market is telling you that you are right and it makes sense to add to your winners. In contrast, a losing position is telling you the opposite and it makes sense NOT to add. The prudent action is usually to close the position and move on.
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According to eBay president and CEO Meg Whitman, a staggering 40,000 Xbox 360 consoles have been sold on eBay. As reported by Dow Jones last night based upon a presentation at the CSFB Annual Technology Conference, the 40,000 unit figure has left pundits flabbergasted. If launch supply estimates from American Technology Research are accurate, that would mean that 10% of all Xbox 360 consoles sold in the US were either sold or resold through eBay. Simple amazing and this shows the power of Ebay.
Is this a buy-on-rumor and sell-on-news scenario? Notice how MSFT moved higher ahead of the launch and then traded flat. The stock broke falling wedge resistance with a surge on Thursday and this is bullish as long as 27.5 holds.
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Here is a second tier gold stock that is holding the gap. Like Gold itself, Bema Gold (BGO) has been moving higher the last few months and gaped up on high volume. Upside volume remains robust and the stock formed a flag. Watch for a move above 3.1 to signal a continuation higher. As a low priced gold stock, this issue carries above average risk.
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From Dow Jones: Gadget Boom Drives Up Demand for Chips - Worldwide sales of semiconductors rose 6.8% in October, bolstered by strong demand for consumer electronics, such as cell phones, MP3 players, digital cameras and personal computers. I think this is evident from the Semiconductor HOLDRS (SMH) chart, which broke out to new highs and is suddenly leading the Nasdaq. This little semiconductors are part of everything with a battery or electrical cord. The real growth is going to come from outside the computer world and this may explain Intel’s new partnership with Micron.
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From CBS MarketWatch (click here): Razr sharp: By bringing Silicon Valley zeal to a Midwest tech giant, Motorola Chief ExecutiveEd Zander has helped spark a major turnaround . in the company. For this and more, he’s the MarketWatch CEO of the Year for 2005. On the price chart, MOT formed an outside reversal last week and failed to move higher on Thursday. The stock declined on high volume the last two days and suddenly shows relative weakness.
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David Fuller of FullerMoney.com (click here) notes the following: History shows that the second year of a US presidential cycle (2006 in this instance) is the least rewarding on Wall Street. No coincidence or fluke, this ties in with the four-year presidential term. In the second year of the Fed's effort to clean out the Aegean Stables after fiscal excesses, US short-term interest rates often reach a peak. Repeated hikes in the Federal Funds Rate eventually create a headwind for the stock market, not least in the current cycle because rising rates will also slow house price appreciation and consumer spending. That's the bad news for 2006 but fortunately it eventually becomes good news.
By Arthur B. Hill - Tue 06-Dec-05 at 09:17AM in Market Musings
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Monday - December 05, 2005
Hold that gap, Utilities underperforming, TIPS gap down and OPNW looks weak.
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Good day! The gaps keep coming and the gaps keep holding. QQQQ gapped higher on Thursday and this gap is getting an immediate test today. It is ok to take back some of the gains seen on Thursday/Friday, but not all. A move below the gap and below last week’s low would be most detrimental to the bullish cause.
Here are some gaps from January 2003. The first one on 9-Jan held (green oval) and QQQQ moved higher. The second one did not hold and the index stalled for a few days (blue oval). There was a support break on 15-Jan and then a gap down on 17-Jan (red oval). This gap broke support and filled the first gap. QQQQ best hold its last gap or else….
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While the Dow Industrials and Dow Transports are trading above their summer highs, the Dow Utilities remains well below its early October high and has yet to recover from the October thrashing. A rising flag formed over the last few weeks and a move below 385 signals a continuation lower.
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The S&P Small-Cap EFT (IJR) formed a hanging man on Friday. This is a bearish candlestick reversal pattern that requires confirmation and a move below 58 would be short-term bearish. Notice that support at 58 stems from broken resistance.
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Bonds were hammered last Thursday and money moved out of bonds and into stocks. The iShares ~20-year T-Bond Fund (TLT) and iShares Lehman TIPS Bond Fund (TIP) both moved sharply lower. However, the TIP gapped down and broke below its November low. If inflation were a real concern, I would expect this bond to hold up much better than its non-inflation-hedged counterpart (TLT). The relative weakness in TIP shows that bond investors are more concerned with economic growth than inflation. TOP needs to move above 104 for inflationary concerns to move back to the forefront.
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Openwave Systems (OPNW) has been underperforming and looks weak. The stock broke support in mid October and then surged in late October. The surge lasted one day and the stock traded flat in November. The Nasdaq surged to new highs in November and this shows relative weakness. While the Nasdaq gapped higher and closed strong on Thursday, OPNW broke support at 16.5 with high and looks headed lower.
By Arthur B. Hill - Mon 05-Dec-05 at 11:19AM in Market Musings
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Friday - December 02, 2005
The Gap, Gas and Retail Sales, December, US Dollar not afraid of ECB plus GE, SYMC, CSCO, SIRI, HPQ and WMT.
Stocks opened strong and closed strong. Thursday’s gap is bullish until proven otherwise (filled). It is as simple as that.
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Barry Ritholtz (http://bigpicture.typepad.com/comments/) is bullish on retail sales because of falling gas prices.
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From the Capital Speculator (www.capitalspectator.com): The dollar has found a reprieve in the last three months, in part due to the stillness that has characterized the monetary policy of the European Central Bank. The ECB has kept the Continent's benchmark rate at 2% for the last 30 months while the Fed has incessantly raised the price of money since June 2004 to the current 4.0%, thereby creating a tidy premium in dollar assets over euro-based counterparts. The Capital Speculator notes: Although that premium isn't about to evaporate any time soon, the ECB may start lifting rates, giving dollar bulls new reason to worry.
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I will not be impressed with Cisco unless it can break 18.
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SIRI also failed to partake in the rally and closed below its open.
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GE failed to partake and closed below its open.
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HPQ failed to partake yesterday and actually gapped down. Hmm….
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Steve Todd of the Todd Market Forecast (www.toddmarketforecast.com) notes: Let's talk December. In the 56 years since 1949, the 12th month has been up 41 times and down 15 for a batting average of 73%. The average gain has been 1.8% which makes it the best month in Dow terms over the past half century. If the other months had done as well, the average yearly gain would have been 23%.
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SUNW announced that it will bundle much of its software and offer it for free to customers. This is all about eliminating the barriers to revenue, said Sun Chief Operating Officer Jonathan Schwartz in a telephone interview. Sounds like a way to eliminate revenue altogether!
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Microsoft will make its Windows OneCare Live "computer health" service available to all comers for free in a "beta" test designed to see how well it works on a massive scale of potentially millions of consumers. Microsoft plans to support OneCare with a monthly subscription fee once it is formally launched some time next year. Look out Symantec.
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AP Reports that Wal-Mart Stores Inc. (WMT) charged the wrong price to shoppers in California and the Midwest at a rate that exceeds those set by federal guidelines, according to two union-commissioned university studies released Monday. Researchers said random purchases at 60 Wal-Mart stores in California found that the wrong price came up 8.3% of the time. At 78 stores in Illinois, Indiana and Michigan, check-out scanners rang up the wrong price 6.4% of the time. In both states, some prices rang up higher and some were lower.
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The Wall Street Journal reports that the ECB is expected to raise rates by a quarter point to 2.25%, the European bank's first rate increase in five years. The ECB move is prompting some strategists to advise shifting from European to U.S. stocks. Euro can hardly grow as it is and a rate increase is the last thing needed.
By Arthur B. Hill - Fri 02-Dec-05 at 06:15AM in Market Musings
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Thursday - December 01, 2005
Mind the gap, JDSU keeps going, PER gaps, IKN challenges resistance plus CMGI, FSS and BEZ
Good day! Stocks opened with a bang this morning and this bang must now hold. That is what strong markets do: gaps up, hold the gap and build on the gap. As long as this gaps holds, it should be considered bullish. End of story. With a big move higher in the works, I will focus on a number of bullish setups that came across my scans today.
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This is the seventh time since 13-July that I have written on JDS Uniphase and all have been bullish. Unlike LU and NT, JDSU never gave us reason for concern. Broken resistance at 1.75 turned into support and the stock moved higher from mid October, just like the rest of the market. Upside volume continues to outpace downside volume and this stock is headed for 3 at least.
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Big gaps and big volume are bullish until proven otherwise. Perot Systems (PER) answered a lower low with a surge above 13.5 on the biggest volume in months. This solidifies support around 13 and increases the chances of a breakout in the coming weeks.
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Ikon Office (IKN) broke triangle resistance in early November and then fell back into a trading range. The lower trendline held and the stock moved higher on good volume Wednesday. There is a ton of support around 9.5 and a break above 10.4 clears the way for further gains.
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I wrote about CMGI when it broke resistance in late May. However, this breakout failed to hold and the stock drifted back below 1.50. CMGI found support around 1.5 the last few months and is trying to breakout again. Volume is above average (again) and the stock has excellent support at 1.5. Like all low priced stocks (<2) this one is pretty much all or nothing (a home run or a strike out).
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Federal Signal (FSS) broke support in October and looked destined to test the May lows. However, the decline stopped well short and the stock broke above the September trendline with good volume yesterday. There is a lot of support around 15.5 and a move below this level would negate the breakout.
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Here is what Bob Stovall of Standard & Poor’s says about Baldor Electric. “I think home owners are going to think about buying a generator. Baldor Electric makes generators and motors”.
Well, I am not sure how much money there is in generators, but the chart looks pretty nice. The stock recovered from the October dip and is moving above resistance with above average volume.
By Arthur B. Hill - Thu 01-Dec-05 at 10:37AM in Market Musings
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