Tuesday - January 31, 2006
Cramer Likes Silver and Pan American Silver (PAAS)
Jims goes on to say: Want a silver play to help make money from inflationary pressures in the market? Cramer said to look at Pan American Silver (PAAS) a Canadian company. The company's margins are expanding and that its growth is accelerating. Combine that with rising silver prices, and, he said, there's a lot to like.
Obviously Jim is not alone as PAAS moved from the low 12s to the low 22s. The stock formed a nice rising price channel over the last eight months and recently moved above the upper trendline on big volume. This has created an overbought situation and the stock is ripe for a pullback or consolidation. Now is not the best time to buy and I would be more inclined to wait for the Stochastic Oscillator to become oversold (gray ovals) for a better risk-reward ratio.
--------------------------------------------------------
By Arthur B. Hill - Tue 31-Jan-06 at 06:34AM in Stocks
Email to friend
| Permalink
| Home
| Comments (0)
UBS investor optimism increases for fourth straight month.
Highest Level in Year and a Half; Investors Confident about Outlook for Economic Recovery; Energy and Healthcare Top Investor Concerns for 2006.
Investor optimism has surged to a 19-month high, according to the latest UBS/Gallup Index of Investor Optimism, with investors continuing to express confidence in the performance of the U.S. stock market. Now at 93, the Index is up 14 points from last month and 59 points since September 2005. The last time the Index was this high was in June 2004, when it reached 95.
Is investor optimism unwarranted? Oil prices are high, but so are stock prices. This goes to show that investor optimism is more geared towards stocks prices than oil prices. The S&P 500 has been moving higher since October 2002 and shows no signs of stopping now. Net New Highs on the NYSE reached +440 on Monday and this is also a sign of strength, not weakness.
--------------------------------------------------------
By Arthur B. Hill - Tue 31-Jan-06 at 06:33AM in Sentiment
Email to friend
| Permalink
| Home
| Comments (0)
Ink-o-dem Ready to Take a Bite out of Hewlett and Lexmark
The Wall Street Journal Reports: Even as computer prices have steadily dropped, the cost of one high-tech necessity has remained stubbornly high. Printer cartridges are so costly that printer giant Hewlett-Packard Co. has long made more than two-thirds of its profit from selling them. Now, in a move that could save consumers hundreds of dollars in replacement costs, several major retailers are starting to offer speedy refill services that replace the ink rather than the entire cartridge.
This picture shows the Ink-o-Dem. Walgreen’s is rolling out this service in half of its 1500 stores. Think what would happen when Wal-mart gets wind of this! Lexmark and HP can say goodbye to a big percentage of their profits.
HPQ had a great run over the last 18 months (16 to 32) and is meeting resistance around 31-32. The stock formed a bearish engulfing on 20-Jan and a dark cloud on 26-Jan. These are potentially bearish, but the stock has yet to fold and break even minor support at 31. I think this Ink-o-Dem could take the bid out of HPQ and at least stall the advance. There is nothing in the chart to show weakness yet, but I will be watching closely.
--------------------------------------------------------
By Arthur B. Hill - Tue 31-Jan-06 at 06:31AM in Stocks
Email to friend
| Permalink
| Home
| Comments (0)
Monday - January 30, 2006
Fed and Earnings, XLY Forms Rising Wedge, RTH holds support and XLF Broadens
--------------------------------------------------------
Good Monday Morning! The Fed meets this week and earnings season remains in full swing. After a sharp move lower on 20-Jan, stocks rebounded last week and recovered most of the options-related losses. I would expect slow trading ahead of the Fed and a pickup in action after the announcement on Tuesday afternoon. Wednesday AM could hold the key to the next significant move and I will be watching for the post Fed reaction more than the pre-Fed posturing. Today, I will look at three key ETFs. Have a good day!
--------------------------------------------------------
The Consumer Discretionary SPDR (XLY) is one of the most cyclical of the sector ETFs and therefore most prone to economic fluctuations. The stock has rising the last few months and formed a rising wedge from Oct-Jan. These are potentially bearish patterns, but the bulls get the benefit of the doubt as long as the wedge rising. I am watching the lower trendline for the first signs of trouble. A move below last week’s low (32.86) would break this trendline and put the rising wedge in play. This would call for a continuation of the Aug-Oct decline and project a move below the October low.
--------------------------------------------------------
The S&P 500 is not going far without the Consumer Discretionary SPDR (XLY). The Consumer Discretionary SPDR (XLY) is not going far without the Retail HOLDRS (RTH). This is perhaps the most important industry group right now. Even though rising oil prices have not affected the overall market, they have affected the Retail HOLDRS (RTH), which remains in a downtrend and below its mid January high. This weakness is weighing on the S&P 500 and has limited gains. There are signs of support around 94-95, but no signs of buying pressure. RTH needs to break above 98 to reverse the current downtrend and revive the Consumer Discretionary sector. I am also watching RSI, which has been trending lower the last few months. RSI needs to move above the red trendline extending down from late November to turn momentum bullish.
--------------------------------------------------------
The Finance SPDR (XLF) broke support on 20-Jan, but recovered last week and gapped higher on Thursday. This is certainly positive price action and makes the support break a bear trap. However, the broadening pattern over the last two months shows a torn market. The higher highs favor the bulls and the lower lows favor the bears. The end result is a broadening formation (magenta trendlines) that whipsaws both. What a mess. As long as Thursday’s gap holds, it should be considered bullish. A move back below 31.5 would be most negative.
--------------------------------------------------------
By Arthur B. Hill - Mon 30-Jan-06 at 10:44AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Thursday - January 26, 2006
NDX Medium Term Trend and Short Term Trend
--------------------------------------------------------
The short-term trend should be considered with the medium-term trend in mind. When the medium-term trend is up, a short-term decline would be a medium-term correction. The medium-term trend is the bigger trend and carries greater weight. Playing a short-term decline is certainly possible, but it is also a dangerous game when the medium-term uptrend holds the bullish trump cards. As this chart shows, the medium-term trend for the Nasdaq 100 is clearly up. The index broke resistance in November, broken resistance turned into support in January and the index continued higher in early January.
--------------------------------------------------------
Now lets turn to the short-term trend. The decline over the last two weeks has been sharp and last Friday’s long black candlestick certainly did technical damage to the short-term trend. In fact, it was enough to turn the short-term trend down. However, this short-term downtrend is still just a correction within a larger medium-term uptrend. On the daily chart, the index is trading at support from the October trendline. On the 60 minute chart, the index firmed over the last three days. Firmness should not be confused with strength. Short-term RSI is still trending lower and the index failed to follow through on two prior attempts to break above 1700. Even though the index is trending lower, the battle lines are clear. First, 30-period RSI on the 60 minute chart needs to break the red trendline and move above 50 to turn momentum bullish. Second, the index needs to break above the consolidation highs (1696). Even though there is resistance around 1740-1750 from the prior high, a breakout here would be enough to turn the short-term evidence bullish and expect a resistance challenge.
--------------------------------------------------------
By Arthur B. Hill - Thu 26-Jan-06 at 12:15PM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Wednesday - January 25, 2006
JNJ Misses a Week and Stern Sinks Sirius
--------------------------------------------------------
From Dow Jones: Johnson & Johnson (JNJ) posted quarterly net income of $2.2 billion (73 cents a share), compared with $1.2 billion (41 cents) earned for the same period in 2004. Revenue for the latest quarter fell by 1.1% to $12.6 billion. The company noted that the quarter consisted of only 13 weeks in 2005, as opposed to 14 weeks in 2004. According to a poll by Thomson First Call, analysts on average had estimated that the company would have adjusted earnings of 73 cents a share, on revenue of $13.18 billion.
Is JNJ insinuating that the analysts did not factor in the missing week in their forecast? Come on! The company missed the revenue estimates. Moreover, JNJ probably provided the estimates to the analysts. What a lousy excuse. In any case, one look at the charts shows that this stock has been in trouble and remains in trouble. The stock has been trending lower since April and has yet to forge a higher high. Gaps in November and January failed to hold and the stock broke support at 60 with high volume yesterday. While I don’t expect a blood bath in this Consumer Staple stocks, I do not expect higher prices as long as key resistance at 64 holds. More likely, I would look for the stock to work its way towards the mid 50s.
--------------------------------------------------------
Careful what you wish for. Howard Stern debuted on Sirius the second week of January and the stock just continues lower. There are a number of possible reasons, but two seem to stand out. First, Stern is sitting on 34.4 million shares and will likely be selling some of these. Second, Stern can say what he wants. Infinity Broadcasting censored Stern in an effort to keep him on the airwaves. Stern is now free of this censorship and can say what he wants. That is a scary thought. Personally, I could stand the show when it was censored. An unleashed Stern is likely to be even worse, or better, depending on your view. This is clearly a love-it or hate-it show and Sirius is betting big that enough will love it. I am not so sure and the stock price seems to agree. There are enough people to hate the show and this will be a turn off. You win some and loose the rest. Is that a way to run a business?
The stock formed a bearish engulfing and gapped lower in mid December. A little profit taking would be normal after the Oct-Dec run, but this is more than just profit taking. The stock is already trading at its October lows and showing relative weakness. There is support around 6, but it would take a move above key resistance at 6.5 to reverse the current downtrend.
--------------------------------------------------------
By Arthur B. Hill - Wed 25-Jan-06 at 06:41AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Tuesday - January 24, 2006
Google Can't Get Better, Apple Can Get Better and Skype Surprises
--------------------------------------------------------
Would there be any tech news without Apple and Google? When was the last time two companies so dominated the spotlight. Even in the internet hey day, there were a dozen or so grabbing the headlines. These two can do no wrong and the sky is the limit. It reminds me of an old story about selling a good stock. When asked why he sold such a great stock, Fred replied: the company said things couldn’t be better? In other words, it got as good as it was going to get.
Perhaps it can get better for Apple as the halo effect takes over to boost computer and software sales. Apple has a relatively small slice of the computer market and there is plenty or room to take market share from Microsoft and the PC world. In contrast, Google already dominates the search engine and advertising markets. While dominance is great, it does limit the ability to increase market share. In addition, there are a lot of big gunners looking to take a slice of the pie away from Google (Microsoft, AOL, Yahoo!, Ebay and Amazon).
A look at the top global brands confirms the resurgence of Apple and the dominance of Google. Also notice that Skype came in at number three on the global brand list. This is quite amazing for a little internet telephony service created in Luxembourg. Ebay now owns Skype and this gives Ebay one of the top global brands.
--------------------------------------------------------
By Arthur B. Hill - Tue 24-Jan-06 at 06:59AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Monday - January 23, 2006
Top 50 Gadgets, Motorola vs Sony and the Good Oil 90s
--------------------------------------------------------
PC World released its list of the top 50 tech gadgets of all time. The iPod came in at number 2, just behind the Walkman. I really don’t think iPod deserves to be ahead of the Polaroid Land Camera or the Phonemate. I guess the poll has a short memory. Motorola (5) and Sony (7) captured the most spots and I will look at their charts below.
1 Sony Walkman TPS-L2 (1979)
2 Apple iPod (2001)
3 (Tie) ReplayTV RTV2001 and TiVo HDR110 (1999)
4 PalmPilot 1000 (1996)
5 Sony CDP-101 (1982)
6 Motorola StarTAC (1996)
7 Atari Video Computer System (1977)
8 Polaroid SX-70 Land Camera (1972)
9 M-Systems DiskOnKey (2000)
10 Regency TR-1 (1954)
11 Sony PlayStation 2 (2000)
12 Motorola Razr V3 (2004)
13 Motorola PageWriter (1996)
14 BlackBerry 850 Wireless Handheld (1998)
15 Phonemate Model 400 (1971)
16 Texas Instruments Speak & Spell (1978)
17 Texas Instruments SR-10 (1973)
18 Diamond Multimedia Rio PMP300 (1998)
19 Sony Handycam DCR-VX1000 (1995)
20 Handspring Treo 600 (2003)
21 Zenith Space Command (1956)
22 Hamilton Pulsar (1972)
23 Kodak Instamatic 100 (1963)
24 MITS Altair 8800 (1975)
25 Radio Shack TRS-80 Model 100 (1983)
26 Nintendo Game Boy (1989)
27 Commodore 64 (1982)
28 Apple Newton MessagePad (1994)
29 Sony Betamax (1975)
30 Sanyo SCP-5300 (2002)
31 iRobot Roomba Intelligent Floorvac (2002)
32 Microsoft Intellimouse Explorer (1999)
33 Franklin Rolodex Electronics REX PC Companion (1997)
34 Lego Mindstorms Robotics Invention System 1
35 Motorola DynaTAC 8000X (1983)
36 Iomega Zip Drive (1995)
37 Magnavox Magnavision Model 8000 DiscoVision Videodisc Player (1978)
38 Milton Bradley Simon (1978)
39 Play, Inc
40 Connectix QuickCam (1994)
41 BellSouth/IBM Simon Personal Communicator (1993)
42 Motorola Handie Talkie HT-220 Slimline (1969)
43 Polaroid Swinger (1965)
44 Sony Aibo ERS-110 (1999)
45 Sony Mavica MVC-FD5 (1997)
46 Learjet Stereo-8 (1965)
47 Timex/Sinclair 1000 (1982)
48 Sharp Wizard OZ-7000 (1989)
49 Jakks Pacific TV Games (2002)
50 Poqet PC Model PQ-0164 (1990)
--------------------------------------------------------
Sony (SNE) lagged the Nikkei in 2005, but appears to be playing catch up with a breakout in 2005. The stock surged in 2004 and corrected in 2005 with a large falling wedge. The breakout signals a continuation higher, but the stock has become short-term overbought and ripe for a pullback. Even though a move below the breakout (40) would be negative, I see lots of support around 37.
--------------------------------------------------------
Motorola (MOT) has been a leader over the last few months and is holding its July breakout. The stock surged above 20 and then formed a triangle in 2005. The subsequent breakout signaled a continuation high and MOT moved to 25. The going has gotten tougher recently, but the breakout is holding and the long-term for MOT is up as long as 19 holds. A pullback to the 19-20 area would offer better risk-reward ratio for new longs.
--------------------------------------------------------
My how things change. During the 1990’s, the 12-month moving average for oil moved above $25 per barrel only once. For the most part, oil remained below $25 for over 10 years. These were clearly the good times. The 12-month SMA moved above $25 in May 2000 and has remained above $25 for the last 4 1/2 years. The breakout at $40 is massive and it is holding. This level now turns into long-term support and I really don’t see oil moving below $40 anytime soon.
--------------------------------------------------------
By Arthur B. Hill - Mon 23-Jan-06 at 09:34AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Friday - January 20, 2006
M3 and the S&P 500
--------------------------------------------------------
Mark Hulbert of CBS MarketWatch Reports: ***Madeline Schnapp, Director of Macroeconomic Research at TrimTabs Investment Research, told me that she and her fellow researchers at TrimTabs have explored the econometric relationships between the money supply data and the stock market "every which way from Sunday" -- and that they have found no straightforward correlation between it and the stock market. As a result, she believes that changes in M1, M2 and M3 are "next to useless" as market timing indicators.Not all hope is lost, however. But we do need to refocus what we pay attention to. According to Schnapp, a much better indicator than the money supply is changes in personal incomes.Fortunately, she says that those trends right now are quite positive for the economy in general and the stock market in particular. "After tax income derived from daily income tax withholdings is up a stunning 14.9% the last four weeks. We attribute this remarkable gain to a combination of healthy year-end bonuses and job growth but no matter how you slice it, cash available to invest is building on the sidelines."What would dissuade TrimTabs from its currently very bullish stance? The only things that Schnapp can imagine derailing the economy and the stock market in 2006 are (a) oil "considerably" above $90/barrel, (b) a 2% to 3% rise in long term interest rates, (c) "spiraling" wages and prices, (d) a 10% decline in real estate nationally, or (e) a global pandemic.***
While I know the Fed is going to stop publishing M3 stats, I have data until the end of last year and will use it for a comparison. Using the 12-month Rate-of-Change indicator on M3, we can see three big moves or trends. The Rate-of-Change declined from 1985 to 1993, but the stock market advanced. The Rate-of-Change even dipped into negative territory in 1993 and the S&P 500 traded flat the next two years. Even though the Rate-of-Change was falling, it was still largely positive and money supply was expanding. The Rate-of-Change for M3 began expanding from 1993 to early 2002. Notice that the Rate-of-Change moved above 10% in March 1998 and this helped fuel the stock market in the late 90s. The Rate-of-Change turned lower in 2002 and declined until the end of 2003. The stock market was basically flat during this timeframe with a dip to the Oct-02 low. Most recently, the Rate-of-Change is on the increase again with a trendline breakout in 2004. Even though Trimtabs does not see a relationship, I find the money flowing and this should underpin the bulls. At the very least, M3 growth above 5% is strong and positive for the economy and stocks.
--------------------------------------------------------
By Arthur B. Hill - Fri 20-Jan-06 at 06:42AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Thursday - January 19, 2006
Retail HOLDRS, Ivanhoe hoe hoe, Cybersource and TradingMarkets Playboy
--------------------------------------------------------
The Retail HOLDRS (RTH) is up for a big support test. The stock formed a harami on 5-6 Jan, but follow through failed just above 97. After a gap down on Tuesday, the stock formed a bullish engulfing on Wednesday and this is another bullish candlestick reversal. Follow through above 97.26 would be bullish. Also notice that RSI is trending lower and a break above the red trendline (56) would turn momentum bullish. On the downside, a support break at 94 would be bearish for the group, the Consumer Discretionary sector and the S&P 500.
--------------------------------------------------------
From the PRNewswire: - Ivanhoe Energy Inc. (NASDAQ: IVAN and TSX: IE, IE.U) announced today that its revolutionary field- located heavy oil upgrading Commercial Demonstration Facility (CDF) in California has successfully achieved a number of important performance goals culminating in an extended run last week. The successful extended test follows a period of continual incremental enhancements to the CDF over recent months, during which the CDF was operated utilizing a variety of crude oils and operating criteria. Ivanhoe Energy will now begin testing crudes from potential partners with an initial focus on heavy crudes from California and Western Canada, including bitumen from Canada's Athabasca Tar Sands region.
I will admit to being skeptical about companies that only make the news via the PR Newswire. Perhaps more information will be forthcoming today as investor digest last night’s conference call. While the move brought the stock back from the Abyss, this is a continuation of the 2003 advance. The 2004-05 decline formed a falling wedge and the surge over the last few days broke the upper trendline. This is a bullish move and further prices can be expected. Unless, of course, they are selling snake oil.
--------------------------------------------------------
Here is a stock making a pre-earnings breakout. Cybersource (CYBS) formed a large triangle over the last 18 months and broke resistance with a high volume surge in early January. This is a low priced issue with above average risk, especially with an earnings report looming next week.
--------------------------------------------------------
From TradingMarkets.com: We're now two weeks into the TradingMarkets/Playboy 2006 Stock Picking Contest and 4 of the 10 Playboy models are beating 11,705 out of the 11,739 equity mutual fund managers in the United States. Yes, that's right, 4 of the Playboy models would be ranked in the top 1% of all mutual fund managers if Morningstar tracked their performance!
It is safe to say that anyone who went long two weeks ago would be showing a profit on 9-Jan. This is clearly a publicity stunt and a pretty good one at that. I wonder if they will let the playmates pick stocks for the whole year. Two weeks is not much time to judge and there are 49 more weeks to go. A fun gimmick. That’s all. Keep you eyes on the chart!
--------------------------------------------------------
By Arthur B. Hill - Thu 19-Jan-06 at 07:31AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Wednesday - January 18, 2006
Barrons' Roundtable versus USA Today
--------------------------------------------------------
Barron’s Semi-Annual Roundtable Kicked off and this paragraph made me grin: A jousting, jesting bunch, our crowd doesn't mark its views to market, or each other. No sooner, for instance, did Art Samberg predict U.S. stocks would rise 20% than a devilish Marc Faber declared he's in the 20% camp, too -- in the opposite direction. The case for -- and against -- bonds also got an unusually full airing, enlivened in large measure by Bill Gross' erudite analysis. (He's for some, and against others.)
You gotta love it. Here are two professionals with the same set of data. However, one sees a major move up and the other sees a major move down. This just goes to show that NOBODY really knows where the markets will be a year from now. We are all offering educated guesses, trying to control risk and attempting to extract some profits. It is one of the toughest games you will ever love. All the round table participants love this game and it is a great read. For more on Marc Faber, see his website at www.gloomboomdoom.com
--------------------------------------------------------
Here are a few more tidbits from the Barron’s round table:
From Fred Hickey: The people with $7 trillion of real-estate-wealth gains are still spending, but at Circuit City [ticker: CC] and Best Buy [BBY], while Christmas sales were good, store traffic was down
From Felix Zulauf: Two other economies, the U.K. and Australia, are running ahead of the U.S. in terms of housing trends. Their housing markets peaked about two years ago and are now flat. Retail-sales growth of 4% to 5% fell to zero to 1%. That's what's ahead in the U.S. The U.S. economy, will slow decisively during the course of the year, particularly in the second half and in '07.
From Marc Faber: The U.S. still accounts for over 50% of world stock-market capitalization. Japan is maybe 10%, and the rest of Asia, including China, India and Vietnam, is maybe 4%. It doesn't take a genius to see why global managers are overweight Asia, for instance, and underweight the U.S. All the Middle Eastern markets went up in the order of 100% last year. Russia was up about 80%. Even Latin American markets went up 50% to 80%.
From Bill Gross: My market is the bond market. I think the U.S. stock market is fairly valued, but if investors anticipate, as I do, that the Fed will begin to ease interest rates later in 2006, it becomes a bullish indicator. I'm not a glass-half-empty person on the market.
--------------------------------------------------------
USA Today also has an investment roundtable for 2006, but it is not nearly as witty or insightful. This excerpt from one of the opening paragraphs sets the blasé tone: For the first time in three years, we are forecasting a gain in the S&P 500 in 2006. Our year-end target is 1400 (10.5% higher than Friday's close of 1267.32). (Henry McVey)
I couldn’t believe what I was reading. This guy forecast the S&P 500 to be down in 2003, 2004 and 2005. As the chart above clearly shows, the S&P 500 was up. Is this a contrarian play? He has finally turned bullish and we are supposed to believe that his string of bad calls has ended. Something is rotten in the kingdom of Denmark.
--------------------------------------------------------
By Arthur B. Hill - Wed 18-Jan-06 at 09:00AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Tuesday - January 17, 2006
IBM, Intel and Yahoo! Kick off Earnings Season
--------------------------------------------------------
Earnings season kicks off this week with Intel (INTC), IBM (IBM) and Yahoo! (YHOO) reporting earnings today. Today, I will look at the charts for these three key players.
IBM has been trending higher since April 2005, but its January performance is not impressive. The stock fell sharply in December and found support just above 80. There is a big gap around 85-86 and this level acts as resistance. The stock was late to the January rally and only started moving with the 6-Jan gap. However, there was no follow through and the stock traded indecisive the last five days. I must say that I am not impressed with price action since mid December gap and find that this stock shows more weakness than strength. A move above 85 would break the January high and open the door to the low 90s. A move below 80 would fill the 6-Jan gap and be most bearish.
--------------------------------------------------------
Yahoo! (YHOO) has also gotten cold feet in January and fell sharply over the last four days. The stock broke resistance at 39 with a strong move in November and then consolidated between 39 and 44. This consolidation was healthy and the 6-Jan gap appeared to signal a continuation higher. However, the gap failed to hold and the stock move below 40, which makes this a bearish exhaustion gap. Technically, the trend is flat and the breakout at 39 is holding. This is a make-or-break point for Yahoo!. A strong stock should hold the breakout and continue higher. A weak stock will not hold the breakout and a break below support at 39 would reverse the current uptrend.
--------------------------------------------------------
Intel (INTC) lifted the Nasdaq and Semiconductor group with a strong advance in November. The December decline looks like a falling wedge and the stock broke trendline resistance with a surge the first week of January. The surge faded last week and the stock corrected over the last 5-6 days. This decline looks like a falling flag and a move above 26.7 would signal a continuation higher.
--------------------------------------------------------
By Arthur B. Hill - Tue 17-Jan-06 at 09:13AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Friday - January 13, 2006
Transports Losing Momo, Utilities Holding Support and Value Line Leads the Way
--------------------------------------------------------
The Dow Transports are not off to a hot start in 2006, but the Average is still holding support and still bullish overall. The Average broke big resistance at 3900 in early November and surged to 4300 by the end of the year. The December reaction low at 4050 is the first level to watch for signs of trouble. As long as 4050 holds, the bulls are in firm control. I am, however, concerned about a negative divergence in RSI. The indicator moved above 70 in November and failed to break 70 in December. This lower high formed a negative divergence and shows warning upside momentum. Further weakness below 50 would be bearish for momentum.
--------------------------------------------------------
Well, what’s it going to be? The Dow Utilities surged on 3-Jan and then traded flat the next seven days. The rising channel keeps the medium-term trend bullish, but the lack of follow through is disconcerting. A trendline break and move below 400 would be bearish. I am also using RSI for confirmation. RSI broke the October trendline in late December, but quickly recovered. Further weakness below 50 would be bearish. Should the Average hold support, look for a break above the January highs to open the door to higher prices. In addition, the bulls should look for RSI to hold above 50.
--------------------------------------------------------
The Value Line Arithmetic Index ($VAY) is one of the broadest market indices around. It encompasses 1700 stocks and is unweighted. This makes it representative of the market as a whole, regardless of market capitalization. The index broke resistance at 1900 and this level turned into support. After a December consolidation, the index broke resistance to signal a continuation higher. My upside target is the upper channel trendline (2080) by early February. A move below consolidation support at 1900 would negate this bullish prognosis.
--------------------------------------------------------
By Arthur B. Hill - Fri 13-Jan-06 at 06:20AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Thursday - January 12, 2006
Gap Inc, Gencorp, Mircrosoft and Perrigo.
--------------------------------------------------------
Microsoft surged in early January and then formed a small consolidation (magenta trendlines). The stock moved higher over the last two days and broke consolidation resistance and this argue for a bigger resistance challenged over the next few days.
--------------------------------------------------------
Gap Inc (GPS) is making a bullish bid with a long white candlestick on big volume. The stock failed to partake in the January advance until yesterday. Overall, the stock formed a triangle and a break above 18.7 would be bullish.
--------------------------------------------------------
Gencorp (GY) had a sudden change of heart in 2006. The stock gapped down at the end of 2005 and filled the gap with a high volume advance over the last six days. This is an exhaustion gap and the move above the December highs is bullish.
--------------------------------------------------------
Perrigo (PRGO) formed an inverse head-and-shoulders over the last six months and broke neckline resistance with a surge over the last seven days. Volume could have been higher, but the breakout is bullish as long as the December low at 14 holds.
--------------------------------------------------------
By Arthur B. Hill - Thu 12-Jan-06 at 11:59AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Wednesday - January 11, 2006
GM Cuts Prices, Dow Utilities Lagging and Malaysia ETF Forms Island Reversal
--------------------------------------------------------
Dow Jones reports: General Motors Corp. (GM) on Tuesday announced plans to slash prices on most of its models as part of an effort to more accurately reflect what consumers are willing to pay and move away from the heavy incentives that confuse buyers and take a bite out of profits. GM is trimming sticker prices across the board on its top-selling Chevrolet brand, as well as on vehicles produced under the GMC and Buick names. Prices will also be slashed on certain vehicles produced by the company's Pontiac and Cadillac divisions.
What a surprise. NOT. I posted a reference to the Chinese entry into the US market yesterday and GM obliges with price cuts across the board. I like the idea of one price and none of this rebate BS. There is nothing like a straight-forward bill. Now if the telephone companies could do the same. The price chart shows signs of capitulation with high volume selling at the end of the year. This is still a falling knife and dangerous to catch. I would expect any bounce to fizzle below 30. Most likely this stocks needs months, if not years, of base building before it will be ready to roll. It will probably be a buy when Dow Jones removes its from the Dow Jones Industrial Average!
--------------------------------------------------------
Jon Markman of MSNMoney focuses on 17 stocks that “always” go up.
“Always” and “Never” are dangerous words for traders and investors. Perhaps Markman should re-title this article as “17 Stocks That Went up for 10 Years”.
--------------------------------------------------------
The Dow Utilities just haven’t been the same since the October plunge. The S&P 500 and Nasdaq are trading above the October highs, but the Dow Utilities remains well below. In fact, the Dow Utilities has yet to even take out its December high. The rising price channel retraced 62% of the prior decline and met resistance near broken support (~420). The Average bounced with the rest of the market on 3-Jan, but failed to follow through. A move above last week’s high keeps the bulls alive. However, a failure and move below 400 would be most bearish.
--------------------------------------------------------
The Malaysia iShares ETF (EWM) has been an underperformer the last few months. The iShares Japan ETF (EWJ) and Asia Pacific (ex-Japan) iShares ETF (EPP) are both trading near their highs and showing strength. In contrast, EWM tested its June lows in December. This test was a quicky though as the stock gapped down and up to form an island reversal. In addition, upside volume was strong and this solidifies support at 6.7. There is still plenty of risk and the stock is short of a breakout, but the gap is short-term bullish as long as 6.7 holds.
--------------------------------------------------------
These stocks came across my screens today: WPI, SCI, L, LIZ, TFX, GY, DD, EDO, WGL, PSD, EE AND QLGC.
--------------------------------------------------------
By Arthur B. Hill - Wed 11-Jan-06 at 06:42AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Tuesday - January 10, 2006
Nasdaq Breadth and Geely Auto
--------------------------------------------------------
Laszlo Birinyi of birinyi.com reports in his blog: Nasdaq Upside Volume Above 70%. Friday marked the fourth straight day where NASDAQ Upside volume (total volume of up stocks) as a percent of total NASDAQ volume exceeded 70%. Since 1990, there has only been one other occurrence where volume breadth exceeded 70% for four or more days. As the chart below details, on December 27,1991, upside volume was over 70% for the fourth straight day, in what was the mid-stages of a multi-week rally. The following day, the index rose another 2.48%. Over the next week it rose 4.77%, and over the next month it rose 10.42%
The chart above shows the Nasdaq in 1991 with the blue dotted line on 27-Dec-91. The surge started in late December and continued into the first two weeks of January. The advance began to slow in the second half of January and the index peaked in mid February. Notice that the decline returned to broken resistance and formed a falling flag, which is a bullish correction. The real play was the continuation breakout in October 1992 (green oval). Could that happen again in 2006? A peak in Feb-Mar, correction into October and then a major low? Stay tuned….
--------------------------------------------------------
Business Week Online reports: Geely Automobile Holdings Ltd. will show one model at the North American International Auto Show in Detroit in January. "We need to have a presence at an international show like Detroit," says spokesman Zhang Xiaodong. "It will introduce people to our products and our company." The company will show its new Ziyoujian mid-sized sedan. Geely wants to export to the United States but doesn't have a target date. The automaker is privately owned and is based in the east China province of Zhejiang. It makes a line of budget cars and sedans starting at about $4,700. The company sends vehicles to the Middle East and South America, where emissions and safety standards are softer than in the United States.
There is already a glut of cars in the world and this will only add to supply. GM and F already have enough problems and this surely cannot help. While I do not know of the quality, you can be sure that the Geely will be priced competitively and this will put further pressure on GM and F.
--------------------------------------------------------
By Arthur B. Hill - Tue 10-Jan-06 at 07:07AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Monday - January 09, 2006
Yield Curve Theories, Electronics Sizzle and Dow Theorists Diverge
--------------------------------------------------------
Dan Luskin of SmartMoney.com reports: According to the bears, an inverted yield curve is an indication that a recession is coming. They point to the inversion that started in 1978 and ushered in the back-to-back recessions of 1979 and 1981. The inversion that began in 1988 presaged the recession of 1991. And the inversion of 1999 foretold the recession of 2000. On the face of it, all that makes it appear like the bears have an open-and-shut case. It seems that recessions follow yield-curve inversions like sunrise follows the rooster's crow. And, of course, that's the bleak version of reality that the relentlessly negative media has been pushing. But take a deep breath and count to 10. Things aren't as bad as they seem. One thing the bears don't tell you is that the yield curve's track record as an economic crystal ball isn't perfect. It inverted in mid-1998, yet no recession followed. In fact, the years following that inversion were an amazing boom. Don't tell me you've forgotten those wild couple of years leading up to Nasdaq 5000?
This charts shows the 10-year Note Yield less the 13-week Tbill Yield. The 10-year T-Note Yield should be higher and it current is higher. But not by much. The 10-year T-Note Yield is only .0247% higher than the 13-week T-Bill Yield. That is not much of a premium for taking an extra 9 years and 39 weeks of risk! One thing is for sure, the Fed is tightening as long as the red trendline holds and this yield spread narrows. The blue horizontal line marks zero and a move into negative territory would create an inverted yield curve. While this is not always bearish for stocks, it can hardly be considered a positive.
--------------------------------------------------------
Dow Jones report: Hot sales of MP3 players and accessories powered strong gains at both Best Buy Co. and Circuit City Stores Inc. in December, sending shares of both higher in pre-market trading Friday. Best Buy(BBY), the nation's largest consumer-electronics retailer, said December sales shot up 12% to $5.7 billion last month, while sales at stores open longer than a year - a key industry metric - climbed 5.8%.
Clothes will come and go, but Electronics will remain hot for some time. BBY gapped higher and formed an island reversal over the last five weeks. Notice that there were no trades at 46 from early December to 6-January. This means that all those with shorts established in the green oval are holding losses and getting the squeeze.
--------------------------------------------------------
Dow Theory Buy Signal!
The Dow Industrials broke falling flag resistance and CLOSED at a four year high. According to Dow Theory, this is one piece of the bullish puzzle.
The Dow Transports form the other half of the puzzle and this Average reached a new all time high in late December. Technically, the new reaction highs did not coincide with one and other. However, both reached new reaction highs within two weeks of each other and this should qualify as a Dow Theory buy signal or bullish confirmation.
Mark Hulbert of CBSMarketWatch reports: Does this mean that Dow Theorists are unanimous in believing that happy days are here again? The answer is yes at least for two of the three investment newsletters I monitor that refer to the Dow Theory: Dow Theory Forecasts, edited by Richard Moroney, and TheDowTheory.com, edited by Jack Schannep. Moroney, for example, says that he is inclined to use the DJIA's close above the 10940.55 level as the occasion to increase his equity exposure. And Schannep says that the DJIA's rally on Friday means that "we are 'in the clear' according to the Dow Theory." Richard Russell, however, editor of Dow Theory Letters, is an exception. He is not inclined to make a big deal of the DJIA's confirmation, for at least two reasons. First, he thinks it is worrisome that the DJIA took so long - nearly three months - to confirm the DJTA's strength. Secondly, Russell believes that the Dow Theory also is about values, and stocks' valuations today are far from cheap.
For some strange reason that is what I expected from Russell. Peter Brimelow refers to Russell as one of the “geezers”. He has been in this business for a long time and has certainly paid his dues. However, I think Russell’s bias’ may be getting in the way of his chart interpretations. Either the Dow reaches a new high or it doesn’t. Yes, it did take a long time. However, new highs are signs of strength, not weakness and should be interpreted as such. Russell has been bearish for a long time and yet the markets are hitting new highs. The market tells a different story.
--------------------------------------------------------
By Arthur B. Hill - Mon 09-Jan-06 at 08:19AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Friday - January 06, 2006
SPX Breakout Holding, XLY Lagging, XLF Challenging Resistance and SMH Breaks Resistance
--------------------------------------------------------
Does this chart look bearish to you? Not to me. Certainly not yet anyway. The S&P 500 broke triangle resistance with a strong move in November and then consolidated above broken resistance. Notice that broken resistance turned into support and HELD. The current trading range looks like a consolidation to digest the November gains and a continuation higher is expected as long as 1240 holds.
--------------------------------------------------------
The only nagging concern is relative weakness in the Consumer Discretionary SPDR (XLY). The S&P 500 is challenging its December highs and XLY remains below its mid December high. XLY broke trendline resistance with a surge on Tuesday and then consolidated below the late December highs. A follow through breakout would be bullish for this sector and the S&P 500. As long as XLY holds below minor resistance at 33.3, it will remain a drag on the S&P 500.
--------------------------------------------------------
The Finance SPDR (XLF) also holds an important key to the S&P 500 and remains below its late December high. XLF led the way higher in October and November. December was flat as a pancake and there is lots of resistance at 32.4. My bias is bullish because this is a consolidation after an advance. A break above 32.4 would fuel further gains in S&P 500, while a move below 31.5 would likely foreshadow a weak first quarter.
--------------------------------------------------------
The Semiconductor HOLDRS (SMH) did what it had to do and broke resistance with a strong move above 38.5. The stock gapped higher and closed near its highs for the day. Broken resistance around 38 is now the first test. A strong stock should hold the breakout and a move below 37.7 would signal trouble.
--------------------------------------------------------
By Arthur B. Hill - Fri 06-Jan-06 at 06:43AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Thursday - January 05, 2006
Hook 'em, Cypress Gets Solar Heat, KFX is Pricey and Jetblu Trying to Breakout
--------------------------------------------------------
Hook ‘em Horns! It was a game for the ages with two great teams. Alas, there can be only one winner and Texas managed to get the ball last.
--------------------------------------------------------
From a press release today: JetBlue Airways Corporation reported today that its traffic in December increased 27.9 percent from December 2004, on a capacity increase of 26.6 percent.
The stock suffered on Tuesday from downgrades by Merrill and Raymond James and rebounded today with good traffic numbers. However, high fuel costs continue to bite into earnings. On the price chart, the stock formed a nice double bottom in 2005 and pierced resistance at the end of December. This resistance break failed and the stock moved back below 16. Upside volume was good during the surge and a close above 16 would validate the pattern. The upside target would be to around 20. It would be a good idea to keep an eye on oil as well. Broken resistance often turns into support and there could be a return to 16 after a breakout. This would offer a second chance to partake after a confirmed breakout.
--------------------------------------------------------
From Herb Greenberg at CBS MarketWatch: Getting the new year off on a high note: Cypress Semiconductor is getting a boost after a report from Lehman Brothers says it's worth $19 as a play on recently IPO'd Sunpower, a solar-cell maker majority owned by Cypress. I had a similar take two weeks ago in my subscription newsletter, Herb Greenberg's RealityCheck. The bullish argument outlined in the newsletter, in retrospect (and admittedly) in a somewhat pre-holiday clunky manner by yours truly, put Cypress at closer to $23. Lehman notes that Cypress is trading below its historical levels of 1.5 to 2-times sales. It's worse than that: As I noted in RealityCheck, subtracting its cash, the semiconductor "stub" of Cypress trades at less than one-times sales.
On the price chart, the stock formed a classic correction pattern in Nov-Dec and broke resistance with above average volume yesterday. The correction retraced 62% (Fibonacci) of the November surge and formed a falling flag (magenta trendlines). The move over the last six days broke the upper trendline and the mid December high. The first target is 17 and a break above 17 opens the door to 20.
--------------------------------------------------------
W.D. Crotty of the Motley Fool Reports (30-Dec): On a day when the major averages are taking a downward turn, clean fuel company KFX (AMEX: KFX) soared almost 11% on news that it has completed the first two production runs at its K-Fuel plant in Gillette, Wyo. K-Fuel is described by KFX as the "unleaded gasoline" equivalent for the coal-fired industry. The company takes low-grade coal, removes 80% of the moisture, increases the Btu (heat content) per pound by 30% to 40%, and reduces the mercury content (the stuff that is credited with fouling water around the world) by 70%. Sulfur dioxide and nitrogen oxides will also be reduced by 30%.
Cramer also recommended KFX on mad money and the price chart sports a bullish continuation pattern (ascending triangle). The stock surged above 15 early last year and then consolidated the last nine months. Notice that a higher low formed in November (green arrow) and this shows that buying pressure came in well above the prior low. Buyers just could wait. There is a lot of overhead supply around 18.5 though and this represents resistance. A break above 18.5 would confirm the pattern and project further strength towards the mid 20s. This is a pretty risky play as the company is loosing money and not projected to record any profits this year (2006). At the very least, way for the Cramer pop to wear off!
--------------------------------------------------------
By Arthur B. Hill - Thu 05-Jan-06 at 11:43AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Wednesday - January 04, 2006
Motorola Strays, Wal-mart Dissappoints and Retail HOLDRS Holding Breakout
--------------------------------------------------------
IBD Likes Motorola and reports: Of 68 wireless equipment companies tracked by IBD, it has the highest Earnings Per Share Rating. EPS and sales growth accelerated the last couple of quarters. Cash flow of $1.08 a share appears to be strong.
This is still a turnaround story and the recent attempt to add iPod music to a mobile phone failed. Alas, the company is going it alone with another attempt to integrate music into a mobile phone (Rokr E2). In addition, Motorola is joining the music download business with its iRadio offering that will allow users to download music to their mobile phone. It is a great idea, but there are already a lot of players in this space (Yahoo!, Real Networks and Napster) as well as Sirius and XM Satellite. Motorola may be getting overextended here and my want to stick to its knitting, which is making mobile phones. I think it is find to add music capabilities, but the music downloading should be left to the service providers.
On the price chart, MOT is near its moment of truth. The stock recovered Sep-Oct decline and surged to new highs in late November. After some weakness in December, the stock firmed just above the April trendline and Nov-Dec lows. I am marking key support at 22 and a move below this level would be quite negative. Also notice that RSI formed a negative divergence over the last few months.
--------------------------------------------------------
CNNMoney Reports: C. Britt Beemer, chairman of America's Research Group, dispatched researchers to stores in five cities yesterday - Boston, Los Angeles, Denver, Dallas and Orlando, Fla. - where they found relatively few shoppers, considering that it was a federal holiday. "All of us thought that these stores would be packed early and often but it never materialized," he said.
On the price chart, the Retail HOLDRS (RTH) broke resistance at 94 with a surge to 100 and then fell back over the last several weeks. Broken resistance is turning into support and the stock formed a harami over the last two days (green oval). The long lower shadow on Tuesday shows intraday selling pressure and a strong recovery by the close. However, follow through is required and a move above 99 is need to break resistance and turn bullish.
--------------------------------------------------------
Dow Jones reports: Wal-Mart Stores Inc. had a disappointing showing during December as consumers tightened their pocketbooks and waited for deeper discounts -- and gift cards -- before picking up merchandise.
Don’t think that Wal-Mart is indicative of the overall retail environment. WMT is a low-end retailer - pure and simple. Their stores are messy and chaotic. The only reason to shop there is to save money. There will always be a need for the Wal-marts of the world, but other retailers are becoming competitive AND offering a nicer shopping experience. It is these shopper that buy the higher margin items.
On the price chart, WMT met resistance at broken support (51) and RSI become overbought in late November. While the S&P 500 traded flat in December, WMT become to weaken and broke trendline support. The decline continued in 2006 with a break below the December low and this stock remains in the dog house.
--------------------------------------------------------
By Arthur B. Hill - Wed 04-Jan-06 at 10:52AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)
Tuesday - January 03, 2006
$200 Oil!, Light Sweet Breakout, Aluminum Soars and the Yield Curve Narrows
--------------------------------------------------------
Here is the lead paragraph from the Barron’s Interview with Matthew Simmons:
SINCE PUBLISHING Twilight in the Desert: the Coming Saudi Oil Shock and the World Economy this past summer, and touching off one of the great debates of the early 21st century, energy banker Simmons has been squarely in the spotlight. Simmons argues that Saudi oil fields, contrary to reports, have been in decline for some time, and he views skeptically Saudi claims that it can adequately boost supply to meet accelerating demand. Simmons, who has headed the Houston-based energy investment banking firm Simmons & Co. International for 30 years, is no stranger to bold calls and controversy. His vision of higher energy prices through much of the 'Nineties never really materialized, for instance. For why it's different this time and oil could be headed to $200 a barrel by 2010, give a read.
--------------------------------------------------------
Looking at the daily chart, Light Sweet Crude found support at 55 and broke the upper trendline of a falling price channel in early December. There is support around 55 from the Sep-03 trendline as well and it looks the late December test was successful. A break above 62 would complete the reversal and call for a continuation of the May-Aug advance.
--------------------------------------------------------
The Yield Curve continues to narrow with the rate of the 10-year T-Note yielding just over .5% more than the rate on the 13-week Tbill. Think about that for a moment. Investors are not getting much premium for going out 10 years and this makes short-term instruments more attractive. Why lock yourself in for 10 years? In May 2004 the 10-year T-Note Yield was over 3.5% (35 on the chart) higher than the 13-week T-Bill Yield. The narrowness of the yield curve is likely to put pressure on interest rate sensitive issues, groups and sectors (housing, finance, utilities, REITs).
--------------------------------------------------------
Somebody is buying up aluminum. High Grade Aluminum is up over 25% in the last six months. It is getting overextended as it nears the upper channel trendline, but the trend is clearly up and clearly strong. Demand stems from China (surprise), airplanes (Boeing/Airbus) and as a substitute for steel, which is heavier.
--------------------------------------------------------
By Arthur B. Hill - Tue 03-Jan-06 at 09:57AM in Market Musings
Email to friend
| Permalink
| Home
| Comments (0)