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Email Version, Section 1, Wednesday 01-05-2005
PremierInvestor.net Newsletter Wednesday 01-05-2005
section 1 of 2
Copyright (c) 2005, All rights reserved.
Redistribution in any form is strictly prohibited.
The entire newsletter is best viewed in COURIER 10 for alignment
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In section one:
Market Wrap: Are the Wheels coming off?
Watch List: Semis, Tech and more
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MARKET WRAP (view in courier font for table alignment)
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01-05-2005 High Low Volume Adv/Dcl
DJIA 10597.83 - 32.95 10684.43 10597.75 2.12 bln 708/2138
NASDAQ 2091.24 - 16.62 2116.75 2091.24 2.37 bln 877/2193
S&P 100 565.21 - 1.56 569.75 565.20 Totals 1585/4331
S&P 500 1183.74 - 4.31 1192.75 1183.72
SOX 404.25 - 6.11 412.86 402.59
RUS 2000 617.48 - 11.06 628.66 617.48
DJ TRANS 3653.29 - 25.04 3679.45 3649.72
VIX 14.09 + 0.01 14.09 13.26
VXO (VIX-O)13.97 - 0.16 14.37 13.49
VXN 20.18 + 0.12 20.19 19.52
Total Volume 4,492M
Total UpVol 1,184M
Total DnVol 3,261M
Total Adv 1585
Total Dcl 4331
52wk Highs 70
52wk Lows 29
TRIN 1.15
PUT/CALL 0.95
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Market Wrap
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Are the Wheels coming off?
Jane Fox
This morning stocks opened bearishly near yesterday's lows but
appeared to grab a bid and started to rise. All the bulls gave a
sigh of relief, "the selling was over for now." Unfortunately
that sigh turned into a gasp of disbelief when yesterday's lows
were breached. But alas, there was another sigh of relief when it
was realized that the breach was hardly anything to worry about
and stocks were headed back up again. Then those lows were
breached again and this time there was no responding sigh of
relief from the bulls because there was no heading back up again.
Stocks closed at their daily lows. Not looking good so far. You
know the saying "If Santa Claus should fail to call - the bears
will come to Broad and Wall." Well here they are and the bulls
may fall!
The DOW closed at 10597 for a -32.95 point loss. The DOW has lost
1.7%, or 185.18 points, in the last three days and has now
declined for six straight sessions -- the longest losing streak
since July 2002. The Standard & Poor's 500-stock index fell 4.32
to 1183.73 and the Nasdaq Composite Index slid 16.62 to 2091.24.
On the Big Board, 1.7 billion shares traded, 930 stocks rose and
2,411 fell. On the Nasdaq Stock Market, 2.4 billion shares
changed hands, 910 issues advanced and 2,250 declined.
It is still early in the month so this may be a little premature
but heck who knows when I will get another chance to let you in
on these little gems. One is called the Stock Market's Almanac
Incredible January Barometer devised by Yale Hirsch in 1972. It
states that however the S&P goes in January the rest of the year
follows suit and has a 90.7% accuracy rate. Since 1950 this
barometer has failed only five times. Now that's incredible.
The other gem I would like to share with you is that if the DOW's
December lows are breached in the first quarter of the New Year
then you will have a bearish year. Of the 26 years (since 1952)
when the DOW breached its December lows in the first quarter of
the New Year, 13 times the DOW closed lower. Now I don't think
this is such a great record but then of those 13 years if you
have a negative First Five Days in January also 12 of those 13
years have closed lower. Now that is a record I think is great.
Larry Williams took this on step further and says if the November
lows are breached in the first quarter there is an 80% chance
that we will have a bearish year. Something to put in your hat
and remember come March 31st.
The economic reports started this morning at 7:00EST with the
MBA's release of its refinancing Index and although many market
watchers ignore this early-morning release, this morning's
merited attention. A 10.6 % decrease in mortgage applications
was tagged as the largest decrease in more than a year, and that
occurred despite a drop in mortgage rates. Refinancing activity
dropped 5.7 %. Addition information reveals that this year may
be the first since the recession when the number of house
purchases does not set a new record. Housing prices have been
rising throughout the year, with that rise in cost being cited as
a reason for the slowing of demand in the housing market.
Next on the docket of economic reports was the 10:00EST Institute
for Supply Management's (ISM) December's index of non-
manufacturing companies. The number rose to 63.1 from 61.3 in
November, the fastest pace in five months. Readings above 50
means growth. The average of 62.5 for 2004 is the highest since
the survey began in 1997. According to the survey of purchasing
executives in industries including retail trade, banking and
insurance, orders accelerated and more companies said they were
adding to inventories. Economists were cited as saying the post-
Christmas surge in sales suggests consumers have the incomes and
confidence to keep driving economic growth.
Then at 10:30EST we got the Energy Department's weekly report of
Crude Oil/Gasoline/Distillate inventories that showed heating oil
and diesel inventories rose by two million barrels to 121.1
million barrels. The build was higher than expected and moves
distillates (heating oil and diesel) within their historic
inventory range for this time of year. Crude oil inventories fell
by 3.3 million barrels whereas analysts were expecting a 1.2
million barrel decline. Gasoline inventories rose by 2.0 million
versus analyst's forecast of a 1.0 million.
In December, U.S. car and light-truck sales rose 8% from a year
earlier, for a seasonally adjusted annual sales pace of 18.4
million vehicles, a record for the month. Although industry
analysts agreed that the numbers were due largely to the heavily
advertised end-of-the-year sales promotions, some think stock-
market wealth and improvements in personal income and consumer
confidence will sustain demand and that 2005 sales will match
last year's strong performance of about 17 million light vehicles
sold.
The Airline index (XAL) was down -3.41 today amid announcements
from Delta Air Lines (DAL) that they were slashing fares for
domestic travel by as much as 50% and dropping restrictions such
as Saturday night stays to win back customers from low-fare
competitors. The whole index took a hit because of concerns that
revenue may fall if all carriers adopt Delta's stance. One
analyst said airlines may lose as much as $3 billion a year and
cut forecasts on Delta, AMR Corp., Northwest Airlines Corp. and
AirTran Holdings Inc. The hardest hit was the holding company for
American airlines (AMR) falling 13%. Delta and Northwest Airlines
(NWAC) were close behind, nose-diving 12% and 11%, respectively.
On to the charts.
SPX Daily Chart
This is not a healthy looking chart. The fact that since November
15th SPX has continued to climb in the face of a falling MACD had
to resolve itself at some point. I think that point has finally
come. Why do I think that? First of all SPX has broken out of the
regression channel when most would have thought (liked) SPX to
have bounced back to the top of the channel. Next, for two days
running now SPX has closed below its 20 EMA. The last time the
SPX closed below its 20 EMA was October 26th. Then you have the
MACD probing the 0 line albeit not under it yet. The last time
the MACD was under the 0 line was October 28th.
DOW Daily chart.
The DOW has not been as strong as SPX during our little bull
rally and it did close below the 20 EMA back on December 8th but
it has not closed two days running under this MA since back in
late October when the bull rally was just getting started.
I have marked the December lows in red and the November lows in
magenta. If you have a charting platform you may want to put
these trendlines on your DOW chart as a reminder of the December
low indicator (or November low if you decide to use that one
instead) I mentioned earlier.
COMPX Daily Chart.
This chart is very similar to the SPX chart but does not have the
clear regression channel. However, it does have the very clear
MACD divergence and two days running of closes under the 20 EMA
something that not has happened since October 26th.
RUT daily Chart.
The one thing that bothers me the most about the decline we have
seen since the beginning of the year is that it is lead by the
RUT, one of our strongest markets and it looks like the wheels
are about to come off this steam roller. It has the negative MACD
divergence just like the other markets and the closes under the
20 EMA but look at where the MACD ended up today. The fast MACD
line has hit a level today that it has not seen since last
August. Yikes!
Now the market never goes straight up or straight down so
tomorrow "should" bring a little relief to the bulls but
unfortunately it may just be temporary. We have had some major
damage done here and the bulls will need to call in some heavy
hitters to fix the damage. Heavy hitters like the RUT and the
Compq.
Same-store sales figures began appearing after the close with
AEOS and SBUX being among the stores reporting this afternoon.
AEOS raised guidance and SBUX reported same store sales up 8%.
Tomorrow morning sees other stores reporting, including ANN, ANF,
DDS, FD, KSS, PIR and WMT, among others.
Thursday's economic releases begin with the usual 8:30 release of
jobless claims and also includes the 10:30 release of natural gas
inventories and the 4:30 report on the money supply. At 1:00
EST, the Fed's Hoenig gives an outlook on the economic, speaking
in Kansas City.
Until next time - keep your wheels on your wagon.
Jane Fox
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WATCH LIST
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The PremierInvestor.net watch list is not designed to be read
as full fledged stock picks. Rather we would prefer to offer
it as an extra tool in today's investor toolbox. Think of it
as a radar screen with your own radar operator pointing out
interesting developments, technical patterns or potential plays
that you may or may not have seen on your own. Due to time
constraints we do glance at the news but rarely do we have
time to fully read pertinent news stories, due background
research and other necessary screens that investors should do
before making a decision. A common exercise is to read the
entry, glance at the sector and other stocks in that industry
and then compare what's happening in the stock to what's
happening in the broader market indices. We hope you enjoy
the Watch List and that it proves to be a useful tool for your
own trading success.
STOCKS WORTH WATCHING
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Cree Inc - CREE - close: 33.84 change: -1.70
WHAT TO WATCH: CREE is another semiconductor stock following the
weakness in the SOX index lower. Unfortunately for CREE
shareholders the stock under performed its peers with a 4.78
percent decline on heavy volume. Shares have broken their five-
month up trend and support at $35.00. We would carefully watch
the 100-dma as potential support since shares are short-term
oversold but the next target could be the 200-ema near $30.00.
---
Storage Technology - STK - close: 32.57 change: +1.00
WHAT TO WATCH: When a technology stock like STK shows relative
strength during a sharp three-day decline in the market we want
to take notice. Shares rallied more than three-percent on
Wednesday with very heavy volume to breakout to new four-year
highs. Unfortunately, we can't find any news to account for the
rally. Bulls may want to consider going long on a bounce fro
$32.00. The P&F chart is bullish with a $54 target. We would
only target $35 for a quick turnaround.
---
Startek Inc - SRT - close: 25.25 change: -1.89
WHAT TO WATCH: SRT is a low volume stock (average 109K/day) that
is suddenly breaking down to new yearly lows with very strong
volume. We can't see any news to account for the decline but SRT
has been stuck in a long-term trend of lower highs for months.
The drop under $26.00 looks like bad news and the next level of
support could be the $22.00-21.75 region.
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RADAR SCREEN - more stocks to watch
-----------------------------------
CHIR $34.80 +0.12 - No luck for CHIR. Shares broke through the
$35 level but couldn't hold it.
BEAS $8.42 -0.22 - Uh-oh! This could be bad news for BEAS. The
stock has broken significant support at $8.50 and its 200-dma.
TOO $27.71 +3.48 - We are not suggesting that anyone chase
today's 14 percent rally but the breakout to new highs on big
volume is certainly bullish. A pull back toward $26.00 might be
worth noting.
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