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Email Version, Section 1, Thursday 01-13-2005
PremierInvestor.net Newsletter Thursday 01-13-2005
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
=================================================================
In section one:
Market Wrap: Not A Pretty Picture
Watch List: Drugs to Shippers and more
Market Sentiment: Earnings Jitters
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MARKET WRAP (view in courier font for table alignment)
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01-13-2005 High Low Volume Adv/Dcl
DJIA 10505.83 +112.00 10618.15 10486.17 1.87 bln 1481/1737
NASDAQ 2070.56 - 22.00 2094.80 2068.27 2.15 bln 1167/1926
S&P 100 561.56 - 5.75 567.31 560.47 Totals 2648/3663
S&P 500 1177.45 - 10.25 1187.70 1175.80
SOX 396.17 - 5.70 401.79 395.87
RUS 2000 610.13 - 3.06 616.57 609.06
DJ TRANS 3533.57 - 53.60 3591.89 3532.15
VIX 12.84 + 0.28 12.86 12.37
VXO (VIX-O)13.07 + 0.28 13.42 12.59
VXN 19.09 - 0.19 19.45 18.81
Total Volume 4,242M
Total UpVol 1,407M
Total DnVol 2,713M
Total Adv 3058
Total Dcl 4163
52wk Highs 169
52wk Lows 57
TRIN 1.39
NAZTRIN 1.12
PUT/CALL 0.93
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===========
Market Wrap
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Not A Pretty Picture
by Jim Brown
After a rebound on Thursday and a positive open thanks to
Apple earnings the markets lost momentum early and began
to slip. As the day progressed oil prices greased the skids
and the closing drop was anything but bullish. Time to take
a hard look at the future for January.
Economically there are warning clouds on the horizon. The
Jobless Claims rose again to 367,000 for the week and the
highest level in three months. The Labor Dept was at a
loss for the reason and did not try to explain it away
as a seasonal adjustment problem. This was +27,000 above
the consensus estimate of 340K and it pushed the four
week average to 344,000. This was also a new cycle high.
This is not a good sign for the economy but it is too
soon to tell if this is just post holiday terminations
of peak employees or the start of a new trend.
Import Prices fell much stronger than expected at -1.3%
pulled down mostly by falling oil prices in December. Oil
prices fell -11.5% but that drop is rapidly evaporating
as oil moves higher in January. Excluding energy, import
prices rose only +0.5%. Export prices rose only +0.2%.
These numbers will reverse if oil continues its climb.
The Retail Sales for December (MARTS) jumped +1.2% led
by strong sales in autos. Without those year end specials
on cars/trucks that were designed to blowout old models
the gains would have only been +0.3%. There are so many
different retail sales reports and conflicting numbers
it is hard to determine the real truth. Another study
out today said holiday sales were up +5.7% for Nov/Dec
and the strongest gains since 1999. Autos, furniture
and online sales helped ramp up the numbers. Considering
the huge support from auto sales are dependent on the
very strong year end incentives we can't expect the
sales for Q1 to continue to post strong gains.
The Manufacturing Alliance Survey headline number fell
from 75 to 70 and the second quarterly decline. The
index high for this cycle came in 2004-Q2 at 80 and we
have seen a drop back to 2003 levels with this report.
All components, shipments, new orders, order backlog and
margins fell with only inventories showing a gain. The
inventory component at 72 is now at the highest level
since 1995. This could be bad news if the inventory
gain is due to falling sales.
Perhaps the report with the most impact on the market
was the weekly natural gas storage report that showed
a drop of -88 billion cubic feet. Despite warm weather
in most of the U.S. there was enough cold climates to
overpower the distribution system and cause a significant
draw down in inventories. This caused oil prices to spike
back over $48 on speculation next weeks expected cold
wave would cause an even further drop in supplies. In
my oil crisis report I outlined that Chesapeake Energy
said 95% of their prior gas wells were between 3-5,000
feet. In 2005 35% will be 13,500 feet or deeper. Gas
is becoming harder to find in any quantity and more
expensive to produce. The CHK CEO said a nationwide
cold snap at the same time would deplete supplies and
there would be shortages. He said if all plants were
generating at peak capacity there would not be enough
gas in the pipeline system to satisfy demand. He said
a future shortage was almost guaranteed as more electric
generation plants were built because they consume huge
amounts of gas. The U.S. is already a net importer of
natural gas.
As oil sprinted back over $48 and a six week high the
markets began to decline. Oil traders said they were
afraid supply was going to run short again as demand
increases from the coming cold weather but bigger problems
ahead were also looming. Over the next two weeks we will
see the Presidential Inauguration, Iraq elections and
the OPEC meeting on the 30th. They expect increased supply
disruptions as the election approaches in Iraq and in the
other OPEC countries.
There is also a concern building that the inauguration
could be a terror target. Those expressing concerns say
that we have gone far too long without an event on U.S.
soil and this would be a highly visible, hard to defend
target. I know we went through this concern period in
2004 for each of the conventions and the Olympics with
no problems. This event could be seen as an opportunity
to attack the administration directly.
Despite all the worry above the real reason for the late
afternoon decline was attributed to a Treasury ruling
that repatriated cash could not be used for dividends
and stock buybacks. In Q4 it was reported that these
were allowed uses of the nearly $600 billion in cash
that companies were planning on bringing back into the
U.S. as a result of the 2004 Repatriation Act. That
act allows a bargain basement tax rate on any cash that
is brought back into the U.S. and used for a specific
number of job creating uses. Companies had hoped to be
able to use the money for dividends and stock buybacks.
We also saw negativity from a surprise earnings warning
from GM. GM announced this morning that profits were going
to fall because of lower profits at its financing unit and
a $1 billion increase in healthcare costs. GM fell -1.07
on the news but the depression was felt across the entire
market. GM is the largest private provider of healthcare
in the U.S. and supports hundreds of thousands of retirees,
employees and their dependents. The rising cost of health
insurance and medical costs is not only impacting GM but
all major corporations and continues to spiral out of
control. The GM problem is just the latest in a long
line of corporate revelations. GM expects earnings to
drop to between $4-$5 a share in 2005 compared to an
estimated $6.31 for 2004. Another big hit is coming from
the financing arm which has had to eat billions in zero
percent financing over the last couple years and higher
interest rates it has to pay. GM tried to pacify investors
by restating its goal of $10 a year in earnings but now
says it could be 2007 at the earliest before that goal is
met. I am not holding my breath given the continues influx
of Asian automakers. Their market share in 2004 was the
largest ever and growing rapidly. In 2004 sales by the big
three U.S. makers fell to only 58.7% of vehicles sold and
its lowest rate ever. Asian U.S. sales grew at a double
digit rate in 2004.
The higher oil prices accelerated the drop in the Dow
Transports with a drop to 3533 at the close. The high for
this index was 3823 back on December 30th. This -7.6% drop
broke strong November support at 3560 and is very close to
the 38% retracement of the gains since August at 3493. This
index confirmed the Dow rally in Q4 and is now confirming
the Dow drop in 2005. For many weeks in 2004 the TRAN rose
while the Dow floundered. It was far stronger and rose
despite the record high oil prices. It was very influential
in pulling the Dow out of its doldrums in October. The
implosion over the last two weeks could be continued profit
taking from the strong run with oil prices giving it an
added push. Adding to the negativity was the warning from
UPS. The -$7 drop in UPS over the last two days has been
a major factor in the drop in the TRAN for this week. The
drop in UPS on "less than expected volume growth" should
not be an indictment of the entire sector. FDX said business
could not have been better and affirmed estimates saying
they had a strong Q4 and favorable economic conditions ahead.
Could it be that UPS is simply losing the ground war and the
"FDX 35% cheaper than UPS" ads are winning converts? I believe
investors will find this to be the case but they are currently
throwing them all out until the outlook clears.
Chipmaker CREE announced earnings after the bell and was
quickly slaughtered by investors. CREE lost -$7 to $27 after
warning that earnings for the current quarter will be well
below estimates. This should tank the SOX again on Friday
and makes 380 a viable target for the next big drop. The
Intel news was unable to provide more than a few minutes
of bounce before the weakness appeared again. The SOX
closed today at 396 and just a couple points over the
pre Intel low at 394. The SOX is proving to be the Achilles
heel for the Nasdaq and the CREE news is not going to help.
Sun Micro also announced earnings after the bell and while
it met earnings the revenue for the quarter was lighter
than estimates. It seems a new range of products has failed
to excite buyers and shares dropped -5% in after hours.
Bears are coming out of the forest in droves. Investors
Business Daily ran a headline today saying the "Bull Market
Rally is Over" and many believe it. The markets have been
unable to find any traction despite hundreds of analysts
making public statements that 2005 is going to be a great
year in the markets. Considering they were saying we would
only see gains of +5% to +8% just a month ago that should
make you pause to ponder. TrimTabs said investors withdrew
-$3.7B from U.S. stock funds last week and inflows this week
have only amounted to $500 mil. International funds saw an
inflow of $3.1B the prior week but saw withdrawals of -$685
million for the week ended on Wednesday. Considering TrimTabs
had forecasted inflows of $31 billion for all of January
this is a huge estimate miss. The markets were counting on
that cash inflow to provide a cushion for new year profit
taking and it simply did not appear. Analysts are scratching
their heads for the reason and suggesting investors want to
get past the January events before putting money back into
the market.
Those events I mentioned before, Inauguration, Iraq elections
and OPEC are in addition to earnings. The earnings calendar
for 2005 has so far been extremely light and there has been
some very mixed results. There is currently no consensus for
Q4 as not enough companies have announced to provide a trend
of beats, hits and misses. Next week should be a defining
week for the markets. Nearly 500 companies will report and
we should have a clear picture of guidance by this time next
week.
The trouble with that view is we have to struggle another
week to try and hold the markets above critical support or
risk a technical breakdown in addition to the current
sentiment breakdown. The sell off this afternoon was ugly.
It was ugly because there was not any specific negative
stock news and it followed good news from Intel and Apple.
The Dow rebound from 10500 on Wednesday was seen as putting
a bottom in place for January and today's break back to below
10500 could be seen as negating that bottom. It clearly targets
the 38% retracement level of 10425 which is also just above
the December low of 10418. Make no mistake. This is the line
in the sand that we must not cross. A move below 10425 will
negate the bullish uptrend from October and put us right
back in the congestion zone from all of 2004. We do NOT
want to go there as investors chopped to pieces last year
by the range bound trading will tire of the process and
move to the sidelines.
Dow Chart – Daily
Dow Chart – Weekly
The Nasdaq is on the verge of a nasty decline as well. The
Nasdaq has one more level of weak support at 2050 and the
38% retracement level at 2022. I believe if 2050 breaks we
could retrace all the way to 1900. It is too soon to predict
that breakage but it will be a critical test. Over the last
two days the Nasdaq has broken the uptrend support from August
and the 25% retracement level at 2080. Given the good news
from Intel and Apple this is not an inspiring performance.
Friday will be a pivotal day with the CREE earnings and the
potential continuation of today's downdraft. The 2080 support
level was also the resistance dating back to Jan-2002. Now
that we are back below this resistance it should grow in
strength again.
Nasdaq Chart – Daily
Nasdaq Chart – Weekly
The S&P is clinging to support at 1178 and right at the 1175
level I am using as a market sentiment indicator. 1175 was
the low back in December and has been tested twice this week.
This is a very critical test for market sentiment and the
outlook tonight is not good. We could have been the victim
of a large sell program at the close but I believe the
problem is deeper than that. I mentioned above that money
flows have been almost zero and in extreme contradiction
to recent norms and predictions. This could be a change in
sentiment that will develop into a new leg down.
SPX Chart – Daily
The SOX could be our leading indicator for the health of the
tech sector. Analysts are telling us that the rebound in chip
demand has ended for this cycle and 2005 will be a year of
rebuilding, retooling and waiting for the next wave of demand
to develop from new applications. The SOX has broken 400 and
is just above the uptrend support from the 2002 bottom. If the
SOX can hold this support around 380 then techs have a chance
for a rebound from a higher low. If this support breaks along
with the 2004 support low at 360 then techs are in for a very
bearish year.
SOX Chart – Daily
SOX Chart – Weekly
For Friday I don't have a very positive outlook. We are
right on the edge of switching from a bull market to a
bear market in my bias and SPX 1175 must hold along with
Dow 10425. Should either break slightly we could still
see an end of January rally but I believe the window of
opportunity has passed. Funds are faced now with an outlook
of protecting prior profits rather than expecting new profits
in 2005. Those that held on while others took profits last
week are facing a new leg down that could be steep and they
could be worrying about protecting their remaining holdings
from the bears. A break of 1175/10425 could be the trigger
that sends everyone to the opposite side of the boat and
begins a sharper downdraft as the boat capsizes. I hope
this does not happen but we can't build our future on
bullish hopes if there is nothing bullish in the market.
So far the January market has been anything but normal and
this has to be sending shivers through many money managers
as they watched today's drop. Remember my recommendation
from Tuesday. I am not a buyer under 1175, I would either
be flat or short. Tomorrow is a critical day. There are
many possible scenarios and we could still go either way
but I would be very cautious of any bounce unless it
contains high volume and a very strong advance/decline
line.
Enter Passively, Exit Aggressively!
Jim Brown
Editor
"The trouble with stretching the truth is that
it is liable to snap back."
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WATCH LIST
==================================================================
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
---------------------------------
ONYX Pharma - ONXX - close: 29.64 change: -1.13
WHAT TO WATCH: The meltdown in ONXX is starting to pick up speed.
Shares just broke through round-number, psychological support at
the $30.00 mark on above average volume. This doesn't bode well
for the stock and traders may want to consider bearish positions.
We would target a drop toward $26.00-27.00. The P&F chart is
much more bearish with a $10 target.
---
Lone Star Tech - LSS - close: 33.55 change: +1.62
WHAT TO WATCH: Keep an eye on LSS. The consolidation has bounced
back toward the top of its trading range and resistance at
$34.00. Aggressive traders may actually want to consider long
positions if LSS can trade above $34.40 or the bottom of its
October gap down. Technicals are turning positive and its
bullish P&F chart points to a $47 target.
---
Overseas Shipholding - OSG - close: 53.36 change: +0.96
WHAT TO WATCH: OSG is another shipping/oil-tanker play that is
beginning to bounce after several weeks of profit taking.
Aggressive traders can evaluate positions now with support near
$51. We would rather wait and see shares breakout over the $55
mark and its 21-dma and 100-dma. By waiting we should be able to
see the MACD indicator produce a new buy signal.
-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------
EXM $23.30 +2.55 - Yet another shipping stock that is bouncing
after weeks of profit taking.
ANDW $11.79 -0.09 - ANDW has been sliding for a few days now but
shares just broke the $12.00 mark after a minor failed rally this
morning. The next level of support looks like $10.50-10.75.
VRSN $28.56 -1.37 - VRSN is still seeing profit taking and the
breakdown under $30.00 looks bad. The next level of support
could be the 100-dma (26.25) or the $25 level.
===============================
Market Sentiment
===============================
Earnings Jitters
- J. Brown
Another round of high-profile earnings warnings from the likes of
Verizon Communications (VZ) and General Motors (GM), both Dow-
components, was enough to sink the markets yet again.
Homebuilders may be doing well and Apple Computer is knocking the
ball out of the park but overall the market remains defensive.
Or if you believe some of the market pundits out there this is
just a partial retracement of the super strong fourth quarter.
Whatever the case investors aren't finding many reasons to be
bullish. The headline earnings news has been disappointing and
there remains an under current of worry about interest rates, oil
and to a lesser extent the Iraqi elections coming up. Market
internals continue to favor the bears as well.
The real deluge of earnings news doesn't hit until next week so
it's possible that money continues to sit on the sidelines as we
wait for the first big week of corporate announcements. One
thing is for sure - this is one January where the "effect" on the
smallcaps has been nonexistent.
-----------------------------------------------------------------
Market Averages
DJIA ($INDU)
52-week High: 10868
52-week Low : 9708
Current : 10505
Moving Averages:
(Simple)
10-dma: 10626
50-dma: 10577
200-dma: 10278
S&P 500 ($SPX)
52-week High: 1217
52-week Low : 1060
Current : 1177
Moving Averages:
(Simple)
10-dma: 1189
50-dma: 1187
200-dma: 1132
Nasdaq-100 ($NDX)
52-week High: 1635
52-week Low : 1301
Current : 1545
Moving Averages:
(Simple)
10-dma: 1571
50-dma: 1580
200-dma: 1466
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CBOE Market Volatility Index (VIX) = 12.84 +0.28
CBOE Mkt Volatility old VIX (VXO) = 13.07 +0.28
Nasdaq Volatility Index (VXN) = 19.09 -0.19
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Put/Call Ratio Call Volume Put Volume
Total 0.90 893,271 799,634
Equity Only 0.68 711,982 484,745
OEX 0.68 43,216 29,649
QQQQ 2.44 20,168 49,245
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Bullish Percent Data
Current Change Status
NYSE 73.1 - 0.6 Bear Correction
NASDAQ-100 73.0 - 1 Bull Correction***
Dow Indust. 73.3 + 0 Bull Confirmed
S&P 500 74.4 - 0.4 Bull Confirmed
S&P 100 76.0 + 0 Bull Confirmed
Bullish percent measures the number of stocks in an index
currently trading on a buy signal on their point and figure
chart. Readings above 70 are considered overbought, and readings
below 30 are considered oversold.
Bull Confirmed - Aggressively long
Bull Alert - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert - Take defensive action if long
Bear Confirmed - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend
-----------------------------------------------------------------
5-dma: 1.27
10-dma: 1.34
21-dma: 1.11
55-dma: 1.02
Extreme readings above 1.5 are bullish, and readings below .85
are bearish. These signals don't occur often and tend be early,
but when they do, they can signal significant market turning
points.
-----------------------------------------------------------------
Market Internals
-NYSE- -NASDAQ-
Advancers 1244 1079
Decliners 1563 1925
New Highs 69 52
New Lows 19 39
Up Volume 651M 670M
Down Vol. 1179M 1342M
Total Vol. 1852M 2100M
M = millions
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Commitments Of Traders Report: 01/04/05
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.
Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.
S&P 500
Not much change in the large S&P futures contracts.
Professionals remain net bearish and small traders remain
net bullish.
Commercials Long Short Net % Of OI
12/07/04 450,072 498,057 (47,985) (5.0%)
12/14/04 502,471 540,494 (38,023) (3.6%)
12/21/04 455,238 502,538 (47,300) (4.9%)
01/04/05 456,255 505,042 (48,787) (5.0%)
Most bearish reading of the year: (111,956) - 3/06/02
Most bullish reading of the year: 23,977 - 12/09/03
Small Traders Long Short Net % of OI
12/07/04 187,707 135,776 51,931 16.0%
12/14/04 201,428 164,111 37,371 10.2%
12/21/04 157,015 106,205 50,810 19.2%
01/04/05 159,197 111,900 47,297 17.4%
Most bearish reading of the year: (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02
E-MINI S&P 500
Commercial traders have increased their bearish bias
just as small traders have increased their bullish bias.
Commercials Long Short Net % Of OI
12/07/04 470,553 805,234 (334,681) (26.2%)
12/14/04 556,980 899,616 (342,636) (23.5%)
12/21/04 279,694 554,818 (275,124) (32.9%)
01/04/05 302,339 620,759 (318,420) (34.5%)
Most bearish reading of the year: (436,367) - 11/23/04
Most bullish reading of the year: 133,299 - 09/02/03
Small Traders Long Short Net % of OI
12/07/04 311,838 66,496 245,342 64.8%
12/14/04 398,915 137,598 261,317 48.7%
12/21/04 227,047 66,140 160,907 54.8%
01/04/05 279,274 71,151 208,123 59.4%
Most bearish reading of the year: (77,385) - 09/02/03
Most bullish reading of the year: 449,310 - 06/10/03
NASDAQ-100
Commercial traders have turned significantly more bearish
on the NDX just as the small traders has turned sharply
more bullish.
Commercials Long Short Net % of OI
12/07/04 57,621 34,313 23,308 25.4%
12/14/04 73,554 50,286 23,268 18.7%
12/21/04 30,614 45,158 (14,544) (19.1%)
01/04/05 27,226 44,600 (17,374) (24.1%)
Most bearish reading of the year: (21,858) - 08/26/03
Most bullish reading of the year: 26,058 - 11/30/04
Small Traders Long Short Net % of OI
12/07/04 15,489 49,064 (33,575) (52.0%)
12/14/04 26,781 58,159 (31,378) (36.9%)
12/21/04 20,840 9,109 11,731 39.1%
01/04/05 22,227 8,293 13,934 45.6%
Most bearish reading of the year: (34,877) - 11/30/04
Most bullish reading of the year: 19,088 - 01/21/02
DOW JONES INDUSTRIAL
Commercial traders are increasing their bearish bias on
the Dow Industrials but small traders have jumped ahead
in their bearish attitude for the index.
Commercials Long Short Net % of OI
12/07/04 25,523 27,351 (1,828) (3.4%)
12/14/04 36,960 38,566 (1,606) (2.1%)
12/21/04 24,850 31,920 (7,070) (12.4%)
01/04/05 24,704 32,916 (8,212) (14.2%)
Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year: 15,135 - 10/16/01
Small Traders Long Short Net % of OI
12/07/04 5,274 9,507 (4,233) (28.6%)
12/14/04 13,445 19,089 (5,644) (17.3%)
12/21/04 5,637 6,961 (1,324) (10.5%)
01/04/05 5,166 7,596 (2,430) (19.0%)
Most bearish reading of the year: (12,106) - 3/09/04
Most bullish reading of the year: 8,523 - 8/26/03
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