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Email Version, Section 1, Tuesday 01-18-2005
PremierInvestor.net Newsletter Tuesday 01-18-2005
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: Two Days Not a Trend
Watch List: Bounces and Breakouts.
Market Sentiment: Back to Back
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MARKET WRAP (view in courier font for table alignment)
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01-18-2005 High Low Volume Adv/Dcl
DJIA 10628.79 + 70.79 10628.94 10500.58 2.01 bln 2212/1057
NASDAQ 2106.04 + 18.10 2106.19 2078.04 2.01 bln 1994/1188
S&P 100 569.53 + 5.09 569.53 562.01 Totals 4206/2245
S&P 500 1195.98 + 11.46 1195.98 1180.10
SOX 406.55 + 3.40 406.99 399.90
RUS 2000 624.87 + 7.39 625.81 615.29
DJ TRANS 3589.22 + 20.06 3594.07 3559.33
VIX 12.47 + 0.04 13.15 12.30
VXO (VIX-O)12.67 - 0.18 13.66 12.56
VXN 18.75 + 0.18 19.74 18.72
Total Volume 4,281M
Total UpVol 2,998M
Total DnVol 1,128M
Total Adv 4817
Total Dcl 2560
52wk Highs 318
52wk Lows 62
TRIN 0.66
NAZTRIN 0.81
PUT/CALL 0.72
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Market Wrap
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Two Days Not a Trend
by Jim Brown
For the first time in 2005 the S&P has posted back to back
gains. Bulls are backslapping each other and high fives
are evident everywhere. Has the bull returned to 2005? It
is too soon to really tell for sure but traders are now
breathing easier as the indexes pull back from the brink
once again. Two days does not make a trend but it could be
a good start.
Dow Chart
Nasdaq Chart
The day started off with a shock as oil prices soared to
$49.50 and the NY Empire State Manufacturing Survey fell
back to 20.1 from 27.1 for January. The manufacturing
activity dropped sharply in New York state in January and
the December number was revised down from 29.9 to 27.1. The
NY Survey has been volatile of late with activity jumping
very erratically between 14-30 over the last eight months.
While the headline number was bad the internal components
were worse. New Orders dropped from 36.1 to only 20.1 and
Shipments backed off to 26.2 from 35.6. Inventories fell
into negative territory at -10.9 and Employment fell to
12.7 from 15.7. This was not a positive report but it has
been very volatile. Unless a trend develops to the downside
it will likely be just watched carefully as a potentially
bearish economic indicator forming and a reason for the
Fed to not get to aggressive in future rate hikes.
The NAHB Housing Index dropped only slightly to 70 from 71
and the recent cycle high made in December. We have been
hovering around 70 since August and this continues to
indicate that the housing market remains strong. However
all three components did pull back slightly but home buying
over the holidays is not normally strong. We are heading
into the spring buying season and these numbers should
continue to be strong. The downside will be higher rates
ahead and higher energy prices taking money out of buyers
pockets. We are hearing more about speculative excesses in
several major markets and that suggests we are nearing a
top but buyers continue to appear.
The negative Empire survey and the high oil sent the indexes
lower at the open but that dip was short lived. Oil prices
had risen on worries the current cold front could last up
to two weeks and the weather man has now rescinded that
outlook. Funds that had speculated on that event causing
further shortages took profits on the new announcement. The
high for the day at $49.50 was quickly sold and stops were
hit taking the price back to $47.72, nearly -$2 off the high
before buyers stepped back into the market. Oil closed at
$48.45 and up only slightly for the day. Tomorrow's oil
inventory report will cause that volatility to continue.
Complicating this short-term play was comments from the IEA
that demand could increase +500,000 bpd in Q1. The EIA also
said they expected demand to increase and their number was
+1.4 mbpd or more. The IEA said supply dropped -50K bpd in
December even before OPEC said they would cut production by
one million bbls. In reality that cut has only seen a drop of
-600K bpd and supplies are already running tight. With the
OPEC meeting coming on Jan-30th the expectations for a new
cutback in production are slipping. With demand increasing
and prices hovering near $50 there is no need for OPEC to
support prices any further. Support is already priced into
the market with the increased demand. Demand from China
spiked again in Nov/Dec and could continue to grow +8% to
+13% according to IEA analysis today. There should be a drop
in price after the inauguration and the Iraq elections as
we enter spring and a period where demand temporarily slows.
This should be seen as a buying opportunity for oil stocks
when it occurs.
The Fed has something in the works and their team of speakers
hit the road today and will continue to do so this week. Two
Fed heads made comments on the economy today and there are
seven more speeches later this week. Philly Fed president,
Santomero, said inflation risks were balanced but the Fed
needed to remain vigilant as the economy continued to expand.
Minnesota Fed president, Stern, said the economy was solid
and inflation would remain low. If the rest of the speeches
continue this train of thought it could be seen as the Fed
giving us the all clear signal that rate hikes were going to
pause. Very seldom do they mount a strong speaking campaign
with the same thread unless they are trying to warn the bond
markets of changes ahead. The next Fed meeting is Feb-1st
so the timing is right for a message.
The inauguration is only a day away and the $40 million
extravaganza is going to be a huge target. Besides the actual
event there are dozens of sideshows attracting huge crowds.
There will be a parade with over 11,000 people just in the
parade itself and is expected to attract several hundred
thousand in attendees. There are nine formal balls where
the rich and want to be rich will mingle and trade business
cards in hopes of future dealings. Each of these poses another
chance for potential problems. This could weigh on today's
rally as we get closer to Thursday.
Earnings are breaking out all over and the majority have
been very good. IBM was the biggest name after the close
and beat the street by a nickel. IBM earned a profit of
over $3 billion for the quarter on sales of more than $27B.
This huge cash windfall is due mostly to their services
division which ended the quarter with an $111 billion
backlog of orders. IBM said it was comfortable with
analysts estimates of $5.55 per share for the year and
$102 billion in revenue. IBM also said they might beat
that revenue target. IBM rose only slightly in after
hours trading.
Yahoo also reported earnings that beat the street by +2
cents and gave guidance only slightly better than analysts
had expected. YHOO jumped less than +$1 on the news. YHOO
could see some pullback on Wednesday because traders
typically expect a really strong outlook from Yahoo and
the slightly better guidance may not hold the stock at
these levels.
AMD announced earnings that missed estimates by -3 cents
but that should come as no surprise after last weeks
warning. Better chip news came from Motorola, which beat
the street by +3 cents and from Freescale (FSL) the MOT
spin off which beat the street by a penny. Juniper beat
the street by a penny and succeeded in lifting the
networkers in after hours. Seagate Technology (STX)
beat by a nickel and guided higher.
Not all the earnings news was good. JDSU warned that it
would miss street estimates because of a $13 million
revenue drop associated with one customer and litigation
expenses. KKD said they had ousted their CEO of seven
years and hired a turnaround expert to rescue the donut
maker from its problems. KKD warned that persistent sales
declines in the current quarter may lead to its third
quarterly loss for the year. Stephen Cooper, the new guy
at the top has 30 years of experience in troubled companies
like Enron, Polaroid, TWA, Pegasus Gold and most importantly
Boston Chicken. KKD stockholders should be especially aware
that BOST shareholders were left out in the cold when it
was reorganized. I personally would not want to be a holder
with Cooper at the helm. The easiest fix for him is a
bankruptcy, close non performing stores and issue new
shares to debt holders. He has done it before and as a
hatchet man he is not really concerned about being nice
and once KKD is back in shape he will move on leaving
lots of bodies in his wake. All three of the officers
blamed for the KKD problem, CEO, COO and CFO have now
departed.
As we approach option expiration this Friday the market
has put together two days of back to back gains. The S&P
closed at 1195 and +20 points off the critical 1175 area
we were watching for a breakdown signal last week. With
earnings and guidance mostly positive we could continue
to see gains although OpEx and the inauguration could now
combine to keep us range bound until next week. With the
futures barely positive at 7:30 tonight it appears there
is some concern already creeping into the market. The
earnings were good but the guidance was not good enough
for traders to throw caution to the wind and go on a
buying spree.
There are about 100 companies announcing earnings on
Wednesday with EBAY, QLGC, QCOM, SYMC, LU, GM, CIT, COF
and CIT leading the list. There has not been any real
pre earnings ramp on any of the majors as caution ahead
of earnings seems to be the game plan. This is good in
the sense that we do not have a lot of expectations built
into the market and we remain oversold despite today's
bounce. The potential is there for a continued move up
next week if the earnings continue to be solid and there
are no negative inauguration events.
With today's bounce we are in the neutral zone for the
Dow. We are just over last weeks congestion range but
just under the 10650 resistance and the congestion range
from the prior week. This is the nearly perfect place
to ride out the rest of the week with a Friday/Monday
move over 10650. The Nasdaq is only slightly better off
with a close just under the 2010 resistance high for the
last two weeks. With positive tech earnings we should
continue to press that level and a breakout could setup
a new move back to the highs.
SOX Chart
The SOX stretched its gains for two days now and posted
the second consecutive close over 400 and a five day
closing high at 406. The 410-resistance level is just
above and from the after hours trades in the SMH it
appears the positive earnings from MOT/FSL offset the
earnings miss by Rambus and there is no bias for the
open.
The strongest move was by the Russell with a breakout to
a two week high at the close at 625. Only the slimmest
thread is holding it back from a new move back towards
the highs at 660. That would be a big leap of faith and
we are far from seeing any confirmation. However, if the
Russell is leading the pack it suggests the funds are
putting money back to work and maybe the fund flows have
finally appeared.
For the rest of the week I would be cautiously optimistic
ahead of potential event risk and option expiration. We
typically see OpEx activity late in the week before and
early of OpEx week with the last three days relatively
tame. There are probably lots of option hedges in place
for the inauguration event risk and Friday could be a
major unwind day if nothing happens.
While writing this article I was struck with the different
world Bush faces over the next four years compared to what
he thought he was facing when he took his last oath in Jan
2001. The world as we new it came to an end eight months
after his last oath and he is facing an even bigger crisis
over the next four years as he attempts to extract the U.S.
from Iraq and face the coming energy crisis. Hopefully the
war on terror has seen its biggest battle as we continue to
mop up the remaining cells still trying to cause trouble.
It will never be over but hopefully the lack of funding
and the lack of a centralized backbone has weakened the
resolve of those Al Qaeda members still in the system. If
we get past Thursday without a terror event the country
will probably relax even further and we can get back to
contemplating the potential for a new bull market.
Jim Brown
Editor
"Men who try something and fail are infinitely better
off than those who try nothing and succeed."
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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
---------------------------------
NASDAQ-100 Trust - QQQQ - close: 38.72 change: +0.29
WHAT TO WATCH: The rebound in the NASDAQ Composite back over the
2100 level and the bounce in the QQQQ's from the 38 level looks
like a new bullish entry point. We would consider longs here
with an eye on the recent highs near $40.50.
---
Blue Coat Systems - BCSI - close: 21.69 change: +2.60
WHAT TO WATCH: BCSI exploded higher on Tuesday for a 13.6 percent
gain on rumors of a deal brewing. The move pushed shares above
round-number resistance at $20.00 and technical resistance at its
exponential 200-dma. We would watch for a dip back toward the
$20 level. The next level of overhead resistance looks like the
simple 200-dma near $25.
---
Interpublic Group - IPG - close: 13.27 change: +0.42
WHAT TO WATCH: IPG turned in a strong session without any news to
account for the 3.2 percent rally. We do see that shares are
bouncing from a crowd of moving averages with the 40, 50 and 200-
dma's all converging together. Bullish traders may want to
consider longs on a breakout above its 50-week moving average at
$13.50.
---
Corning Inc - GLW - close: 12.23 change: +0.46
WHAT TO WATCH: GLW started the session strong and ended strong
with a 3.9 percent rally through resistance at the $12.00 mark.
This looks like a bullish entry point for a run toward resistance
at $13.00 although at this point we'd prefer to buy a dip back
toward $12.00. Earnings are expected on Jan. 25th.
-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------
ADSK $32.24 +0.56 - ADSK was a huge winner in 2004 and traders
might be looking to buy the bounce here from the $30 level.
TE $15.69 +0.15 - TE is breaking out over the $15.50 level and
technical indicators suggest this is a new bullish entry point.
===============================
Market Sentiment
===============================
Back to Back
- J. Brown
The bulls are trying to make a comeback and the S&P 500 index put
together its first set of back-to-back gains for 2005. Some of
the trader talk today discussed how stocks were short-term
oversold after two weeks of profit taking and investors were
doing some shopping.
Stocks actually opened lower as crude oil gapped higher this
morning but equities turned around as oil faded. Market watchers
might be surprised that oil did not hold its gains given the new
report from the IEA who raised their forecast on global demand
for oil in 2005. Plus, oil traders are focused on the upcoming
OPEC meeting and how any violence surrounding the Iraqi elections
could pressure supplies.
The markets also shrugged off some disappointing economic data.
The NY Empire State manufacturing index fell from 27.1 in
December to 20.1 in January, which was less than expected.
Overall the market internals were pretty positive with advancing
stocks outnumbering decliners 19 to 9 on the NYSE and 19 to 11 on
the NASDAQ. Up volume was about three times down volume on the
NYSE and more than double down volume on the NASDAQ.
The rally in the financial stocks is very good news overall as
some market theorists suggest we can't have a prolonged rally
without the banking sector on the up swing. The BIX and BKX
indices turned in some impressive gains and the brokers outshined
the banks with a 1.8 percent rally in the XBD index.
A numbered of positive earnings reports helped set the tone today
and the good news kept on coming after the bell. IBM beat
estimates. JNPR beat estimates. YHOO beat estimates. Overall
the mood seems up beat and stocks should have the wind at their
backs tomorrow.
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Market Averages
DJIA ($INDU)
52-week High: 10868
52-week Low : 9708
Current : 10628
Moving Averages:
(Simple)
10-dma: 10594
50-dma: 10591
200-dma: 10280
S&P 500 ($SPX)
52-week High: 1217
52-week Low : 1060
Current : 1195
Moving Averages:
(Simple)
10-dma: 1186
50-dma: 1188
200-dma: 1133
Nasdaq-100 ($NDX)
52-week High: 1635
52-week Low : 1301
Current : 1573
Moving Averages:
(Simple)
10-dma: 1562
50-dma: 1582
200-dma: 1467
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CBOE Market Volatility Index (VIX) = 12.47 +0.04
CBOE Mkt Volatility old VIX (VXO) = 12.67 -0.18
Nasdaq Volatility Index (VXN) = 18.75 +0.18
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Put/Call Ratio Call Volume Put Volume
Total 0.86 1,095,150 946,447
Equity Only 0.67 748,462 503,007
OEX 1.19 39,292 47,001
QQQQ 3.00 29,480 88,686
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Bullish Percent Data
Current Change Status
NYSE 73.3 + 0 Bear Correction
NASDAQ-100 73.0 + 0 Bull Correction***
Dow Indust. 73.3 + 0 Bull Confirmed
S&P 500 74.6 + 0 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: 0.96
10-dma: 1.15
21-dma: 1.06
55-dma: 1.00
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.
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Market Internals
-NYSE- -NASDAQ-
Advancers 1936 1929
Decliners 910 1119
New Highs 131 78
New Lows 20 10
Up Volume 1480M 1263M
Down Vol. 458M 594M
Total Vol. 1968M 1966M
M = millions
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Commitments Of Traders Report: 01/11/05
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
There was very little movement in the latest data leaving
commercials slightly bearish and small traders bullish on the
large S&P futures contracts.
Commercials Long Short Net % Of OI
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%)
01/11/05 457,383 509,892 (52,509) (5.4%)
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
12/14/04 201,428 164,111 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%
01/11/05 157,131 110,174 46,957 17.5%
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 slightly increased their bullish positions
but everything else remained pretty much flat with the new data.
Commercials Long Short Net % Of OI
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%)
01/11/05 322,800 622,509 (299,709) (31.7%)
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
12/14/04 398,915 137,598 261,317 48.7%
12/21/04 227,047 66,140 160,907 54.8%
01/04/05 279,274 71,151 208,123 59.4%
01/11/05 277,808 73,288 204,520 58.2%
Most bearish reading of the year: (77,385) - 09/02/03
Most bullish reading of the year: 449,310 - 06/10/03
NASDAQ-100
Commercials upped both their longs and shorts for a minor
decrease in bearishness. Small traders upped their longs
for a bump in bullishness.
Commercials Long Short Net % of OI
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%)
01/11/05 31,984 49,244 (17,260) (21.2%)
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
12/14/04 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%
01/11/05 27,186 8,470 18,716 52.4%
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
There isn't much movement in the commercials' positions but
small traders significantly reduced their short positions.
Commercials Long Short Net % of OI
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%)
01/11/05 25,254 32,568 (7,314) (12.6%)
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
12/14/04 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%)
01/11/05 5,141 5,389 ( 248) ( 2.3%)
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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DISCLAIMER
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only. The information provided herein is not to be construed
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newsletter picks are not to be considered a recommendation
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before trading in any security. The information provided has
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