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Email Version, Section 1, Monday 12-20-2004
PremierInvestor.net Newsletter Monday 12-20-2004
section 1 of 2
Copyright (c) 2004, 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: Check your inverted yield curve.
Watch List: Fashion Accessories to gambling and more
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MARKET WRAP (view in courier font for table alignment)
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12-20-2004 High Low Volume Adv/Dcl
DJIA 10661.60 + 11.68 10735.27 10652.07 1.78 bln 1383/1434
NASDAQ 2127.85 - 7.35 2154.48 2124.22 1.98 bln 1128/1952
S&P 100 567.80 + 0.43 572.14 567.31 Totals 2511/3386
S&P 500 1194.65 + 0.45 1203.64 1193.36
SOX 419.40 - 4.35 428.19 418.53
RUS 2000 638.05 - 4.03 645.17 636.95
DJ TRANS 3730.88 - 20.19 3762.15 3728.45
VIX 11.83 - 0.12 12.34 11.77
VXO (VIX-O)13.61 + 0.90 13.63 12.28
VXN 18.21 + 0.00 19.22 18.21
Total Volume 3,773M
Total UpVol 1,421M
Total DnVol 2,206M
Total Adv 2511
Total Dcl 3386
52wk Highs 304
52wk Lows 29
TRIN 1.06
PUT/CALL 0.84
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Market Wrap
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Buoyed by oil prices failing more than a $1.00 a barrel, the DOW
charged out of the gate this morning, gained about 85 points, hit
its daily high of 10732 and reversed and unfortunately from there
it was downhill for the rest of the day. The DOW closed at 10661
for a measly +11.68 gain for the day. The SPX also hit its daily
high early in the morning at 1203.64, fell for the balance of the
day making a daily low at 1193.36 and also closed poorly at
1194.66 for a daily gain of +0.46. Same story for the NASDAQ, it
hit its daily high at 2154.48, made a daily low at 2124.22 and
also closed poorly at 2127.85 for a daily loss of -7.35 points
NASDAQ most actives were SIRI, MSFT, PARS, SYMC AND CSCO. NYSE
most actives were PFE, LU, NWS, NT AND MRK.
On the Big Board, 1.4 billion shares traded and 1,641 stocks rose
and 1,677 fell. On the Nasdaq 2 billion shares changed hands with
1,169 advancing and 2,001 declining. New highs/new lows on the
NYSE were 242/11 and on the NASDAQ it was 144/17.
According to the Stock Trader's Almanac the Santa Claus Rally is
scheduled to begin on December 23rd and should continue through
the last five trading days of the year and into the first two
days of the New Year. Since 1969 the S&P has averaged 1.7% gains
during this time but it is important to note that if this rally
fails to materialize it has often been a harbinger of bear
markets ahead. The saying is "If Santa Claus should fail to call
- bears may come to Broad and Wall."
Retailers are gearing up for one of their best weeks of the year
although recent data of retail sales doesn't look too good. Data
from ShopperTrak of Chicago estimated that retail sales on
Saturday were down 7% compared with the same Saturday last year.
The research group took into account two additional shopping days
between Thanksgiving and Christmas this year so the slowdown is
"a little alarming" said Bill Martin, co-founder of the research
group. Many midprice retailers tried to spur sales with sharp
price cuts and discounting was so steep at some major stores that
experts aren't sure whether retailers can bring home the 4.5%
sales gains the industry has projected for the 2004 season.
Retailers are blaming the lack of a trendy holiday gimmick and
high energy costs for the slowdown. Doesn't this sound like Krispy
Kreme blaming its woes on the low carb craze?
However, there are some retailers that haven't been affected by
high energy costs, retailers like Apple (AAPL). Apple's can't
ship its portable music player, iPod, fast enough giving rise to
Lehman Brothers raising its profit outlook and target price on
AAPL. Lehmen expects AAPL will post first quarter revenue up $0.1
billion. Interestingly AAPL closed at 62.72 down -2.27 for the
day.
In other news Exelon (EXC) has agreed to merge with Public
Service Enterprise Group Inc. (PEG) for $12.81 billion in stock
thus creating the largest power generator in the country. Under
the merger agreement, which both boards unanimously agreed to,
each PEG common share will be converted into 1.225 shares of EXC
so PEG stockholder will ultimately own 32% of EXC's pro forma
shares. EXC closed at 43.05 up +1.19 and PEG closed at 50.59 up
+3.29. Obviously Wall Street likes this merger.
The Securities and Exchange Commission (SEC), the National
Association of Securities Dealers (NASD), the New York Stock
Exchange (NYSE) and Edward D. Jones & Co. have tentatively agreed
to a $75 million settlement due to the brokerage firm's practice
of steering its investors to mutual funds from which they
received compensation without disclosing the fact to the
investor. Last year the SEC fined Morgan Stanley $50 million for
conflicts of interest which included the same practice.
The only economic report out today was the Leading Indicators
index (LEI), a report of 10 different economic indicators
compiled by a private research group, the Conference Board. Of
the 10 indicators, six increased in November: stock prices, real
money supply, average weekly initial claims for unemployment
insurance, index of consumer expectations, manufacturers’ new
orders for non-defense capital goods, and manufacturers’ new
orders for consumer goods and materials. The four negative
indicators were: vendor performance, average weekly manufacturing
hours, building permits, and interest rate spread. The overall
LEI had fallen for the last five straight months showing that the
economy's momentum was running out of steam and giving rise to
worries of inflation but today the conference board announced
that overall LEI increased to 0.2% after a revised 0.4% decline
the month before. Economists had expected to see a gain of 0.1%
for the month.
Although this report looks good lifting up the hood we find some
problems. The report's performance this year hasn't corresponded
particularly well with actual economic performance and a survey
of top economists finds that they are not placing tremendous
emphasis on the report this year.
On to the charts.
DOW Daily
Although the DOW looked weak intraday when you look at it on the
daily chart you see a pretty healthy looking chart with the
exception of the MACD divergence. This market could drop all the
way back to the triple bottom at about 10400 before you see a
hint of a trend change. I think the bulls are still doing OK.
DOW Weekly
Looking at the DOW on a weekly chart you start to see that it may
be hitting a resistance that could be quite difficult to get
through.
SPX daily
Once again although the intraday chart of the SPX was anything
but bullish the daily chart tells the real story and this is a
bullish chart if you ever saw one. However, things need to cool
off a bit and the MACD may be telling us that that is exactly
what the SPX may be doing.
NASDAQ daily
The NAZ has a similar chart to the SPX but with some differences
that are worth noting. First of all the MACD is more bearish in
that the slow line is starting to curve up in the SPX but not in
the NAZ; the NAZ is at the bottom of it channel and much more of
a move downwards could mean the trend changes and the bearish
double top is confirmed; then we have the double top on the NAZ
whereas it is a higher high on the SPX.
Tomorrow, Morgan Stanley (MWD) and Bear Stearns (BSC) are the
only two S&P 500 components with earnings before the bell while
General Mills (GIS) is expected to report quarterly results
during market hours. There will be no economic data out until
final Q3 GDP readings hit the wires on Wednesday at 8:30 ET.
One last note - in a New York Federal Reserve 1996 study on what
indicators were the most reliable predictors of a recession, only
one of six indicators measured that was significantly reliable
was an inverted yield curve. They later did a private study with
over 20 factors and still the only dependable indicator was the
inverted yield curve. So what is an inverted yield curve? Well
normally, short term rates are lower than long term rates because
investors want to be compensated for the risk of the longer
holding period. But sometimes short terms rates rise above long
term rates, giving rise to what is known as an inverted yield
curve. What this 1996 (and subsequent studies) have found is that
when the yield curve is inverted or negative for 90 days, you
typically get a recession in about 12 months. The last time we
had a inverted yield curve was August 2000 and according to John
Maudlin of Frontlinethoughts.com a recession after a 90 day
inverted yield curve is more than typical. He states, in the US,
every time we have had a period of negative yield curves, we have
had a recession within a year. Should we start to worry? Not yet.
The US yield curve is slowly flattening but is not inverted and
is not signaling a recession but Mr. Maudlin has spotted a
worrisome inverted yield curve in England. I won't go into the
dept that Mr. Maudlin did but suffice it to say he has found
enough similarities between the two economies for us to take note
and watch to see if this may be our canary in the mine for a
recession heading our way. In any advent I would start watching
the yield curve and if it inverts start to take action for a
possible recession. You can watch the yield curve on
stockcharts.com, which has a tres cool dynamic yield curve.
Remember plan your trade and trade your plan.
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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Fossil Inc - FOSL - close: 23.63 change: -1.34
WHAT TO WATCH: FOSL has produced another high-volume breakdown,
which is becoming more and more common for the stock. The recent
breakdown two weeks ago broke support at $26 and its 200-dma.
Just when the MACD looked ready to produce a new buy signal FOSL
loses another 5.3 percent and breaks down under the $24 level.
Today's move could be a bearish entry point. We would target
support at $22.00 as our initial exit but it wouldn't surprise us
to see it hit $20.00. The P&F chart is very bearish with a $15
target.
---
Boyd Gaming - BYD - close: 38.99 change: +1.68
WHAT TO WATCH: BYD is another relative strength winner today.
Shares added 4.5 percent on volume about twice the average. The
move is a breakout over two-month old resistance at the $38.00
level. Short-term technicals are positive and its MACD is
nearing a new buy signal. We know the stock looks a little
overbought following its post-earnings explosion back in October-
November but shares have essentially churned sideways the last
several weeks digesting those gains. The P&F chart points to
$48.
---
Omnicare Inc - OCR - close: 33.84 change: +0.68
WHAT TO WATCH: OCR out performed the broader market indices today
with a two percent rally on above average volume. Bulls will
note the current trend of higher lows as shares continue to push
against resistance at $34.00, which coincides with the bottom of
its July gap down. We would consider new bullish positions on a
move over $34.05 but more conservative traders should probably
wait for a breakout over $35.00 and/or its simple 200-dma near
$35.50. The P&F chart looks pretty bullish with a bounce from
support and a new target at $49.00.
---
T C F Financial - TCB - close: 31.46 change: +0.53
WHAT TO WATCH: The four-month pattern in TCB is looking more and
more like a neutral pennant formation with higher lows and lower
highs. Usually when shares narrow into the point of the pennant
we can begin to expect a breakout one way or the other. While
pennants are typically neutral patterns the P&F chart is bullish
with a $44 target. Readers could watch for a move over $31.75 or
$32.25 as a potential bullish entry point. Be patient. TCB is
not a very fast moving stock.
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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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is possible at this or some subsequent date, the editors and
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