Wednesday, January 31, 2007


Market Action:
As the market was opening on Wednesday morning, the techs seemed to be suffering from some overnight earnings news that just didn’t sit right.  The NDX, NASDAQ 100, dropped about 13 points or 0.75% in the first half hour of trading; but, like so many down mornings, the market rallied out of those lows.  Within another 45 minutes the NDX was in positive territory.  

After that the market started to remember that the Fed was going to make an announcement in the afternoon so the trading range collapsed to practically zero for three hours before the Fed broke their silence.  You already know that they decided to hold rates the same again and, not only that, you and everyone else knew it days ago.  

Still, the market bolted upward after the news and didn’t look back until 30 minutes to the close when a small pullback occurred but the Dow managed nearly a 100 point gain for the day and the other indexes were strong.  We found the final Dow number to be rather silly because the traders didn’t manage to make a new high by eight cents.  Yes, the Dow traded in new high territory but they just couldn’t manage a new closing high, ditto the SP 500.

After the market closed, we had two news items, one from GOOG and the other from DELL.  The GOOG news was first, seemingly good earnings news, and caused that stock to drop about 3%.  Huh?  DELL’s news was that CEO Rollins was out and Michael Dell was back in as CEO, remaining on as Chairman of the Board.  Well, that was the news that DELL wanted the market to hear anyway because they also announced that they expect to miss revenue and earnings numbers for this quarter.  The market jumped on the stock as this change at the top has been anticipated for some time as DELL has been losing its luster (mostly to HPQ).

So, the after hours market got tanked after GOOG’s news but managed to recover all of it after DELL’s news.  Such is the market these days.

Fed Announcement:
The Fed declined to make a move on rates on Wednesday just as we and most analysts have said for the past few weeks.  We’re not sure any more needs to be said here?  Well, maybe one thing, the bonds have seemed to be expecting a modest increase in rates but when one didn’t come they managed a rather spirited rally.

We wanted to be able to tell you that the market is now finished moving up but we still have another trading day until we get the jobs’ report.  With the action pushing up the Dow and SP 500 to new highs (during the trading day), we are again wondering how much more these indexes can move up, especially in the face of waning momentum.  

At the same time the NDX, our favorite index, seems to have put in a high back in the middle of January at 1844.81 which compares to the close of 1792.28 on Wednesday.  The small difference indicates that the Dow and the NDX are probably not in sync right now as the NDX seems to be lagging the Dow.  At this time the NDX looks like it has topped while the Dow could move a little higher without the NDX.  

If the NDX does manage to move up here in the next day or two, we want to take advantage of the opportunity.  We usually look to the jobs’ report as a good time to sell into strength and we fell that this Friday will be a very good time.  All of the pieces seem to be falling into place except for the Dow moving higher which tells us one major thing:  The headliner Dow will stay up a little while longer to keep the general public in the market.

Dow Industrials:  12,621.69  +98.38
VIX: 10.42
HUI:  336.01
QQQQ:  44.07
RYVNX:   16.65
RYAIX:  21.23
RYCWX:  34.76
TLT:  87.55
BEGBX:  13.56

Tuesday, January 30, 2007

Fed's Announcement Coming

Market Action:
We’re not really sure if there was any on Tuesday, the day before the Fed releases its newest position on interest rates.  The real action in the markets was in Oil as it rallied about 5.5% on the day.  This move created a stir in the oil service sector which rallied over 3%.  

If you pay attention to the indexes, the SP500 was the big mover due to the oil stocks in that index.  The Dow and the NASDAQ don’t have much oil representation so they didn’t benefit much from Oil’s move.  XOM (Exxon Mobil) is the only Dow component that is directly tied to oil and it was up a dollar plus.  

Normally, when oil moves like this, the Transports don’t like it very much but such was not the case on Tuesday as they rallied about 0.50%.  

Fed Watch:
This evening we are officially on Fed Watch (maybe they’ll lower rates this evening).  The market did remain calm on Tuesday somewhat due to the Fed’s announcement on interest rates on Wednesday.  

Our position continues to be that the Fed can Not raise rates and will not change them this week.  This “inaction” by the Fed may cause some muted buying going into the Friday jobs’ report.  As in our last post, we want to be aware of the possibilities for putting on some trades as we get to Friday.  

The rest of the year should give us ample opportunities to get back into some profitable trades.  The past couple of months have been very dull for us due to the market’s lack of any move.  Yes, all of the major indexes improved somewhat from their November highs but not enough for us to get excited about.  We think that is about to change.  

Dow Industrials:  12,523.31  +32.53
VIX: 10.96
HUI:  329.59
QQQQ:  43.63
RYVNX:   16.92
RYAIX:  21.40
RYCWX:  35.31
TLT:  86.82
BEGBX:  13.48

Monday, January 29, 2007


Market Action:
If you looked at the market averages after the close you might have thought Monday was a dull day and for the most part you would be correct.  The market did end close to where it began but there was a little flurry of activity in the middle.  This happened when…well, let’s tell the beginning of the story first…

We learned (along with the rest of the world) that DELL had cut a special deal (DELL got a DEAL, amazing) with MSFT to be the first computers to be sold with the new operating system VISTA.  Our guess is that DELL talked them into this deal because they are a mail order house and therefore the buyers really weren’t going to get their PC’s until at least Tuesday, the original release date.  

So, on Monday, DELL made a gloriously bullish announcement that it had sold tens of thousands of copies of VISTA over the weekend presumably in the form of computers.  This news sent the stock market headed higher quickly in late morning trading with most of the benefit accruing to the tech sector.  Once this little ramp was over, the market quickly reversed to go back down to the lows of the day before rallying a bit going into the close.  

Tonight we are biding our time with all of the news coming out this week.  Most of the time we set our sights on the jobs’ report and this seems to be an ok strategy this evening.  The FED will most likely not do anything on Wednesday and the market reaction to that should be muted.  
The big thing we are looking at is the total lack of upside conviction the market is taking here at the end of the month.  Yes, the Dow did finish up today but only about 3 points after dropping last Thursday and Friday.  Frankly, we would like to see another rally going into the jobs’ report this week.  That would be a good opportunity for us to set up some of our positions.

For tonight, we see no urgency to rush into any positions or out of any given the type of week we are in, what with all of the news.  Normally, we don’t worry too much about the news because it is just a way for us to execute our trades at better prices; the trend doesn’t really change due to the daily economic news.

We do realize that the market can “turn on a dime” so we want to be prepared to act should a good opportunity present itself but tonight, we are again waiting for Friday’s jobs’ report.  

Dow Industrials:  12,490.78  +3.76
VIX: 11.45
HUI:  325.09
QQQQ:  43.61
RYVNX:   16.97
RYAIX:  21.43
RYCWX:  35.48
TLT:  86.72
BEGBX:  13.47

Sunday, January 28, 2007

Big News Week Ahead

Market Action:
Last Friday’s market surprised us a little due to the lack of any recognizable bounce after the downright miserable Thursday.  The early news was pretty good with durable goods orders up 3.1%, nearly the 3.9% that was expected at 3.9%.  Right after the opening bell, December new home sales were reported to be higher than 1.2% expected at 4.8%.  The bulls just didn’t know what to make of this news.

The stock indexes were relatively quiet going into the weekend.  The Dow did manage to dip below that “magic” 12,450 number for a bit during the trading session but couldn’t hold it.    

Federal Reserve Watch:
This week brings the world the first of several FOMC meetings for 2007.  Since there hasn’t been one for a while (December 12th) there is a little buzz now that the Fed won’t raise rates for the foreseeable future.  Well, what do you know!  They must have finally started paying attention to the Wednesday Update, although, we don’t like them agreeing with us all that much.  No, we don’t expect any change this week either and we thought we wanted to be a little contrarian.

The stock market is generally upbeat over the end of the month which is the time frame we are in right now.  We did notice that the last two days of last week didn’t pay much attention to that general rule but we do still have a couple of trading days left this month of January.  To make any difference, the rally in the Dow needs to be substantial in order to negate the drop late last week.  Ok, maybe “substantial” is overstating the case but this bull market thrives on little up days like 20 points or so.

The earnings news doesn’t seem to be holding much sway over the market this season and we expect that to continue into the upcoming week.  There are some big news events that are looming over the market for the week and you can see some of them below.  Of course, we think the big news will be the jobs’ report on Friday morning but there are a lot of items between now and then to create some volatility this week.

Upcoming News Events for the Week:
Some Big items around the first of the month
VISTA Release, long awaited and often delayed—Tuesday
Conference Board Consumer Confidence—Tuesday (not last week)
Fed meeting (FOMC)—Starts Tuesday
FOMC Interest rate news—Wednesday 1:15 CST
Chicago Purchasing Managers Index (PMI)—Wednesday
January ISM Manufacturing Index—Thursday
December pending home sales—Thursday
Drum Roll Please for the January jobs’ report –Friday

Dow Industrials:  12,487.02  -15.54
VIX: 11.13
HUI:  332.53
QQQQ:  43.57
RYVNX:   17.00
RYAIX:  21.45
RYCWX:  35.49
TLT:  86.91
BEGBX:  13.46

Thursday, January 25, 2007

Big Thursday

Market Action:
Where do we start this evening?  As the market opened (How’s that for a start?), there seemed to be ample reason to buy stocks.  With the news out of EBAY on Wednesday evening along with some others like Qualcomm and Nokia, the market was armed and dangerous.  The news out of those companies was not so much what was reported as what the future guidance indicated, which was positive.  

In the NASDAQ indexes the early pop was more pronounced with the NDX moving up about 8 points in the first half hour, about 0.5%.  From there the stock market decided to go down the rest of the day except for a little uptick right at the end of the session.  The news on existing home sales for December came out about a half hour into the session and showed a surprising drop, well, not to us.  Then the market became confused as selling started and then continued the rest of the day.

Even the media had trouble putting their finger on the “reason” for the drop.  The news centered on some inflation worries and interest rates.  It is true that the bond market has been hit the last few days as sellers are dominating trading there but with home sales weakening, we wonder how the media justified the interest rate fears.

When the market closed the regular session, the glow was pretty red with all of the major indexes the online WSJ lists in the red.  The Dow was down 119 points for its worst loss since the Monday after Thanksgiving.  The NASDAQ indexes were down about 1.3% while the RUT (Russell 2000) was down 1.24%.

After the closing bell, MSFT said that earnings were down 28% at 26 cents per share compared with last year’s 34 cents.  The market was expecting only 23 cents so in the vision of the market MSFT beat expectations by 3 cents.  Don’t forget this is the holiday session which is traditionally a strong quarter for the company.  The market knows that the long awaited VISTA will eventually save the day (these are not our word so much as our sardonic wit).  Even MSFT raised projections for the full year ending in June just because of VISTA.  

In fact, if you look at a MSFT chart you will see a steady rise in price over the past six to eight months.  From the June lows, MSFT has climbed from around 21.50 to 31.50 for nearly a 50% rise in that time.  This alone has been a significant driver in the market’s rise in general especially in the NASDAQ indexes which are market cap weighted indexes (these indexes measure the total value of the stocks in the index and MSFT is a big one so it has a lot of weight in the index).  

We are interested in MSFT because of its influence on the NDX mostly and today’s announcement seemed to be just what the doctor ordered to calm the markets after a day like Thursday.  After the news, MSFT jumped about 3% or about a dollar and the QQQQ’s rallied right along with it; but, the QQQQ’s ended down on the after hours session and MSFT pulled back to close up less than what it lost during the trading day.

Our opinion this evening is that the major indexes need to drop further in order to confirm any near term drop.  The NASDAQ indexes are close to breaking through some near term support but the Dow is well above its lows from Monday down around 12,450.  This is the area of some interest to us and we will be watching very carefully on Friday for any breaks in that level.  If the market can move down, the NASDAQ indexes could easily break their Monday lows even with MSFT being in play on Friday morning.  We can only wait to see what happens.

Dow Industrials:  12,502.56  -119.21
VIX: 11.22
HUI:  330.98
QQQQ:  43.73
RYVNX:   16.89
RYAIX:  21.37
RYCWX:  35.66
TLT:  86.98
BEGBX:  13.49

Wednesday, January 24, 2007

A Win For The Bulls, or Was It?

Market Action:
As the market opened there were plenty of jubilant bulls buying up the techs that reported on Tuesday evening.  Even though the news out of those companies wasn’t really all that good, the consensus was that it wasn’t bad enough to sell them so let’s buy them.

The Dow opened up and just kept steaming ahead to close at another all time record high just above 12,620, up about 0.7% on the day. The NDX, NASDAQ 100, pretty much hit its high within the first hour and a half up about 1.5% and finished right around there, well off its highs set a few weeks ago.  

On Tuesday evening, YHOO announced their earnings which, while not too great, did invigorate the after hours and popped the opening on Wednesday.  The biggest beneficiary of that news was actually GOOG which had a bid day moving up 20 points to right around 500.

As the market closed on Wednesday, there were further earnings reports that helped to move the market.  The big one was EBAY and that lifted the internet companies again in after hours trading.  EBAY added about 5% on the back of YHOO’s news on Tuesday and then added another 13% after its news on Wednesday.  Even the report in the WSJ online edition said that the holiday season was very good for EBAY and maybe the market should keep this in mind when pricing in future results.

We thought we would skip over the rest of the issues and go right to the analysis.  The volume on the NYSE was nothing special and less than Tuesday’s volume.  We also see that the momentum indicators edged up a bit and are very close to overbought.  The NASDAQ indexes are still a bit below their recent highs.  The VIX, our volatility index, was down below 10 again but not below the levels set at the lows last month.  All of these items by themselves should serve as a warning to traders but they are not paying any attention.

The new high in the Dow will allow the masses to stay in their complacent mode just a little while longer.  We believe that Wednesday was a good day to sell into the strength just as we mentioned in our last post.  You may not see the wisdom in that advice but the pattern in the market is a close to a sell signal as you can get without actually being a breakaway down day.  

Yes, this upward move could continue now that the Dow has succeeded in making a new all time high but the pattern is complete to the upside as far as we’re concerned.  The most difficult thing an investor has to do is selling when prices are high.  They normally get greedy and think there is just a little more that can be made.

Markets that are in a mood to change directions tend to be very erratic just like we’ve seen for the entire month of January.  Normally, this type of volatility would raise the VIX but complacency is rampant.  The fact is that Dow made a new high on Wednesday just about 40 points above the high set about two weeks ago.  The broader market is struggling to keep up with the big 30.  

Tech Talk:
The move on Wednesday looks like a C wave—here is what that means:  A C wave is part of a corrective wave but it looks like wave 3 action.  A C wave is an ending wave and a wave 3 is a continuation wave that will lead to another leg up.  A C wave is generally a powerful Price move and sometimes it occurs with lower volume, both of which are true about this move.  We still think that Wednesday was a good day to sell.  Hopefully, Thursday will give you another chance.

Dow Industrials:  12,621.77  +87.97  (New Record High)
VIX: 9.89  (below 10 again)
HUI:  334.65
QQQQ:  44.30
RYVNX:   16.55
RYAIX:  21.08
RYCWX:  34.70
TLT:  87.61
BEGBX:  13.54

Tuesday, January 23, 2007

SOTU--Oil is Higher

Market Action:
As the market opened on Tuesday, the zigzag upward correction of Monday’s decline continued.  The Dow managed to retrace most of Monday’s decline but then spent the last couple of hours falling away.  The Dow did manage a decent 50+ point rally but prices failed to achieve a full reversal of Monday’s loss.  The NDX, NASDAQ100, actually closed down on the day.

Jumping to the after hours market, there were a number of earnings reports that moved trading after the closing bell.  YHOO (Yahoo, after initially dropping 3% on the news, rallied after the conference call tacking on 6%), AMD (Advanced Micro Devices, dropped about 4% after poor earnings), SUNW (Sun Microsystems, up 8% on good earnings news) are some of the companies involved.  The net effect has been to push the overall NASDAQ 100 futures up in overnight trading.

Then, later this evening, the President gave the country the State of the Union (SOTU) address.  We’re pretty sure the Democrats will be busy trying to stop some of the initiatives that the President mentioned this evening and that is the way things go here in the United States.  There certainly is a different feel on the political landscape tonight and we need to be cognizant for how this may affect the markets—which is the only reason we raised the subject at all this evening.  As we write this, the stock futures have not changed much over the past few hours.

On the other hand, the oil market rallied in anticipation of tonight’s SOTU.  There were several items from the SOTU that surfaced over the course of the last few days.  One of those items was the doubling of the SPR (Strategic Petroleum Reserve) which the oil market took seriously by rallying about 4.5%.  You may ask why this item is mentioned under the Gold heading and our answer is that Gold rallied right along with oil as it has done this past few years.

The HUI, our current favorite gold index, rallied hard today up nearly 15 points or nearly 5%.  Gold was up about $12 so the HUI seems to be leading on the upside.  This upside move is a little premature in our opinion but we must be aware that there may be something going on here.  We need to keep a very close eye on this move to see if there is something for us to participate in.

The move in the stock market on Tuesday was disappointing both in the regular hours and in the after hours.  We continue to believe that the best prices have been seen in the indexes but it takes time to roll the market over.  That’s why we have remained patient for so long.  Wednesday may bring a pretty strong opening based on the overnight futures this evening so this may be a good time to sell some stocks.  At this point, any rally is a good time to sell.  

Dow Industrials:  12,533.80  +56.64
VIX: 10.34
HUI:  329.82 (big move up)
QQQQ:  43.58
RYVNX:   16.98
RYAIX:  21.43
RYCWX:  35.18
TLT:  87.62
BEGBX:  13.60

Monday, January 22, 2007

A Down Monday

Market Action:
For a Monday, this was a curious trading session.  At the opening bell, the market had a false start being up for about three minutes before being called back to the starting line.  But, when it fell back to the unchanged line, it didn’t stay there and kept going down.  

In the early going there was an announcement that the leading economic indicators would be delayed until Tuesday but it seemed that it didn’t really sink in until the time they were to be released.  Then, when the LEI weren’t released the market dropped hard for about ten minutes with the NASDAQ Comp falling 15 points in a less than 10 minutes while the Dow lost about 50 points in the same time.

The market averages leaked for about another hour before starting some sloppy buying the rest of the day.  The market closed about where it was an hour into the day but still down.  The bears win again as we saw the market drop without a spirited rally.

After the close, TXN (Texas Instruments) announced that it had beaten sales and earnings estimates.  This news bolstered the after hours trading session for tech but didn’t really do too much.  TXN rose almost 3% in the late session even as they forecast first quarter results for both sales and earnings would be less than analysts had expected.

With TXN rallying in spite of a dreary forecast, we look to Tuesday for some clues about the market.  The Dow finally succumbed to some selling as BA (Boeing) was downgraded and dropped about 3 points (3.4%).  BA has been one of the top performers in this four year rally.  Here is your market leadership.  Think about this after 9-11 and the increase in fuel costs, BA has made all time new highs in the last few months.  One by one, these leaders are finding it more difficult to lead the charge.      

In Monday’s market, the price of oil started out 2% higher and was blamed for the drop in the stock market but later it fell so that it was down 2% on the day.  The stock market failed to rally very much on this drop.  We have never paid much heed to the price of oil when it comes to the stock market because it seems the same dynamics that rally stocks have a tendency to rally oil prices as well.

With the stock market pointing in a down direction, we are extremely anxious for Tuesday’s trading.  The little uptick in TXN is just a teaser for the over night bulls.  We don’t think it really has the ability to run the market up much.  Our position is now that the market wants to correct this move up from last summer.  That means that we should be on the look out for a substantial retracement of the up move, at least 50% and maybe more.  If we are experiencing the end of the run, the drop may be the start of something stronger to the downside.  For now, we will just watch it one day at a time.

Dow Industrials:  12,477.16  -88.37
VIX: 10.77
HUI:  315.04
QQQQ:  43.69
RYVNX:   16.87
RYAIX:  21.35
RYCWX:  35.48
TLT:  88.20
BEGBX:  13.55

Sunday, January 21, 2007

Super Bowl Indicator is Bullish

Market Action:
Last Friday the market seemed to be resting in place even though options expiration could have caused some fireworks.  The market was quiet while the volume was a little better than it had been all week, it wasn’t that much better.  

Super Bowl Indicator:
According to Erick in one of his comments last week, the real market direction will be determined by the Super Bowl winner.  His Colts did win this evening putting them into the Super Bowl along with the Cinderella Bears who flooded the Saints (can we say that?).  The theory he is referring to is the one that says if the Super Bowl is won by an AFC team the market has a high probability of going down and if an NFC team wins, the market should go up.  

There is a problem with his theory however.  The indicator has had to be adjusted to go back to the early days of the current AFC and NFC splits and according to these “rules” the Colts are Not considered an AFC team for the purposes of the Super Bowl Indicator.  The bottom line is that neither the Bears nor the Colts are considered AFC teams so no matter which team wins, the Super Bowl Indicator is now Completely determined to be bullish this year.  But, we can take comfort in knowing it’s only 80% accurate, ouch.

Anyway, this looks to be a good Super Bowl with two very different styles of play going at it in a few weeks.  We are pleased to see these two teams are playing.  

We are beginning to see earnings being released for the quarter.  Last week saw some negative reactions to pretty good news or what looked like pretty good news on the surface.  We’ll see how this week’s earnings news plays out.

Upcoming Week’s Major News Items:
December Leading Indicators—Monday
Conference Board Consumer Confidence—Monday
ICSC Store Sales Index—Tuesday
December Existing Home Sales—Thursday
December Durable Goods Orders—Friday

Dow Industrials:  12,565.53  -2.40
VIX: 10.40
HUI:  318.28
QQQQ:  44.17
RYVNX:   16.53
RYAIX:  21.14
RYCWX:  34.98
TLT:  87.99
BEGBX:  13.54

Thursday, January 18, 2007

Bears Win...Day Two

Market Action:
The news from AAPL on Wednesday evening gave a little push to the market, a little push over the cliff, that is.  The Dow was up at the bell trying to go above the new high set on Wednesday but before it did there was something that yanked that moment away and dropped the Dow by about 60 points in 15 minutes.  We say “something” because we’re not sure what it was, just that all of a sudden the bottom fell out and the market dropped hard for 15 minutes.  In the NASDAQ, that drop was 20 points.

The mere fact that the market dropped in the morning and Never recovered is a serious win for the bears.  Yes, the headliner Dow dropped a giant 9 points which tells the masses that the market was essentially flat on the day.  If they took the time to look at their mutual funds or their stocks they would see that the market was indeed down and significantly so.  

On the day, the RUT (Russell 200) was down 1.34%, the NASDAQ 100 (NDX) was down 1.86%, and the PHLX Semi-conductor Index (our old friend SOXX) was down 3.86% so you know where the weakness was.  Looking at the SOXX, all 19 stocks in that index were down and some, like NVLS (Novellus Systems) and KLAC (KLA Tencor), were down over 6%.  

Then after the close, IBM announced earnings and even though they seemed to be good on the surface, but they only beat expectations by, you guessed it, one penny.  How do they get that close???  That news was met with selling in the stock and by the end of the after hours session, IBM was down over 5 points (5%).  This “little” drop in IBM is equivalent to about a 35 point drop in the Dow so look for that on Friday morning.

As we viewed the market from a distance, there seemed to be a sudden turn in the market that should lead to a very serious correction in the tech world for sure.  The Dow has been in its own little world for quite some months now but it will have trouble ignoring the rest of the players for long.  

So far, our analysis for the month of January has been pretty close to right on.  With the indications that we should see some more selling over the coming weeks, the market is on track to take a little air out of these massively overpriced stocks.

Here is the situation:  For the most part, when stocks start going down for what appears to be no reason, they are going down.  That may sound like a cliché but the truth is that when the market turns like this, buyers just disappear.  Now, we will hold our judgment on this market but the last two days are a big clue.  If the rallies don’t do much then buyers will step away and prices fall.

We hope that you have taken appropriate actions to lighten your exposure to the market.  If so, then you can sit back and enjoy a little pullback so that we can find a little upside later in the year.

Dow Industrials:  12,567.93  -9.22
VIX: 10.85
HUI:  310.98
QQQQ:  44.08
RYVNX:   16.58
RYAIX:  21.16
RYCWX:  34.94
TLT:  88.23
BEGBX:  13.52

Wednesday, January 17, 2007

The Bears Get a Win...Finally

Market Action:
We’re not talking about the Chicago Bears even though they did win this week…they’ve had several wins over the season.  We’re talking about the stock bears, you know, us.  

Well, the stock market almost went according to plan, in the NASDAQ at least.  The market opened with the INTC earnings news from Tuesday evening and the December PPI on Wednesday morning, both of which were interpreted negatively, but not very negatively.  The NASDAQ 100 (NDX) opened down about 8 points or 0.5% and then rallied to positive territory briefly over the next few hours.  From there, it was down the rest of the day especially after the Fed’s beige book was released.  A bit of a rally into the close was sold off just before the close so that the NDX was near its lows of the day, down 0.80%.

The Dow fared quite a bit better but did manage to close down marking the first day in four that it failed to make a new record high.  The Dow being at record highs does seem to have no reason to sell off.  Portfolios feel much safer with big cap stocks in times of uncertainty, even though no one will admit to feeling uncertain about now.  We say this because of the deep lows the volatility index, VIX, has been trading at recently.

The beige book only exacerbated the market’s fear that the Fed can’t lower rates any time soon.  The PPI in the morning was quite strong but didn’t put much fear in the market because they knew that the beige book was going to tell them how the Fed really thought.  When it came out with positive news on the economy, the market was not in the mood to be buying stocks.

After the close Apple (AAPL) announced that their earnings blew out estimates and early on the stock jumped about five points (5%) but by the end of the after hours trading AAPL finished down about a point after being down two points during the day.  

The reaction in AAPL is just the kind of reaction we would expect as the market rolls over, bulls scratching their heads in disbelief that a stock could go down on such news.  As we mentioned in yesterday’s post, there is a day coming which could have been today when the market would open down and keep going.  Well, that wasn’t exactly what happened and anyone that was watching the Dow didn’t even see the decline; but, the market was persistently down this afternoon when it counted.

We don’t believe for a minute that one day can set the course for the next move but Wednesday sure had the makings of a bearish turn in the NASDAQ.  The proof will come over the next couple of weeks.

Options expiration is on Friday this week which seems to be some of the cause of this drop today.  We normally attribute some reversal action to options being unwound and since we have the Dow at record highs a reversal would mean down this week.  Again, we will watch and see.  We think things are going to get a little interesting for us bears.

Dow Industrials:  12,577.15  -5.44
VIX: 10.59
HUI:  318.21
QQQQ:  44.91
RYVNX:   15.98
RYAIX:  20.77
RYCWX:  34.87
TLT:  87.96
BEGBX:  13.53

Tuesday, January 16, 2007

Dow At Another Record High

Market Action:
When the market opened on Tuesday, there seemed to be little reason for trading with the Dow trading in a very narrow 40 point range all day.  The Dow managed another gain, 26 points, taking it to an all time new high but there just was not any conviction to the move.  The Dow did trade just above the trading high on the first trading day of the year.  

After the market closed, INTC announced their earnings which were just a penny above estimates.  INTC’s earnings were just 39% lower than for the same quarter a year ago but expectations were a bit lower than that.  This news caused some action in the after hours trading with INTC jumping on the news initially and finally giving up about 4% to end the late session.  After that report, Japan opened on a sour note but at the last check was trading up again as we write this (around 11 pm CST).  

And, with our futures staging a comeback here with Japan, the market may just forget all about INTC by morning.  After all, trading down on news from INTC would be like admitting there might be a problem and we just couldn’t have that.  Normally, the market likes to get an early sell off so there are bargain basement prices to be had and no more crazy sellers to be found.  One day that will not be the case and we will have a down opening that just keeps on going down—that day could come on Wednesday.  

As we look at the technical indicators tonight, we see a lack of upside momentum even though prices are pushing ahead.  This is the most dramatic lack of underlying strength that we have seen in over six months.  What normally happens is a settling of prices for a few days and that gives way to some buying that pushes prices higher.  

The last few days of new highs in the Dow have been accompanied by very little in the way of underlying technical strength.  Volume has been light in this move especially Tuesday with less volume than last Friday.  We could list all of them but the point is that this market is finally showing very serious technical weakness.  This coincides with our analysis of the last month or so that puts a new high in the Dow in the first two weeks of trading and then a pullback.  Well, the first two weeks of trading are about up and the Dow has made a closing high on Tuesday.  Let’s see what happens next.

Wednesday News:
Look for December PPI on Wednesday morning with the Fed’s beige book in the afternoon.

Dow Industrials:  12,582.08  +26.51  (third straight new high)
VIX: 10.74  (up on the day)
HUI:  316.35
QQQQ:  45.28
RYVNX:   15.72
RYAIX:  20.60
RYCWX:  34.85
TLT:  88.20
BEGBX:  13.51

Monday, January 15, 2007

Another Short Trading Week Ahead

Market Action:
If we remember last Friday, seems a long time ago, there was a bit of an upward bias in trading by the end of the day with the Dow rallying to a new record high of 12,556 up 41 on the day.  NYSE volume came in at the lowest of the week so the lowest of the year so far.  There could have been some early departures for the long weekend that caused the lower volume with a slight upward price movement.

With our stock market doing well on Friday, the rest of the world celebrated with higher prices on Monday a day without trading here in the US.  As trading begins in Asia this evening, there seems to be a little less exuberance then on Monday when the Hong Kong market was up about two percent.  This should be an interesting week for the world markets as we see many earnings reports.  Let’s see what Tuesday brings us.

Upcoming Week’s Major News Items:
NY Fed manufacturing index—Tuesday
INTC’s earnings--Tuesday
Dec PPI—Wednesday
Fed’s beige book—Wednesday
Dec CPI—Thursday
Dec housing starts—Thursday
Jan Philly Fed business index—Thursday

Dow Industrials:  12,556.08  +41.10  (new high)
VIX: 10.15
HUI:  320.12
QQQQ:  45.31
RYVNX:   15.66.
RYAIX:  20.56
RYCWX:  34.98
TLT:  88.04
BEGBX:  13.49

Thursday, January 11, 2007

Just Another Dow Record

Market Action:
The Dow decided to run to a new high on Thursday following the NASDAQ indexes up.  Both of the NASDAQ indexes we follow, COMP and 100, moved above their highs set late last year.  The SP 500 and the Russell 2000 (RUT) did not follow suit, just yet anyway.  The RUT has been the real market leader over the past several years but it has failed to push to a new high so it is lagging behind now.

Since we have seen a few non-confirmations of the Dow’s new high, let’s take a look at some of the other ones while we’re here.  The technical picture is quite different than the one we saw late last year when those NASDAQ highs were being set.  There is very little leadership at this point and the move is getting narrower.  

We see that the number of new highs on the NYSE on Thursday measured 280 a far cry from the 585 new highs set back in December.  The 5 day average new highs back in early December were 424 compared to Thursday’s 155.  This tracks somewhat with the 5 day upside volume of 832,890 is also lagging behind a more powerful December figure of 1,044,890.  Our momentum indicators are also showing lower numbers than we saw late last year.  The volatility index, VIX, dropped today as it should when the market rallies like this, but it did not get down to the lows registered over the past month.

By themselves these numbers are not too meaningful but the new high in the Dow shines a bright light on them.  Upside leadership is waning and the bull is showing signs of fatigue.  

We have been talking about the Dow spiking to a high in the first two weeks of the year and we were hoping that the NASDAQ indexes would fail to confirm that new high.  As of the first trading day of the year, they hadn’t but Thursday’s trading is a different story.  

This gives you an opportunity to examine your own stocks and whether they are performing well or not.  This includes looking at your mutual funds, too.  The question is, “How much further can the bull move go?”  Our answer tonight is, “Not very far.”  

Looking at the Dow, we see that it made a high on December 19th of 12,471 and Thursday it made a high of 12,515, for a full 44 points of upside in the last three weeks.  On December 15th, the SP 500 made a relative high of 1427 and on Thursday it closed at 1423 for a loss of about 4 points in the same period.  Yes, the picture in the NASDAQ is a little better for that time period but if you go back to November 22nd, the Comp closed at 2466 and Thursday it closed at 2484, 18 points higher or less than 1%.  Take a look at the RUT and you will need to go back to the closing high set on December 5th at 797 compared to Thursday’s 788, a loss of 9 points.

We want to ask you why people are so Bullish at this moment with these types of incremental moves in the indexes.  We have no idea with all of the data we showed you above.  When prices do start going down they will not drop by 44 points, they will drop by 444 points.

Be careful getting caught up in the bullish insanity.  

Dow Industrials:  12,514.98  +72.82  (new record high)
VIX: 10.87
HUI:  309.95
QQQQ:  45.08
RYVNX:   15.82
RYAIX:  20.66
RYCWX:  35.17
TLT:  88.45
BEGBX:  13.49

Wednesday, January 10, 2007

Another AAPL Day

Market Action:
The Asian contagion we mentioned last night (not to be confused with the Italian Stallion) only affected the opening of our stock market on Wednesday.  The broader indexes were down in sympathy with the Asian and then the European markets.  Our markets still had an AAPL in hand and techs managed a big rally out of a dismal opening as AAPL was up almost another 5%.

There is really not much to say about the trading day except the bulls definitely won the day with all of the major indexes we follow ending up on the day on the out performance of the tech stocks led by none other than AAPL, again.  There were some areas of weakness early but the techs saved the day.  

As you know we have thought the market would give us a spike in early January, which happens to be right where we are.  We thought the Dow had done its spike on the first trading day of the year making new highs at that time but couldn’t hold them going into the close that day.  We are much less enthused about the tech stock rally as it is coming now, a week later than the Dow’s spike high.  

The NDX and the COMP have shown surprising strength here the last week and both are threatening to beat their late 2006 highs.  The pattern is one of a terminating move in our opinion.  We see the pattern finishing up here in the next week or so and we are going to be adding to our positions in that time frame.  We have left some powder dry and we need to find a nice opportunity to enter the short side in this rally.

Be careful out there—sell into these rallies.  

Dow Industrials:  12,442.16  +25.56
VIX: 11.47
HUI:  309.28
QQQQ:  44.62  (big day)
RYVNX:   16.14
RYAIX:  20.87
RYCWX:  35.57
TLT:  88.97
BEGBX:  13.53

Tuesday, January 09, 2007

An AAPL a Day Keeps the Bears Away

Market Action:
AAPL (Apple) dominated Tuesday’s market with the new iPhone introduction. We find it funny how CSCO owns the rights to this name but is willing to negotiate with AAPL for ownership. At any rate, AAPL added over 8% on the day due to the all in one gadget for music, movies, internet and phone service. We were surprised by the fact that it did Not include third generation broadband, please…Meanwhile, RIMM (the BlackBerry maker) investors were running a little scared due to this “crushing” competitive blow and RIMM fell 8% on the day, a nice balance with the 8% gain that AAPL had.

In the early going, the word was that AAPL was only going to talk about the Mac which caused a little drop in the tech market but after the announcement on the iPhone, techs got going to the upside again. This news just doesn’t seem to have the kind of power behind it to move a whole market like it did on Tuesday.

The other “big” news, which the market deemed to be not market moving, was the announcement from S (Sprint Nextel) that profits would fall in 2007, about 10%. If that wasn’t bad enough, they have decided to lay off about 5,000 employees in 2007. For this news, S dropped over 11% on the day but that news certainly didn’t get publicized nearly as much as the iPhone news. It wasn’t a good day for S shareholders.

Before we move on, we thought we would mention that the Asian market action has been noteworthy this evening with the Japanese and Hong Kong markets down about 1.5% apiece as we write this. This action has lowered the overnight US stock market futures so we will be interested to see what develops in the morning here in the US.

Real Estate:
We have been neglecting the juicy real estate news over the past few days so we thought it time to discuss the fate of the home builders. No matter how hard the national realtors’ association hopes for a bottoming out of real estate, the news keeps piling up on the negative side.

D.R. Horton said its orders fell 23% and cancellations remained high in the fiscal first quarter. They said this decline was slightly better than the fiscal fourth quarter’s 25% fall but that decline was much higher than analyst forecasts. And, while the cancellation rate of 33% in the quarter was better than the 40% experienced in the fourth quarter, the Chairman said that didn’t indicate that demand was rebounding.

In a similar vein, we have been reading about the problems in the subprime mortgage market. Something is brewing there and we want to keep our eyes open for possible media attention to this subject. We just wanted to mention the subject here this evening without going into the details. As the media starts to get into this subject we want you to be informed as to what it is and what it means. For that reason, we will keep the real estate topic on the front burner.

As you all know, we have been saying that ultimately the housing market would overwhelm the stock market forcing it to go down. This thinking process doesn’t seem to have been very accurate with the likes of a six month rally in stocks in spite of the real estate market dropping. We say that the other shoe has not dropped but it will. The financial sphere has managed to keep the dream alive for stock investors but we think the latest move has solidified the complacency of so called long term investors. Long term investors will become even longer term investors as prices go down. They won’t want to sell because they could have had much better prices earlier like now.

Be careful out there, be very careful. Wednesday’s market could surprise to the downside due to the Asian contagion.

Dow Industrials: 12,416.60 -6.89
VIX: 11.91
HUI: 312.79
QQQQ: 44.10
RYVNX: 16.51
RYAIX: 21.11
RYCWX: 35.69
TLT: 89.37
BEGBX: 13.60

Monday, January 08, 2007

Weak First Trading Monday of 2007

Market Action:
For a Monday the stock market kicked off the opening with a little volatility that left the Dow down about 60 points after the first hour of trading.  From there the market managed to do its Monday thing and traded higher the rest of the day, with the Dow closing with a 25 point gain.

Looking at the Dow, it doesn’t seem to be leading to the upside.  In the first trading day of the year the Dow made an all time trading high and since then has done little or nothing to reinforce that high.  The Dow traded as high as 12,580 last Wednesday and then after the jobs’ report on Friday it managed to go up to about 12,510.  Monday morning it fell to a low of 12,340 before trading up to close at 12,423.  Of course, these are only slightly lower prices and the Dow could go zooming back above that 12,580, but for now at least, it seems that the path of least resistance is lower.

The natural buying power that most attribute to the first week of a new year seems to be weak this year.  From our perspective, the market has been showing signs of fatigue for a couple of months.  Upside momentum has been waning and the numbers bear that out.  Leadership no longer seems to exist with oil dropping, the oil stocks have been sinking along with it.  The leadership from the financials with helped push the Dow to new highs last week seems to be fading as well.

Our best indicator is the rampant bullishness that is accompanying this lackluster January.  We find it difficult to actually find someone willing to call a down year in the stock market.  Those bears have long been discredited and now the bull can stretch its legs and run…away.  If you were to stop paying any attention to the media types who report on the market and just start looking at the market, you would find some fascinating things, not all of the even close to bullish.

We will present some of these indicators over the next few weeks as we get ready for a pullback.  For now, we want to remind most of you that the market has failed to move up from the highs set over the past two months.  At the very least we should see a modest pullback setting up for another assault on the highs—which could fail again and most likely will.  At the most, the highs set over the past couple of months will hold and right now, we will see the market drop going into spring.  

Be careful out there.

Dow Industrials:  12,423.49  +25.48
VIX: 12.00
HUI:  314.79
QQQQ:  43.88
RYVNX:   16.67
RYAIX:  21.20
RYCWX:  35.64
TLT:  89.37
BEGBX:  13.64

Sunday, January 07, 2007

Market Showing Signs of Weakness

Market Action:
The December jobs’ report released on Friday morning just prior to the opening bell provided a better picture of employment than the market expected.  The report indicated that 167K jobs were created in December (let’s not get into the specifics of the birth death model and all of that).  

The number was expected to be 100K so there were 67K more jobs than expected—yes, I did that all without a calculator, amazing.  On top of that, November’s number was revised upward by about 22K so now we’re talking almost 100K additional jobs than the market might have considered.

So, what happened?  Well, the market decided to focus on the possible negatives of the Fed not being able to lower rates any time soon.  With that attitude the bonds fell hard on the news (pushing rates higher) and the stock futures dropped in concert with bonds.  

The stock market opened with a thud and then traded in a pretty narrow range, lower, but not much movement aside from that opening drop.  The last hour of the day did bring some buyers to try to lift the prices going into the weekend but that effort was modest.  

As we write this tonight, around 10 o’clock CST, we can see that the Asian markets are “catching up” with the Dow’s 80+ point drop on Friday.  Both the Japanese market, measured by the Nikkei Dow, and the Hong Kong market, measured by the Hang Seng index, are down over one percent in early Monday trading.  Meanwhile, our futures are indicating nothing much going on here.

Friday’s market gives us some idea of the vulnerability of the prices after several months of run up.  We have suggested that the late 2006 highs might be broken by the Dow and probably not by the other indexes we follow.  After the big spurt last Wednesday when the Dow did indeed break its previous high, it failed to hold the high and didn’t register a new closing high.  None of the others, SP500, RUT, COMP, NDX, has made a new high relative to the highs put in over the past couple of months.  

What that means is the market is tired and is having trouble moving up in spite of the overwhelming bullishness that we hear about almost everywhere you care to look.  In fact, as you well know, to the contrarians around (we wouldn’t know who we’re talking about, would you?) that bullishness alone is enough to suspect this market is done going up.  Even the VIX is moving off the multiyear lows it set last month.  

We continue to expect gold to pull back along with the mining stocks.  With that in mind we thought we would keep better track of the mining stocks by adding the HUI to our list below.  We are looking for a low somewhere between 250 and 270 but it may be lower than that.  The HUI closed out 2006 at 338.24 and closed last Friday at 314.12 for a seven percent loss in three days.  We are watching for you.

Dow Industrials:  12,398.01  -82.68
VIX: 12.14
HUI:  314.12
QQQQ:  43.85
RYVNX:   16.69
RYAIX:  21.22
RYCWX:  35.82
TLT:  89.22
BEGBX:  13.62

Thursday, January 04, 2007

December Jobs' Report on Friday

The stock market, as measured by the Dow, was relatively calm in the price department compared to Wednesday’s wild ride.  But, over in the tech department, the NASDAQ decided to have a big price day, now sitting in a position to break out above the November highs.  We are not confident about this move because we think Thursday’s rally in tech was a little overdone.  Before getting ahead of ourselves, we should see how the gains are assimilated on Friday particularly since Friday morning brings us the monthly jobs’ report.

The WSJ reports that the jobs’ estimate is running around 100K for December after last month’s 132K.  At this point we’re not sure what the market may be looking for.  Are they pretending that the Fed still matters?  If the number comes in lower, will they focus on the possibility that the Fed won’t have to raise rates?  Or, will they be concerned about the possible recessionary implications?  If the number is higher, then the opposite questions could occur.  

All we know for sure is that it is the first week of trading for 2007 and it has been nothing short of expectations for wild.  We know that the market has the right to do whatever it feels like doing but on Thursday, the reckless abandon in the tech world was hard to imagine.  So much speculation should not be rewarded in our opinion, and we know the market doesn’t pay much attention to our opinion or anyone else’s.  

For example, one of our favorite shorts is INTC (but we are not directly short INTC at the moment) and with good reason, it was the biggest Dow loser of 2006 with about a 20% loss for the year.  The recommendations are that since INTC was a loser last year, it will be a winner this year.  With logic like that, how can anyone disagree?!?  Apparently this is what passes for good analysis these days.  We reiterate our 12 target on INTC.

Gold stocks took another hit on Thursday, with the HUI dropping over 7 points after yesterday’s 13 point drop.  We are looking at a current level of 317 with potential to drop to around 250 or 260.  We will be watching for a good point of entry but we don’t think it will occur for a while.  

Dow Industrials:  12,480.69  +6.17
VIX: 11.51
QQQQ:  44.06
RYVNX:   16.53
RYAIX:  21.11
RYCWX:  35.31
TLT:  89.60
BEGBX:  13.71

Wednesday, January 03, 2007

Market on a Wild Ride to Start 2007

So much for a new format…The stock market spent the day in a wild trading frenzy and ended the day not much different than the way it began.  We need to focus our attention on the stock market with a few comments on the commodities later.  

As expected the Dow blasted off to a quick 90 points right off the bell and after a quick pullback jumped up again such that one hour into the trading day it was up 115 points or so.  From there the Dow traded in a quiet 20 point range for a couple of hours but it started to lose a little steam going into the lunch hour.  

During the trading from around noon CST until about one o’clock CST, the Dow dropped about 50 points.  Right about then the Fed minutes were released for their December meeting which indicated some slowing in the economy but saying that inflation was still a key threat.  The market took this moment to accelerate the selloff that had started about an hour earlier.  From one o’clock CST to two o’clock CST, the Dow fell over 125 points putting it down about 60 points on the day.  From there, the Dow managed to bounce into the close and rallied about 75 points to close up 11 points on the day.

What a day!!!  When we look at the chart for the day it almost looks like a spring board diver with a giant leap, a few twists and turns, then falling into the pool and, after hitting the bottom of the pool, pushing off the bottom to resurface for the applause.

We had mentioned that the Dow was a good candidate for a new high going into the new year.  The other indexes seem fairly far from their recent highs but those seemed attainable as well.  As the market opened on Wednesday, the Dow sliced right to a new intra-day high by trading up to 12,580.  As you know, that number quickly faded and the Dow ended at 12,474, still below the all time closing high set just last week at 12,510.  

The other indexes seem to be where the real story is being told.  The indexes we follow here are the Dow, the SP500, the two NASDAQ indexes Comp and 100 and the Russell 2000.  The Russell 2000 has been the leader of this market rally for the last several years but it failed to best its high set in early December.  The SP500 failed to top its high set in the middle of December and the NASDAQ indexes stayed well below the highs set in November and December.  These are serious intra-day non-confirmations that will not be ignored for much longer.

Wednesday’s trading volume was above 2 billion shares on the NYSE and the result was slightly more advancers than decliners but advancing volume was edged out by declining volume.  Had you looked at the prices and volume about an hour into the day you would have seen a much different picture but that is in the past.

We look for much the same type of trading in the next few days as the market tries to go higher but fails in its attempt to make significant headway.  This will lead to a change in the way the traders view the market.  Right now there is so much verbal bullishness where ever you look, except if you look at the VIX.  The VIX has now started to move up and we watch it carefully every day, published daily below.

Stocks in the news were HD (Home Depot) who fired their CEO and gave him over $210 million to leave, rough duty.  The stock jumped on that news and, since HD is part of the Dow, drove up the Dow in the early going.  Wal-Mart (WMD) also jumped on some less than spectacular increases in sales.  Both of these stocks helped the Dow run up to that 115 points start.  

The stock we mentioned here last night, Lennar (LEN), was roughed up a little on Wednesday even as the market jumped at the opening.  Other homebuilders did fell some pain as well.  Given all of the news, bonds were up slightly.

Getting back to commodities for a brief moment, we noticed that part of the jump in the Dow came from a drop in the price of oil.  By the end of the trading day, oil had dropped nearly 4.5 percent taking gold and silver down with it.  Gold was down about $10 and silver about 25 cents.  This pushed the HUI, our gold mining index, down over 13 points, more than the drop in gold and very bearish indeed.  There could be more downside to come.  We watch and wait patiently, well not very patiently, for an entry point.

Welcome back to a new year of trading—let’s make some money this year.

Dow Industrials:  12,474.52  +11.37
VIX: 12.04
QQQQ:  43.24
RYVNX:   17.18
RYAIX:  21.52
RYCWX:  35.33
TLT:  89.07
BEGBX:  13.75

Tuesday, January 02, 2007

A New Year Begins

Welcome back from the long holiday weekend that got extended one day due to President Ford’s memorial service. Or, maybe welcome back after a long holiday time off from before Christmas until now. Tuesday was indeed different what with being at work and the stock market not being open.

With the extra day off, it seems that the market is winding tighter and tighter for a moon shot on Tuesday at the open. With the Dow near record highs, a new record there would not be difficult. Actually, we kind of expect it based on our stance that the Dow will make a final new high sometime in the next couple of weeks, final high meaning one that holds for a while. Once the Dow turns down, the rest of the market seems positioned to go down with it.

The big news out on Tuesday was Lennar’s announcement that home sales had not bottomed and they were going to take a material hit to earnings for some readjustments they were making. The homebuilders have enjoyed some higher stock prices along with the stock market run since summer but the turn in prices may not be supported by the actual business. We will see. The bond market did trade a little on Tuesday and was up on this news. This evening, the stock futures are showing some strong upward bias pointing to some early strength on Wednesday, the first trading day of 2007.

We mentioned that we were considering a new format for 2007 and we think that still makes some sense. Rather than a complete random posting, we thought maybe some standard titled sections so you could skip right to the section you would be interested in reading. Right now we would be experimenting but our interest lies mostly in the tech stocks, the precious metals and mining stocks, and an occasional look at the financials. We do sort of dabble in bonds and some other things once in a while but we want to be more focused in our primary areas.

With that in mind, we will start working on this new format this week. Please comment if you like. Since this is just a thought at the moment, it can easily be changed.

Hope you had a good New Year’s weekend. Now we finally open the stock market for the new year, too. The early blast should be interesting.

Closing prices for 2006
Dow Industrials: 12,463.15 -38.37
VIX: 11.56
QQQQ: 43.16
RYVNX: 17.21
RYAIX: 21.53
RYCWX: 35.38
TLT: 88.43
BEGBX: 13.78