Monday, April 30, 2007

April is Capped by a Down Day

Market Action:
As the market opened, there seemed to be a definite downward tug but within an hour or so, the market turned up and the Dow went into record territory around 13,160 and traded near that for about two hours before heading into the last couple of hours of trading. That’s when the market sprung a little leak, not a big one, but a leak. The Dow managed to close down on the day, 58 points, for a change.

Meanwhile, the NASDAQ indexes were not doing nearly as well as the Dow in the early part of the day. In fact, they were struggling to get back to even as the Dow was moving to new record trading highs. As the Dow dropped in the last few hours, the NASDAQ indexes dropped even harder with both the Comp and the 100 down over 1% on the day.

So, what does it mean, the third down day in 22 for the Dow? Over the past three days of trading, the market has been showing some weakness in the advance/decline line along with the up and down trading volume. On Monday, the volume was fairly heavy given the average amount for April. While the Dow is making new highs and the NASDAQ Comp is trying to show some strength, the volume is betraying the advance.

Now, on Monday, prices fall and the immediate question becomes, “Is this a buying opportunity?” Since we do not believe the market has much to go on the upside, we don’t think this is a buying opportunity. The momentum has been fairly strong over most of the month and the market has been overbought during that same period of time. Monday’s trading gave both of those notions a stiff drink of reality. We do not think this is the last day of the correction but then the question is, “How far will it go down?”

The answer to that question is that there are several interpretations to the pattern, one being fairly bullish—but of course we don’t think that is good possibility due to the massive bullish sentiment. But, we have been wrong before. The best way to look at the pattern is to say that there are points of support that if broken can lead to more significant declines. We will watch for them and let you know what we think here as they happen.

One of the interpretations is for the market to drop a few days and then make a final new high and we like the Friday jobs’ report for that scenario. We have to see more of the pattern this week to assess the likelihood of a Friday morning high. Right now, we are just going to enjoy a little downside even if it’s only for a couple of days.

Dow Industrials: 13,062.91 -58.03 (a down day?)
VIX: 14.22
HUI: 339.60
QQQQ: 45.96
QQQRS: 0.61 bid
QQQRT: 0.95 bid
RYVNX: 15.59
RYAIX: 20.69
RYCWX: 32.90
TLT: 88.75
BEGBX: 14.09

Sunday, April 29, 2007

A New Week and A New Month

Market Action:
On Friday morning, the market saw a surprisingly weak preliminary GDP number for first quarter. GDP came in at 1.3% compared to 2.5% the prior quarter and 1.8% expected. The important number was the deflator and that was up 4.0% compared to 3.2% expected and last quarter’s 1.7% figure. The deflator is a good estimate of inflation and we like to see how the GDP has been without the deflator just to get some idea of how the economy looked on a gross basis.

The first quarter estimate of 1.3% with a 4.0% estimator gives us about a 5.3% nominal growth number. This compares with last quarter’s 4.2%, found by adding the 2.5% GDP to the 1.7% deflator. You can see that the nominal rate is a bit higher in the most recent quarter. The market focused on both deflator and the weak net GDP number, for about 20 minutes and then found a way to trade up. Truly, there was very little action to discuss except that we did see another up day in the Dow.

With the end of the month finally here, we are hoping to see a near term pull back in the Dow as well as the broader market. The pattern of the market has taken on some different interpretations and we need to watch what happens this week for further signs as to what is going to happen. It is possible that the highs late last week could be a short term high or we could have a little higher high but not much from here.

We see that there are several big news items from the economy that may have some effect on trading. The big one we are interested in is the jobs report due on Friday morning before the bell. It would fit nicely with a significant high in the Dow at the same time. We have this sitting on the back burner but we wouldn’t be surprised if the Dow could eke out another weakly up week.

In the News This Week:
Monday—Personal income and spending
Monday—Chicago PMI (Purchasing Managers’ Index)
Monday—Construction spending
Tuesday—March Pending home sales
Tuesday—April ISM Manufacturing index
Thursday—First quarter productivity and labor costs
Thursday—April ISM Non-manufacturing (services) index
Friday—April Jobs’ Report

This month’s Mantra: “Sell in May and Go Away”

Dow Industrials: 13,120.94 +15.44 (19 up out of 21)
VIX: 12.45
HUI: 344.83
QQQQ: 46.57
QQQRS: 0.45 bid
QQQRT: 0.70 bid
RYVNX: 15.21
RYAIX: 20.43
RYCWX: 32.60
TLT: 87.83
BEGBX: 14.02

Thursday, April 26, 2007

Second Close Over 13K

Market Action:
Most of the action in the market took place in the NASDAQ 100, NDX, due to AAPL earnings news we mentioned in our last post. The other indexes basically treaded water with the SP 500 actually down on the day and the Dow itself up about 15 for another up day in the string of never ending up days, now 18 of 20.

The news from MSFT after the bell should have the bulls getting ready for another up opening on Friday morning but for some reason the futures are not showing much in the way of strength. Even the Asian markets are down tonight. All of this could change by the time the market opens in the morning so we have to be patient.

Precious Metals:
With the break in the precious metals complex on Thursday, we thought we would at least mention them tonight. Gold was down about $10 and silver about 50 cents, both moves are significant due to the technical position of the drop. Looking at the charts of both metals, they have failed once again to get back to the highs of last May. They have both held up along with every other asset in the world but have not gone to break the previous highs.

We have heard the phrase, “The markets are all one trade” and we know that means that the world has been full of liquidity for risky assets so they trade up. This concept is best seen in the US stock market the past month but it is not lost on the commodities, especially the precious metals. We think this time the precious metals will drop in order to cool some of the hot bulls. We believe gold can get back under $500 which is where we think there may be some more interesting trades for us.

Meanwhile, the HUI, our favorite gold mining index, has traded between 270 and 370 since it fell hard from last year’s high of 401. Thursday’s close reflects the drop in gold with the index falling to 343 and, we think, on its way back down to 270 or slightly below. We wanted to let you know we are keeping our eye on the complex.

Of course, no comments of precious metals would be complete without some mention of the US dollar. The dollar has been kicked to the curb so to speak. There are no Good bulls willing to step up to defend the dollar’s honor. We thought since the contrarians have to step in to show a little love to the down trodden that the dollar was a good place to spend some energy. Thursday’s rally doesn’t make for much positive press but it does show that the dollar can bounce back and with the precious metals retreating, this may be the opportune time for the dollar to shine, that probably means a silver dollar but…you get the idea.

We have little in the way of advice on the stock market except to watch the lead of the precious metals. We are Not convinced that everything is “one trade” but we do think that the markets will all go down together and this will happen sometime. The break in the precious metals gives us a glimpse that the time may be ripe for a rollover in the World stock markets. We are looking to next week for a showdown but we wouldn’t be disappointed if it started on Friday after the good news from MSFT.

Dow Industrials: 13,105.50 +15.61
VIX: 12.79
HUI: 343.27
QQQQ: 46.55
QQQRS: 0.47 bid
QQQRT: 0.72 bid
RYVNX: 15.22
RYAIX: 20.44
RYCWX: 32.64
TLT: 87.85
BEGBX: 13.98

Wednesday, April 25, 2007


Market Action:
Straight up. The party started early on Wednesday and with only a minor settling of prices after the initial pop, the market traded up the rest of the day. The early pop was provided by the news that AA (Alcoa) was planning some divestitures which the market assumed meant it was getting ready to be taken over. In fact all but one Dow component were up, some up a lot.

The Dow has now made it up 17 out of 19 days for some major record and with Wednesday evening’s news from AAPL (Apple), there should be one more push in the morning. AAPL reported earnings after the close on Wednesday that were much better than expected which caused a surge of buying in the stock. AAPL ended the after hours session up about 8%, much like AMZN on Tuesday evening.

We remain in awe of this vertical rise that the market has been on for the past four weeks. We can’t remember a time that was so straight up. When we look at the 1000 point run the Dow has been on in that time, we can’t help but think this can’t go much further and every day it seems to go some more.

Well, this rally will end and we think when it does, we will see an equally vertical move to the down side. This is almost assured the further up this thing goes. We are at the end of the month here with three trading days left which is normally the stronger period of the month—we cringe at the thought of it being any stronger than it has been.

The market has not responded to news, expect for earnings news that is good, and it has gone up without any real solid economic news. When this type of thing happens, the market can get out of hand. On Wednesday, the market was strong across almost all sectors and volume was strong and confirming the move. The market continues to be overbought and needs some time to relax—we don’t think it will relax much until next week.

As we said, “Sell in May and Go Away”, and as you recall, early May is our suggestion.

Dow Industrials: 13,089.89 +135.95
VIX: 13.21 (up on the day?)
HUI: 351.32
QQQQ: 46.31
QQQRS: 0.55 bid
QQQRT: 0.84 bid
RYVNX: 15.35
RYAIX: 20.52
RYCWX: 32.71
TLT: 88.49
BEGBX: 14.06

Tuesday, April 24, 2007

There We Go Again, Another Up Day for the Dow

Market Action:
Tech stocks were off to the races as the bell rang to open the Tuesday session. IBM had announced earnings that were ok on Monday evening and then announced a stock buy back so that stock jumped about 5% in the early going. Since the Price of IBM is in the 90’s, a 5% move goes a long ways to pushing up the Dow price, say about 40 points. How much was IBM up at the end of the day? 3.28, so its contribution to the Dow was about 26 of the 35 points.

[The Dow is a Price weighted average and the way the Dow is calculated is to add up the total Price of the index and then normalize it by dividing that total by a divisor. Well, the divisor changes anytime there is a stock split in one of the Dow stocks so that the price of the Dow in the next day’s trading have a smooth change. Right now the divisor the Dow Jones Industrial Average is 0.12305141 so basically whenever a stock moves twelve point three cents, which is very close to an eight of a point, the Dow moves up 1 point. In the case of IBM going up about 5 points in the early going, the Dow benefited to the tune of about 40 points. As a reminder, no other indexes are calculated in this manner, most of them are weighted by capitalization, the more the company is worth in stock terms, the more weight it carries in the index. So, MSFT (Microsoft) with is around 28 a share has a fairly low price so a large percentage move wouldn’t affect the Dow much but it would affect the NASDAQ indexes it’s in.]

The news from TXN (Texas Instruments) on Monday evening caused part of the uproar in Tech as well, with TXN up about 8%. TXN is Not in the Dow so it didn’t affect that price but it did move the Philadelphia Semi-Conductor index. With about 20% of the index in TXN, the index was up over 3% on Tuesday.

After the bell on Tuesday, AMZN reported what looked like superior news to it shareholders and potential shareholders as that stock was up about 12% after the news. We happened to notice, though, that it wasn’t having much of an effect on other stocks in the after hours market. We’ll have to wait and see how the market opens in the morning. With Japan down over a percent this evening, there might be some drag on the market in the morning.

Generally speaking, however, the market was not strong in other areas and the tech world was able to mask the underlying weakness in the broader market. In fact the SP 500 was actually down a tad on the day with the NASDAQ Comp up just a tad. The NASDAQ 100, a more heavily tech weighted average was up nearly 0.50%, not that we like this.

Looking at the advance/decline numbers, the decliners led on both the NYSE and the NASDAQ but the advancing volume was higher on the NASDAQ than the declining volume but not on the NYSE. This indicates that there was underlying weakness in the market even though the Price indicators were a little more positive.

In The News:
The economic news on the day did not present a picture of strength, with the consumer confidence numbers down more than was expected and the existing home sales down a big 8.4%. We need to remember that the existing home sales are a little outdated since they are counted at closing with sales long before that. The news was that the February weather was the reason home sales were down, ok, right, that was it.

Wednesday, we get the new home sales which are counted at the time of sale sort of. We say sort of because they are only counted on the first sale. So, let’s say that cancellation rates are high (gee, that would be now, wouldn’t it?). That would tend to over state the sales for those homes that were first sold and then cancelled. But, the opposite is true, as second sales come in, there would be no way to know the actual number in this report so we would get an understatement of the results as sales were starting to turn around. This will be an argument that will be used over the next several months to put a bullish spin on low new home sales.

The other important indicator for Wednesday is durable goods which will be announced before the market opens. The expectations are for another up month to the tune of 3%. Oh, new home sales are expected to come in up 5.5%. Then there is the ever popular Fed Beige Book in the afternoon, as well as several more earnings reports.

Dow Industrials: 12,953.94 +34.54
VIX: 13.12
HUI: 348.13
QQQQ: 45.70 (new relative high)
QQQRS: 0.72 bid
QQQRT: 1.09 bid
RYVNX: 15.72
RYAIX: 20.77
RYCWX: 33.40
TLT: 88.80
BEGBX: 14.06

Monday, April 23, 2007

Dow Finally Takes a Day Off

We’re diving right into opinion this evening because we think the market has just gone out to lunch. The bulk of the technical indicators show waning upside strength meaning the prices should be rolling over. We think the best examples of this last week were the underwhelming volume and the divergence of prices in the major indexes.

Realistically, the market needs to at least take a breather which it sort of did today for its second down day in about three weeks. The Dow level showed record high for a few trading days in a row but the broader market didn’t really follow along. Friday was option expiration day so some extra volume came into the market on a very big up day for the Dow. This straight up move is giving the bulls a large amount of confidence and just killing the bears, that would be us.

Part of our theory has been that the housing market would do in the stock market and ultimately put the US economy into a recession. These outcomes have been “dealt with” by the market so the news has just disappeared, at least the bad news. We have seen the bullish enthusiasm when it comes to any positive news or projection of good news while anytime there
is some bad news the market just takes a breath and goes higher.

Our opinion is still that the housing market will ultimately do in the economy and we think that is already starting to happen but the market has not seen it as of now. The stock market is in a strange place with nothing bothering it and shorts are getting squeezed. It’s very easy for the bulls to just buy but we wonder when the money runs out.

On the other hand, we have not been in tune with this move for the last several weeks and we certainly would not have expected the move to go this long or this far. This has caused us to question ourselves which we think we do every single day anyway. We think the price level of the Dow is so very close to the eventual high in that index. The bullishness is palpable and we think it is unjustifiable, at least here at this level. There can’t be very much upside left in this market. The divergence in the major indexes is a key “tell” in that analysis.

The automatic contrarian position should be Short and that is what we are but we are not happy right now. Being objective though, there is no way to get long this market at this level. We may be wrong about this but there seems to be no good reason to get long with a big up move behind us.

We are reminded about the standard axiom for the market at this time of year, “Sell in May and go away”. This may be the best advice. We recommend early May.

Dow Industrials: 12,919.40 -42.58
VIX: 13.04
HUI: 355.00
QQQQ: 45.47
QQQRS: 0.78 bid
QQQRT: 1.19 bid
RYVNX: 15.86
RYAIX: 20.86
RYCWX: 33.56
TLT: 88.47
BEGBX: 14.01

Sunday, April 22, 2007

New Dow Record High

We break from our normal format this evening and bring you a brief post. The stock market obviously broke out of its box on Friday and we have something new to deal with this week—something we mentioned in the past week or so. There are some things to say which we will address in our next post. It is late and we have just returned from a short weekend trip which doesn't allow us the luxury of a good post. The market may give us more signs in Monday's trading so we will watch for and report on that in the next post, tomorrow evening. The market is on an incredible run with an unbelievable 15 up days in 16 trading days. At the very least, there is not much more upside in this thing short term or in the intermediate term.

Dow Industrials: 12,961.98 +153.35 (New record high)
VIX: 12.07
HUI: 356.16
QQQQ: 45.40
QQQRS: 0.81 bid
QQQRT: 1.21 bid
RYVNX: 15.93
RYAIX: 20.90
RYCWX: 33.33
TLT: 88.15
BEGBX: 14.01

Thursday, April 19, 2007

Unbelievable, 14 for 15

Market Action:
Well, the market sure didn’t continue going down after the initial drop off. In fact, it was open down and drone higher but not all day, just half a day. For the last three hours of the day the market went back down except for the last few minutes. Shortly after the close, GOOG announced their earnings which the street really liked, driving the stock up about 3% in after hours trading…at least the pattern of trading varied somewhat on Thursday.

This market has been very difficult to call over the past few weeks. We picked Wednesday as the day for it to show some price weakness and if you look at the three indexes we follow, that is the focal point of the highest prices. The NASDAQ Comp index did have slightly higher prices on Tuesday but, for the most part, Thursday’s trading only tried to show some strength as none of these indexes pushed to new highs. True enough, the NASDAQ 100 did manage to move to a higher price but only marginally so.

Still, the Dow managed to generate yet another Record Closing High price, the old headliner high as we like to call it. As we look at the numbers this evening, a nice pattern has emerged that shows weakness in this latest price move. Our last post was pretty adamant about the possible turn and Thursday’s opening was pretty deep with most of the world’s markets being down overnight. But the US market decided to whistle past the graveyard and not worry about anything going on right now. Let’s look under the technical covers.

Our primary focus has been volume and Thursday’s volume was the highest it’s been since mid-March. That would be a good sign except that the majority of it was in stocks that were down; and, the reason for that was that there were about twice as many stocks down as up on Thursday. Looking back at Wednesday, the same picture show up but not quite so glaring. On Wednesday, there was just a modest negative bias in the breadth and volume figures.

Our momentum indicator peaked after Monday’s trading and that carried the day even up until Thursday’s new high in the Dow even though the SP 500 couldn’t quite manage a new high. We note the 14 up days out of 15 trading days (basis the Dow) and wonder how sustainable it can be. Considering the Dow is up about 500 points in those 15 days, the price alone should need to be rested. In 25 days the Dow is up about 800 points. This rally has got to be getting tired and the technicals seem to confirm it.

So, tonight, with the GOOG news, maybe the market can do something different and start up in the morning and fall from where ever that is to go back down and test the lows we established 25 days ago. At least we could see some exhaling.

In the News:
The LEI, leading economic indicators, were up 0.1% last month even though the prior month’s number was revised down by the same amount. Looking back from March of 2006 to this March, the LEI index is down 0.8%.

We just had to make a comment on the headline concerning the weekly jobless claims from Thursday morning. The WSJ is reporting that the “Jobless Claims Fall Less Than Expected”. The headline almost makes it seem like a bullish thing, since they are falling less than expected. The only problem is that jobless claims are Bad economic statistics and the market wants them to fall. Since they fell “less” than expected, that means they are worse than expected.

Dow Industrials: 12,808.63 +4.79
VIX: 12.54
HUI: 351.83 (down 10)
QQQQ: 45.15
QQQRS: 0.96 bid
QQQRT: 1.40 bid
RYVNX: 16.16
RYAIX: 21.05
RYCWX: 34.13
TLT: 88.38
BEGBX: 14.02

Wednesday, April 18, 2007

A New Dow High--TADA

Market Action:
As we mentioned in our last post, Tuesday evening, IBM kind of dropped a bomb and as the market opened on Wednesday, the Dow opened down. There was another issue having a little play and that was the Blackberry network was down, globally, and the market didn’t like that until the service was restored at which time the stock (RIMM) traded much higher.

Of course, you know the rest of the story, the one about how the down opening was then bought and the market droned higher all day long. Yes, well we’ve seen this replay so many times it’s almost getting easy to trade except that…

We interrupt this rerun to bring you new commercials about a new product. It’s called a C wave and it is going to change the way some think of these buy the dip mornings at least for a little while. Or, at least we are hoping that is true based on the indicators we see. The Dow nicely made a new all time closing high on Wednesday after trading a bit higher than that and that is where our story begins boys and girls. Tell me more, you say?

Well, as we mentioned a few posts ago, the market “felt” like it wanted to go higher and put a new high in the Dow and we “felt” like that would happen on Wednesday since this is options expiration week. An interesting thing happened on the way to that headliner high in the Dow, the NASDAQ decided not to participate and neither did most of the stocks in the broader market.

After Monday’s gap higher opening in the NASDAQ Comp, this index has failed to generate new closing highs and on Wednesday, it was down most of the day with only a few moments spent in the green. The NYSE had decliners outpacing advancers by about 9-7 while the NASDAQ had an even higher ratio but, of course, that index was down on the day.

So, now you want to know about the C wave. The C wave is a strong wave in the direction of the trend of the market, which we think is down. We have just finished a B wave which is Counter to the main direction of the market. Unfortunately, we can’t say for certain which level the C wave is so we need to wait and see how far this will take us. The estimate we mentioned in yesterday’s post was that the Dow/market would make a new low for the year on this move. That may be somewhat in question tonight but we will keep an eye on the down move to see how strong it really is.

The futures are trading somewhat lower this evening probably due to the drubbing in the Asian markets with the Nikkei down about 1.5% and the Hang Seng also down about 1.5%. Check that, the Nikkei just opened after the lunch hour (yes, they close the market for lunch in Japan) and it is now down over 2%. We are fairly confident that the Dow put in at least a short term top on Wednesday afternoon but if it goes higher, we will not be surprised; this market has shown some amazing resiliency. But, we do think the market has climbed to the top of the mountain and now it is bowing to everyone and anyone who will see--TADA.

Dow Industrials: 12,803.84 +30.80
VIX: 12.42
HUI: 361.99
QQQQ: 45.01
QQQRS: 0.98 bid
QQQRT: 1.44 bid
RYVNX: 16.15
RYAIX: 21.04
RYCWX: 34.16
TLT: 88.53
BEGBX: 14.02

Tuesday, April 17, 2007

12 for 13

Market Action:
The overnight futures seemed to be worried about the possible negative inflation news opened in the form of CPI that was coming before the market. So, when the news hit, which happened to show the CPI up 0.6%, the market was relieved and the pre-market futures popped. Yes, the “Core” CPI was only up 0.1% which is the Only number the market seems to be concerned about.

At the same time, housing starts came in higher than expected along with building permits. This news brought happiness to the housing sector in general. All of this brought the market a nice positive tone for the bulls to continue buying, at least in the Dow type stocks.

The tech world had a much more subdued day with very little movement. The Dow itself managed to push into an area where it could have put in an all time new high close but the air leaked out at the end of day keeping the Dow out of the new high.

After the market closed, we heard from a few companies of interest with regard to their earnings. IBM showed some decent numbers but the company said that slow US capital spending were responsible for keeping the numbers from being better. According to the WSJ, IBM said it saw an unexpected US sales slowdown in March. This is something that caught the attention of the analysts on the call.

For INTC, the headlines were important because they said that INTC’s numbers climbed 19% but that, if you took out a tax accrual issue, the numbers were much more in line with expectations. Right now, we are listening to the call and the company is predicting a strong second half with higher margins. This seems to us like they didn’t listen to the IBM call—but, seriously, we hear about this seasonal bulge every year. Maybe we should believe them this quarter. Well, the market bought it and pushed up the stock a couple of percent in trading after the call.

Then there was YHOO which wasn’t so pretty. YHOO reported a drop of 11% for the first quarter and revenue growth slowed again. This news pushed down YHOO’s price about 8%.

Certainly we don’t agree with the market in their read on either CPI or building starts. First of all, CPI needs to be reflected in its entirety but the market is so focused on the core rate, since the Fed has instigated that thinking. The world knows that CPI is higher but the only fear is that the Fed might raise rates and cool off this party.

Secondly, when the builders decide to increase their building at the same time inventories are rising, we think there is a lot of denial out there--like adding gas to a fire. We realize that the market thinks the sub-prime mortgage market has been dealt with enough to say that it is now behind us. We think differently and believe that the demand for housing will continue to drop pushing the housing prices down, too.

With the Dow continuing its winning ways with a current streak of 12 up days out of 13, the market seems to be coming to an inflection point as we mentioned in yesterday’s post. The market is overbought and should at least take off some of this buzz. Alternatively, we expect that the market makes a new low for the year on this next down move.

Dow Industrials: 12,773.04 +52.58
VIX: 12.14
HUI: 365.09
QQQQ: 45.16
QQQRS: 0.95 bid
QQQRT: 1.40 bid
RYVNX: 16.10
RYAIX: 21.01
RYCWX: 36.30
TLT: 88.09
BEGBX: 13.98

Monday, April 16, 2007


Market Action:
Monday’s market action took the SP500 to a new relative high against the late February reading. As the market opened, C (Citigroup) announced earnings just before the market opened and said revenues were up 15%. The earnings were a little distorted due to the recently announced layoffs of 17K workers. The market took it as good news but read about the results in the WSJ on Tuesday and see what you think.

The news was upbeat on retail sales with March numbers coming in at 0.7% versus expectations of 0.4% and last month’s numbers were revised higher from 0.1% to 0.5%.

One other news item that came in before the market opened was that Sallie Mae was being purchased. (SLM, Sallie Mae is the student loan company.) This news was another reason to buy everything.

The rest of the news we saw was related to real estate, all calming fears of investors of all ilk. The news surrounding Fremont General, a California financial services company, was that they had found a Potential buyer for $2.9 billion of its subprime loans. This sale would allow them a handy little profit. And, Fannie Mae and Freddie Mac said they would step in to help certain subprime loans from becoming a burden on the home owners. Fannie Mae (FNM) was up 5.5% on the day.

The SP500 traded to a new relative high on Monday breaking above its late February highs and causing us to increase our awareness level of the next move in the market. We are going to say that the market is overbought and with Monday’s rally, it is even more overbought. We recall that it is options expiration week which reminds us that the rally may go into Wednesday before we get any downside.

The volume was on the decent side on Monday but still strong enough to get our attention. In fact, Monday’s volume was lighter than last Wednesday’s volume. You may recall that Wednesday was the only Down day in the last 12 trading days.

The thing is that with the Dow so close to making a new high, we have to believe it will. The rally over the past couple of weeks has been relentless and we are just not holding up very well. Normally there is some downside associated with these up days, not the last few weeks. Last week we were whining about the market and tonight we feel that more whining is in order. That really doesn’t help in the market but sometimes we just can’t help it.

We think that the rally is almost over (this sounds repetitive) and with its end we should see a sell off that takes the Dow back down to a new low for the move, meaning below the March 14th low that dipped below 12,000. Tonight we see some possibility for the Dow to run up another leg and then finally find a short term top. We think that could come as early as Tuesday or Wednesday so we will let you know.

Remember the market is overbought and any of the news that is coming out this week could tip this thing over. It doesn’t seem like any news is being treated as bad but Tuesday brings INTC’s earnings so we’ll see if they can produce the numbers and the forward looking statements that satisfy the investors.

Other than that, we are just stunned as to the persistency of the rally even though the volume is fairly light and the moves aren’t very much—ok, Monday’s rally was 108 points but three of these 11 of 12 days have been less than 10 points.

Dow Industrials: 12,720.46 +108.33
VIX: 11.98
HUI: 368.28
QQQQ: 45.06
QQQRS: 1.03 bid
QQQRT: 1.45 bid
RYVNX: 16.10
RYAIX: 21.01
RYCWX: 34.57
TLT: 87.60
BEGBX: 13.92

Sunday, April 15, 2007

Big Week Ahead

Market Action:
Friday morning, the market had some trouble trying to maintain the prices of Thursday. The Dow did jump out of the blocks but fell back over the first hour before embarking on a upward course the rest of the day. In the NASDAQ, there were some earnings disappointments from Thursday evening that the market digested in the early going and then it to moved up.

With about ninety minutes to go in the session, CSCO (Cisco) made an announcement that the company sees very strong demand and growth should come in at the high end of expectations. With that news, CSCO jumped about 3.5% in about 3.5 minutes taking the NASDAQ indexes up with it. This move did encourage other tech stocks to move up a little in response.

We know that we were whining a little late last week and we’ll try to do a little better job this week (not in the whining department, in the not whining department). The last two days of the week were particularly unnerving with the market down early and then rallying the rest of the day. Thursday morning’s decline was pretty deep so it felt pretty real so when the rally came it was a little surprising. Friday’s decline was almost a fake and we didn’t feel anything strong about it at all especially with the Dow hardly moving down at all.

One news item we like to mention is the massive trade deficit. Last week the trade deficit showed a modest decline from January to February, $58.4 billion versus $58.9 billion. First of all, that’s not much of a decline and second: we are required to comment on the fact that January has 31 days while this year February had only 28. Why is this decline so difficult to figure out???

The upcoming week has a lot of potential market surprises, lots of news and lots of earnings. We expect there will be ample opportunities to get burned trading. We recommend extreme caution due to the possibility of significant landmines to dent stock prices. We know the news past may be ok but there have been several forecasts that haven’t been too bright. We will keep an eye on it too and report it to you here.

News for the Upcoming Week:
Monday—Retail Sales
Tuesday—Housing starts and building permits
Thursday—Leading economic indicators (LEI)
Thursday—Philly Fed Index

Earnings reports, to mention a few:
Tuesday—INTC (Intel), YHOO (Yahoo!), IBM
Wednesday—EBAY, JPM (JP Morgan)
Thursday—GOOG (Google)

Dow Industrials: 12,612.13 +59.17
VIX: 12.20
HUI: 364.47
QQQQ: 44.65
QQQRS: 1.23 bid
QQQRT: 1.72 bid
RYVNX: 16.40
RYAIX: 21.20
RYCWX: 35.16
TLT: 87.12
BEGBX: 13.91

Thursday, April 12, 2007

Friday the 13th

Market Action:
Thursday’s action continued what we saw on Wednesday but only for about a half hour.  The Dow dropped into a 50 point hole as the market opened but that’s when the buyers returned.  We might add, they returned with a vengeance.  From that point forward during the day the market just churned its way up with only slight pullbacks for reloading.  By the end of the day the Dow was up 68.  The broader market followed mostly the same pattern.

After the bell, AAPL (Apple Computer) announced it was delaying the new operating system, Leopard, until October instead of the June date.  The news did push the stock down somewhat in after hours trading, a couple of percent.  This price move is pretty meaningless given the stock is near its all time high.

The way the market fell on “news” on Wednesday, we were somewhat concerned by the quality of the decline even though it was on pretty good volume.  Thursday’s opening also runs counter to the way we think.  Usually when we have a down opening, there is no where to go but up.  Yes, that matches the way we normally think but it wasn’t what we thought would happen.  We were hoping to see the market convince us that it was going down and Thursday it did not do that.

Now, we are going to go into Friday the 13th wondering if there is any reason for the sellers to come in and prove to us there might be more downside than the big one day down move we saw back in February.  Well, the market is now fairly overbought which is one thing for the bears.  And, the volume was lower on Thursday than Wednesday.  

The pattern in the market has become a bit clouded but the message is still pretty clear that the market should go down after the large break back in February.  But, all things considered, there is always a chance for an overbought rally to occur.  We don’t give it a lot of room to go and we are not saying tonight that it will occur.  We are simply seeing the lack of follow thru selling and it doesn’t feel that strong.  “Feel” is not really in a technician’s vocabulary but many times you can feel the move.  We should have felt the move already but the selling just hasn’t happened.  Yes, the market has been up nine out of ten days so that could have something to do with the feelings.

Bottom line is that there is every reason to think the market is going to go down, at least a little from current levels (all the reasons above) and we would welcome a little selling.  If Thursday’s low is significant, we should know fairly soon—we don’t think it is.

Dow Industrials:  12,552.96  +68.34
VIX: 12.71
HUI:  355.91
QQQQ:  44.56
QQQRS:  1.29 bid
QQQRT:  1.81 bid
RYVNX:   16.45
RYAIX:  21.23
RYCWX:  35.45
TLT:  87.39
BEGBX:  13.90

Wednesday, April 11, 2007

FOMC Minutes Cause Some Selling

Market Action:
Finally, some action!!!  As the market opened on Wednesday, it didn’t take long for the sellers to appear.  Even with the strong earnings from AA on Tuesday evening, the Dow was quickly down 35 points on its way to down about 100 an hour and a half into the session.  The broader market was lower with the NASDAQ Comp down about 20 around that same time.  

That was it for downside and the buyers came in to bid up prices until the FOMC minutes were released at 1:00 CDT.  That news indicated the Fed is ready, willing, and able to raise interest rates due to the threat of inflation.  That caused the bottom to drop out of the market for about five minutes and in that space of time the Dow dropped about 35 points and then headed for its low of the day, down about 115 at one point.  From there the buyers took it into the close with the Dow down 89 points at the bell.

After the bell, RIMM (Research in Motion, a Canadian company) announced its earnings.  The news was fairly good but the after hours market punished the stock by 7%.  The stock was down over 2 during the day and then another 10 after hours to trade in the 135 range.  We have mentioned this stock here on occasion and recall when this stock was in the mid 60’s about a year ago.  It seems the market didn’t think the news that the SEC has upgraded its inquiry into its stock option granting practices to a formal investigation or maybe the earnings were not quite good enough.  We’ll see how the real trading goes on Thursday.

This down move has something to prove to us.  We want to think we are at the beginning of a pretty good sized down move so we need to see some proof of that over the next few weeks.  Even though volume did get back to a healthy level on Wednesday, there could have been more pressure on stocks.  We generally don’t like downside moves that have “news” attached to them because the market quickly figures it has dealt with the news.  We like it when the down moves are inexplicable as the big late-February 400 point down move was.

With many companies reporting next week, there could be adequate reason for the sellers to come out.  Expectations for good news have been modestly curtailed for several of the companies we follow so maybe they can escape the wrath of sellers if the report negatively.  Tonight, we can only watch with caution as the next few days of trading unfold.  We are waiting with anticipation.  

Dow Industrials:  12,484.62  -89.23
VIX: 13.49
HUI:  354.40
QQQQ:  44.21
QQQRS:  1.49 bid
QQQRT:   2.08 bid
RYVNX:   16.73
RYAIX:  21.41
RYCWX:  35.83
TLT:  87.37
BEGBX:  13.88

Tuesday, April 10, 2007

Eight Up Days in a Row

Market Action:
How can we say this?  There was No action on Tuesday.  The Dow traded in a 35 point range and volume was light again.  There was some movement in tech land as traders bought INTC just because the chart looks good or because there hasn’t been as much bad press surrounding it like there is over at AMD.  AMAT was also up today on an upgrade.

After the market closed, we heard from AA (Alcoa) with the first of the earnings announcements for the quarter.  The news was good and the company seemed to be making good on some of its promises.  AA has been on a tear over the past few months being one of the hottest Dow stocks of the year, up over 10%.  So, AA kicked off the earnings season with a big win.

Earlier in the day, D.R. Horton, the nation’s largest home builder by number of units, reported a 37% drop in orders in the last quarter.  According to the WSJ, this may be “an indication that the crucial spring home-selling season is proving to be weaker than many builders had hoped.”  The report indicated that the dollar value of orders dropped from $4.4 billion a year earlier to $2.6 billion.  Orders in California posted the largest drop, 59%.  Ouch.

There really isn’t much to say after three days of total boredom in the stock market.  The real action is occurring over in the commodities but we don’t want to focus on them until we see some clear direction in the stock market.  

Maybe the market can give us more to chew on over the next few days.  With volume so low, we don’t know if they can even keep the market open (ok, maybe they can), let alone keep us awake.

That said, the Dow has now made it eight days in a row with a plus sign.  In the last four days, the Dow has been up 63 points.  Yes, we know, it was up but it is just not doing anything.  We would even take the up scenario where the Dow spurts to a new high leaving the rest of the indexes behind.  Wait a minute; we need to be careful what we wish for.  Strike that comment.

Dow Industrials:  12,573.85  +4.71
VIX: 12.68
HUI:  358.11
QQQQ:  44.68
QQQRS:  1.26 bid
QQQRT:  1.78 bid
RYVNX:   16.38
RYAIX:  21.18
RYCWX:  35.32
TLT:  87.43
BEGBX:  13.88

Monday, April 09, 2007

Light Monday Trading

Market Action:
Last Friday’s jobs’ report managed to carry over to Monday’s opening and that was about all for the NASDAQ indexes.  The Dow managed to move higher but fell back by the close to only close up about 9, but it was up for the lucky 7th day in a row.  We noted that the volume was suspiciously low and was only able to trade slightly more than last Thursday’s volume to make it the second lowest volume of 2007.  So, for two days running, the volume has been quite weak.  

We don’t want to rely solely on volume to determine whether this market is about to undergo a reversal of fortunes but low volume is a good indication.  The market seems to be floating on air and not moving much in either direction.  

The stock market has shown that it is tired, like we mentioned last week when we made the analogy about the toddler trying to keep their eyes open.  We expect a sell off very shortly and then we will have to decide about the near term future of this market.  With the sellers standing by on this little rally, we have to see what kind of vigor they have during this upcoming down move.  

At the very least the Dow should trade down into the 12,400’s again due to the need to trade in that range.  When the market moves quickly from one place to another, it normally comes back to fill in that spot.  Going back to the large drop the Dow had back in late February, we can see that the Dow has nicely filled that entire drop in.  Down in the 12,400 to 12,500 range, the Dow jumped up through it and now we think it needs to go back down and at least fill it in and maybe more.

We wanted to mention the news from AMD (Advanced Micro Devices), you know, the company in direct competition with INTC.  They announced that they were cutting revenue expectations about 20% for this quarter.  And, they said they were implementing a hiring freeze and were going to cut cap-ex.  What did the market decide to do?  Well, we know you won’t be surprised when we tell you that both AMD and INTC were up on the news and both stocks closed up on the day.

Real Estate:
The news out of the mortgage industry continues to defy the market, too.  American Home Mortgage (AHM), an investment trust specializing in prime and near-prime home loans, said it was cutting its first quarter and full year earnings forecasts.  They have had difficulty selling their AA rated securities.  These are Not sub-prime players, they are in the Alt-A mortgage market but not sub-prime.  Their stock was down about 15% on Monday but it didn’t fall as far as it did back when we originally heard about New Century Financial about a month ago.  

Dow Industrials:  12,569.14  +8.94
VIX: 13.14
HUI:  354.00
QQQQ:  44.45
QQQRS:  1.37 bid
QQQRT:  1.92 bid
RYVNX:   16.53
RYAIX:  21.28
RYCWX:  35.33
TLT:  87.17
BEGBX:  13.83

Sunday, April 08, 2007

Strong Jobs' Report

Market Action:
Even though it seems a long time ago, the stock market traded on Thursday but not much happened.  All the major indexes were up on the day and in fact were up every day last week.  The volume was on the low side for the last two trading days last week but the prices were up.    

The condition is one of bullishness, again, and the market seems willing to grant the bulls one more rally.  The question is, “How far can this rally go?”  Well, on Friday the jobs’ report was higher than expectations with 180K jobs added in March compared with the 135K expected; and, the February jobs’ number was revised up from 97K to 113K.  (The unemployment rate actually fell to 4.4%, please.)

The jobs’ report inspired some interesting trading; this was not with the normal market open, by the way.  Normal thinking would put the focus squarely on the interest rate situation, meaning, with a stronger jobs report, the market would figure the Fed could not ease as soon as was hoped.  We said “normally” that would be the case.  Now, on Friday, the market did react partly the way it normally would.  The dollar was stronger due to the threat of no future interest rate cuts and the bond market fell due to a “stronger” economy.  The stock market futures were stronger after the news, reacting in part to the “stronger” economy versus the possible lack of interest rate cuts.

We expect that the market will trade up in early Monday trading based on these Friday actions and the overnight stock futures are indicating that to be true as well.  The Japanese market is strong tonight and that probably has something to do with last week’s jobs’ report as well.

As we head into a new week, we are anticipating the market to feel that it has overcome the sub-prime mortgage fiasco.  The stock market sometimes rally when it’s not supposed to.  We have said that the corrective wave we are now in will probably retrace a great deal of the first waves decline and that is definitely true as we head into Monday’s trading.  

There are other possibilities, one of which is the short term bullish outcome of this rally.  We could see the Dow make a new high in the next few days which would not make us very happy being as short as we are but the possibility exists.  We would hope that high, if it was coming, would be met with no other major index following suit confirming the high was not a real high, just a headline high.  Monday’s trading will give us major clues as to what is going on in the short term.    

This Week’s Upcoming News (Not Much):
Tuesday—AA (Alcoa) will kick off the quarterly earnings parade
Friday (the 13th)—March PPI report

Dow Industrials:  12,560.20  +30.15
VIX: 13.23
HUI:  354.15
QQQQ:  43.56
QQQRS: 1.33 bid
QQQRT:  1.85 bid
RYVNX:   16.43
RYAIX:  21.22
RYCWX:  35.37
TLT:  87.75
BEGBX:  13.90

Wednesday, April 04, 2007

Light Pre-Holiday Trading

Market Action:
If you could call it action, we might agree but there really wasn’t much going on Wednesday and we expect similar lethargy on Thursday just before a holiday weekend.  The market did trade with a positive bias on Wednesday and with really nothing moving too much either way.  Techs seemed to have some demand, we have no idea why.  

We are going to keep this brief again this evening.  With the long holiday weekend just ahead, we thought we would sit back and take a breath.  Maybe we can get back to some better trading next week.  

The NASDAQ Comp did manage to push above its high from a couple of weeks ago which makes three for three of the major averages, with the Dow and the SP500 breaking out on Tuesday.  This break has not been substantial or dramatic but it is still a break and we need to be careful with the way this market trades over the next week or so.  

Our immediate reaction is that there is a chance for the market to have finished the correction wave during this week or on Thursday.  The fact that the market had not sold off very much in the days since the highs of two weeks ago has been strong evidence that the market was not ready to go down.  Today’s news that the hostages were going to be released from Iran eased oil prices and gave the stock market a boost but not that much of one.  

We don’t want to read much into the trading this week due to the lack of interest indicated by the low volume.  Instead we want to focus on the new week next week to see if April can still show us some downside.  We have said that the first corrective wave could be very deep but we were hoping/thinking that the highs from a couple of weeks ago would be the limit.  We didn’t heed our own advice on the subject of deep corrections.  Now we need to see what the market has to say for itself.

Dow Industrials:  12,530.05  +19.75
VIX: 13.24
HUI:  356.02
QQQQ:  44.34
QQQRS:  1.48 bid
QQQRT:  2.02 bid
RYVNX:   16.62
RYAIX:  21.33
RYCWX:  35.52
TLT:  88.08
BEGBX:  13.87

Tuesday, April 03, 2007

Tuesday Rally

Market Action:
Basically the market went straight up from the opening bell for about 90 minutes and then traded at those levels most of the rest of the day.  The early morning action seemed to be from overnight strength in the rest of the world markets as well as some news on one subprime mortgage lender.  At the 30 minute mark, the pending home sales were reported to be up and that kept the dream alive for the buyers.

The market was up strongly on Tuesday and seemed to decide that the housing situation, such as it “was”, is now behind us and the new world brings us to new heights of glory.  We are a little cynical this evening just because, while we knew the market could go up, really don’t like the way it went up.

We have considered the highs put in about two weeks ago to be the important overhead resistance to watch.  Of course, we didn’t think they would ever be tested and Tuesday did test them.  The Dow went above, which we don’t have strong feelings about anyway because it is, after all, the headline number that everyone watches.  The Dow closed right at the high of two weeks ago. That high was 12,510.81 and Tuesday’s close is 12,510.30 almost a direct hit.  The Dow did trade higher than that previous high so the test failed but, again, we don’t have strong feelings about the Dow.  

The SP500 traded higher as well and this break bothers us.  It’s not the end of the bearish case, just the first question mark in it.  We are still about 24 points from the highs of February which is our ultimate breaking point.  

The NASDAQ indexes did Not fail as the highs from two weeks ago held, at least for Tuesday.  This is a good sign since we have said that the NASDAQ indexes should be the leaders of any downside move.  Since the Dow failed to hold its high and the NASDAQ’s highs held, that makes for better writing this evening.  We are still concerned with the breaks in the other major indexes but we will give this thing another day or two.

You may recall that we have mentioned that the first corrective wave has the tendency to carve out a large portion of the first wave drop.  The reason for this action is that there still exists much bullishness.  When the next wave down occurs we will reduce the bullishness and that in itself will set us up for a bigger rally but from much lower levels.  

One thing to keep in mind is that the volume was not that powerful again on Tuesday.  The bulls should be paying some attention to that low volume.  The market can not power ahead without some strong volume.  So, we bears still have some technical items to bolster our position.  

What we expect is a much more subdued day on Wednesday with trading occurring at the highest prices in a while.  This means that the buyers will be buying from those that bought on Monday.  We like to call this distribution.  Keep the public as bullish as possible so we can sell them stocks at the highest prices.  But, we will see.

As an aside, the NDX, NASDAQ 100, decided it couldn’t quite leave the 1800 level behind just yet and traded there again on Tuesday.  We will not feel too bad when we can see that index leave 1800 for good.

Dow Industrials:  12,510.30  +128.00
VIX: 13.46
HUI:  349.41 (strong day especially considering gold was down)
QQQQ:  44.16
QQQRS: 1.55 bid
QQQRT:  2.12 bid
RYVNX:   16.71
RYAIX:  21.39
RYCWX:  35.62
TLT:  87.99
BEGBX:  13.83

Monday, April 02, 2007

Dull Start to 2Q

Tonight’s post is shortened by our indulgence in the NCAA basketball championship.  We thought the game might be a little more interesting than it was.  Between the two teams, Florida just couldn’t miss a shot whether it was a three pointer or not while Ohio State just could not get the ball in the hoop.  

Market Action:
The market opened up probably just because it was Monday and the first of the month/quarter.  The price strength was not there and the early buying led no where.  When the ISM manufacturing index showed a slightly lower number than expected, the market sold off a bit.  

The Dow traded in a narrow range on Monday but biased upward while the NASDAQ was biased downward but managed to end positive on the day.  The NASDAQ continues to under perform the Dow and, eventually, this will be more pronounced.  We hope “eventually” means this week.

Real Estate:
With the New Century Financial announcing it needed some protection under the bankruptcy laws, the real estate part of the market didn’t do too well in Monday’s market.  

Last Friday, another company released some news about their mortgage situation.  MTB (M&T Bank Corp) said that they were having some trouble with its Alt-A mortgage loans, specifically that they were having difficulty selling them in the market place.  MTB made some comments about not wanting to mark these assets to market especially when they were not getting the bids MTB had hoped, so MTB had decided to keep them and hope (that word is ours).  

With not much in the way of new information from Monday’s trading, we have no additional comments from last week.  The market seems to be struggling to keep its head above water and we think it will fail in that endeavor very soon.  There seems to be a strong bullish contingent that believes the drop we had about a month ago was good for the market because it created some bargains.  Maybe the market will oblige them but we have taken the opposite position—out and short.  

Dow Industrials:  12,382.30  +27.95
VIX: 14.53
HUI:  345.16 (big move +7.50)
QQQQ:  43.59
QQQRR: 1.42 bid
QQQRS: 1.93 bid (own)
RYVNX:   17.15 (own)
RYAIX:  21.67
RYCWX:  36.38 (own)
TLT:  88.10
BEGBX:  13.90

Sunday, April 01, 2007

April Fools

Market Action:
Friday’s market showed that news can move prices.  Just after the opening bell the Chicago Purchasing Managers announced their index came in at 61.7 versus expected of 49.3 and versus last month’s 47.9.  That number lit up the early trading and put the Dow up about 65 points in about 15 minutes.  Then there was the story about the House passing duties on Chinese imports which took the market down, with the Dow dropping from that up 65 to down 100.  From there, the market found a bottom to trade out of and the Dow rallied pretty much the rest of the day even though it was only up about 5 points.
Friday marks the end of the first quarter.  The new quarter should usher in a little harsher market condition than has existed for a few years, with the possible exception of the May to July 2006 period.  This year will have a definite downward bias.  With the maxim of “Sell in May and go away” hanging in the air from last year, we recognize that May is just a month away.  Shouldn’t be get started early on the selling?
We expect a volatile month and we will try to navigate through the storm that seems to be brewing.  We have read several articles this weekend trying to calm investors by telling them to stay the course and not worry about near term fluctuations in the market.  We can only wonder what these people will be saying by the end of the year. 
News in the week ahead:
Normally, the first Friday of the month gives us the monthly jobs report and this week is no exception except that the stock market is Not open on Friday.  In fact there are several news items due on Friday.  There are other news items for the other days this week so here we go:
Monday—March ISM manufacturing business index
Tuesday—February pending home sales
Wednesday—March ISM non-manufacturing business index (services)
Friday—Jobs’ report
This week will start to bring us warnings on how the first quarter went for companies with full earnings reports due out at least by the end of the month.  This should be an interesting week.
Dow Industrials:  12,354.35  +5.60
VIX: 14.64
HUI:  337.66
QQQQ:  43.53
QQQRR: 1.42 bid
QQQRS: 1.94 bid
QQQRT:  2.59 bid
RYVNX:   17.16
RYAIX:  21.67
RYCWX:  36.53
TLT:  88.28
BEGBX:  13.89