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Beige Book

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The Federal Reserve released its Beige Book today. The report on economic conditions in 12 districts echoes what we already know. Retail sales are lethargic. Half the districts reported flat or lower retail sales, but retail prices remain under control due to competition. Manufacturing remains weak, but is starting to show signs of strength. Labor markets continue to show no improvement. The one bright spot was the real estate market.

S&P 500 and Nasdaq Composite Daily Charts

The Fed's report didn't spark the market sell off, but it isn't helping either. A rash of earnings warnings and political uncertainty is also contributing to the decline. The S&P 500 is off 2.45%, and 7 points away from 1,000. The Nasdaq is 3.96% lower, and close to support at 1,475, a series of lows from 1998.

Gold Index Daily Chart

Today's increased temporarily selling has sent investors back into the security of gold stocks. The Gold Index (XAU.X) is off its highs, but still up 1.00% and trying to fight its way through resistance. The resistance area between 58.44 and 60.39 is comprised of the August 24th high, 50% retracement of May/June losses, and June 14th high. Unless uncertainty continues to paralyze stocks, XAU might have trouble getting through this area.

Newmont Mining and Barrick Gold Daily Charts

Newmont Mining (NEM) has had a wild three-day ride, trading in a $3.50 range. At the end of each day prices have settled around $22.50. Today NEM made another attempt at cracking resistance at $23.15, but is currently fading back towards its three-day mean of $22.50.

Barrick Gold (ABX) has also had some wild price swings, but has closed around $16.70 the past two days. ABX was up 45 cents today and testing resistance at $17.21 at one time, but like Newmont, is coming up short.

Jeffrey Canavan

01:30 EST Update

Bulls can be patient

Some stocks have faired much better than others since trading began on Monday. Some of these stocks don't really seem to have a "strategic" product or service that seems to be in a position to benefit from recent events either. When this kind of action takes place, it may well be a sign that things were beginning a turn for the better and gives hint to a stock that will be a leader when broader the broader markets turn positive. With that said, bullish traders can be making some of these observations and developing some trading scenarios for bullish entry points.

On Monday, I mentioned in the "hot list" on OptionInvestor.com that shares of SBC Communications (NYSE:SBC) was trading in positive ground. To me, this seemed a little strange consider fellow Dow Industrial Component AT&T (NYSE:T) was trading lower. I've been following shares of SBC ever since and the stock has has continued to perform well. Perhaps today's high of $46.20 is a short-term top on the stock, but a pullback could become a bullish traders opportunity to establish a position.

SBC Communications (SBC) - last nine months

I've had a retracement bracket on shares of SBC for sometime and today's high at $46.20 comes just under our 38.2% retracement level. Under current market condition, a trader that holds the shares long would most likely be writing some out of the money October covered calls or perhaps selling strength to offset some losses in other parts of their portfolios. This understandable scenario then sets up the potential for a pullback and a more attractive entry point in a stock that is outperforming the market. By using our retracement bracket, the bullish trader might then be looking at the rounding 50-day MA of $42.86 as a point to get long or the 19.1% retracement level of $42.31. Under current market condition, the bullish trader also wants to ease into a position and help limit some downside risk with just a 1/4 or 1/2 bullish position. Should the stock break above the 38.2% retracement level, the investor/trader may then add to the position, as further bullishness would be taking place.

As a side note, shares of SBC were one of the 10 "dogs of the Dow" at the beginning of the year at $47.75. At current levels, SBC is down roughly 4% for the year, while the Dow Industrials are down roughly 19%. For those not familiar with the "Dow dog theory", its been a historical statistic that the "Dow dogs" as a group often outperform the broader Dow Industrial Index.

Jeff Bailey
Senior Market Technician

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