Probably better to take one then do any significant level of summer trading in this market, as the Indices appear to have reached some level of equilibrium for now.
THE BOTTOM LINE -
The trend, or some would say "trendless" (i.e., sideways) market, is right in line with what is being reported about business conditions. On the one hand you have select stocks reporting better earnings, such as Eastman Kodak, 3M and Amazon, but other companies like Sun Micro are suffering and eBay suffered a downgrade based on its future prospects - although it should also be noted that its Q2 revenues and profits doubled.
There was a slight pickup reported for the leading economic indicators put out by the Conference Board, but then there was Fed Governor Ben Bernake saying earlier in the week that the Fed is keeping its options open to even go down to a 0% Fed funds rate if that's what it takes to prevent deflation.
And with inflation worries moribund, what does gold do but make a sharp jump last week! And, it seems the bond market more believes a pick up in economic activity as the benchmark 10-year yield closed the week at over 4%.
As Jeff Bailey noted last week, the Fed Governor's comments could be seen as doing some "jawboning" by the Fed to have bond traders putting a floor under T-bonds after a sharp sell off (yields higher)in recent weeks. These comments set a somewhat negative tone to equities earlier in the week, as well as the U.S. dollar on trader fears that the Fed is still concerned about deflation hampering any further economic recovery.
So what's a poor investor to do in the face of this conflicting and uncertain news!? - Road trip! More barbecues!! Take a swim!!!
FRIDAY'S TRADING -
The major indexes were in a rally mode on buying that appeared to be partly linked to short-covering type buying into the weekend, as U.S. troops made progress in Iraq, with the capture and killing of Saddam Hussein's sons, numbers 2 and 3 on the most wanted list - number 4 was captured alive and he was Saddam's trusted personal aide. No doubt he has some interesting stories to tell! The shorts were of course thinking about what the effect on the market would be should U.S. forces find the man himself, Saddam Hussein.
The influence of better earnings can't be overlooked - according to Friday's (Wall Street) Journal, 67% of Q2 profits have exceeded forecasts, which is significant even with the low expectations for the second quarter.
A bullish influence should also be noted for a report on a substantial rise in durable good orders during June - a 2.1% jump was reported by the Commerce Department, the largest single monthly gain since January 2003 and well above economists' expectations for a gain of 1.2%. Durable goods figures are a traditionally volatile number, but this much of an increase is taken as a bullish sign for the economy and that the U.S. manufacturing sector is recovering. Besides this is just the psychological shift as investors want to believe in recovery.
Orders for non-defense capital goods were up by 2% in the month after rising just 0.2% in May - what a difference a zero makes! Overall durable goods, those goods expected to last 3 or more years, were produced at an increased rate of nearly 1 and half percent, after rising at less than a percent in May. Overall goods orders that exclude the fluctuations of the defense sector rose 1.7%, after being up 1.2% in May.
Friday saw existing home sales reported as in a slight decline. The National Association of Realtors (NAR) reported that existing home sales for June fell 0.3% to a seasonally adjusted annual rate of 5.83 million units, which was below a consensus forecast for a 6 million annual rate. The NAR also said May sales were revised down to 5.85 million units from a previously reported 5.92 million. June sales were still close to 9% above the pace set by June of last year and tied for the 4th highest month on record - so, it's all relative!
Year-to-date (existing) home sales are 4.5% above the same period in 2002, and are at a pace, should it continue, that would make for a new record this year.
New home sales however, set records as the Commerce Department reported a 4.7% jump to a 1.6 million annual pace - this was higher than the 1.1 million forecasted. Commerce said new home sales were country wide as every region in the country posted gains for June.
Dow component AT&T (T) was up 2% to 20.4 after the company reported a Q2 profit - cost cutting helped T swing to net of $536 million from a loss a year ago and the company increased its quarterly dividend by 27%. Noted by the consumer (more than stock investors I suppose), in their less than robust confidence of late, is that cost cutting usually means JOB cutting - Kodak noted earlier will be reducing its work force by 6000 - so far absent from the business news is that company XYZ is ADDING a few thousand folks to its payroll.
OTHER MARKETS -
The dollar traded down slightly against the Yen, to 118.81 from 118.89 late Thursday in New York, while the euro strengthened to $1.15 from $1.1473.
INDEX OUTLOOKS -
Along with "other" markets, I always tend to keep my eye on gold and the commodities index in general in an awareness that they tend to move counter-cyclical to equities. (Not always counter to bonds however.) Note the qualifying word "tends" to. Not always, which is what makes the markets such a puzzle sometimes. Even if gold is an anxiety barometer, which we have plenty of in the new mellenium, it's a point of wonder as to whether the unrest and economic uncertainty reflected in the rising price of the gold mining shares is going to also lift stocks much this year -
What's noticeable with the XAU chart above is the decisive bullish breakout above the triangle marking the reaction lows and relative highs. Usually this is a bullish technical indication for a breakout and further run up. If the (time) premiums weren't so rich, I might be long the calls. (Again, a possible put sale candidate.)
S&P 500 (SPX) - Daily chart:
Again, the daily chart tells the story on the S&P (SPX) 500 - when SPX got down to the low end of its recent price range, and held a "line" of support at and just under 980, a rally followed. I continue to suggest buying near the low end of this range (better to then be able to exit with a break to below the range) and sell at the upper end of the sideways channel - currently in the 1015-1017 area.
The sideways drift is keeping the RSI in a more or less "neutral" range. Right now there seems to be the propensity to rally when the RSI has dipped to below 50.
My sentiment indicator is more or less neutral also. Neutral chart, neutral oscillators, neutral sentiment. Well, you get the picture. That said there is room on the upside for another challenge of the 1000 mark.
The 21-day moving average is also telling the story here, as movement back and forth across the 21-day is showing a definite sideways trend - I suspect its a consolidation before a typical seasonal move higher into a September - October peak.
Dow Industrials Hourly (DJX.X) chart:
Still plenty of upside if the Dow were to rally now toward the upper end of either its recent sideways trading range. First of course it has to get through a line of resistance at 92.80 which has been the top of the recent range on an hourly closing basis. Not far above that is a cluster of prior highs at 93.4.
A daily close above 93.4 is needed to suggest a bullish breakout and move more toward the upper channel line. I'm not looking for such a breakout anytime soon but there could be surprises also of course. 91 is key near support and a close under 9100 for the Dow is a definite technical bear move. 9000 is probably "must hold" support for the bulls.
Overall a bullish outlook is warranted as long as the Dow Index trades within its hourly uptrend channel. The trend starts to turn neutral however with a continued sideways move that takes prices out beyond the outlined channel lines above.
S&P 100 Index (OEX) - Hourly chart:
The hourly chart continues to best show the chart and technical picture for the OEX. The Index continues to find support in the 485-495 zone - this past week a double bottom low was made in the 491.5-492 area.
Resistance or selling interest can be anticipated on moves up the area of the prior highs around 511-512 or just a bit higher - the previously broken up (magenta) trendline is what I am watching. I suggest put purchases in the 510-515 zone, especially as the longer (21) hourly stochastic gets back up into the overbought zone.
Nasdaq Composite Index (COMPX) - Daily:
The Composite is still "holding" its daily chart uptrend channel, as the lows last week walked up the lower line so to speak. Such a well-defined trendline - well, the market is being supported on breaks. 1700 is near support, then 1650, support assumed at the 50-day moving average. I would take a close under this average to put the near-term trend down again. 1800-1825 is key near technical resistance.
Interestingly, the recent downswing is causing the 14-day stochastic to fall enough to be near to oversold again. A sideways to lower trend will cause this indicator to fall and it doesn't have to fall a big distance price wise.
If the trendline that contained the price dips of last week is pierced by a move below Friday's low at 1685, the pattern immediately suggests a bearish reversal - this because the chart formation would then look like a bear flag reversal. Absent that, on a technical basis, continue to give the benefit of the doubt to the bullish influences that are looking ahead to a hoped for improvement in the economy and in tech spending in particular.
Nasdaq 100 Tracking Stock (QQQ) - Hourly:
And, last but not least, there is not a whole lot new to say about the Q's on a technical basis from last week. They held their bull trend channel (lower) boundary on the last two sell offs.
Resistance and selling interest is assumed to be in the area of the prior highs around 32.50 to 32.70 - exiting as least some long trading positions and even shorting the stock is suggested in this area. On short positions, my suggested stop point is at 33.20.
A daily close over the prior 32.5-32.7 highs suggests further upside potential in QQQ possibly to as high as the upper channel boundary and I would not want to buck this trend. The overall trend is still up, but my assumption is that we're also moving into a sideways trading range like the other indices. In a trading range, you can either stay out and wait for the trend (or a new trend) to resume or you can trade the range.
If there is a decisive downside penetration of the prior hourly closing lows in the 30.70-30.80 area, I continue to suggest being short on the break, looking for an eventual downside objective to the 29 area.
Good Trading Success!