New high, new high, new high !
Two Fridays in a row we have had new highs for the three major market indexes. Would it be too much to ask for a triple-triple for next Friday? The market is definitely moving in the right direction but the gains for the week were only marginal. The Dow lagged the Nasdaq percentage wise with only a +54 points for the week compared to the +52 for the Nasdaq but considering the +5.6% and +7.4% from last week we should be happy with any forward progress. We did not even get close to our 11,100 support line on Friday and closed at the high of the day. NYSE ticks turned in a very positive +896 at the close and both Nasdaq and NYSE advancers were beating decliners by a wide margin. (+411 Nasdaq, +683 NYSE)
While the DOW held its ground for the week and ended on a very positive note, the Nasdaq broke out of its recent trading range and headed for blue sky. It is hard to picture the summer tech wreck, which comes at the end of summer, with techs doing so well now. When the August tech slump starts just remember the tech pullback in May/June when the higher interest rate talk was taking the spotlight.
The last two weeks went very well and we should all be grateful to the Fed for giving us another chance for a nice earnings season. Just remember, what the Fed giveth the Fed can take away. Even with the strong earnings cycle upon us the rumblings of the next Fed meeting in August are starting to surface. Interest rates are still hovering around 6% and the bond bears refuse to go into hibernation. I would urge you to make the most out of the next three weeks or so and then be very cautious.
The transports refused to confirm the Dow advance and closed down -88 for the week. Oil prices crossed $20 a BBL and oil sensitive stocks have started to react negatively. Airlines are drifting down as well as companies like Airborne Freight and Federal Express. The market was suffering from cheap oil back in the winter but now the other end of the spectrum is coming back to haunt us. Almost everything we do is impacted by oil prices and if prices inch up much more we will see an accelerated impact in the markets.
The good news sector for the week had to be the PC makers. Multiple upgrades and lack of weak Y2K sales have reawakened CPQ, DELL and Gateway. IBM just keeps setting new highs every day and is showing no signs of slowing. The semiconductor sector is still hot and Intel is only 6 points away from an all time high. Dell burst out of the earnings gate the last three days and went from a low of 36.63 on Wednesday to close at almost $43 on Friday. This is way too early for a Dell earnings run and the jump was due to multiple upgrades this week. We are adding Dell to our play list tonight but strongly urge you to wait for a pullback to start a position. Dell does not report earnings until mid August and we have a long time to wait.
No negative trial publicity is showing up in the results for Microsoft. After struggling recently it is only $2 away from the all time high set back in April. Microsoft reports earnings on the 19th which give us another week to play. Microsoft is under investigation by the SEC for managing their earnings reporting. They literally have billions of dollars in earnings reserves that they may have to reclassify eventually. The talk around the office here is that Microsoft may start releasing some of this earnings treasure to relieve the pressure. This could result in a significant jump over street estimates next week. We will still not recommend holding over but we could get an interesting run.
Small caps are starting to cook and several of the researchers here are putting extra money to work in the little stuff. Some of the non-optionable stocks we have been playing are HSAC, PWER, MTIC, INFS, AGY, CXY. We get a lot of requests for stuff like this by email so here were the hot ones from last week. As always, buyer beware.
Earnings will take center stage early in the week but the economic calendar this week is about as dangerous as a minefield in Kosovo. Import Prices, Export Prices, PPI, CPI, Business Inventories, Real earnings, Industrial Production. Monday will probably be up but after the open on Tuesday the outlook hinges entirely on the PPI/CPI. These will be viewed as warning signs for the next Fed step and any signs of inflation would be greeted very badly. Tighten your stops on Tuesday and pray for friendly numbers.
July options expire on Friday!
Good Luck, Sell too soon.
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