Option Investor
Market Wrap

Still bullish but willing to so bearish if I need to

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     08-02-2004            High     Low     Volume Advance/Decline
DJIA    10179.16 + 39.45 10203.56 10101.36 1.53 bln   1621/1148
NASDAQ   1892.09 +  4.73  1893.13  1869.66 1.50 bln   1318/1801
S&P 100   540.41 +  2.74   541.49   535.22   Totals   2939/2949
S&P 500  1106.62 +  4.90  1108.60  1097.34 
RUS 2000  551.93 +  0.64   551.93   544.40
DJ TRANS 3134.15 + 22.46  3135.35  3089.75
VIX        15.37 +  0.05    16.58    15.22
VXO        14.67 -  0.73    16.16    14.58
VXN        24.13 +  0.82    25.26    23.97
Total Volume 3,335M
Total UpVol  1,868M
Total DnVol  1,376M
52wk Highs     131
52wk Lows      171
TRIN          0.92
PUT/CALL      0.79

Yesterday Homeland Security Secretary Tom Ridge raised the threat alert to "orange," or high, for areas of New York City, northern New Jersey and Washington because new intelligence pointed to Al Qaeda terrorists targeting Wall Street and international financial institutions. Yesterday's warning represented the first time the color code was raised in a specific area for specific institutions. The impact on the markets this morning however, was surprisingly muted. Buyers were skittish from the get go but sellers were not able to get a good foothold either. As the day progressed, however, buy programs took over and pushed the markets back to daily highs.

In other news, nearly eight months after taking the helm at the NYSE, CEO John Thain, has put together a proposal to allow more electronic trading, replacing the tradition-bound auction method, known as the open-outcry system. Mr. Thain's proposal is a hybrid that marries the benefits of the human-based system, which helps minimize price volatility, with the convenience of sophisticated technology. Needless to say Mr. Train is not too popular among specialists, the people who keep the market flowing by using their own cash to buy and sell shares when trading slows. The more shares traded electronically the less profit for the specialists. One specialist, Peter Murphy, head of Bear Stearns's floor specialists unit was quoted as saying "What's the point of being down there with capital if we can't use it?"

Fears of further disruptions in supply from Iraq and Russia on top of the new terror warnings drove September crude up to the highest price since oil futures began trading in New York 21 years ago. Crude Oil prices are nearly 35% higher than they were a year ago.

Economic reports

June's Institute for Supply Management showed factory activity continued to expand in the U.S. last month. The ISM rose to 62.0 from 61.1 in June whereas economists had expected a reading of 61.6. The survey found new orders and production jumped as inflation pressures slowed but remained high while hiring slowed slightly. Any reading above 50 indicates expansion and overall readings in the survey have been above 60 for 15 months -- the longest stretch since the 12-month period between July 1972 and June 1973. An extended reading of 62.0 is consistent with a 7% annualized increase in the U.S. gross domestic product.

The other report that hit the wires this morning was Construction Spending for the month of June. The Commerce Department said total construction spending for June fell 0.3%, the first decline since January. Economists' expectations were for no change.

Earnings

Procter & Gamble Co.'s (PG), the maker of Tide detergent, Crest toothpaste and Pampers diapers, saw fiscal fourth-quarter earnings grow 44% from a year-earlier period. Company officials say the figure included restructuring charges, as sales and unit volume both saw double-digit gains. PG closed up +$1.19.

Edison International (EIX) reported a net loss of $374 million, or $1.13 a share including a $610 million loss from the Edison Mission Energy largely due to the termination of a big power- supply contract in the U.S. The Edison Mission loss was partly offset by $242 million of income from the #2 investor-owned utility in California, Southern California Edison. EIX closed down -$0.75.

Shares of Corinthian Colleges (COCO) stumbled after announcing its revenue and earnings for the fiscal fourth quarter and the year would fall below its previous forecasts. Harris Nesbitt, Bear Stearns and J.P. Morgan all downgraded the company's stock saying they were "completely shocked by the magnitude by which the company has lowered guidance." Corinthian blamed the shortfall on higher costs related to marketing and advertising and negative publicity surrounding a series of lawsuits filed by former students in Florida. COCO fell 43% today bringing competitors down with it and COCO closed down -$8.42.

Reynolds American Inc. (RAI) reported net income for the quarter at R.J. Reynolds rose to $151 million or $1.77 a share, from $70 million, or 83 cents a share. The 2nd quarter net income nearly doubling was due to a net restructuring charge adjustment of $9 million, while the year-earlier net included a $55 million restructuring charge.

RAI was formed on July 30 after R.J. Reynolds Tobacco Holdings and British American Tobacco combined their U.S. tobacco businesses. It reported the results of R.J. Reynolds as a separate entity.

Annotated Daily Chart of the NYA :

In my wrap on July 28th I noted that NYA was the strongest market and it continues to be so. I also showed a reverse head and shoulders that continues to play out. Of course, this is not a valid formation until the neckline is broken and even then I would like to see a retest of the neckline just to make sure.

Annotated Daily Chart of the SOX:

The SOX has not yet broken above the swing high at 430 but is closer today than it was when I talked about it on July 28th. The MACD has definitely made a bullish cross giving the bulls just a little more encouragement. I also still see the SOX reaching the top of the regression channel at 467 before finding too much resistance.

Annotated Daily Chart of the Nasdaq:

Like the SOX I see a bounce to 2000, the top of regression channel, as doable but it needs to get past the swing high at 1933 first.

This is a hard chart to decipher because the higher high on July 30th failed and I cannot turn bullish here until I see this market proving it to me. That proof would be in the form of a break of the swing high at 1933 and then a higher low. Of course this scenario will take days but if the last swing low is taken out then all bullish bets are off.

Annotated Daily Chart of the SPX:

Is the SPX making a double bottom or a reverse Head and Shoulders? You know it really doesn't matter because both are bullish and both will require SPX to break above 1146 to prove them. I really like the MACD cross but I just wish it were making a higher low like price.

Annotated Daily Chart of the Dow:

You could ask the same question of the DOW - is it making a reverse head and shoulders or a double bottom? And once again it doesn't matter because both will need to be proven valid by a trade above 10487. I am more encouraged by this chart because of the MACD making a higher low along with price.

Annotated Daily Chart of the Russell 2000:

There is no question that the RUT is making a double bottom that is supported by a MACD making a higher low. This double bottom will need to prove itself with a trade above 591.5, a long ways off.

After-hours developments

Shares of Priceline.com Inc. (PCLN) fell in after hours trade after the closing bell after it said it expects third-quarter earnings to come in below the Wall Street consensus. PCLN said it expected current quarter adjusted income of 25 cents to 30 cents a share, compared with the Wall Street average estimate of 31 cents.

Shares of Macrovision Corp. (MVSN) rose in after hours trade after the company said a 22% rise in revenue helped drive second- quarter profits sharply higher from a year earlier.

Tomorrows Earnings and Economic Releases

Tomorrow will see an 8:30AM ET Bureau of Economic Analysis' release of Personal Spending and Personal Income. Income is expected to be up 0.3% and spending even at 0.0%.

Companies releasing earnings tomorrow include Before the Open: AMED CZN COH CMLS DVA EMR ETM EOG EOP EQR EXPD HNT MSO MLM MBI MRCY MHX PRXL PDX PFGC PER PCG PL Q SRZ SPN THC TEVA TKTX TYC VSH WPI WCI OATS. After the Close: ALO BRKR CEPH CKFR EDMC IMDC IACI JILL PCTI PDLI PRU TALK UPCS VCLK VRSO.

Outlook

I am still bullish and as long as the charts I have shown above hold up I will remain bullish but I am also very willing to turn bearish again if I see the markets deteriorating.

Jane Fox



 
 



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