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Winning Streak Ends At Eight For NASDAQ

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Winning Streak Ends At Eight For NASDAQ

Stocks gave back some of their recent gains with the NASDAQ Composite (COMPX) 2,050.12 -0.55% ending an 8-session winning streak with an 11.5-point loss as investors moved some cash to the sidelines on profit taking.

Breadth at both the NYSE and NASDAQ ran decidedly negative for the bulk of the session, where a late-afternoon rally attempt never gained much traction with decliners outnumbering advancers by a 2-to-1 margin.

Volumes were light, especially at the NASDAQ which turned just over 1.49 billion shares, with average daily volume running 1.68 billion so far this month. NYSE volumes were nothing to write home about with 1.72 billion changing hands. Average daily volume in May has been running 1.91 billion on the big board. 

Topping today's slate of economic data, durable goods orders jumped 1.9% in April, marking the first increase this year. Economists had forecast a 1.5% increase. March's durable goods data was revised up from the previously reported -2.3% decline to -1.6%.

Digging deeper into the report, orders for electronics (excluding semiconductors) fell 5.8%, as orders for communications equipment fell a sharp 18.8%. Computer orders surged 15.8% and shipments of electronics rose 0.2%. Machinery order edged up 2.2% while shipments rose 1.5%. Orders for electrical equipment increased 3.4% while orders for fabricated metals increased 1.7%. 

Shipments of durable goods rose 1.6% in April, helped largely by an 8.2% spike in orders for transportation goods. Excluding this volatile sector/component, durable goods shipments would have fallen 0.2% in April.

Meanwhile, inventories of durable goods showed a fractional build, rising 0.1%, the 17th consecutive monthly gain.

In the housing sector, new home sales inched up 0.2% in April to an annualized rate of 1.316 million. However, March's estimate was revised sharply lower to 1.313 million from 1.431 million. 

Economists had expected April's number to drop to 1.333 million from March's original estimate. The median price of new homes sold rose 3.8% on a year-over-year basis to $230,800. The number of unsold new homes rose 0.2% to 440,000, or a 4.1-month supply. 

Overall, sales of new homes surged 37.2% in the tiny Northeast market and rose 2.8% in the West. Sales declines showed the South falling 5.3%, while Midwest sales fell 0.5%.

Crude oil for July delivery surged back above the $50 mark following the latest release of oil supply data. The Department of Energy announced an unexpected decline in weekly inventories, with crude levels dropping by 1.6 million barrels versus expectations for another increase. Unleaded gasoline supplies rose by 0.6 million barrels and distillate supplies were up 1.9 million barrels in the latest week. The American Petroleum Institute (API) released some conflicting data, stating that crude inventory levels actually rose by 2.3 million barrels during the previous week. Distillate stocks climbed 2.5 million barrels while gasoline inventories fell by 416,000 barrels. July Crude Oil futures (cl05n) rose $1.31, or 2.64% to $50.98 and helped keep bullish sentiment for broader equities at bay.

In stock specific news, shares of Calpine (NYSE:CPN) $2.64 +33.33% surged higher in heavy trading as investors applauded the company's reorganization plan to cut about $200 million in annual costs and reduce debt by $3 billion by year's end. The utility said it hopes to cut costs and reduce debt by selling up to 8 more power plants.

Auto parts retailer AutoZone (NYSE:AZO) $86.80 -0.47% slipped lower to test correlative 200-day SMA ($85.12), 50-day SMA ($85.02) and 21-day SMA ($85.29) intra-day after posting Q3 earnings of $147.8 million, or $1.86 per share, compared to year-ago earnings of $1.68 per share. Sales dropped 1.6% to $1.34 billion in what CEO Bill Rhodes called a "considerably weaker" performance. Wall Street had forecast earnings of $1.80 per share on revenue of nearly $1.38 billion. The company said it has repurchased 3.2 million common shares at an average price of $87 during the latest quarter, amounting to $278.6 million. 

Computer Sciences (NYSE:CSC) $46.55 +1.68% gained 77-cents after announcing its Q4 profit more than doubled as the firm logged a big, one-time gain from the divestiture of some units and as revenue from continuing operations rose 7.9% due to strength in commercial activities. The company reported earnings of $411.8 million, or $2.13 per share, versus its year-ago profit of $1.01 per share. Sales from continuing operations increased to $3.88 billion from $3.59 billion a year ago. 

This morning, Boston Scientific (NYSE:BSX) $29.46 -3.72% released its 2005 earnings forecast, with expectations coming in at $1.85 and $2.00 per share (before items) on total worldwide sales of $6.35 billion to $6.57 billion. Furthermore, BSX said it sees worldwide sales of its drug-coated stent products coming in at $2.62 billion to $2.76 billion for the year. BSX's guidance was below Wall Street's estimated earnings of $2.06 per share on revenue of $6.51 billion for the year. In other news, BSX said data from its nine-month Taxus V clinical trial further supports the efficacy of the Taxus Express2 paclitaxel-eluting coronary stent system for the treatment of coronary artery disease in diabetic patients. 

Closing U.S. Market Watch - 05/25/05

Treasuries found a choppy intra-day trade with prices falling and yield higher. The benchmark 10-year yield ($TNX.X) rose 3.5 basis points to 4.072% after challenging the 4.0% yield level earlier in the morning.

Treasuries reversed early morning gains when Federal Reserve Bank of Atlanta President Jach Guynn said the improved employment situation will likely offset some of the troubles created by higher energy prices. His comments were included in a speech made before the Certified Professional Home Builder luncheon in Atlanta. Mr. Guynn said he expects GDP growth will remain on a very positive path and thinks the forecast he made earlier this year of growth for all of 2005 in the range of 3.5%-4% still seems reasonable. Speaking to reporters after the luncheon, Mr. Guynn argued for more interest rate hikes from the FOMC.

Mr. Guynn's comments combined with today's stronger-than-expected durable goods data and robust housing figures likely sparked some profit taking.

I make a quick note that the Pacholder High Yield (AMEX:PHF) $8.95 -3.13% fell sharply right at the close of today's trade on 12,200 shares traded at $8.95. This closed-end "junk bond" fund traded between $9.18 and $9.29 all day. On May 13th, PHF announced it would pay a monthly dividend of $0.075 per share for the Month ending May 31. The dividend is payable on June 10, 2005 to shareholders of record on May 31, with ex-date for the dividend tomorrow. Given a "consistent" monthly dividend of $0.075 per share, tonight's SEC yield would equate to 10.05% given a closing price of $8.95. 

The Oil Service Index (OSX.X) 132.47 +1.71% was today's sector winner, and on a Wednesday-to-Wednesday close is just outpacing the homebuilders as Depicted by the Dow Jones Home Construction Index (DJUSHB) 878.12 -1.23%, which gave back 11 points in today's trade.

With June Crude Oil futures (cl05m) expiring last week, I've rolled to July energy futures in the U.S. Market Watch. 

Still, I like to keep track of a crude oil futures chart with my various fitted 38.2% retracement. Not unlike the "old" June contract, I've shown this chart of the September Crude oil futures (cl05u), where the same technique used in the June contract is carried over. Still a bearish bias below $52.73-$52.95 zone.

September Crude Oil (cl05u) - Daily Intervals

Last week's trade around the $50.00 level in the September contract would be darned close to an EXACT 50% retracement from the contract high of $60.00 to the inflection low of $40.58 found in late December. Last week's low on the above contract would also come right were the powerful bullish gap higher low came. My thoughts tonight are that EVEN IF the EIA and API data both showed BUILDS in crude inventory, we would have probably seen SHORT COVERING in crude oil futures today. I (Jeff Bailey) still think crude works lower with resistance in the above contract holding from $52.72-$52.95 on a daily settlement basis, with eventual fill of February gap to the $48.22-$48.73 area.

Last Wednesday we didn't review the sector bell curve data from Dorsey/Wright and Associates, but after a little vacation and missing a few days of trade, I wanted to look where the sector bell curve was sitting since last TUESDAY's close. I showed the following table comparison in this morning's Market Monitor, where on a TUESDAY-to-TUESDAY basis, we find net gains in the average level from 43.51 to 46.29.

Sector Bell Curve - (courtesy Dorsey/Wright & Assoc.)

STEEl would show a week-to-week improvement from very "oversold" bullish % levels of 0-14% to 16-20%. Now, last Wednesday I lead off the Market Wrap with the mentioning of the Dow Jones Steel Index (DJUSST) 137.45 -2.40% as some merger news in the sector sparked a price bounce for several stocks in the sector. While very "oversold," this sector bullish % (STEE) remains very weak. Broker UBS helped fuel some selling in the sector today after the firm lowered its outlook for steel prices. The firm said it sees hot-rolled steel for 2005 falling 8% to $560 a ton, and cut its 2006 estimate 10% to $465 a ton citing a building of inventories and weakening demand. My thoughts here is that last week's bounce was likely some shorts taking profits, but weakness persists and sector bulls that thought they might have "caught a bottom" have been quick to move back to the sidelines.

I would encourage traders to go back and review the 05/11/05 Market Wrap and the sector bullish %. 

How are the TRANsports doing? From a sector bullish % standpoint, we can see the TRAN has moved up from 34-36% to 38-42% range, but Dorsey/Wright has changed its colors from "favored" to "average" now. You should know why as key resistance for PRICE as depicted by the Dow Transportation Average ($TRAN) 3,599.49 -0.91% was tested on Monday.

Dow Transports ($TRAN) - Daily Intervals

The collision between bulls and bears took place on Monday at the 3,650 level in the TRAN. Field position as depicted by the sector bullish % looks favorable for the bulls, and I (Jeff Bailey) do see the TRAN working through the 3,650 level in sessions to come, but I do think bulls want to see any near-term consolidation take place ABOVE the 3,555 level. I placed some recent sector bullish % inflection points on the above TRAN chart so we can get a feel for "field position." What I draw from the above is that while the TRAN bullish % is not nearly as strong, or as high of a bullish % as found during the January-March rise, the TRAN's current rise come from a lower level of bullish % and can give more upside in a price move. Still, we "knew" that 3,650 was going to be a major near-term level of resistance and I would plan on some consolidation near-term (next week or so). Bullish implications can be observed on a break much above that key level of resistance.

S&P 500 Index (SPX.X) - Daily Intervals

On Tuesday, the SPX printed a "doji" and today's action below Tuesday's low is a near-term negative for bulls. I have "eyeballed" future 50-day (blue dots) and 200-day SMA (red dots) action that might just provide some correlative "right shoulder" reverse head/shoulder pattern identification. Are bulls overly eager to push the issue here? Or would they rather get the reverse head/shoulder pattern setup and a pullback near 1,170 going, then ramp the SPX to "bull confirmed" status above 1,211 and break the head/shoulder top pattern? 

You know what a bear is thinking right now after Monday's high of 1,197.44. If that gives way over the next couple of sessions, the next level of risk is assessed back at the "right shoulder" and 80.9% retracement of 1,211.35. I think the TRAN still a key sector/index with 3,650 the trigger point for massive short covering.

While the broader S&P 500 Bullish % ($BPSPX) remains in "bear alert" status, the narrower NASDAQ-100 Bullish % ($BPNDX) reversed back up to "bull confirmed" status last Wednesday at 44% and has risen to 46% bullish since.

NASDAQ-100 Tracker (QQQQ) - Daily Intervals

It wasn't until after writing last Wednesday's Market Wrap that I noticed the narrower NASDAQ-100 Bullish % had reversed back up to "bull confirmed" status at 42%. Earlier this month I had back tested trade action in the MONTHLY Pivot levels (shown in PINK) where history had shown that after a trade of MONTHLY S2s (like we saw in April, the major indices should NOT have trade much above their MONTHLY R1s. Action so far this month would indicate institutional computers have a BIG buy bias and May's "Max Pain" theory of $36.00 ($1 increments) had bears experiencing the "max pain." 

A 3% pullback in the QQQQ would NOT be uncommon from these levels, but BEARS won't be complacent. Here's a point and figure chart of the QQQQ, where the PRICE scale shown represents increments of 1%, or a 1% change in PRICE. 

In September the NASDAQ-100 Bullish % ($BPNDX) reversed up from 26% to 32% and "bull alert" status, and by late October, early November had achieved "bull confirmed" status at 52% and then rose way up to 80% before finally reversing back lower from such "overbought" bullish % readings.

Last week I received a question on how a "longer-term" trader/investor could begin building a bullish position in the QQQQ and leg into (build the position over time). Here's one way we can use the point and figure charts to determine how to build a position with this market now "bull confirmed" status.

Change your measure to 1% box size, but still use the conventional 3-box reversal method. Look at your retracement bracket above, then look at the following point and figure chart of the QQQQ.

NASDAQ-100 Tracker (QQQQ) - 1% box size

If looking to establish a partial bullish position in the QQQQ, one could do it right now, but might plan for a 3% pullback. See how in September (red 9) this chart would have given a "buy signal" at $35.31, then pulled back 3% to $34.27, then reversed back up 5% in October (red A) to $36.02? Then pulled back 3% to $34.96? See all those 3% pullbacks?

A 3% pullback from recent "X" at $37.85 would be to about $36.74. Note where the 38.2% retracement of the conventional retracement is on the bar chart! That's the "pullback entry" point with a rather tight 1% stop loss.

The conventional $1 box chart of the QQQQ currently has a $55 bullish vertical count association with it.


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