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Truckers Put On The Breaks For Cautious Bear

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Truckers Put On The Breaks For Cautious Bear

In a rather lackluster trade ahead of Fed Chairman Greenspan's testimony tomorrow, stocks edged modestly lower on a broader scale, while Treasuries found selling evenly distributed among the major maturities.

Advancers outnumbered decliners in the first half of the session, but sentiment soured after a premature release of a White House economic report, which showed a reduced 2005 real GDP forecast of 3.4%, versus a previously forecasted 3.5% from six months ago. The White House's report also showed an increased inflation estimate of 2.9%, with energy prices cited as one of the main reasons.

A flat open for Treasuries did find some bond traders heading for the sidelines. It would be my best guess that the White House's revised inflation estimate, as well as Fed Chairman Alan Greenspan's testimony before the Joint Economic Committee tomorrow morning (10:00 AM EDT) was reason enough to keep buyers on the sidelines.

I do think, based on observation, that the White House's comments regarding inflation did grab some trader's attention as the U.S. Dollar Index (dx00y) 87.88 +0.44% saw a quick turn higher from its session lows of 87.15.

Today's intra-day dollar action looked like something we would brace for around a nonfarm payroll number with a knee-jerk lower, then being quickly reversed back up! The down move comes on the lowered GDP outlook, but the strength comes on the inflation estimates where the dollar would likely find a bid from those that had been overly short the dollar under the scenario that it is a "sure thing" the Fed is nearing its tightening phase.

Spot gold as well as the AMEX Gold Bugs Index ($HUI.X) quickly reversed morning gains as the dollar strengthened.

Oil was all over the map in today's trade and proved volatile after the DOE said crude oil supplies fell by 3 million barrels, while gasoline supplies saw a draw down of 100,000 barrels. July Crude Oil futures (cl05n) settled down $1.22, or -2.27% at $52.54. One trader commented that he thought oil sold off based on the thought that refiners had shifted some focus away from unleaded gas refining toward heating oil.

Now this trader's thoughts might not make a lot of sense if we're thinking about summer weather and the need for heating oil, but under the backdrop of a capitalistic society it might. July Heating Oil futures (ho05n) $1.5528 -3.00% came rather close to trading contract highs on Monday and price gains in this complex have outperformed in recent weeks. It might make sense that refiners look to capitalize on the relative higher price of heating oil and focus their production efforts there until equilibrium is found.

I've discussed this energy dynamic in past commentary. If you're selling widgets and the blue widgets are selling for $1.00 and the red ones are selling for $0.80, which widgets are you going to produce more of?

Laughing out loud. A capitalist will produce more of the blue widgets. A socialist will want to produce more of the blue ones, but will come up with a good reason as to why he/she shouldn't. Meanwhile, a communist will do what his/her government tells them to do.

Economic data released earlier this morning showed wholesale inventories (supply) up 0.8% to a seasonally adjusted $349.96 billion in April, which was above the 0.4% increase economists had forecasted. The 13-month high in inventories drew mixed views from bulls and bears. Bulls found relief with the thought that that companies might finally be getting a handle on stockpiles, which would be viewed favorably for steady/lower inflation, while bears sense the build being further sign of economic slowing.

Sales (demand) surged 1.5% in April after a modest 0.2% gain in March. The inventory-to-sales ratio fell to just 1.18 months, down from 1.19 readings for March and February.

Stock specific news found its way to some Dow components with General Motors (NYSE:GM) $32.02 +4.19% jumping more than $1.00 on news that Kirk Kerkorians Tracinda boosted its GM stake to 7.2% from 3.9% based on preliminary results of its tender offer. The sharp gains came after Tracinda officials said only 18.9 million shares were tendered at $31.00, which was well below the 29 million shares Tracinda was hoping to buy. Buyers pushed the stock as high as $32.65 with the thought being that there might be something bullish in GM's future if holders were not so eager to tender the additional 10.1 million shares.

Heavy equipment maker Caterpillar (NYSE:CAT) $96.58 +2.16% plowed higher after the Dow component declared a 2-for-1 stock split and increased its quarterly dividend rate by 22% to $0.50 per share on a pre-split basis. The split will be distributed to shareholders on July 13.

Fast-food giant McDonald's (NYSE:MCD) $29.23 -1.14% approaches its April lows after announcing a mere 1.8% increase in May same store sales. Not bad, but the "golden arches" had been posting 4.2% rates in recent months. The company cited international challenges, with particular slowdown problems in the United Kingdom and Germany.

Among technology, shares of ImClone Systems (NASDAQ:IMCL) $35.27 +16.94% rebounded from 52-week lows after saying a Phase III study of its Erbitux cancer drug showed effectiveness against advanced squamous cell cancer.

Web searchers Google (NASDAQ:GOOG) $279.56 -4.62% and Yahoo! Inc. (NASDAQ:YHOO) $36.63 -2.16% retreated after a report from research firm Fathom, which tracks the prices advertisers pay to buy search engine keywords that launch Web search ads, said keyword prices fell in May from April, due primarily to a drop in the mortgage sector.

The Semiconductor Index (SOX.X) 430.27 +0.64% got a modest boost after the Semiconductor Industry Association said that as a result of robust demand for chips and the semiconductor companies' ability to work off excess inventory quickly, it now expects chip sales to grow 6% this year with some margin expansion.

Today's gains may be questioned tomorrow after programmable chipmaker Xilinx (NASDAQ:XLNX) $28.08 +0.89% saw its shares slide to $27.25 in tonight's extended session. The company backed it Q1 sales growth guidance, but said gross margins will be slightly narrower than expected due to a higher than expected ramp in sales of the company's newest products.

U.S. Market Watch - 06/08/05 Close

Sectors finished mixed, but it was a downgrade of "truckers" by Bear Stearns that had the Dow Transportation Average (TRAN) 3,537.73 -2.07% atop today's percentage loser list.

Dow Transport Components (TRAN) - Sorted by Net%

Dow Transport component Landstar Systems (NASDAQ:LSTR) $31.59 -5.87% was a focal point of Bear Stearns' trucking sector downgrade. The firm said while it sees potential upside to current earnings estimates for the transportation service provider based on continued gross and net operating margin from increasing transportation yield, it expects gross revenue growth to continue to decelerate.

Two stocks that I've provided some bullish commentary on, and still believe bulls can be taking partial bullish positions on, with higher targets toward the end of the year, are FedEx (NYSE:FDX) $89.70 -0.20% and United Parcel Service (NYSE:UPS) $72.36 -0.90%

DDow Transportation Average (TRAN) - Daily Intervals

The recent couple of weeks trade in the TRAN would be similar to traveling uphill at 100 miles per hour, some traffic congestion, what looked like a breakthrough at the 3,650 elevation, but today's "bear crossing" in the truckers leaves a jackknifed rig having momentum bulls moving aside.

I've seen a lot of technical analysis pointing to some "bearish cross-unders" with the MACD below Signal. Yes, this is a sign of caution and indicates a near-term loss of momentum. I think a TRAN bull that is playing the broader group would be patient on any new entries at this point, but look for the TRAN to firm up from 3,450-3,490 and have MACD easing into zero. Then look for demand (buyers) to resume their activity and keep eating away at overhead supply.

In last night's Market Wrap, Jim Brown discussed the Wilshire 5000 Index. Let's take a look at the NYSE Composite ($NYA.X) and make some ties with Jim's observations.

NYSE Composite ($NYA.X) - Daily Intervals

One event that has taken place since Wednesday is that the NYSE Bullish % ($BPNYA) reversed up to a 60% reading from 54% on Friday. Now, Stockcharts.com's reading is "bear correction" status, while Dorsey/Wright and Associates, while also reversing up to 60% is "bull confirmed." The reason for the difference in terminology is that Stockcharts.com will adjust the point and figure charts of stocks they chart with the point and figure technique when companies pay dividends. Dorsey/Wright does not penalize a stock's PnF chart when they pay a dividend. In essence, if you buy a stock at $20.00 and it has paid $1.00 in dividends, Dorsey/Wright believes you still paid $20.00. Stockcharts.com will deduct $1.00 from the price of the stock, and feels you only paid $19.00, then adjusts the stock's PnF chart to reflect the buildup of dividends over time. Now... try explaining that one when you go to report capital gains/losses and dividends (income) to the IRS at some point down the road.

Semantics aside "bear correction," or "bull confirmed," of roughly 3,000 stocks, we're seeing some meaningful increase in the number of point and figure buy signals.

Now, before bulls put on their party hats, I do want to make some points of reference here.

On the above chart, I point to a period in early April when the NYSE Bullish % ($BPNYA) was reading 66% bullish as the NYSE Composite ($NYA.X) itself had bounced from below 7,100 to roughly 7,143.

As the NYSE Composite ($NYA.X) now challenges this same PRICE level comparison, we can see that while the internals are strengthening, we're not as bullish internally at 60%.

This SAME PRICE, but not yet as strong internals would depict BEARISH DIVERGENCE at this point.

Now, you and I both know that the NYSE Bullish % ($BPNYA) is measuring just more than 3,000 point and figure charts! It is going to be SLOOOOW moving and very methodical.

Go back and review tonight's internals (chart #1) and note that a faster moving of internal strength and our NH/NL ratios at both the shorter-term 5-day NH/NL and intermediate-term 10-day NH/NL ratio are getting close to 100%. While they can stay up here for periods of time that many have underestimated, we're at some near-term overbought levels and should continue to monitor.

I could pick many sectors and say "this group is key," but using market theory, I still think the TRANSPORTS provide a pretty good tie and serve as an important sector to be monitoring.

On the above chart of the NYSE Composite ($NYA.X), I've pulled some of Jim's observations (technical levels) from the Wilshire 5000 (NASDAQ and NYSE-listed stocks) over to the NYSE. While I prefer SIMPLE moving averages (each day's PRICE is as important as the next), I did add one of Jim's exponential moving averages (today's PRICE was more important than yesterday and yesterday's PRICE more important than the day prior).

I think it "a good thing" during an option expiration to broaden out your observations a bit. On any one day, we could expect institutions to be pushing some stocks and indexes around. With the Wilshire 5000, the NYSE Composite and NASDAQ composite, its a lot tougher to push that many stocks around in a given day.

Hey! I was just noticing that the narrower S&P 100 Bullish % ($BPOEX) saw a net gain of 1 stock to a point and figure buy signal today, and that's enough to get this market reversing back up to "bear correction" status at 60% after a May low reading of 53% (we chart to 54% on PnF chart).

Of the major index bullish % charts, only the very broad NASDAQ Composite Bullish % ($BPCOMPQ) would remain in a column of "O." It saw a net gain of 0.15% today, with a bullish % reading of 43.01%. Considering roughly 3,000 stocks are tracked here, that would be a net gain of 4 or 5 stocks seeing a reversing higher point and figure buy signal. This very broad measure of market internals would currently need to see a 44% reading to reverse up to "bear correction" status, and to achieve "bull confirmed" status, it would need to read 62%.

You can view these various bullish % charts for FREE by visiting www.stockcharts.com.

NASDAQ Composite (COMPX) - WEEKLY Intervals

The www.stockcharts.com symbol for the very broad NASDAQ Composite Bullish % is $BPCOMPQ. Here we look at the COMPX itself on a weekly interval. No oscillators, just the bars with with a 40-week SMA and 10-week SMA. I've overlaid some of the more recent inflection point bullish %. See the "bearish divergence" noted in the bullish % at the most recent January highs compared to the January 2004 high? That is similar to what we're noting in the NYSE right now, so some caution is warranted among bulls.

The recent two low bullish % readings are bullish confirmation as the recent pullback low was HIGHER than the August low, as has been the bullish % reading.

I note two different scenarios of analysis at this point, which both BULLS and BEARS can use in coming sessions as it relates to the monitoring of the bullish % as well as PRICE.

If the very broad COMPX pulls back, but BUILDS additional buy signals, isn't that BULLISH DIVERGENCE from the internals? Bears may be leveraging off the 2,100 level, bulls may be booking some gains. However, if the COMPX continues to build point and figure buy signal on a PRICE retreat to 2,023-2,040, then that would be a good sign that demand still builds for stocks and bulls and bears may be eager to buy that area.


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