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Market Wrap

Revised GDP, Oil and Oracle of little help

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Revised GDP, Oil and Oracle of little help

It was one of those days when the MARKET seemed to have a mind of its own. It felt like a Triple-Witch expiration as the major indices traded either side of unchanged as the second quarter draws to a close tomorrow afternoon.

Advancers edged out decliners at both major exchanges, and volumes were on the light side. With one day left in the month's trade, NYSE volume has been running 1.8 billion shares per day, while NASDAQ has been turning 1.71 billion. That's a 3% decline in volume for the NYSE compared to May, while NASDAQ shows a 3% increase in average daily volume since May's 1.66 billion (lowest since October 2004).

Still, compared to last year at this time when NYSE volume averaged just 1.30 billion per day and NASDAQ was averaging 1.58 billion per day, volumes seem brisk.

The major indices bid at the open after the U.S. Government said Q1 Gross Domestic Product increased 3.8% to $11.1 trillion on an annual basis. The 3.8% revision was up from last month's 3.5% estimate. 


Brisk spending on housing projects, more investment by business in equipment and software, and a trade deficit that was less of a drag on economic growth all played a role in the higher first-quarter GDP reading.

August Crude Oil futures (cl05q) fell 94 cents, or -1.62% to settle at $57.26 after the EIA said weekly crude oil inventories rose by 1.1 million barrels. The build reversed a three-week trend of draws. At the bottom of today's Option's Market Monitor I put together a consolidated table of the EIA's recent weekly inventory reports for crude oil, gasoline and distillate inventories, as well as a link to the EIA's web page where more complete data can be found. 

At 12:01:19 PM EDT I showed an updated table of these data. What I found informative when looking at this data overtime is just how responsive the market is to what is going on NEAR TERM with crude oil inventories. Then, when we hear that traders are already concerned with what is going on with heating oil inventories (part of distillates) you and I can look back at inventory levels found for distillates, and see how refiners are really starting to ramp up supplies to meet the pending winter demand. Since May 6, distillate inventories are up 10.5% to 113 million barrels. 

Stocks making headlines included Oracle (ORCL) $13.57 +5.76%, DuPont (DD) $44.63 -0.68%, American Intl. Group (AIG) $58.48 +5.99%, Monsanto (MON) $63.00 -7.13%, General Mills (GIS) $47.21 -6.71% and Motorola (MOT) $18.53 +0.98%. 

Oracle rose almost 6% after reporting upbeat quarterly earnings with gains in its applications segment due to its acquisition of PeopleSoft in early 2005 (18-month hostile pursuit). 

DuPont, on the other hand, saw its share price fall only slightly after the Environmental Protection Agency (EPA) reported that a controversial chemical used by DuPont to make the nonstick substance Teflon poses more of a cancer risk than indicated. DD, a Dow component, is currently near its lowest levels of the year and there is an ominous bearish H&S formation on a daily chart with a neckline at $47 (currently at 44.63). 

Shares of AIG rose 6% and closed at a three-month high after the company said Q1 net income rose 44% year over year. Shares of AIG are still about 20% below trading levels when accounting investigations began in February.

As far as the downside is concerned, General Mills Inc. posted fourth-quarter earnings that actually rose 65%, however, analyst expectations were not met as consumers might be finding breakfast substitutes. Shares of GIS fell 6.7%. 

Monsanto fell over 7% after the seed and agricultural products supplier posted sharply lower earnings for the fiscal third quarter and issued a fourth-quarter forecast that remained below analysts' forecasts. A change in accounting would narrow its expected free cash flow to a negative $400 million in 2005, compared with a previous estimate of negative $900 million.

Initial Public Offerings found a bullish reception today. Neustar (NSR) rose $4 from its IPO price of $22, and this telecom services firm wasn't the best IPO of the day. DSW Inc. (DSW) closed at 24.10, up from its $19 IPO price as traders marked up this retailer and stomped out thoughts of a weak IPO market. 

Note: Retail Ventures (RVI) $13.59 +5.59% is DSW's parent company and has doubled from its November low. Today we know why.

U.S. Market Watch - 06/29/05 Close


The AMEX Gold Bugs ($HUI.X) were today's percentage gainer among sectors. Jim Brown mentioned some end of quarter "window dressing" and wouldn't you know it.... today's HUI.X gains get this index back in the green for the quarter! 

Check this out. Of the asset classes represented in the "Beetle's Balanced Benchmark," only the Dow Diamonds (DIA) now show a loss.

Balanced Benchmark - 06/29/05 Close


Markets are going to be closed on Monday in observance of Independence Day, and for those that need to feed their "fix" for some type of market action, you should review your retirement account and look at rebalancing your portfolio.

I established the "Beetles Balanced Benchmark" a couple of years ago, to not only demonstrate how an investment portfolio could seek out enhanced returns, while reducing risk, but to also give us a view of just where money has been moving.

Cash flowed into the greenback this quarter with the U.S. Dollar Index (dx00y) currently up 6.02% since 03/31/05 (P/L % from 03/31/05 benchmarking). It had been thought that dollar strength was "doom" for equities, but history has shown that that's not always the case. The latest quarter is a pretty good example. Yes, dollar strength can make U.S. exports less price competitive overseas, but dollar strength can also have foreign capital moving to the U.S. when market participants find U.S. assets more attractive than others around the globe! This can be driven my monetary policy, economics, etc. etc.

Still, we may have seen some negative impact of the stronger dollar on the Dow Diamonds (DIA), which contains some of the "who is who" of multinationals! 

Longer-dated Treasury maturities as depicted by the TLT vastly outperformed the "safer" shorter-dated maturities (SHY) and intermediate-term IEF. While the P/L % column does NOT account for the impact of dividends, those "junk bonds" as represented by the PHF (has generated $0.075 per month, per share) have also faired well.

Mid-caps as depicted by the IJH have been the top performer in our equity class, and the mighty small-caps (IWM) made a valiant comeback after a 5.66% decline in the first quarter.

By rebalancing your longer-term holding, it will FORCE YOU to "take some profits" in those areas that have seen "outperformance," and place those assets into areas that have "underperformed" and may hold some newly created "value."

Now... August Crude Oil futures (cl05q) is not an asset class that is actually represented as being "held" in the BBB, but had we bought this contract on March 31, we'd be break-even on that contract. I should clarify here that on March 31, the Continuous Contract ($WTIC) closed at $55.40 and it closed today at $57.26, which was down 94 cents. So, oil has probably had a negative impact as a "tax" on the economy, and risen 3.3% since March 31.

Wow! A quarter's time seems like "long-term investing" doesn't it? 

Since our visit last Wednesday, what do you think the supply/demand situation looks like as it relates to buy/sell signals on the PnF charts and bullish % readings for the major indices?

For the NASDAQ-100 (NDX / QQQQ) there has been no net change and is still reading "bull confirmed" at 56% for its bullish % ($BPNDX). We've been stuck at this percentage since June 16.

What surprises me a bit is that the much broader NASDAQ Composite Bullish % ($BPCOMPQ) has risen further to 46.60%, its highest reading since reversing up on June 15 at 44.23%. This is a "bullish sign" in my opinion and would represent "bullish divergence" at this point. We're still seeing some newly generated point and figure buy signals being generated, despite some price pullback. 

Think about this for a minute. What was one of the MAJOR critiques that analysts had about the "euphoria" of technology stock gains in the late 1990s, early 2000s? 

I remember, and rightfully so, the critique was that the gains were represented by just a FEW of the tech heavyweights. What technicians were talking about was the PRICE gains were not BROAD, but were NARROW, as investors focused on just a FEW stocks for gains. When the bubble went "pop" in the FEW favorites, that's when all heck broke loose to the downside.

I think it still "healthy" that were seeing the building, or net gain of PnF chart buy signals on a BROADER scale as depicted by the NASDAQ Composite Bullish % ($BPCOMPQ), while the narrower NASDAQ-100 Bullish % (%BPNDX) just sits here. 

I don't, have time to look at all 100 stocks of the NDX/QQQQ each and every day. You don't either, but we can envision that there's some backfilling having taken place the past couple of weeks for the NDX/QQQQ.

Hey... about 1% more than perhaps a bull would have liked. Right? Strengthening internals are great, but you can't buy fireworks for the 4th if you're long the QQQQ and PRICE is falling.

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


I don't want traders to get in the habit of lowering stops on a long position and in recent Market Wraps, I thought we should expect a 4% pullback in the QQQQ/NDX.X. Well, late last week, on what I (Jeff Bailey) feel was some "fear of tariffs against China" we did see the QQQQ fall to $36.74 on our somewhat unconventional technique of measuring supply (0) and demand (X) on a 1% box chart. If you're stopped on a long, then you're stopped on a long, but I'd still be aware of what the INTERNALS are saying. Especially if your BEARISH the QQQQ.

Yes, I'm bullish the QQQQ right now (see Market Monitor profiles) and while it may be a "Jeff's just trying to convince himself the QQQQ is bullish" one thing I did not mention in the past was the possibility of a 5% pullback to the Feb/March (3/4) relative lows, if market participants were to compensate for a recent 11% gain from the bottom, compared to a "then" gain of 9% from the August (8) rebound lows.

NASDAQ-100 Tracker (QQQQ) - Daily Intervals


Here's the QQQQ on a daily interval bar chart, with a conventional use of retracement. The BEST WAY to get Stochastics and MACD to kick higher is PRICE action. Oils recent decline should improve bullish psychology, and there may be some hesitancy among bulls ahead of tomorrow's FOMC decision on interest rates. Everyone "expects" a 25 basis point hike. For me, I think a BULLISH response will be signaled if the QQQQ can get a close above $37.26.

Late last week I made some observations in the Market Monitor on "why" I thought the QQQQ was then having trouble above the $38.00 level. It's showing up again, but now lower at an e-mini NASDAQ futures comparitive to QQQQ $37.26.

Here.... look at this. 

e-mini NASDAQ futures (nq05u) - Daily Intervals


FUTURES traders tend to trade LEVELS more than anything (oscillators, moving averages, etc) and often times a DAILY settlement will provide the trigger for the building of a bias (bullish or bearish). After writing last Wednesday's Market Wrap, it was really eating at me as to "why" the QQQQ couldn't get a break back above $38.25 going, as it kept getting PUSHED back below $38.00. After doing some work with retracement on the e-mini futures contract, it became apparent that there was determined selling, where each futures settlement AFTER 06/07 kept finding selling, despite some strong looking intra-day gains. That determination means something! 

Now look at what has been taking place. Yes, buyers where we might expect it. Are they getting ready for another run at the highs? Has this been just a rest and needed digesting of gains from the May lows? This contract hasn't been able to settle above 1,521.75 since settling below on June 24 (Friday).

Do BUYERS need to wait for a settlement before going long? No! Somebody's buying in order to keep it from going to 0.00 right? There's nothing wrong with buying 1/4, or 1/2 of a position and then LOOKING for a CONFIRMATION of strength with a settlement above the recent couple of session's highs.

Watch your NH/NL indications! They can give you a feel for any resumption of BULLISH leadership, which has also been taking a "rest" on the NASDAQ.

I say we're going higher and haven't seen this year's highs at this point. I'll back it up with a bullish stop just below the recent lows. 

On a Wednesday-to-Wednesday basis, the S&P 500 Bullish % ($BPSPX) has slipped to 64.40% bullish from 66.20% bullish. Not a major concern that sellers (supply) is getting the upper-hand over buyers, but here we've got some NYSE and NASDAQ blend of stocks. Perhaps my more bullish "NASDAQ" thought right now.

I tell you what though. An "unhealthy market" isn't often found when you've got the brokers hitting all-time highs.

 
 



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