Option Investor
Market Wrap

Convoy! "Ah, breaker one-nine, this here's Rubber Duck."

Printer friendly version

Convoy! "Ah, breaker one-nine, this here's Rubber Duck."

Buyers stood their ground and sellers continued their retreat in the wake of a "disappointing" quarter from Yahoo! Inc. (NASDAQ:YHOO) $33.40 -11.47% and Intel (NASDAQ:INTC) $27.44 -4.42%. A "sure thing" for bears in the NASDAQ-100 Tracker (QQQQ) $39.46 +0.71% didn't pan out as heavyweight Amgen (NASDAQ:AMGN) $81.17 +15.10% provided the counterbalance, and then some.

Keene Little may have called it with his "full moon" commentary in last night's Market Monitor (see bottom of today's Futures Monitor 07/19/05 10:55:58). "I just realized Thursday is the full moon and that day is within the +/- 2 day window of Fib July 25th (next Monday) turn date.....

What the heck? Moonbeam Keene!

Sing it! "It was the dark of the moon on the sixth of June and a Kenworth pullin' logs...." ("Convoy" by C. W. McCall)

The moon! The moon! Zoom, zoom, zoom!

U.S. Market Watch - 07/20/05

At 3,650 they were lookn' iffy, but a startling earnings release and upped guidance from Canadian National Rail (NYSE:CNI) $64.70 +7.47% (not a component of the TRAN) gave economic bulls renewed reason to be bullish the Dow Transportation Average (TRAN) 3,769 +3.64% to one of its biggest daily point gains in history.

Gains among the transports were fueled by the weekly EIA data. Crude Oil inventories, while down 900,000 barrels for the week ended July 15, begin to stabilize after two weeks of greater-than 3.5 million barrels draws. Unleaded gas stockpiles fell by 1.3 million barrels, while distillate inventories rose by 2.2 million barrels. Their ninth-consecutive weekly build!

But look! See the price inversion taking place with Heating Oil (a distillate) and Unleaded Gas futures? My analysis/review of weekly EIA inventory figures (see tonight's Option Market Monitor 05:20:59) would suggest that refiners may me switching back their focus to unleaded gas. Relief at the pump may be just around the corner!

Dow Transports (TRAN) - Daily Intervals

Something was "said" today that brought a ferocious amount of buying into the transports. I didn't hear Fed Chairman Alan Greenspan say anything different than what he has said in recent months. Yes, better than expected earnings reports from AMR Corp. (NYSE:AMR) $14.47 +1.68% and Continental (NYSE:CAL) $15.90 +1.27% were a positive for the group, but both made it clear that jet-fuel prices remain a heavy burden.

Broker Bear Stearns is an excellent fundamental shop and we have "benchmarked" a bearish call on the truckers from several weeks ago, which weighed heavily on the TRAN has it tried to make a move above 3,650.

But I think it was a strong Q2 report and upping of guidance from Canadian National Rail (CNI) that had sector participants rethinking things.

CNI posted a 30% in Q2 profits, saying net income came in at C$416 million, or C$1.47 per share. That compared with the net profit of C$326 million, or C$1.13 per share, in the second quarter of 2004. ($1 = C$1.22)

CNI upped its 2005 per-share earnings forecast, saying it now expects to report a profit 20% to 25% higher than C$4.34 a share in 2004. The company had previously forecast a 10% to 15% rise.

CNI's board also authorized a new share buyback program of 16 million shares.

Canadian National Rail (CNI) - Daily Intervals

A quick look at CNI would depict a stock where market participants found themselves surprised. I've tied in some point and figure chart observations with the above bar chart. For me, the $65 level is a "prove it to me" level, where a trade at $65 would have the stock breaking to new highs, and supply should be limited. I anchored the base of retracement at the April low, and then pulled upper retracement (100%) to the bullish vertical count from the point and figure chart of $79.

Somebody sold the stock back in April from $59.48 to $57.45 on heavy volume of more than 1.5 million shares. Let's call that "smart money" for now. Today's 1.4 million shares and price action hints somebody wants back in. Perhaps bears want out!

Here's a snapshot of today's TRAN component action.

Dow Transport Components - Sorted by Daily Net %

Again... CNI is NOT a component of the TRAN and there are three (3) "railroad" stocks in the TRAN. But look at the reaction the truckers got today. Convoy!

Here's what the TRAN components looked like on 06/08/05 (see Market Wrap that night) and we might be seeing a "rethink" reaction from Bear Stearns' call that day.

Dow Transport Components - 06/08/05 Close

Hmmm... UPS is trading just about where it was on 06/08/05, FDX is lower. But look at the "truckers" and the "rails." Does this say anything about the strength of the economy? CNF is up $7 from 06/08 benchmark, JBHT is up $1, YELL is up $4, LSTR, which was a focal point of Bear Stearns on 06/08 has reclaimed it ground.

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

Jim Brown pointed out a wedge in the SPX in last night's wrap. I just wanted to follow up with the reverse head/shoulder pattern that looks to be "in play." For months we were warned by bears of the head/shoulder top. If it didn't look "hunchbacked" to bears at $122.00, then maybe today's 4-year high might get their attention. Note the volume spike (London terrorist bombing). Yes I shorted that in the QQQQ that day (head/shoulder top was in play). Looks like "smart money" did some buying, and buying continues.

Oh... speaking of reverse head/shoulder patterns.

NASDAQ-100 Tracker (QQQQ) - Daily Intervals

What INTC and YHOO declines took away, AMGN gains added. The sky was falling last night.

The QQQQ was rather calm in tonight's extended session. Hey, heavyweight AMGN excerpted a lot of energy today, and it may take several sessions for things to "calm down" with INTC and YHOO.

After the closing bell, shares of eBay (NASDAQ:EBAY) $34.87 -1.41% jumped to $39.84 (last tick in extended session) after the online auctioneer said it earned $291.6 million, or $0.21 per share, for the three months ended in June, a 53% increase from $190.4 million, or $0.14 cents per share at the same time last year.

If not for accounting charges unrelated to its ongoing operations, eBay said it would have earned $0.22 per share. That topped the mean analyst estimate of $0.18 cents per share.

eBay also presented investors an optimistic outlook for the rest of the year and forecasted 2005 revenue of $4.3 billion to $4.4 billion, including as much as $1.05 billion in the current quarter. Excluding accounting items unrelated to it ongoing business, eBay expects 2005 earnings of $0.82 or $0.83 per share, which is above current consensus of $0.79 per share.

Google (GOOG) $312.00 +0.67%, which is not a QQQQ component, but quickly becoming a "bellwether" for internet/media, closed at an all-time high, then added $4 to $316.00 in tonight's extended session.


Market Wrap Archives