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Market Wrap

Energized at Month's End

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Stocks and Treasuries finished the month with strong gains on Wednesday as investors contemplated the damage and potential economic benefit from Hurricane Katrina's wrath along the Gulf Coast.

After meeting with his cabinet on Friday, President Bush called Hurricane Katrina one of the nation's worst natural disasters, adding that recovery from the storm will take years.

Earlier this morning, the Bush administration authorized some release of oil from the nation's SPR, citing several major refiners inquiring about oil from the reserve. Citgo Petroleum was reportedly asking for 250,000 to 500,000 barrels as pipelines along the Gulf Coast remained out of service.

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Late Wednesday, Valero Energy (VLO) $106.50 +10.03% said its Krotz refinery is running just 48,000 barrels a day, about 56% capacity, which is down from 70% capacity earlier this week.

As I type, the Louisiana Offshore Oil Port (LOOP) said it had just regained power in Clovelly, La, and expects to have the oil flowing from there through LOCAP pipeline within hours.

"We have our emergency generator up and operating," said Mark Bugg, LOOP's scheduling manager. "We'll get some oil flowing to LOCAP in a few hours."

LOOP's 48" LOCAP pipeline connects Clovelly caverns to terminals and Royal Dutch Shell's Capline Pipeline at St. James, La., hub. The system can move up to 1.2 million barrels a day of crude oil from St. James to Patoka, Ill.

News crossing the wires late this afternoon also has Entergy saying it believes it can have power to refiners and pipelines up and running in 7 to 10 days.

Stocks began the session mixed-to-lower as the near-term September Unleaded futures (hu05u) contract continued its torrid climb to trade $2.93 intra-day. With no upside limits ahead of contract expiration, equity markets remained jittery. October Unleaded (hu05v) settled up 5.5 cents, or 2.53% at $2.255, after surging more than 11% on Tuesday.

As investors kept an eye on unleaded gasoline prices, economic data showed the economy grew at a revised slightly lower 3.3% annualized rate from a previously reported 3.4% rate in the second quarter. Economists expected an unrevised 3.4% reading. The Commerce Department said the revision was largely due to an upward revision in imports and a downward revision to consumer spending, offset by an upward revision to inventory investments.

Core inflation was revised lower to 1.6% annualized from 1.8% in the previous estimate. Core inflation was running at a 2.4% annual clip in the first quarter, creating additional worries for Federal Reserve policymakers, who would like to keep core inflation between 1% and 2%.

But despite the "core inflation worries" from the second quarter data, an insatiable appetite for Treasuries persisted for a second-straight session, with the benchmark 10-year yield ($TNX.X) plunging 7.0 basis points to finish at 4.02%, after trading as low as 4.005% mid-session.

Buying was heavier in the shorter-dated 5-year ($FVX.X) with its yield falling 9.4 basis points to 3.869%.

Buying has been so strong in the Treasury complex the past two sessions that we saw the December Fed Funds futures (ff05z) 96.08 +0.10% rising again today, to now predict the market sees only a 68% chance of two 25 basis point rate hikes from the Fed. Prior to Hurricane Katrina, December Fed Funds were predicting a 30% probability of three 25 basis point hikes.

It would have to me my analysis that this sharp move, or change of posture in this Fed funds contract has investors now contemplating the possibility that the Fed may not be as inclined to raise rates 25 bp at its November 1 meeting. Market participants still see a high likelihood that the Fed will raise its target on Fed funds to 3.75% at its September meeting.

This week's EIA report may have been "thrown out the window" after Hurrican Katrina hit shore after the data was compiled. With roughly 80% of production and refining from the Gulf of Mexico disrupted, next week's figures may also be taken with a grain of salt. EVERYBODY knows there has been disruptions, and the main focus will be when power is restored to the Mississippi / Louisiana shores, and the news will come in bits a pieces.

Still, the EIA said crude oil inventories for the week ended 08/26 fell by 1.5 million barrels to 321.4 million barrels, while gasoline stocks fell for a ninth-straight week, by 508,000 barrles to 194.3 million barrels. Distillate stockpile rose for a fifteenth-straight week, rising by 2.7 million barrels to 135.2 million barrels.

U.S. Market Watch - 08/31/05 Close

The Oil Service Index (OSX.X) 171.85 +3.56% and Natural Gas Index (XNG.X) 394.95 +2.32% traded all-time highs, but I'd have to give the S&P Insurance Index ($IUX.X) 325.01 +0.13% my "reversal sector of the day" award as buyers took control despite the uncertainty of dollar damage will mount to after Hurricane Katrina.

The Morgan Stanley Health Provider Index (RXH.X) 481.11 -0.03% was today's weak spot, with Tenet Healthcare (THC) $12.18 -3.79% saying 5 of its New Orleans-area hospitals and another in Mississippi were severely damaged.

Shares of Tiffany & Co. (TIF) $37.42 +12.33% surged to a new 52-week high and fueled some buying among the high-end retailers after the luxury retailer reported quarterly earnings of $50.6 million, or $0.35 a share, up from a year-ago profit of $33.1 million, or $0.22 cents a share. The company attributed a boost of $0.05 a share in its latest earnings to a lower effective tax rate than last year.

The company said sales rose 11% in the latest three months to $526.7 million from $476.6 million in the same period a year earlier. Same-store sales rose 6% in the U.S. and 1% in Japan. On a world-wide, constant exchange rate basis, comparable sales increased 4% in the period.

The results easily surpassed Wall Street's consensus of $0.24 a share on sales of $519.6 million.

Looking ahead, Tiffany lifted its outlook for the full year 2005 to a profit of $1.55 to $1.65 a share from a previous projection for a profit of $1.45 to $1.55 a share. Wall Street's current consensus estimate is for a profit of $1.51 a share for the fiscal year, which ends in January.

Shares of Wal-Mart (WMT) $44.96 -0.50%, which warned investors that higher gasoline prices were hurting results, did trade a 52-week low of $44.70 intra-day and was one of four (AA -1.07%, GM -0.75%, DIS -0.39%) Dow components to finish in the red, in an otherwise bullish session.

Shares of Hewlett Packard (HPQ) $27.76 +2.43% surged to another 52-week high, on no news that I could find. I made note in today's market monitor that the stock is nearing its PnF chart's bullish vertical count of $28.50. Heavy-equipment maker Caterpillar (CAT) $55.49 +3.17% also ticked to a new 52-week high intra-day.

I thought today's trade, from a "stock specific" trade was fascinating and does suggest that while their is doom and gloom being reported by the media, and perhaps many an investment analyst with regards to Hurricane Katrina, there are obviously some buyers that aren't thinking doom and gloom, but opportunity!

Coal stocks "glowed" in Wednesday's session as "the other black gold" bulls stepped up to an alternative energy source. Power lines down and damaged from water? General Cable (BGC) $15.69 +4.60% found a looked-for bid as one of the few "pure publicly traded" plays as oil/gas and utility providers along the Louisiana and Mississippi coast try to restore power to customers.

If you're thinking "this is the bad news for the oil/gas bubble to deflate from," and afraid of buying the proverbial top, then think outside the box.

As President Bush said, the recovery from Hurricane Katrina
will take years.

Rome wasn't built in a day and I don't think New Orleans will rebuild itself in a day either.

While I don't pick plays for the Premier Investor, or OptionInvestor.com play lists, watch the play lists closely the next few weeks. Look for some "old economy" stocks that may have pulled into upward trend (Point and figure or bar chart) that have showed some bullish life the past few session, which could signal that these are the company's that the MARKET sees as benefiting from some economic stimulus as Mississippi and Louisiana begin rebuilding efforts.

Today's top market cap gains were found among integrated oil & gas, oil and gas operations, major drugs, money center banks and communications services.

If you're an S&P trader, you're eyes open up a bit with money center banks showing up on the list. My thoughts are that there is a re-think going on about future Fed tightening.

Drugs? Certainly a defensive sector that has been an under performer the past couple of years, but finds a nice bounce from a curling higher 200-day SMA.

Market cap losers were few, but discount department was atop this list. Casino & Gaming was number 2. Again... think outside the box. Yes, Casino's that operate along the Gulf Coast have suffered major damage. You can't operate a Casino with water-soaked slot machines. Shares of International Game Technology (IGT) $27.72 +1.02% found gains again today.

In Tuesday evening's Market Monitor, I noted that www.stockcharts.com's S&P 100 Bullish % ($BPOEX) had reversed back lower to "bear confirmed" status at 64% and signals that supply (O) of stock among some very large cap stocks is starting to outstrip demand (X).

Let's take a quick look at the point and figure chart of the S&P 100 Index (OEX.X) on an unconventional 4-point box size chart. Conventional 5-point box is used among major institutions.

However, the reason I'd like to show you the 4-point box, is for those of you that are using your bullish % indicator ($BPOEX), as you can more easily understand the recent reversal lower in the bullish % indicator (64% of stocks in this index show a "buy signal" still associated with their chart. Therefore, 36% of the 100 stocks currently have a "sell signal" associated with their PnF chart).

S&P 100 Index (OEX.X) - 4-point box

Wow! A nice gain of just more than 4-points, but it doesn't even show up on the 4-box scale. The point and figure chartist using the "3-box reversal technique" for charting, can't chart any Xs (demand) until a trade at 575 is found.

Analysis here would be that the OEX is seeing some meaningful distribution, not only from the internals as depicted by the bullish %, but the recent 3-box reversal lower (12 points) to 560.

But how those institutional buyers like to lurk around the bullish support trends! Even if its a little 4-point gain to end the month.

In my opinion, a warning bell for weakness has been sounded, but for any meaningful technical damage to be registered, I think it would take a trade at 540. Yes, a bull should assess downside risk to 540, and a bear assess upside risk to 580.

I've noted several recent inflection point high and low bullish % readings, where a trader/investor can tie in with the OEX chart itself. Remember! You can find FREE point and figure charts at www.stockcharts.com.

When reviewing the major averages bullish % charts, remember that these are UNWEIGHTED. In other words, each stock's chart is just as important as another. One stock, one vote (shows a buy signal or sell signal). It is from these very basic supply/demand relationships that traders/investors get an immediate feel/observation as to internal strength, or weakness.

Now, here's the how the top 25 MARKET CAP WEIGHTED OEX components have faired over the past 5-days, 20-days and 52-weeks.

25-most heavily weighted components

Exxon Mobil (XOM) $59.90 +2.20% and General Electric (GE) $33.61 +1.11% are the most heavily weighted components. A couple of weeks ago I profiled a BULLISH trade for GE in the Market Monitor, with thought that we might see some capital rotate away from the "oils," where up until Monday, their SECTOR BULLISH % was weakening from some very high bullish % readings.

The relative weakness of GE, a company that has their finger in just about every piece of the global economic pie is a bit concerning, and may well suggest that energy prices are dragging not only on the U.S. economy, but the global economy as well.

Investors have "fallen in love" with HPQ again. Don't YOU get "first date" butterflies and propose marriage to HPQ so near its bullish vertical count at this point. Easy does it. While stocks can exceed their bullish vertical counts, sometimes never achieve them, HPQ is worth a first date for new entries, but I'm not sure its "marriage material" right here.

I'll have to take a look at DELL on this 12% pullback. Can computers still run after being submerged in water?

For the month of October, roughly 20-trading sessions, the OEX fell 8.17 points, or 1.4%. WMT, PFE and JNJ provided the better part of the drag as did INTC, IBM, JPM and CSCO.

Hmmm... is business 12.79% better at HPQ than it is at DELL over the past 20 days?

NASDAQ-100 Tracker (QQQQ) - Daily Intervals

The QQQQ found the bulk of its gains in the final hour of trade, and gains came quickly above the $38.66 level. Some technical similarity showing up as found in early July. We did see the NASDAQ-100 Bullish % ($BPNDX) give back 2 stocks to reversing lower point and figure sell signals and still reads "bull correction" status at 56%.
 

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