Option Investor
Market Wrap

Majors finished unchanged; Commodities get a bounce

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The major indexes finished mixed to modestly higher after last week's quarterly option expiration, as decliners edged out advancers at both the NYSE and NASDAQ.

Commodity prices stabilized with the CRB Index (cr00y) 308.15 +0.36% closing up more than 1 point after breaking to new 52-week lows last week.

October Crude Oil (cl06v) settled up 47 cents, or +0.75%, while shiny metals found a stronger bounce ahead of tomorrow's August PPI data with the StreetTracks Gold (NYSE:GLD) $58.23 +1.44% and iShares Silver Trust (NYSE:SLV) $111.70 +3.43% recouping recent losses.

In Friday evening's Market Monitor at OptionInvestor.com, I began to outline some of this week's potential "key stocks."

The Semiconductor HOLDRs (AMEX:SMH) $34.65 +0.87% was a percentage gainer with one of my "key stocks," Applied Materials (NASDAQ:AMAT) $17.78 +3.37%, continuing its recent rise and finishing atop today's list of most actives.

The chip equipment giant announced it had recently repurchased 145 million shares of its common stock for approximately $2.5 billion under an accelerated stock repurchase program. The company said the recent buyback, combined with near 9 million shares already repurchased in the current fiscal quarter, resulted in a 10% reduction in outstanding common shares at the end of its third fiscal quarter.


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Applied Materials said its board of directors also approved a new repurchase program authorizing up to $5.0 billion in stock repurchases over the next three years.

Homebuilders as depicted by the Dow Jones Home Construction Index (DJUSHB) 664.52 +0.38% finished fractionally higher.

The National Association of Home Builders' index for U.S. sales of new, single-family homes dropped for an eighth month in a row and hit the lowest level since February 1991. The group said it doesn't expect sales to flatten out until mid-2007.

The NAHB's thoughts about a mid-2007 "flattening out" might be confirmed as I track the CME's Real Estate Housing futures, where the May2007 where at Friday's settlement, the Composite (comprised of Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York Metro, San Diego, San Francisco, Washington DC) was last traded at 212.60, down from its August 9, 2006 01:35 PM EDT trade of 214.60.

On Friday, the CME Real Estate August07 futures last traded $211.40.

As noted in several market wraps, and Market Monitor postings, it is/was housing prices that the Fed saw as reason to continue their steady pace of interest rate hikes earlier this year, as the then torrid rise in single family homes was deemed inflationary.

U.S. Market Watch - 09/18/06 Close

In Monday's Market Wrap, I thought the Securities Broker/Dealer Index (XBD.X) 224.05 -0.38% would be a sector/index that traders and investors monitor for "bullish confirmation."

A quick look at the 5-dayNet% change in the above U.S. Market Watch does have the XBD.X up 7.11% since our last visit, with Airlines, Networking and Software lending to broader market strength.

Retailers as depicted by the S&P Retail Index (RLX.X) 470.22 -0.50% traded soft, but they too have advanced nicely since Monday's close, with electronics retailer BestBuy (NYSE:BBY) $54.10 +0.50% having risen an impressive 13.25% since last Monday's close. Evidently "the MARKET" was impressed by some of last week's "key earnings."

There have also been some MAJOR status changes in the institutionally followed major market bullish % at Dorsey/Wright & Associates, as well as StockCharts.com.

While I have provided greater detail in the Market Monitor at OptionInvestor.com on several of these, let's cover the S&P 500 Bullish % ($BPSPX) from StockCharts.com, as it gives traders and investors around the world a recognizable and rather broad observation of how demand is back in control of this market and "confirms" recent technical strength.

S&P 500 Bullish % ($BPSPX) - 2% box chart

Today's action (Monday) did see a net gain of 5 stocks generating REVERSING HIGHER point and figure buy signals, where internals from this institutionally monitored measure of internal strength continues to improve. In July, I was "on the alert" for any weakness and a reading of 46%, where internals could have deteriorated and really had another powerful wave of selling (supply/O) taking hold.

However, just last week, this internal measure turned "bull confirmed" and there is no doubt here, that demand and buying is back in control of this market.

Now let's take a look at the S&P 500 Index ($SPX) 1,321.18 +0.09% and its point and figure chart.

S&P 500 Index ($SPX.X) - 10-point box chart

The S&P 500 Index ($SPX) now challenges multi-year highs found in May and the Bullish % for this major market average is gaining strength and adding to the number of reversing higher point and figure buy signals.

On August 4, the $SPX gave a reversing higher point and figure buy signal at 1,290.

Real trading! I review my Market Monitor trade blotters on a frequent basis. I've encouraged traders and investors to do the same for their own accounts!

On July 21, after having just closed a profitable trade in some S&P Depository Receipts (AMEX:SPY) I profiled another BEARISH trade with some SPY August $126 Puts. That trade was STOPPED out for a LOSS on 08/02/06! The first entry for the SPX on the above chart for the MONTH of August is the "8".

Where I'm going by mentioning a LOSING BEARISH trade is how a BEAR might have actually turned BULLISH at SPX 1,290!

In my mind, and on the above SPX point and figure chart, that has to be deemed FORMIDABLE near-term support.

Do you see/feel how the internals are building bullish? And they're (the internals) "just starting" to confirm what PRICE for the SPX itself is saying.

Remember! For the bullish % indications, imagine that you have TWO stacks of charts and each night you hand chart all 500 of the SPX components! In one stack you place all the "buy signal" charts, and the other stack you place all the "sell signal" charts. The stack of "buy signal" charts is getting thicker.

Bottom Line:

This market is turning BULLISH. As a trader/investor, you want to FOCUS the BULK of your trading as BULLISH. A trader/investor does NOT BUY ALL AT ONCE. Buy a little NOW (index, or stock) to get SOME BULLISH EXPOSURE.

It is thought by some that a trader/investor has to do everything at once. This is NOT the case.

This week's "key sector" ...

Dow Jones Home Construction Index ($DJUSHB) - 5-point box

The $DJUSHB gets my "sector of the week" as there is NO GOOD NEWS in the sector that I have been able to find (big guide higher on earnings, inventories, sales, etc.) yet the DJUSHB breaks above 665, triggers a "spread triple top" buy signal at 670 and challenges its BEARISH resistance trend, which in April was "kissed" at 920 and sellers sent the index lower yet again!

See that "9" at 625? That's the first chart entry for September (09/01/06 to be exact) at 625. See how PRICE fell to 575, then ramped back up to 645 (gave the double top buy signal at 630) and for some reason, when it tried to pull back, buyers stood their ground at 630, and demand (X) builds further.

Monitor STOCKS and Indexes you're interested in for these types of 3-box reversals to SUPPORT.

The reason Applied Materials (NASDAQ:AMAT) $17.78 +3.37% was one of my "key stocks" for this week was largely technical, but as explained in the OptionInvestor.com Market Monitor, tied in with this spring's warning from Dell Computer (NASDAQ:DELL) and resulting action in Intel (NASDAQ:INTC).

Today's technical action in AMAT is indeed "key" in my opinion and bodes bullish for this STOCK, and can be a catalyst for further gains in the SECTOR.

Applied Materials (AMAT) - Daily Interval Chart

Friday evenings Market Monitor comments and today's action out of Applied Materials (AMAT) $17.78 +3.37% on HEAVY volume should give some conviction to bulls.

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