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Market Wrap

Energy Shares Jump After Jeddah Meeting

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U.S. stocks traded mixed-to-lower on Monday, mirroring their overseas counterparts, with energy shares clearly benefiting from this weekend's news out of Saudi Arabia and Nigeria.

While both the NYSE and NASDAQ's 5-day NH/NL ratio's suggest some "stability" trying to form, their 10-day NH/NL ratio's continue to fall to respective cycle lows of 23.1% and 21.5% and would make it difficult to assess any sign of more aggressive buying of strength (new highs) and weakness (new lows).

The Oil Service Holdrs (OIH) $224.21 4.82%, CBOE Oil Index (OIX.X) 963.03 3.09% and AMEX Natural Gas Index (XNG.X) 761.11 4.01% found buyers after this weekend's meeting of oil producing and consuming nations in the Saudi city of Jeddah.

Saudi Arabia said it would add an addition 200,000 barrels per day of production in July to the 300,000 barrel per day production increase it first announced in May, raising the kingdom's total daily output to 9.7 million barrels per day.

While Saudi Arabia's modest increase in production was seen as an attempt to appease the United States and other consuming nations that argue oil production has not kept up with increasing demand, especially from China, India and the Middle East, Saudi Arabia and other OPEC countries maintained their stance that there is no shortage of oil and instead blamed financial speculation and the falling U.S. dollar for higher oil prices.

Helping bolster today's gains in the energy complex was concerns about Nigerian production as terrorist attacks on several of the nations production facilities, combined with reports of a strike against Chevron (NYSE:CVX) $99.06 2.52% had Nymex Crude Oil futures (cl08q) settling higher by $1.38, or 1.02% at $1.38.

Industry analysts say a Nigerian-worker strike against Chevron is likely to lead to 350,000 barrels-per-day of shut in production.

Continued tensions between Israel and Tehran also kept traders uneasy in regards to supply concerns after the European Union states agreed to impose new sanctions on Iran, including an asset freeze on its biggest bank, over its refusal to meet demands to curb its nuclear program.

Oil futures at the Nymex did finish off their best levels of the session ($138.14) after a panel of energy experts said oil prices could fall to half their current levels if Congress puts strict limits on financial investment in energy commodity futures, saying a drop in price of retail gasoline, currently over $4 on average in the U.S., would drop proportionately.

Nymex August Unleaded (rb08q) responded with a 1.89-cent gain, up 0.55% to settle at $3.4656.

August Nat. Gas futures (ng08q) jumped $0.209, or 1.59% to settle at $13.322 as traders braced for a heat wave in the lower-half of the U.S.

August Heating Oil futures (ho08q) settled up $0.0239, or 0.63% at 3.8266.

Late this afternoon the U.S. Energy Department said that it was looking to use $3 million in appropriated funds to purchase heating oil for the Northeast Home Heating Oil Reserve. The DOE said offers are due no later than July 1, and the fuel oil is expected to be delivered during the week of July 7.

In 2007, a 35,000-barrel sale was conducted to raise money to award new long-term storage contracts to fill the reserve to its authorized capacity of 2 million barrels of home heating oil.

Major Global Markets, Currencies, Oil and Gold - Mon-Mon Closes

Asian markets were lower on Monday with Japan's Nikke-225 ($NIKK) sliding 84 points, or -0.61% despite weakness in the yen, which can have their manufactured products or services. Financials and real estate developers paced declines early, but a late spat of buying had the Nikke-225 finishing nearly 200-points off its intra-day low of 13,668.

The yen was weaker against the dollar with the Yen CurrencyShares (FXY) sliding 0.55% to 92.53.

In Hong Kong, the Hang Seng ($HSI) finished fractionally lower as gains in energy shares helped offset weakness non-ferrous metals. Aluminum Corp. China (NYSE:ACH) $31.04 -2.54% closed at its lowest level in over a year after it warned that its first-half net profit would slide by at least 50%.

Mainland China's Shanghai Stock Exchange ($SSEC) continued lower and has now given up nearly all of its gains from 2007, falling 2.52% to 2,760 on Monday as investors remained hesitant that reforms announced late last week may have been too late in coming to bolster a turnaround anytime soon.

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In Europe, the major bourses posted modest gains.

Energy stocks helped lift London's FTSE-100 ($FTSE) to a 46-point, or 0.83% gain to 5,667. The pound was weaker against the dollar with the British Pound CurrencyShares (FXB) 197.09 -0.58% down just more than one (1) point, but closing well off their intra-day lows of 196.45.

Economic news out of Germany had the German Info Business Climate Index sliding to 101.3, which was weaker than economists' forecast of 102.5.

Still, the DAX managed to eek out a gain of 11 points, or 0.17% to close at 6,589, while France's CAC-40 ($CAC) was relatively unchanged, rising 2 points, or 0.05% to 4,511.

The euro was weak as economists said they thought there was no room for rate hikes with the German Info Business Climate Index falling to its lowest level since Jan'06. The Euro CurrecyShares (FXE) $155.60 -0.63% fell just less than one (1) point, with buyers holding their ground above 155.00.

U.S. Market Watch - 06/23/08 Close

The Financial SPDRs (XLF) $21.48 -3.15% closed at a new multi-year low and were among today's most actively traded ETF's.

Buyers continued their boycott after a Goldman Sachs' strategists admitted it was wrong when they upgraded the U.S. financial and consumer sector seven (7) weeks ago. Moving back to an "underweight" rating, Goldman's David Kostin said, "We boosted our consumer discretionary and financials weights in May on the belief the sectors would benefit from bank recapitalization and fiscal stimulus." Mr. Kostin added that he thought "our thesis was clearly wrong in hindsight."

Shares of Citigroup (NYSE:C) $18.55 -3.88% remained weak and were today's most actively traded name at the bid board (88.3 million shares) on reports that it is about half-way through cutting 10% of the 65,000 employees in its investment banking unit.

Meanwhile, Bank of America (NYSE:BAC) $25.88 -4.50% fell to another multi-year low.

Merrill Lynch (NYSE:MER) $34.54 -3.92% also closed at a multi-year low after a Banc of America Securities analyst projected a wider loss for the securities firm.

UAL Corp. (NASDAQ:UAUA) $6.08 -15.08% paced today's weakness in the AMEX Airline Index (XAL.X) 16.79 -7.03%. The stock did edge fractionally higher to $6.17 in this evening's extended session after the nation's second-largest carrier by traffic confirmed plans to lay off 950, or 17% of its 5,600 pilots.

Earlier this month, United said it would cut its 460-aircraft mainline fleet by another 70 jetliners by the end of the year as it deals with surging fuel prices.

Economic data released today was regional with the Chicago Fed's National Activity Index improving to a still contracting -0.96 reading in May compared with a -1.23 reading in April. All four (4) of the broad categories of data: production and income; employment, unemployment, and hours worked; personal consumption and housing; and sales, orders and inventories all had negative contributions to May's reading.

Merger and acquisition news had shares of Allied Waste (NYSE:AW) $13.29 -1.99% falling $0.27 per share after the company confirmed it has agreed to be acquired by Republic Services (NYSE:RSG) $30.98 -0.67% in an all-stock deal valued at $6.07 billion, or $14.04/share based on Republic's Friday closing stock price of $31.19.

On June 14, both companies said they were in merger talks with the deal then valuing Allied at about $15.23 per share, or $6.59 billion.

Additional M&A news has two of America's oldest agricultural companies looking to sweeten their agribusiness synergies in a deal valued at $4.4 billion.

Bunge Limited (NYSE:BG) $110.86 -9.26% said it was buying Corn Products Intl. (NYSE:CPO) $50.53 17.78% for roughly $42.90 a share. The deal calls for the exchange of one share of Corn Products for $56 in Bunge stock.

Industry watchers say the deal is a sign that surging global demand for food is driving big agriculture to look for increased economies of scale and that record grain prices will give Bunge, a dominant playing in South America, a stronger position in North America as it supplies some of the largest U.S. food and beverage companies such as Coca-Cola (NYSE:KO) $53.26 -0.74% and Kellogg (NYSE: K) $50.85 -0.29%.

By revenue, Bunge (BG) is the number three (3) player in global agribusiness. Cargill and Archer Daniels Midland (NYSE:ADM) $33.50 2.54%

Tonight I'm going to have us look at the major U.S. equity indices starting with the narrowest (30 stocks) Dow Industrials ($INDU), then the narrower NASDAQ-100 ($NDX), S&P 100 Index ($OEX), then broader S&P 500 Index ($SPX).

For those "new" to point and figure charts, all we're doing here is observing, monitoring the laws of supply (O) and demand (X) on a continual (not daily) basis, just as Charles Dow did as he hand charted his vast holdings of various securities.

Dow Industrials ($INDU) - 50-point box chart

On Wednesday, 06/18/08 the Dow Industrials ($INDU) and its tracker the Dow Diamonds (DIA) $118.33 0.07% on the day closed below a level (INDU= 12,075 : DIA= $120.75) that I thought would hold buyers.

Since generating a reversing lower double bottom "sell signal" at 12,750 on May 9th, the Dow Industrials ($INDU) has generated five (5) additional sell signals (12,700; 12,400; 12,300; 12,150 and 12,050) and it would currently take a reversing higher trade at 12,350 to get this widely quoted index back on a "buy signal."

While the INDU's bearish vertical count to 11,750 may be a bearish trader's near-term target, I'd have to view 11,750 as somewhat tentative support.

Near-term resistance is back at 12,100 and more formidable resistance just below 12,350.

At tonight's close, Dorsey/Wright and Associates' Dow Industrials Bullish % (BPDJIA) remains in "bull correction" status at 33.33% for a seventh-straight session. That is, of the 30 Dow components, ten (10) of the components still show a PnF "buy signal" still intact on their charts, while twenty (20) show a PnF "sell signal" intact. Current measures are still at a trough low having reached a more "overbought" 70% no May 7th and 8th.

StockCharts.com's Dow Industrial Bullish % symbol is $BPINDU, which is also at 33.33%.

Dow Components (Sorted by Price) -

Unlike the other major indices covered, the INDU/DIA is a PRICE weighted index. There's been little for bulls to write home about the last three (3) weeks.

To the right of each company's name, I quickly looked at the 30 components and marked those in green "BS" as charts that still had a "buy signal" intact, and in red "SS" as those with a "sell signal" intact.

NASDAQ-100 Index ($NDX) - 20-point box

The higher beta names that comprise the narrow NASDAQ-100 Index ($NDX) have started to exhibit some technical weakness after giving a reversing lower PnF "sell signal" at 1,960 on June 9th. This is a progression in my opinion that suggests bulls are stepping up their profit taking from this spring's lows.

Having reached 60% bullish on May 19th, Dorsey/Wright and Associates' NASDAQ-100 Bullish % (BPNDX) has fallen further to 43% bullish and remain in "bull correction status.

StockCharts.com's NASDAQ-100 Bullish % is ($BPNDX).

Near-term support would be viewed just above 1,900, with 1,900 as more intermediate-term support, while 1,860 and the current bullish support trend (blue ) would be deemed longer-term support.

Near-term resistance is just below 2,000, while resistance looks formidable below 2,060.

I would be assessing downside to 1,860 as the other major market indices have failed to hold their bullish support trends.

S&P 100 Index ($OEX) - 5-point box

One of the more bearish observations I could have made late last week was the OEX closing below the 610 level on Wednesday, where there was some heavy put open interest at that level. Thursday's close, if not Friday's close below the 610 put open interest would have to be viewed as a signal from option traders, and especially institutional PUT SELLERS that they were not overly interested in taking possession of many OEX components that make up this market-cap weighted index.

While there was no change in Dorsey/Wright's S&P 100 Bullish % (BPOEX) today, this market remains in "bear confirmed" status at 35% (from 05/22/08) having reached an 60% high on 05/16/08.

StockChart.com's S&P 100 Bullish % is ($BPOEX).

S&P 500 Index ($BPSPX) - 10-point box

In May, when I changed my economic call from "modest recession in 2008" to "modest economic growth for 2008" I was really looking for the SPX to find much firmer support on a pullback test of 1,350.

At tonight's close, the SPX's bar chart may be at a very critical level of support, but only if I were to "drag lower" my 0% retracement from the 01/23/08 low I have been using, to the 03/17/08 "Bear Stearns Failure" low.

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

The only "support," or "explanation" I can find for the SPX.X to hold near 1,318 would be a 19.1% conventional retracement from the 10/11/08 all-time high and the eventual "Bear Stearns Failure" low from 03/17/08.

When I first began showing the major indices with conventional retracement, I wanted to stick with the first set of lows from 01/23/08.

With the SPX below its June MONTHLY S2 of 1,337.42 and still above its April-June QUARTERLY S1 of 1,229.40, the PINK dashed conventional 19.1% is the only technical explanation I can find to support some type of buying.

According to Dorsey/Wright and Associates, their broader S&P 500 Bullish % (BPSPX) remains "bear confirmed" at 36.87%.

StockCharts.com's S&P 500 Bullish % symbol is ($BPSPX).

After the Bell

United Parcel Service (NYSE:UPS) $66.26 -0.16% saw its shares fall to $63.91 late this evening after air/ground shipper cut its Q2 forecast. Blaming an "unprecedented increase" in fuel costs for lower-than-expected U.S. package volume and describing the U.S. economy as "anemic," UPS said it now expects Q2 earnings to be between $0.83 and $0.88 per share, down from the $0.97 to $1.04 a share predicted in April.
 

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