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Market Wrap

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It was an active day on Wall Street as buyers and sellers fought for position as earnings, economic data and falling energy prices had traders on their toes and volume heavy at both major exchanges.

After a notably light volume session on Monday, which gave pause to a strong rebound into last week's expiration, traders have turned up the volume since with the big board churning well in excess of 6 billion share, while 4 and 5-lettered stock symbol trader push NASDAQ volume well above its 50-day average daily volume churn rate of 2.22 billion shares.

Despite broad gains for the major indexes, advancers never were able get an upper hand over decliners in Wednesday's session, but short covering persisted with 104 new lows being recorded at the big board, while 83 stocks found a trade at a new 52-week low.

These volume tell us their is great interest in equities and great disagreement between buyers and sellers, but the notable lack in new 52-week lows since Thursday suggests strongly that shorts are locking in gains and asking questions later.

Just today the NYSE 10-day NH/NL ratio reverses back higher after last Tuesday's horrific daily reading of 26 new highs and climactic 1,161 new lows.

Pre-market earnings from Dow Components and S&P 500 heavyweights found a mixed response to the closing tick.

Shares of AT&T (NYSE:T) $33.06 +3.89% rebounded from yesterday's 52-week low after the communications giant met its revised Q2 profit estimates. The company reported Q2 net income of $3.8 billion, up from $2.9 billion in the year-ago period. Revenues rose 4.7% to $30.9 billion.

McDonald's (NYSE:MCD) $59.66 -0.76% traded off 46-cents but holds above 21-day, 50-day, 200-day and 150-day SMA's after reporting diluted earnings of $1.04 per share on revenue of 6.07 billion.

Aerospace behemoth Boeing (NYSE:BA) $66.72 -3.66% shed $2.54/share by the close after reporting Q2 net income of $0.9 billion, or $1.16/share on revenue of $17.0 billion. Despite charges for the Airborne Early Warning & Control program and lower profitability due to mix and timing in commercial airplanes, company executives reaffirmed 2008 EPS guidance of between $5.70 and $5.85 as well as 2009 EPS guidance of between $6.80 and $7.00.

Pharmaceuticals giant Pfizer (NYSE:PFE) $19.07 +3.92% made a bold looking move above $19.00 resistance at the opening tick. The company said Q2 net income came in at $2.8 billion, or $0.55 per share on revenue of $12.1 billion, an increase of 9% compared with $11.1 billion in the year-ago quarter. Pfizer attributed $800 million or 7% of total revenue to the positive impact of foreign exchange rates.

It would be impossible to cover all earnings reports, but that's a taste of pre-market reports. I have not had time to fully read some of the major reports, but the overall theme is input price pressures, anemic U.S. growth, and stable overseas trends still intact.

The Mortgage Bankers Association reported its weekly application survey results. The overall index fell 6.2% to 489.6 as the sub-indexes either extended the prior week's decline, or gave back sharp gains.

The purchases index fell 6.7% after prior-week's 1.7% decline to 335.6. The 4-week average edged up to 351.0 from 350.4. I also tabulate a 12-week average (roughly one quarter) and it slipped to 351.3 from 355.5. I like to use these observations as a "pulse" on sales of new and existing homes.

The refinance index fell 5.6% for the week ended 07/18/08 after three weeks of advances (+4.7%, +8.7% and +6.9%) to 1,392.7. The average rate for a 30-year fixed rose to 6.59% for the week ended 07/18/08, while the average contract interest rate for a one-year ARM was unchanged at 7.16%.

The Dow Jones Home Construction Index (DJUSHB) 304.01 +3.40% sputtered at the opening tick, but closes at its highest level since 06/05/08 when the MBA's purchases index was reported at 333.6 on 06/04/08 for the week ended 5/30/08.

Across the pond, French consumer spending fell 0.4% M/M, which was "better" than forecast for a 0.6% decline.

One economic report that is a little closer to home came from north of the border with Canada's Consumer Price Index (CPI) rising 0.7% M/M, which was above expectations for a 0.5% M/M gain. The core rate (excludes food/energy) rose 0.1% and was below the 0.2% forecast.
Whew! That's before the opening bell.

Global Equity Indexes, Currencies, Oil, Gold & $HUI.X

Since our last visit on Monday (07/14/08) equities across the major indices have tracked mostly higher, and those little small-caps in the Russell 2000 have been doing their best to keep bears "with the long held belief" of doom and gloom on their heels.

Can't keep tabs on the BIG guns of the INDU, S&P 100, NASDAQ-100 and S&P 500 stocks, that have roughly 20 analysts covering each stock?

Try the barely covered small caps, where you're lucky to find two or three analysts checking channels, making revenue and earnings estimates.

Certainly the easing in oil prices as depicted by the US Oil Fund (USO) $100.12 -3.09% today hasn't hurt a bull's case for optimism!

Today's weekly EIA report continued to show strong builds in refined products, and a sharp decline in inputs at the U.S. refinery level kept buyers at bay.

The EIA said crude oil stockpile fell by 1.56 million barrels to 295.3 million, which is down 15.87% from year-ago level. Meanwhile, refiners continue to crank out product with total gasoline stockpiles building by 2.84 million barrels in the latest week, now +6.34% from year-ago levels. Distillate inventories (diesel, heating oil, jet fuel, etc) rose for an 11th-straight week, up 2.42 million barrels and just like that, up 3.6% vs. year-ago levels. With fall just around the corner, heating oil stockpiles showed a build of 1.23 million barrels, but remain 9.54%, or 3.28 million barrels below year-ago stockpile levels.


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The "shocker" came from the demand side of things as weekly crude oil inputs fell by 355,000 barrels/day in the latest week as refiners used 15.11 million barrels/day.

In the above table, I want to once again point out what we'll also see in the relationship between a commodity (like gold=GLD) and a sector/index of stocks that may produce the commodity.

You can't pick this up on a 5-minute interval chart, or even a 60-minute interval chart, but you'll note tonight the "difference" between GLD and the equity-based $HUI.X when comparing percentage moves.

Before we look at tonight's U.S. Market Watch, I need to tell you that on Monday, several index/exchanges had problems with networks and data feeds were down to many service providers.

Then on Tuesday, QCharts (which I use for U.S. Market Watch and bar charts) had severe outages at its server farms.

So, when looking at the 5DyNet% changes, I must warn you that relative strength/weakness comparisons can't be used this evening. I have not had time to check 20DyNet%.

At a minimum, please use the above Global Equity Indexes as more accurate date-to-date comparisons.

I will note that the 5DyNet% changes should be -

INDU since 07/16/08
DIA since 07/18/08
SPX since 07/15/08
SPY since 07/21/08
OEX since 07/15/08
NDX/QQQQ since 7/18/08
RUT since 7/15/08

U.S. Market Watch -

Just before 02:00 PM EDT, we also got a look at the Fed Beige Book report, which is an anecdotal report written by the Fed's twelve districts. These are "general" yet useful observations (from 06/03/08 to 07/14/08).

In summary, the Federal Reserve said the U.S. economy slowed in June and early July, while price pressures were elevated (see commodities), with some manufacturers planning to charge more for good. (see DD and DOW a couple of weeks ago). Uncertainty over the economy and inflation suggests that the central bank might leave interest rates unchanged for awhile. (see dollar and bond yields).

CRB Index (CEC:CRY) - Daily Intervals

While energy prices have gotten the bulk of the "commodity" headlines this year, and oil is the most heavily weighted commodity in the CRB Index, there's not a lot of products that can't be manufactured here in the U.S., or abroad that don't start with oil, natural gas, coal, or electricity.

Even as each Beige Book is release, we can understand that while VERY useful and important, as the observations will go into decisions made about monetary policy, they are observations.

I'd still have to say that "commodity prices" are elevated as long as the CRB Index holds UPWARD trend, and 407 level.

Recent high was recorded on 07/03/08.

Still using a 12/31/07 end of 2007 benchmark as a point in time that is easily understood.

US Oil Fund (USO) - Daily Intervals

Oil as depicted by the US Oil Fund (USO) $100.12 -3.09% (when T. Boone Pickens said oil won't trade $100.00 again, he was talking about oil futures), has broken below a very AGGRESSIVE upward trend, and the point and figure chart's BEARISH vertical count ($0.50 box to match scale of futures) suggests some longer-term downside to $88.50. The BEARISH vertical count would currently be negated should the USO trade $107.00.

Certainly the recent decline has helped broader market sentiment.

Especially in the Airlines as depicted by the XAL.X 22.59 +8.50%, where not unlike some of the banks, the airlines rise has made oil's decline look marginal.

Here too, gold prices ease, yet gold "stocks" drop a much faster percentage.

Oil prices ease, yet airline stocks act more like rockets.

US Natural Gas Fund (UNG) - Daily Intervals

Now this is a pullback. Natural Gas is in its usual seasonal bearish period, but a good one to monitor as some see it as a viable and cleaner burning fuel than oil. Domestic reserves of natural gas more "plentiful" than oil too. Further declines not out of the question and "hurricane" season is upon us.

Nat. Gas bid intra-day on reports of "Dolly" coming to shore at Texas/Mexico border, then storm downgrade had buyers vanishing quicker that you could say "goodbye Dolly!" Oil followed.

Bull Confirmed!

Tonight, I'm now seeing Dorsey/Wright's Bullish % for All (BPALL) reverse back up to "bull confirmed" status at 32.83% (32.00% on chart)! This follows reversals back up in the BPSPX, BPOEX, BPNDX and BPDJIA from 07/17/08 and strongly suggests that demand for equities is returning at very low RISK levels.

This is the MOST IMPORTANT chart I can show you this evening.

Bullish % for ALL U.S. (BPALL) - 2% box

There are few times when we see such attractive supply/demand for new bull entry points. STRONG bullish divergence from the internals here as despite some undercutting of this spring's PRICE lows the BPALL shows FEWER stocks (about 6,000) actually were holding above prior lows, refusing to give "sell signals."

Now we're observing more stocks starting to give "buy signals" and past levels of resistance being broken to the UPSIDE.

The also broad NYSE Bullish % (BPNYSE) reversed up at yesterday's close to 32.27% and saw another 3.74% gain (roughly 3,000 stocks total), or 112 stock to reversing higher point and figure buy signals. This has long been the "bible" of internal measures for the institutionally follow Dorsey/Wright bullish % to dictate if the OFFENSIVE, or DEFENSIVE team is on the field. OFFENSIVE here!

And understand my 07/14/08 "index chart of the WEEK" and "cramp and ramp" that took, or has taken place.

Russell 2000 Index (RUT) - 4-point box

The "blue boxes" were where we were on our last visit, and the RUT.X did give another "sell signal" at 656, fell to 648, but then whipped higher and gave a reversing "buy signal" at 684 on July 16th (last Wednesday).

S&P 500 Dep. Receipts (SPY) - $2 box

The SPY is a security that tracks the SPX.X itself, and a security that traders flock to (bulls and bears). With several of the major market bullish % reversing back up, I think BULLS can take 1/3 positions (If $3,000.00 is a "full position" then $1,000.00 is 1/3 position) from the long side here, and the 1/3 position allows some RISK management with a stop at $118.

That's RISKing $10/share. At this point, we do NOT have a bullish vertical count to assess REWARD to, but $138 looks achievable near-term.

Keep an eye on the RUT.X at its BEARISH resistance trend (blue dots) as that trend may hold institutional sellers. If the RUT.X breaks above that trend, SPY should pick up some steam to its BEARISH resistance trend (blue dots) currently at $142.

Maybe dip a bullish toe in the water.

One stock I thought traders might look at from the BULLISH side today were Yum Brands (NYSE:YUM) $35.95 +0.55% and RISK can be reduced with a CALL option where one (1) of the YUM Sep $35 Calls (YUM-IG) $2.25 x $2.40 gives the trader exposure to 100 shares for a cost of $240.00.

The RESTaurant sector bullish % (BPREST) reversed up to "bull alert" status at 16% today.

With gasoline prices easing, consumers might have an extra $4, or $5 in their pocket in comings weeks. With natural gas prices falling, YUM might find some vastly improving margins as their costs to fuel stoves, ovens eases.

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