The Dow tagged and broke The Number, but the fanfare was subdued, with price trading a quiet range in the afternoon, just another notch in last week's rally. Volume was lighter than on Friday, and volume breadth, while positive, was nowhere near as strong as we saw in Friday's meltup and ensuing range. The Nasdaq and SPX pulled unexcitedly to new multiyear highs.
The Dow was aided by Goldman's upgrade of GM from "underperform" to "inline" based on valuation and what analyst Robert Barry characterized the "unlikeliness" of a bankruptcy filing in the nearterm for the troubled automaker. GM closed higher by 7.74% at 22.41.
Daily Dow Chart
The Dow gained 52.69 to close at 11019.90 after touching a high of 11020.15, the highest close in 4 and a half years. While my dad will doubtless want to discuss 11K in detail with me tonight, the round number close did little to alter the setup for the past few sessions, notching a nominal new high on lighter volume in what has been a powerful, almost vertical rally since the beginning of the year. Most of the intraday cycles topped last Thursday and have been trending ever since as the daily cycle in the chart above continues its upward march. As discussed in the Market Monitor in recent weeks, the weekly cycle has been overbought and looking for a downphase, and the current new highs still qualify as a retest within that broader cycle's top. But above 10900-920 support, the range break has to be respected as price works its way higher.
Daily S&P 500 Chart
The SPX gained 4.7 to close at 1290.15, printing its first full candle above rising parallel trendline support at 1280. The cycle setup is identical to that on the Dow, with a dominant daily cycle upphase overpowering the intraday cycles in this so-far correction-free rally. Bears need to see a break below range support in the mid-1270s before assuming that a correction is anything more within this daily cycle upphase.
Daily Nasdaq Chart
The Nasdaq gained 13.07 to close at 2318.69, despite the erroneous print on my daily chart. The candle is correct, however, in that the price finished less than 4 points off the 2322 intraday high. Despite the stronger break of the previous highs compared with the Dow and SPX, the Nasdaq has not yet violated its rising parallel trendline resistance. While Edwards & McGee trendline analysis is subject to interpretation, it's an interesting divergence from what we see on the SPX chart. 2275 is the level for bulls to defend, at the bottom of last week's unfilled gap.
Daily TNX Chart
Ten year notes traded both sides of unchanged in a narrow range day to close flat at 4.379%. Daily cycle indicators are oversold and are looking for an upturn, but a move above 4.44%-4.45% resistance is needed to generate the first preliminary buy signals.
The Treasury announced the size of a number of upcoming auctions today. The 4-week bill auction will total $8 billion to refund $14 billion of bills maturing, resulting in a paydown of $6 billion. However, that amount was more than offset by a $13 billion auction of 5-year notes also announced, raising all new cash in that amount. As well, the upcoming 10-year TIPS (treasury inflation-protected securities) auction will raise $9 billion of new cash, for a total net of $16 billion in new cash being raised net via longer-dated 5- and 10-year paper against the paydown in 4-week bills.
The Treasury auctioned 13-week and 26-week bills in the amount of $34 billion to refund $32.88 billion in maturing bills, raising another $1.12 billion in new cash. All this new cash being raised drains liquidity otherwise available to the markets, and this might have been why the Fed's open market desk was generous today, giving its dealers a $7 billion overnight repo against $5.75 billion maturing from Friday, for a net $1.25 billion add.
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The 13- and 26-week auctions were well-received, with foreign central banks stepping up for just under $9.5 billion of the $34 billion auctioned. The 13-week bills sold for a high-rate of 4.15% yielding 4.252%, with 2.25 bids received for each accepted. The 26-week bills sold for a high-rate of 4.25% yielding 4.404%, with a bid to cover ratio of 2.5.
The Atlanta Fed President Jack Guynn delivered a speech to the Atlanta Rotary Club, in which he estimated that the economy should grow this year in a 3%-4% range. He didn't give any hints about upcoming rate hikes, but did say that the economy looks "quite favorable" for this year, while allowing that the federal deficit is "very worrisome." Inflation expectations are "anchored", and estimates job growth of approximately 175,0000 per month for the year. The economy is, according to Guynn, "stronger than most people think." The Kansas City Fed President Thomas M. Hoenig followed up with a speech in which he said that job growth should remain slow, while the main economic risk would remain inflation spurred by rapid growth. However, he expects "core" inflation to remain stable and low, that the Fed Funds rate is currently at the low end of a neutral range.
The Fed reported November's Consumer Credit report at 3PM, with outstanding credit falling at an annual rate of .4%, or -$649 million to $2.156 trillion. October's figure was revised to from a 7.2 billion decline to an $8.4 billion decline (or a 4.7% annualized rate), making the November reading reported today the first 2 consecutive month decline in Consumer Credit in 13 years. Consensus estimates were for a $5 billion increase.
Daily Chart of Crude oil
Crude oil was up again this morning as China's CNOOC announced a $2.3 billion cash deal to purchase a 45% share of a Nigerian deep-water oil field in the Niger Delta - the first acquisition since its attempted takeover of Unocal last year. The deal is still pending approval by Nigeria's and China's governments. India's largest oil company, Oil & Natural gas Corp., had previously submitted a winning $2 billion bid, but it was subsequently blocked by the Indian cabinet as not being commercially viable. The site's recoverable reserves are estimated at 620 million barrels of oil and 2.5 trillion cubic feet of natural gas.
Currently, China imports more than 40% of its estimated consumption of 6 million bpd of oil, and with yearly growth estimates hovering around 10%, China's appetite for fuel is expected to increase commensurately.
The gain in crude oil was short-lived however, and reversed later in the session as OPEC Secretary-General Mohammed Barkindo announced that the cartel will probably not decide whether to cut production in its January 31 meeting. With the financial press touting the 12.5% y-o-y in crude oil inventories, the prevailing mood was bearish for black gold, which finished the day session -.65 at 63.55, off a low of 62.90. The session high was 64.625, a 3 month high.
Speaking of gold, gold futures broke to new highs today, with the front-month e-mini reaching 552.90, an 11.80 gain. Marketwatch reported that the 550.50 closing was its highest close since January 1981.
In corporate news, Boston Scientific (BSX) announced that it expects to show a 12% rise in sales for 2005, and estimates net sales to be $6.28 billion, up from $5.62 billion in 2004 but missing consensus estimates of $6.32 billion. Q4 net sales are estimated to come in at $1.54 billion, compared with consensus estimates of $1.57 billion. BSX is in a bidding war with JNJ to take over Guidant (GDT), and announced yesterday a $25 billion cash and stock bid to buy the company- Marketwatch reported that this matches its earlier $72 per share bid, and tops JNJ's $63 per share bid. BSX stated that it would share the rights to GDTs' drug-coated stent technology with Abbott Labs (ABT). Following BSX's announcement yesterday, JPM upgraded ABT from "neutral" to "overweight." BSX lost 1.37% to close at 25.88, while JNJ gained .62% to close at 62.99. ABT rose 3.72% to close at 42.51, and GDT gained 2.45% to close at 69.
Reuters reported that Tyco (TYC) is again revisiting former CEO Kozlowski's plan to break up the company and divest itself of its electronic and health-care businesses. The board intends to meet this week to discuss the plan, which would see TYC reduced to its security, fire-prevention, and pump and valve operations, all to be run by current CEO Edward Breen. TYC closed +3.54% at 31.04.
Marvel (MVL) announced that it has ended its licensing agreement with Toy Biz Worldwide, and executed a $205 million license pursuant to which Hasbro (HAS) will produce toys based on its comic book and movie characters. MVL estimates a Q4 charge of $13 million - $16 million related to the termination of its deal with Toy Biz, but has been guaranteed $205 million of royalties under the new 5 year contract. The one-time charge was not reflected in MVL's 2005 estimate of November 9, 2005. MVL rose 1.02% to close at 16.86 and HAS gained 1% to close at 20.19.
After the bell, Alcoa (AA) announced Q4 net earnings that declined from 30 cents per share on revenue of $5.98 billion to 26 cents on revenue of $6.67 billion. Estimates were for EPS of 37 cents on revenue of $6.69 billion. AA traded -3.34% afterhours at 29.55.
Tomorrow's economic reports will be restricted to Wholesale Inventories at 10AM. On Wednesday, apart from the weekly Mortgage Bankers Association data and the EIA petroleum inventory report, there are no data scheduled. On Thursday, we'll get Import Prices ex-oil and Export Prices ex-ag, Initial Claims, the Treasury Budget, and the EIA natural gas figures. On Friday, it's Retail Sales, Business Inventories and the PPI.
For tomorrow, traders will be scrutinizing the intraday charts for a violation of today's lows to signal the start of the overdue intraday cycle correction. The strength on the daily charts tells us to expect that intraday decline to be corrective, but if it breaks back below range support identified above, we could see that correction spread to the daily cycle as well. With today's advance listless despite the bulls' close above The Number, the upside looks less likely without a correction first. See you in the Market Monitor!
Apple Computer - AAPL - close: 76.30 chg: +1.92 stop: 69.99
A downgrade for IBM slowed the advance in hardware stocks today. Shares of AAPL slipped 25-cents but probably on news of Google's plans to launch an online video store. In other news Chrysler announced that most of its 2006 models would include iPod-friendly electronics so users can listen to their iPod over the car's speakers. We remain bullish on AAPL but there is a chance for some profit taking. We would still consider new call positions here but a bounce from $75 would also work well. We do not want to hold over the earnings report. The report is coming up quick on January 18th and that doesn't give us much time.
Picked on January 08 at $ 76.30
Apollo Group - APOL - close: 62.81 change: +0.41 stop: 59.95
APOL did continue to rally but the rally seemed to stall this morning and shares consolidated sideways for most of the session. We don't see any changes from our weekend play description and remain bullish. Our target is going to be the $67.00-68.00 range. If APOL fails to push past the $63.50 level in the next several days we'll probably pull the plug early.
Picked on January 08 at $ 62.40
Biogen Idec - BIIB - close: 47.59 change: +0.41 stop: 44.45
In the news today BIIB reported that its Phase II study on oral compound BG-12 for use with patients in relapsing-remitting multiple sclerosis met its primary endpoint (a.k.a. its target). BIIB also announced that it would report earnings on February 15th after the closing bell. Shares of BIIB did tick higher today but remain under minor resistance near $48.30. Wednesday could be a volatile day for BIIB. Larger rival Genentech (DNA) is expected to report earnings after the closing bell on Tuesday. Our target is the $49.85-50.00 range.
Picked on December 27 at $ 46.11
Caterpillar - CAT - close: 61.55 change: +1.10 stop: 56.95
CAT produced a nice follow through on Friday's breakout today. The stock added 1.8% on slightly above average volume. We remain bullish and see no change from our weekend play description. Our target is the $64.75-65.00 range. We do not want to hold over the late January earnings report so we have just less than three weeks.
Picked on January 08 at $ 60.45
Cytec Ind. - CYT - close: 48.01 chg: -0.28 stop: 45.95
Over the weekend we discussed CYT's relative weakness and the stock continues to show relative weakness today. We would expect shares to dip toward the $47.00-47.50 level given the current short-term pattern and the above average volume on today's decline. We would not suggest new plays at this time but watch for a bounce from the $47 level. Our target is the $49.85-50.00 range. More aggressive traders may want to aim higher. The P&F chart points to a $65 target. FYI - in the news today CYT announced that it would report earnings on February 9th after the closing bell.
Picked on December 22 at $ 47.01
Foster Wheeler - FWLT - close: 39.52 chg: +0.56 stop: 35.49
The bullish breakout continues in shares of FWLT. The stock added another 1.4% and the stock is nearing what will probably be short-term, round-number resistance near $40.00. We would expect a pull back, potentially back to the $38 level. Our target is the $42.00-42.50 range.
Picked on January 05 at $ 38.05
Gilead Sciences - GILD - close: 57.91 chg: +0.88 stop: 54.51*new*
Shares of GILD vaulted higher at the open but traded off its best levels of the session. The stock almost hit our target in the $59.00-60.00 range. The news today is positive. GILD and BMY reported that their latest study showed positive results at combining their two HIV treatments together. The AP article said the companies plan to file an application for the new tablet with the FDA between April and June. We do not want to hold over GILD's mid January earnings report. We are going to raise our stop loss to breakeven at $54.51.
Picked on December 22 at $ 54.51
Goldman Sachs - GS - close: 130.39 chg: +1.55 stop: 125.59
The broker-dealer stocks rose again. The group was boosted by some upgrades and positive comments issued by Prudential this morning. Shares of GS added 1.2% and broke out over resistance at the $130.00 level. Our trigger to buy calls was at $130.05 so the play is now open. Our target is the $134.80-135.00 range. More aggressive traders might want to aim higher.
Picked on January 09 at $130.05
Lehman Brothers - LEH - close: 131.39 chg: +1.15 stop: 125.90
We have been triggered in shares of LEH as well. The stock added 0.88% as investors poured more money into the group. LEH confirmed its breakout over the $130 region and hit our trigger to buy calls at $131.05. The MACD indicator has produced a new buy signal. Our target is the $138.50-140.00 range over the next several weeks.
Picked on January 09 at $131.05
Traders bought the dip again. IPS fell lower this morning but bounced at its rising 10-dma. We do not see any change from our weekend update. We do not want to hold over the earnings report. Our target is the $89.00-90.00 range.
Picked on December 30 at $ 83.55
Lennar Corp. - LEN - close: 65.24 chg: +2.62 stop: 59.99
The homebuilders were the best performing sector today. The DJUSHB index rose more than 5.6% after multiple positive reports from the analyst community hit the wires today. Analysts are still expecting double-digit growth in sales for the sector. Shares of LEN rose more than 4% and broke out over resistance at the $64.00 level. Our trigger to buy calls was at $64.01. Our target now is the $69.50-70.00 range before February options expire.
Picked on January 09 at $ 64.01
Mohawk Ind. - MHK - close: 89.50 change: +0.94 stop: 85.90
MHK provides flooring and carpet so the positive report for the homebuilders today is good news for MHK too. The stock continued Friday's afternoon bounce and added just over 1%. This looks like a new bullish entry point to buy calls. More conservative traders may want to wait for another move over $90 or even $91 before considering new bullish positions. Our target is the $94.85-95.00 range.
Picked on January 04 at $ 90.25
Petrochina Co - PTR - close: 87.50 change: +1.75 stop: 83.50 *new*
The oil sector turned in a bit of a mixed performance with the decline in crude oil futures today. That didn't stall shares of PTR, which gapped higher, and added more than 2% by the closing bell. The move was probably fueled by news that PTR's crude output rose 1.2% in 2005. Investors are also responding to news today that China raised its official annual GDP estimates for the past decade and there is probably some enthusiasm for their final 2005 growth numbers due out in a few weeks. More conservative traders may want to consider exiting for a gain right here. We're going to hold on and aim for our target in the $89.50-90.00 range. We will raise our stop loss to breakeven at $83.50.
Picked on January 03 at $ 83.50
Sears Holding - SHLD - close: 122.70 change: +3.24 stop: 114.99
It was a big day for shares of SHLD. The stock added 2.7% and quickly rallied through the $120 level this morning. Our trigger to buy calls was at $120.05 so the play is now open. The rally stalled right at its declining 100-dma. This might suggest a pause and maybe a dip back toward $120, which could be used as a new entry point. However, the intraday chart today shows a strong rebound from the afternoon lows so there may not be any pull back. Our target is the $124.90-125.00 range.
Picked on January 09 at $120.05
Progressive Corp - PGR - cls: 118.83 chg: +2.57 stop: 120.05
Uh-oh! New multi-year highs for the major averages and a breakout over 11,000 in the DJIA may be spooking the bears in PGR. The stock staged a 2.2% bounce today. More conservative traders may want to bail out early even though the stock should still have resistance at the $120 level. We are not suggesting new positions.
Picked on December 30 at $117.45
Scotts Miracle grow - SMG - cls: 46.45 change: -0.28 stop: 47.55
SMG is still trading under the $47 level. We don't see any change from our weekend update. We are not suggesting new positions. More conservative traders may just want to exit early right here or tighten their stop closer to the $47 level.
Picked on January 01 at $ 45.24
(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call and an OTM put on the same stock. The strategy is neutral. You do not care what direction the stock moves as long as the move is big enough to make your investment profitable.)
Amer. Eagle Out. - AEOS - cls: 24.29 chg: +0.20 stop: n/a
We do not see any change from our weekend update. Time is running out. We have two weeks left before January options expire. For this strangle play to have a chance at exiting at breakeven or better then AEOS needs to trade above $27.50 or under $22.50. We are not suggesting new plays. The current strangle has an estimated cost of $2.35 with the January $27.50 calls (AQU-AY) and the January $22.50 puts (AQU-MX). We are changing our target to breakeven at $2.35.
Picked on November 13 at $ 25.47
Abercrombie&Fitch - ANF - close: 66.66 chg: +0.28 stop: n/a
We do not see any change from our weekend update. Time is running out. We have two weeks left before January options expire. Currently ANF is trading over the $65 strike but not by much. We need to see the stock make a run for the $70 level if we want to exit near breakeven. We are not suggesting new plays at this time. The options in our strangle are the January $65 calls (ANF-AM) and the January $55 puts (ANF-MK). Our target has been adjusted to breakeven at $5.15.
Picked on November 13 at $ 59.67
Blue Coat Sys. - BCSI - cls: 42.60 chg: +0.85 stop: n/a
We only have two weeks left and BCSI needs to trade under $39 or well over $50 if we are going to be able to exit at breakeven. Last week we adjusted our target to breakeven at $3.25. We are not suggesting new plays. Our current play involves the January $50 call and the January $40 put.
Picked on December 04 at $ 45.43
Building Materials - BMHC - cls: 78.56 chg: +2.13 stop: n/a
BMHC is still bouncing with a vengeance. The stock added 2.7% today on above average volume. We are not suggesting new strangle positions at this time. The options in our strangle play are the March $90 calls (BGU-CR) and the March $70 puts (BGU-ON). Our estimated cost is $8.20. Our target is $12.50 by March expiration.
Picked on December 18 at $ 80.95
Chicago Merc. Exchg. - CME - cls: 381.00 chg: +6.05 stop: n/a
CME hit a new five-week high today as it cleared the December peak. We are running out of time. There are only two weeks left before January options expire. At the moment if we have any hope of exiting near breakeven we need to see CME trade under $340 or above $410 and do it pretty quickly. Odds of that happening don't seem very high at the moment. We are not suggesting new plays. Our current play involves the January $400 calls (CMJ-AK) and the January $350 puts (CMJ-MA).
Picked on November 20 at $375.90
Four Seasons - FS - close: 54.53 chg: -0.01 stop: n/a
We have nothing new to report on for FS. Last week's breakout over its 50-dma and its multi-month trendline of resistance and lower highs has all but killed this strangle play. We have two weeks left before January options expire. The options in our strangle were the January $60 calls (FS-AL) and the January $50 puts (FS-MJ). We have adjusted our target to breakeven at $2.60.
Picked on November 08 at $ 55.37
Lear Corp - LEA - close: 29.54 chg: +0.20 stop: n/a
We are a little surprised that enthusiasm for the carmakers today did not translate into strength for LEA. Shares remain under the $30.00 level but look poised to move higher. We have two weeks left before January options expire. If we have any hope of exiting near breakeven then LEA needs to trade over $35 or under $25 pretty soon. We are no longer suggesting new strangle positions. The options in our strangle are the January $35 calls (LEA-AG) and the January $25 puts (LEA-ME). We have lowered our target to breakeven at $1.60.
Picked on November 06 at $ 30.24
Questar Corp. - STR - close: 80.23 chg: +0.72 stop: n/a
Forecasts for warm weather in the northeast are pulling natural gas futures lower. This may be impeding any bounce attempt in STR but shares did close over the $80 level today. We have adjusted our target to breakeven at $5.10. Our strangle involves the January $80 calls (STR-AP) and the January $70 puts (STR-MN).
Picked on November 20 at $ 76.25
Texas Ind. - TXI - close: 52.74 chg: +1.69 stop: n/a
Hmm... we can't find any news to explain the huge surge in volume today, which came in at 4.8 times the norm. The stock added 3.3% but remains inside its trading range. We don't see any other changes from our weekend update. We are not suggesting new plays. The options in our strangle are the January $55 calls (TXI-AK) and the January $45 puts (TXI-MI). Our estimated cost is $2.70 and we have adjusted our target to breakeven on the slim chance that TXI does produce a move.
Picked on November 27 at $ 49.57
Valero Energy - VLO - close: 56.25 chg: +0.36 stop: n/a
Oil stocks were mixed given the decline in crude oil prices today. VLO still added 0.6%. We don't see any change from our weekend update. We are not suggesting new plays at this time. We only have two weeks left before January options expire. Our target has been adjusted to breakeven at $2.93. The options in our strangle are the January $45 puts (VLO-MI) and the January $55 calls (VLO-AK)(both post-split).
Picked on November 21 at $ 50.50
Netease.com - NTES - close: 67.10 chg: +8.22 stop: 58.01
The action in NTES today looks like a short-squeeze. A positive analyst report appears to have sparked the rally and shares blew past resistance at $60.00, $65.00 and its 50 and 200-dma's. If shares pull back readers may want to consider bullish positions. We were never triggered (54.95) for a put play so we're dropping NTES as a candidate with the play unopened.
Picked on January xx at $ xx.xx <-- see TRIGGER
Stryker Corp. - SYK - close: 47.04 chg: +1.90 stop: 46.51
We have been stopped out in SYK at $46.51. The stock produced a big move today adding 4.2% but we can't see any news to account for it - at least not any news for SYK. A move over the 200-dma near $48 would be bullish.
Picked on December 30 at $ 44.29
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