Just when market participants thought the ouija board had decoded a pausing Fed after Friday's "inflation friendly" nonfarm payroll figures, hawkish comments regarding inflation from Fed Chairman Bernanke once spelled UNCERTAINTY that the Fed wouldn't continue its stance of measured rate hikes.
July Fed Fund futures (ff06n) ticked 94.89 early in today's session, predicting a less-than 50% chance of a 25-basis point hike at the June meeting, but by the close settled at 94.82 an 72% probability that the Federal Open Market Committee will raise a quarter-point later this month to 5.25%.
Sabre-rattling comments by Ayatollah Ali Khamenei, Iran's Supreme Leader had equities stumbling out of the gate, with July Crude Oil futures (cl06n) jumping as high as $73.40 intra-day. The Ayatollah threatened that Iran might disrupt crude supplies to the West should the country be invaded over its nuclear program.
Despite the Ayatollah's threats, July Crude settled up 27 cents, or +0.37% at $72.60.
Middle East uncertainty did find what I would consider to be defensive buying in Treasuries, with the benchmark 10-year Yield once again undercutting the 5.00% level in early morning trade.
Market internals had been confirming some of the recent week's price action. New high/new low (NH/NL) indications are vastly improved from the 05/22/06 Market Wrap, but NASDAQ's 5-day NH/NL ratio softening up again at the mid-point of 50% suggests some short-term lack of bullish leadership.
U.S. Market Watch - 06/05/06 Close
A snapshot of today's PRICE action would depict a "slow bleed" lower for equities, where a notable break to the downside was found after Fed Chairman Bernanke said current core inflation measures were at the "upper end" of his and many Fed officials comfort zone.
While equities accelerated losses to the downside, sharp reversals were found in the Dollar Index (dx00y) with the dollar reversing losses, while sellers stepped in on Treasuries, with the benchmark 10-year YIELD ($TNX.X) finishing up 3.2 basis point to 5.026%. The StreetTracks Gold Trust (GLD) $62.29 -0.33% also reversed course on Dr. Bernanke's focus toward inflation.
The dollar's fluctuation continues to create a great deal of uncertainty among broader equity traders, as well as gold itself.
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I've been trading some gold equities long and short in the OptionInvenstor.com Market Monitor (BGO, NEM, GG), and boy have they been VOLATILE. I think traders will agree that a softer/weaker dollar trade tends to depict market psychology of a "Fed pause," and easing thoughts towards inflation. But as the Dollar Index (dx00y) challenges recent lows of 83.75, market participant certainly show jitters that a major breakdown in the greenback could open the floodgate for broader selling in equities.
August Gold futures (gc06q) currently trade down $7.90 at $640.80 after kissing the $650.00 mark prior to Monday's open outcry settlement at 01:30 PM EDT.
S&P 500 Index (SPX.X) - Daily Intervals
I touched briefly on the NASDAQ NH/NL ratio readings earlier tonight. While I don't post the SPX (500 stocks) NH/NL readings in my Market Internals, I do keep track of them in order to gather an observation of bullish/bearish leadership in this widely followed index.
The above chart of the SPX is updated from my last Market Wrap on 05/22/06 and our last visit. The SPX had just undercut the 1,254.78 level that day and traded its recent relative low on 05/24/06. Of the 500 stocks in the S&P 500, 3 had been able to achieve a new 52-week high, while 19 had traded a new 52-week low, with a DAILY NH/NL ratio of 13.64%.
Tonight's final tally would show 6 stocks achieved a new 52-week high, while 14 stocks a new 52-week low with a DAILY ratio of 30.00%. These comparison readings should have a bear looking to lock in some type of gain if they hadn't under more "oversold" NH/NL readings.
I've updated recent "Max Pain" Theory tabulations. The rather notable decline for August (from 1,300 in 5/24/06 Market Wrap) strongly suggests a flat to lower trade being expected during the summer months.
I want to quickly tie some of the overseas markets into the dollar's weakness. "Developing markets" as well as major foreign market's like Japan's have exhibited notable weakness in recent weeks.
Japan's Nikkei-225 ($NIKK) - 50-point box scale
The above chart of the Nikkei-225 is one worth being alert to near-term. If you think the Dow Industrials ($INDU) have had a tough time recently, the Nikkei as well as other Asian Pacific markets have been under some heavy selling pressure.
The Dow Industrials ($INDU) exhibits a similar supply/demand pattern as found in the Nikkei, where further weakness in the Nikkei-225 could have bearish implications.
Dow Industrials ($INDU) - 50-point box scale
Inflation fears, or dollar fears aren't just a "U.S. concern." One could argue that much of the weakness found in U.S. equity markets started overseas.
As the Dow Industrials were breaking to multi-year highs in May (red 5), the Nikkei-225 ($NIKK) was triggering a triple-bottom sell signal at 16,750.
Amgen Inc. - AMGN - close: 67.48 chg: -1.70 stop: 69.55
Why We Like It:
BUY PUT JUL 70.00 YAA-SN open interest=8433 current ask $3.70
Picked on June 05 at $ 67.48
Burlington Nrth.SntFe - BNI - cls: 75.64 chg: -2.93 stop: 80.01
Why We Like It:
BUY PUT JUL 80.00 BNI-SP open interest= 5679 current ask $6.00
Picked on June 05 at $ 75.64
Barr Pharma - BRL - close: 52.20 chg: -1.55 stop: 54.25
Why We Like It:
BUY PUT JUL 55.00 BRL-SK open interest= 291 current ask $4.00
Picked on June 05 at $ 52.20
Wynn Resorts - WYNN - close: 69.11 chg: -2.01 stop: 73.51
Why We Like It:
BUY PUT JUL 70.00 UWY-SN open interest= 136 current ask $4.40
Picked on June 05 at $ 69.11
Peabody Energy - BTU - close: 60.80 chg: -4.13 stop: 59.85
Monday proved to be a very rough day for stocks. It is very unfortunate that BTU's spike higher this morning (65.93) was not enough to hit our target in the $66.00-67.00 range. In one session the stock gave back all of its recent gains. Today's 6.3% decline was fueled by stronger than average volume. Odds are very good that BTU will test the 50-dma and the $60.00 level tomorrow. The question is whether or not this level will hold up as support. We are not suggesting new positions and more conservative traders may want to think about an early exit to protect their capital.
Picked on May 28 at $ 61.00
Cummins Inc - CMI - close: 109.15 chg: -2.95 stop: 106.99
CMI suffered a 2.6% decline during Monday's market-wide sell-off. The only good thing we could possibly find was that volume came in below average. The close under $110 and the two-day weakness has put a bearish hook on some of the short-term technical oscillators. We are not suggesting new positions. More conservative traders may want to tighten their stops.
Picked on May 31 at $110.21
CSX Corp. - CSX - close: 66.47 chg: -2.13 stop: 65.90
The transport stocks were hit pretty hard. The Dow Jones Transportation index lost 142 points for a 2.99% loss and a close back under its simple 50-dma. CSX followed suit with a 3.1% decline and a close under its own 50-dma. This is bad news. We are not suggesting new positions right now and if you opened plays today you may want to exit early. We're keeping the play open on the chance that CSX will bounce from support near $66.00.
Picked on June 04 at $ 68.60
Deere Co - DE - close: 85.07 change: -2.68 stop: 84.45
Looks like we should have used a trigger over the $88.00 level. Shares of DE did not escape the market's sell-off and the stock lost 3% to close right near the $85 level and its 50-dma. We are not suggesting new bullish positions at this time.
Picked on June 04 at $ 87.75
Halliburton - HAL - close: 74.25 chg: -2.53 stop: 69.99
Ouch! The sell-off in the oil stocks was pretty sharp despite the fact that crude oil edged higher on rising fears over Iran playing the oil card. HAL not only erased most of our gains with today's 3.29% decline but shares have produced a bearish engulfing candlestick pattern, which is typically viewed as a short-term bearish reversal. We would expect HAL to dip to the 10-dma near $73 and probably lower. We're not suggesting new positions at this time. There are two upcoming events for HAL. One is a two-day analyst meeting that begins on June 7th. The other is a 2-for-1 stock split on July 17th.
Picked on May 25 at $ 73.80
Hydril - HYDL - close: 74.45 change: -3.20 stop: 71.75
HYDL is another oil-sector casualty. Shares lost 4.1% and closed back under the $75.00 level. Short-term technicals look bearish. We are not suggesting new bullish positions at this time and if you opened call positions this morning you may want to exit early and await a new entry point later.
Picked on June 04 at $ 77.65
iShares Global Energy - IXC - cls: 103.88 chg: -2.46 stop: 99.49
Today's session was pretty rough for the IXC. The ETF lost 2.3% erasing most of our gains. Furthermore the IXC ishares produced a bearish reversal candlestick pattern. We are not suggesting new bullish positions at this time. The IXC should have support near $102.50 and again near $100.
Picked on May 25 at $103.67
Kerr Mcgee - KMG - close: 107.00 chg: -3.86 stop: 104.85
KMG lost 3.48% on Monday to completely erase last Friday's gains. The stock has produced a very clear bearish engulfing candlestick pattern, which is typically interpreted as a bearish reversal. We are not suggesting new bullish plays and if you did open positions this morning you may want to seriously consider exiting right now to protect your capital. We expect a dip to $105.00 or worse and our stop loss may be too close for the sort of volatility we're seeing right now.
Picked on June 04 at $110.86
Marathon Oil - MRO - close: 77.00 chg: -1.39 stop: 72.95
Same story, different oil stock. MRO erased early gains to produce a bearish engulfing candlestick pattern. We are not suggesting new bullish positions. If you are long calls you might want to exit early. We expect a dip toward $75.00 or worse.
Picked on June 04 at $ 78.39
Omnicom - OMC - close: 94.89 chg: -0.92 stop: 91.75
Shares of OMC, which have been a pillar of relative strength lately, are finally seeing some profit taking. We warned readers that it was probably time to take some money off the table. Right now we expect shares to consolidate toward the 10-dma (94.07) or toward the $92.50-93.00 region. We're not suggesting new positions. The big volume on today's decline is a bearish development.
Picked on May 15 at $ 92.05
Priceline.com - PCLN - close: 31.31 chg: -0.91 stop: 29.85
Tech stocks suffered some stiff losses on Monday. The NASDAQ lost 2.2% while the INX Internet index fell 1.98%. Shares of PCLN under performed its peers with a 2.8% decline. At this point we would expect a pull back toward support near $30.00. We're not suggesting new positions.
Picked on May 25 at $ 30.67
Transocean Inc. - RIG - close: 80.57 chg: -2.58 stop: 77.99
RIG is another oil stock casualty with a sharp reversal and a bearish engulfing candlestick pattern. We'd like to see a bounce from the $80.00 level but if that doesn't work then RIG does have some support near $78.00. We're not suggesting new positions at this time.
Picked on June 04 at $ 83.15
VF Corp. - VFC - close: 63.24 change: -1.20 stop: 61.84
The market-wide sell-off on Monday pulled VFC back toward previous resistance, now support, at the $63.00-63.25 region. A bounce from $63.00 could be used as a new bullish entry point but we'd hesitate to initiate new positions if the major averages are weak. More conservative traders might want to think about raising their stops toward $62.50 or $63.00.
Picked on June 01 at $ 63.51
Valero Energy - VLO - close: 60.65 chg: -2.40 stop: 59.85
Monday produced an ugly session for VLO. The stock traded higher this morning so that when shares reversed course the stock produced a big bearish engulfing candlestick pattern. The selling stalled near $60.00 and its 10-dma, either of which might offer support but we are not very optimistic. We're not suggesting new positions at this time.
Picked on June 04 at $ 63.05
Apollo Group - APOL - close: 52.39 chg: -0.25 stop: 53.85
Sometimes the market does not make sense. Today's market sell-off was a great excuse to sell yet shares of APOL barely budged and closed with a 25-cent decline. We are not suggesting new bearish positions at this time. Look for a move back under $52.00 before considering positions. Our target is the $47.75-47.50 range. The $50.00 level is APOL's next level of support and we expect another bounce near $50.
Picked on May 17 at $ 51.75
Franklin Res. - BEN - close: 88.14 chg: -2.55 close: 92.55
BEN lost 2.8% and closed back under the $90.00 level. This looks like another entry point to buy puts again. More conservative traders may want to lower their stop loss. Our target is the $85.25-85.00 range, which is a slight adjustment from our initial target.
Picked on May 14 at $ 89.30
Digital River - DRIV - close: 40.81 chg: -2.75 stop: 45.55
DRIV showed lots of weakness on Monday. the stock lost 6.3% on volume that was more than twice the daily average. The stock closed under its 100-dma, which is bearish, and shares closed near their lows for the session, which is also bearish for tomorrow. We are suggesting two targets. Consider selling half your position at $40.20 and then sell the remainder at $37.65. We are concerned that the $37.50 region might be support with its slowly rising 200-dma. FYI: if you're a technical trader the 38.2% Fibonacci retracement of DRIV's rally would be about $38.65.
Picked on June 04 at $ 43.56
Intl. Bus. Mach. - IBM - cls: 79.06 chg: -0.46 stop: 81.05
Believe it or not we are still on the sidelines with IBM. For all of the market's weakness it could not push IBM under support at the $79.00 level today. We remain bearish. The stock did produce a bearish failed rally at the $80.00 level today. More aggressive traders may want to jump the gun but we're sticking to our play with a trigger to buy puts at $78.75. If triggered then we'll target a decline into the $73.50-73.00 range.
Picked on June xx at $ xx.xx <-- see TRIGGER
Monster Worldwide - MNST - cls: 45.85 chg: -1.74 stop: 50.05*new*
MNST continues to sink and shares lost 3.65% on another day of strong volume. We are lowering our stop loss to $50.05. Our target is the $45.25-45.00 range but more aggressive traders may want to aim lower near the 200-dma. The P&F chart target has grown from $36 to $32.
Picked on May 31 at $ 48.87
Nucor - NUE - close: 50.41 chg: -3.49 stop: 55.15 *new*
Iron and steel stock NUE suffered some heavy selling today. The stock lost 6.47% and closed near its lows for the day, which is bearish for tomorrow. We are lowering our stop loss to $55.15. We are aiming for a decline into the $46.25-45.00 range but more conservative traders may want to take an early exit near its rising 100-dma (currently 48.57).
Picked on May 31 at $ 52.64 *split adjusted
SanDisk - SNDK - close: 54.12 chg: -1.01 stop: 60.26
SNDK has produced a bearish failed rally under its simple 10-dma today. The stock traded higher this morning after being upgraded but the early strength faded and the stock closed under its exponential 200-dma. Volume on today's 1.8% decline was well above the daily average. Our target remains in the $53.00-52.50 range.
Picked on May 23 at $ 58.98
Carpenter Tech - CRS - close: 113.92 chg: -7.48 stop: 114.45
Stopped out! We keep trying to play the volatile steel and metal stocks but we're getting whipsawed out of them. If you bought positions on this morning's spike lower the day went from bad to worse with a 6.1% decline. The Point & Figure chart, which had just produced a new buy signal on Friday, has reversed into a "bull trap" pattern and we were caught in it.
Picked on June 04 at $121.40
Holly Corp. - HOC - close: 43.12 chg: -0.98 stop: 39.95
Target achieved. HOC did not escape the market's painful sell-off today but before shares of HOC produced its failed rally and bearish engulfing candlestick pattern today the stock hit our target. Actually shares gapped open higher (44.99) near the top of our target range (44.50-45.00). The play should have been closed at the opening bell. We'll watch for a bounce in the $40.00-42.00 region as a potential entry point for new plays.
Picked on May 25 at $ 40.60 *split adjusted
Terex Corp. - TEX - close: 89.30 chg: -4.55 stop: 88.99
We are going to pull the plug on our bullish play in TEX. Shares lost 4.8% and closed under what should have been support near the $90.00 level.
Picked on June 1 at $ 92.65
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