There's an old saying that "a picture is worth a thousand words." For those that have heard those words, then last Monday's Market Wrap and this Monday's updated point and figure chart of the very narrow Dow Industrials (INDU) 13,950.98 +0.31% recaps much of that wrap.
The recent pattern of "Bam, bam, ugh..." just went "Ba.. Zoom!" as buyers aggressively bought last Tuesday's pullback.
With a nice little short-squeeze having taken hold on the break higher at 13,700, buyers (especially shorts below 13,700) should have support rising from 13,250 to 13,500.
Dow Diamonds (DIA) - Daily Intervals
I should note that on Thursday and Friday, I suggested OptionInvestor.com Market Monitor traders leg out of their bullish Dow Diamond Aug $135 Calls at DIA respective benchmarks of DIA $137.61 and $139.23 as the DIA $139.46 +0.39% neared my $140.00 target.
Recent action strongly suggests that institutional computers are exhausted of supply at MONTHLY R1 ($136.56) and I'd have to think (based on observation), that they will be set for further buying on any re-test of that level.
While some long liquidation (selling long) took place on the powerful move up as bulls took profits, the rapid move through July's MONTHLY pivot retracement levels, and perhaps today's low at MONTHLY R2, suggests this market (INDU/DIA/DJX and YM futures) is overly short.
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Lighten up your offer/ask, and assess risk to MONTHLY R2. If you're going to stay in business and generate a commission, you might have to SHORT to the market as BUYERS scramble to buy.
Now you want to BUY on weakness and get SQUARED up!
Yes! Even those still short from the 6/11/07 doji close.
U.S. Market Watch - 7/16/07 Close
Having traded as high as 13,989 intra-day, only the very narrow Dow Industrials (INDU) managed to close at an all-time high on positive breadth of 18:12.
Boeing (NYSE:BA) $102.07 +0.18% gets the trade at $102 (see Monday's Market Wrap), while Johnson & Johnson (NYSE:JNJ) $63.80 +0.58% inches its way higher.
Alcoa (NYSE:AA) $46.77 -1.22% traded as high as $48.77, but takes a breather having surged from the $42.00 level on Thursday.
United Technologies (NYSE:UTX) $76.67 +2.22%, which is the 6th-highest-priced Dow component, put in a strong showing today, as did 22nd-weighted Verizon (NYSE:VZ) $42.76 +2.39% on rumor that Vodafone (NYSE:VOD) $33.15 -1.10% may be set to buy the telecom service provider. A rumor that Vodafone denied.
McDonalds (NYSE:MCD) $52.10 +0.36% edged higher after the fast-food giant said same store sales rose 8.4% in June and 7.4% in the second-quarter. However, the company warned that it expects to post its first quarterly loss in more than 50 years in the recently completed second-quarter when it takes a -$1.31/share charge for the sale of some Latin American operations. Excluding the one-time charge, McDonald's said it would likely exceed Wall Street forecasts and earn $0.71/share from continuing operations. Consensus is for $0.68/share.
Ahead of key earnings for financials this week and mixed retail sales trends, 11th-weighted American Express (NYSE:AXP) $61.88 -1.51% was a percentage loser among the Dow 30 components.
The largest U.S. banks are facing a tough operating environment, but their second-quarter results are likely to be decent as they benefit from their diverse business mixes. Still, investors will be scrutinizing the results to detect any fallout from the meltdown in the subprime mortgage market.
I've made a few notes regarding the "delay" of a few bond offerings, especially in the corporate high yield segments in the OptionInvestor.com Market Monitor the past couple of weeks. The bond market dwarfs the equity markets and is difficult to track closely. But the general impression is that there are still some liquidity issues, or lack of buyer interest for "junk bonds."
Starting tomorrow, super regional Wells Fargo (NYSE:WFC) $35.45 -0.25% and Wachovia (NYSE:WB) $52.36 -0.53% are slated to report their quarterly earnings.
Dow component JP Morgan (NYSE:JPM) $49.83 -0.43% will report Wednesday and Bank of America Corp. (NYSE:BAC) $49.62 +0.24% will report on Thursday.
Citigroup Inc. (NYSE:C) $52.19 -0.62%, which is the 14th heaviest price-weighted Dow component reports Friday.
Merrill Lynch & Co. (NYSE:MER) $87.39 +0.98% ends a volatile second-quarter earnings season for the big brokerage firms tomorrow amid continuing concerns over subprime mortgages and the credit markets. Merrill bought a big subprime lender in January, but observers say it has been savvy in shedding many of the riskiest loans.
The narrower S&P 100 (OEX.X) 717.01 -0.02% traded relatively unchanged, but the supply/demand relationship looks very similar to that of the Dow 30.
S&P 100 Index (OEX.X)
As you review the VERY NARROW Dow Industrials, and build out to the narrow S&P 100 Index ($OEX) you can see some similarities. Not a coincidence as the Dow 30 are also found in the OEX. The OEX is a MARKET CAP WEIGHTED index though, so it is constructed slightly different. FINANCIALS are the BIGGEST weighted group in the OEX.
With BUYERS (not just bulls, "old bears") seemingly more focused on the narrower indexes, I would think an "S&P" bull finds 695 as a "best buy" on a pullback. As of tonight's close, it would take a trade at 700 in the OEX to see a 3-box reversal back lower.
Let's stick with the "S&P" for a minute, and look at the BROADER S&P 500 ($SPX).
S&P 500 Index ($SPX) - 10-point box
Slightly different supply (O) and demand (X) picture. Are you seeing the VERY SUBTLE differences as we "broaden out" from 30 stocks in the Dow, to 100 in the OEX, to 500 now with the SPX?
I've shown the S&P Depository Receipts (SPY) $154.83 -0.01% bar charts before and noted the WEEKLY 5/11/07 "doji close." I've superimposed the SPX's 5/11/07 close on the point and figure chart above.
VOLATILITY! In 2005, we would count 7 alternating columns of X and O.
In 2006, we would count 8 alternating columns of X and O.
Were just more than half-way through the year of 2007 and I'm already counting 8 alternating columns of X and O.
Now I want to build, or continue to follow up on "breadth."
Just looking at INDU, then OEX, then SPX we see SIMILARITY (INDU/OEX) and some very subtle difference (SPX) in the supply/demand charts.
Today, breadth was negative at the NASDAQ and NYSE with decliners outnumbering advancers by a 2:1 margin.
Let's quickly review the NASDAQ Summation Index ($NASI), which simply measures a/d on a continuous basis.
NASDAQ Summation ($NASI) - 20-point box
At last Monday's close, the $NASI from www.stockcharts.com measured -86.70. We have seen a REVERSAL higher to -80 on the chart, so some slight broadening out of advancing issues.
Now keep that in mind.
Let's jump to the big board and the NYSE's summation ratio.
NYSE Summation Index ($NYSI) - 20-point box
Zero (0.00) is what would envision as a "water line." That is, stuff that floats on water, floats above the water line, or zero.
VERY BROAD, each measuring over 3,000 stocks per exchange, so a continuous process of measuring the advance/decline line of over 6,000 stocks!
Question! What were the MAJOR US Equity % Gainers since last Monday?
Global Equity Benchmarks / Currencies
The INDU and the NDX were the notable #1 and #2.
The OEX was #3.
The broader SPX #4.
And the much broad Russell 2000 ($RUT) is actually down 0.56% since last Monday.
Now look at your currencies!
The Dollar Index (DXY) was down 1.06%, as STRENGTH in the euro/$ and the pound/$ as well as strength in the yen against the $, or weakness in the $/yen unfolded.
What companies might tend to BENEFIT from a weak dollar?
How about the BIG companies that EXPORT products/services to countries that have a STRONGER currency against the dollar?
Now build out a bit and look at the US equity benchmarks against other FOREIGN equity benchmarks.
I wouldn't just "key" on the dollar, thinking "weak dollar BULLISH INDU/NDX/OEX/SPX," but as time progresses, and I compare US equity benchmarks, perhaps consider that "small companies" may not BENEFIT AS MUCH near-term with a WEAK dollar as larger companies, then add the observation that OVERSEAS markets haven't faired nearly as well as the BIG Cap indexes here in the U.S., I do get a feeling that the NARROW buying we're seeing, may well be part of the WEAK DOLLAR story.
In last Monday's wrap I mentioned that the narrow NASDAQ-100 Bullish % (BPNDX) from Dorsey/Wright had reversed up to "bear correction" status. On Thursday, this narrow bullish % did achieve "bull confirmed" status with a 76% measure (76 of the 100 point and figure charts) now have a point and figure "buy signal" associated with the chart.
On Friday, 3 additional stocks saw reversing higher point and figure buy signals (XMSR, PAYX and AMZN) unfold.
Today's action saw no net change, so still "bull confirmed" at 79% bullish.
Another observation that buyers are focused in the NARROW BIG cap names.
Avery Dennison - AVY - cls: 67.85 chg: -0.48 stop: 65.90
AVY gave into market weakness on Monday and slipped 0.7%. We don't see any significant changes from our previous comments. Broken resistance near $67.50 and $67.00 should be short-term support. Our target is the $69.75-70.00 range. We do not want to hold over the late July earnings report, which are still unconfirmed at July 24th.
Picked on June 11 at $ 66.05
Boeing Co - BA - cls: 102.07 change: +0.19 stop: 98.95
BA displayed relative strength with another gain on Monday. Traders jumped in to buy the dip near $101.00 this afternoon. We remain bullish and would still consider new positions now although if the markets see more profit taking then patient traders might get an entry point in BA near $100. Our target is the $109.00-110.00 range. The intraday move over $102 has produced a new triple-top breakout buy signal on the P&F chart with a $119 price target. Remember, we do not have a lot of time and plan to exit ahead of the July 25th earnings report.
Picked on July 13 at $101.55
Burlington Northern - BNI - cls: 89.56 chg: +0.88 stop: 83.99
The railroad sector was the best performing industry group today. The Dow Jones Railroad index rose 1.1% and broke through potential resistance at the 500 level. Shares of BNI followed with a 0.99% gain and a bullish breakout over technical resistance at the 50-dma. We would still consider new positions now but odds look good that BNI will give us another dip back toward $88.00-88.50 before moving higher. Use the dip as a new entry point. More conservative traders may want to tighten their stops. The P&F chart is still bearish but we're aiming for the $94.00-95.00 range. This is somewhat aggressive given our time frame as we plan to exit ahead of the July 24th earnings report.
Picked on July 12 at $ 88.17
Deere Co - DE - close: 131.60 change: +0.52 stop: 119.95
Shares of DE and rival CAT continue to rally. CAT looks short-term overbought and a pull back in CAT could slow down the rally in DE. We don't see any changes from our weekend comments. Our first target was the $129.50-130.00 range. Conservative traders will want to strongly consider an exit right here. We remain bullish on DE but we're not suggesting new positions at this time. Our next target is the $134.00-135.00 range. Readers may want to tighten their stops.
Picked on June 20 at $123.55
FedEx - FDX - cls: 115.64 change: -1.61 stop: 111.85
FDX suffered some profit taking following Friday's big gains. Traders bought the afternoon dip near $115 and the move looks like a new entry point but we're not convinced the pull back is over. FDX may dip to $115 again or head toward $114. We would wait for signs of a bounce before considering new positions. We are aiming for the $119.50-120.00 range.
Picked on July 12 at $114.42
GulfMark - GMRK - cls: 54.85 change: -2.19 stop: 53.49
Oil and energy stocks surprisingly hit some profit taking even though crude oil futures remain high. Shares of GMRK erased all of our unrealized gains with a 3.8% correction. In spite of the pull back GMRK continues to look bullish north of $54.00 and its 10-dma although we'd wait for a bounce before considering new call positions. Our target is the $59.50-60.00 range. We don't want to hold over the late July earnings report. FYI: Don't forget that GMRK expects to change symbols when it moves to the NYSE around July 20th.
Picked on July 09 at $ 55.05
GlobalSantaFe - GSF - cls: 72.07 change: -0.98 stop: 69.90
GSF failed to avoid the pull back in oil stocks. Shares of GSF slipped 1.3% but continue to find some support near the $72.00 level. We remain bullish although patient traders may want to wait for a dip toward $71.00 or $70.00 before jumping in. Our target is the $78.00-80.00 range. We do not want to hold over the early August earnings report. The P&F chart is bullish with an $87 target.
Picked on July 15 at $ 73.05
Helmerich Payne - HP - cls: 35.58 chg: -0.72 stop: 33.95
Monday proved to be an ugly session for HP. We suggested that readers could wait for a dip toward $35.00 so the pull back may not be over yet. However, what concerns us is today's bearish engulfing candlestick pattern, which tends to act as a one-day bearish reversal. Wait for signs of a bounce before initiating new positions. An alternative entry point would be to wait for a new relative high over $36.60. HP does appear to have long-term resistance near $40.00 so we're setting our target in the $39.85-40.00 range.
Picked on July 15 at $ 36.30
Russell 2000 iShares - IWM - cls: 84.46 chg: -0.48 stop: 81.35
We don't see any changes from our previous comments on IWM. The Russell and the iShares continue to struggle with resistance. We're not suggesting new positions at this time. Our target is the $86.50-87.50 range.
Picked on June 24 at $ 82.85
Joy Global - JOYG - cls: 64.34 chg: +0.32 stop: 59.75
JOYG displayed relative strength with another new high on Monday. The stock hit $65.50 before paring its gains. A dip back toward $63.00 would not surprise us here. Our target is the $68.00-70.00 range. The Point & Figure chart is forecasting an $81 target.
Picked on July 11 at $ 62.05
L-3 Comm. - LLL - cls: 99.87 change: -0.11 stop: 97.45
LLL is still hugging the $100 level. Most of the market's sector indices turned lower but LLL only lost 11 cents, which might be seen as relative strength. We suggested that a dip near $99.65 or $99.00 could be used as a new entry point. Today's low was $99.65. More conservative traders may want to see a new relative high over $100.60 before considering new positions. Our target is the $104.90-105.00 range. We would aim higher but we don't have a lot of time. We plan to exit ahead of the earnings report on July 26th. The P&F chart points to a $113 target.
Picked on July 12 at $100.15
MAGNA Intl. - MGA - close: 96.89 chg: +1.49 stop: 91.89
The rally in MGA continued on Monday. The stock rose another 1.5% and closed at another all-time high. Our target is the $99.50-100.00 range. The P&F chart is bullish with a $110 target.
Picked on July 15 at $ 95.40
PACCAR - PCAR - close: 94.15 change: +0.38 stop: 89.95
PCAR also hit a new all-time high (95.20) but gave back a majority of the session's gains. We remain bullish but traders may want to wait for a dip in the $92.00-92.50 zone before considering new positions. This is somewhat aggressive because we don't have a lot of time. We plan to exit ahead of the July 25th (unconfirmed) earnings report. Our target is the $99.50-100.00 range. The P&F chart is bullish with a $109 target.
Picked on July 15 at $ 93.77
Pacific Ethanol - PEIX - cls: 14.00 chg: -0.15 stop: 12.83
PEIX continues to see profit taking and is now flirting with a breakdown under the $14.00 level. A bounce from here could be used as a new entry point but if you're launching new positions we'd suggest a much tighter stop loss. Our target is the $15.40-15.60 range (essentially the 200-dma). FYI: We cannot find a future earnings date for PEIX but suspect it will be in August or September.
Picked on June 24 at $ 12.83
Penn National Gaming - PENN - cls: 59.71 chg: -0.27 stop: n/a
There is no change from our weekend comments on PENN. We are approaching the last two weeks for this PENN play. The company was given 45 days to solicit a higher offer than the current $67/share buyout price. Given the pull back in PENN it looks like investors are choosing to lock in profits instead of betting on a new suitor showing up. If you're willing to gamble on a new offer coming in over the next two weeks we would stick to the August strikes.
Picked on June 17 at $ 62.12
China Petro - SNP - cls: 112.94 change: -2.12 stop: 112.35
Shares of SNP have broke down from their ten-day trading range. This is short-term negative but we'd expect a bounce near the $110 level. Aggressive traders may want to buy calls on a bounce near $110. We're still waiting for a breakout with a trigger at $116.55 although we may re-evaluate if support near $110 holds. There is potential resistance at $120 but our target is the $124.00-125.00 range. The P&F chart is bullish with a $132 target. FYI: We would qualify this as somewhat aggressive. SNP is an ADR stock so it's prone to gap opens and the technical indicators are looking tired.
Picked on July xx at $ xx.xx <-- see TRIGGER
Toyota Motor - TM - cls: 125.84 change: -0.14 stop: 123.99
Overall we remain bullish on TM and the picture hasn't changed much in the last couple of days. Shares continue to consolidate sideways above what should be support at $125 and its rising 200-dma. We would still suggest call positions now but readers may want to wait for a rise past $126.50 before initiating new positions. We have two targets. Our conservative target is the $129.75-130.00 range. Our aggressive target is the $133.50-135.00 zone. We do not want to hold over the early August earnings report.
Picked on July 12 at $126.30
Toro Co. - TTC - cls: 62.21 change: +0.64 stop: 57.95
Warning! TTC out performed the markets today with a 1% gain but the trading looks bearish. The stock hit $63.69 and gave back most of its gains. This looks like a bearish failed rally pattern. We would expect a dip back toward $61.00 and maybe the $60.00 level. Wait for signs of a bounce before considering new positions. More conservative traders may want to inch up their stop toward Wednesday's low (58.42). Our target is the $64.95-65.00 range. More aggressive traders may want to aim higher. The P&F chart points to a $77 target.
Picked on July 11 at $ 60.75
United States Steel - X - cls: 114.47 chg: -1.63 stop: 109.49
Shares of X gave back almost all of Friday's gains yet today's move looks like a new entry point to buy calls. Traders were buying the dip this afternoon. If you're feeling cautious then wait for a new rise past $115.00 or a new relative high over $116.40. There is potential resistance near $120 but our target is the $124.00-125.00 range. We don't have much time. X is due to report earnings on July 24th. Given our time frame this should be considered a more aggressive play.
Picked on July 13 at $115.51
XTO Energy - XTO - close: 59.34 change: -1.22 stop: 58.45
Monday turned out to be a poor session for the oil and energy stocks. We can't find the catalyst behind today's profit taking. It's our expectation for oil and energy stocks to continue to climb for the next two or three weeks. It's then, in the first half of August, do we expect oil to see a bearish reversal and a seasonal correction lower. What is disturbing about XTO's performance today is the very clear bearish engulfing (reversal) pattern. If you open positions this morning you may want to tighten your stop or bail out now. Technically a rebound from here, near its 50-dma, would be a new entry point but it might be better to wait for a new rally past $61.00 before buying calls. Our short-term target is the $64.85-65.00 range. More aggressive traders may want to aim higher but remember our time constraints. The P&F chart is bullish with a $73 target.
Picked on July 15 at $ 60.56
Goldman Sachs - GS - cls: 220.40 chg: -1.78 stop: 225.26
Market pundits were blaming weakness in the financials and renewed subprime worries for today's performance. GS lost 0.8% and short-term technicals continue to look bearish for the stock. More aggressive traders may want to consider buying puts if GS trades under $219.40. However, keep in mind that rival Merrill Lynch (MER) is due to report earnings tomorrow morning before the opening bell. Wall Street expects MER to turned in profits of $2.01 a share. This industry consistently beats the earnings estimates but has a history of seeing their stocks being sold on the news. A little "sell the news" action would certainly help the bears. We reiterate our defensive posture with GS at this time. Our target is the simple 200-dma near $207.
Picked on July 10 at $217.08
(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.)
Advanced Micro - AMD - cls: 15.72 chg: +0.29 stop: n/a
Tomorrow is our last day to initiate strangle positions in AMD. We want to launch them before rival Intel (INTC) reports earnings tomorrow night. INTC's news should produce a big move in AMD. AMD actually reports earnings on Thursday, which could provide additional volatility. We're suggesting the August options with the August $16 call (AMD-HQ) and the August $15 put (AMD-TC). Our estimated cost was $1.18. We want to sell if either option hits $1.85 or higher. Aggressive traders could aim for $2.40.
Picked on July 15 at $ 15.43
Intel - INTC - cls: 25.95 change: -0.02 stop: n/a
Shares of INTC traded sideways as investors wait for the company's earnings report due out tomorrow night. Tomorrow is our last day to open strangle positions ahead of the report. We were suggesting the August $27.50 call (INQ-HY) and the August $25.00 put (INQ-TE). Our estimated cost was $0.96. We want to sell if either option hits $1.65 or higher. FYI: You will want to try and keep your investment amounts relatively even on both sides of the strangle to keep the strategy neutral.
Picked on July 15 at $ 25.97
Manpower - MAN - close: 94.26 chg: -0.34 stop: n/a
There is no change from our weekend play description for our strangle play on MAN. We're suggesting an entry in the $94.00-96.00 range and the closer to $95.00 the better. We only have tomorrow and Wednesday to open positions. MAN reports earnings on Thursday morning. We were suggesting the August $100 call (MAN-HT) and the August $90 put (MAN-TR). Our estimated cost was $3.35. We want to sell if either option hits $5.75 or higher. FYI: You will want to try and keep your investment amounts relatively even on both sides of the strangle to keep the strategy neutral.
Picked on July 15 at $ 94.60
MGIC Invest. - MTG - close: 56.75 change: -0.23 stop: n/a
There is no change from our weekend new play description for MTG. Tomorrow and Wednesday are our last two days to open positions ahead of the company's earnings report. MTG reports on Thursday morning. The $56.00-58.00 range works for entry points but the closer to $57.50 the better. We were suggesting the August $60 call (MTG-HL) and the August $55.00 put (MTG-TK). Our estimated cost was $3.10. We want to sell if either option hits $5.95 or higher. FYI: You will want to try and keep your investment amounts relatively even on both sides of the strangle to keep the strategy neutral.
Picked on July 15 at $ 56.98
Mettler Toledo - MTD - cls: 99.00 chg: +0.49 stop: 99.11
MTD hit our stop loss at $99.11 today. The stock has been slowly creeping higher since traders bought the dip at its 100-dma back in June. There is potential resistance at $100 and additional resistance closer to $102. We'd keep an eye on it as a nears either level.
Picked on June 19 at $ 96.75
Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.
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