PremierInvestor.net Newsletter Weekend Edition 12-28-2003 section 1 of 1 Copyright (c) 2003, All rights reserved. Redistribution in any form is strictly prohibited. The entire newsletter is best viewed in COURIER 10 for alignment ================================================================= In section one: Market Wrap: Some Have a Beef with Milk Market Watch for Week of December 29, 2003 - Major Earnings - Stock Splits - Economic Reports ! Holiday Schedule Due to the Christmas holiday the normal Premier Investor Email Newsletter will continue on Tuesday, December 30th, 2003. Thank you have Happy Holidays from our family to yours! =========================== Market Wrap =========================== Some Have a Beef with Milk by Keene Little In what is typically one of the lightest, if not the lightest, trading days of the year, today matched expectations for a quiet, go-nowhere market. The Mad Bulls, not to be confused with the Mad Cows, are still refusing to let this market drop. Of course they had very little strength today to push it much higher either. But for the week, the DOW closed up almost 65 points and the SPX up a little more than 7 points (that's equivalent to 70 points on the DOW). A look at the more speculative indexes, the NDX closed up almost 18 points for the week while the Russell 2000 closed up about 8 points. So there was no rotation this week--looks like basket buying where the fund managers essentially buy a basket of stocks instead of selectively choosing stocks. The recent rotation out of the speculative stocks into the blue chips was put on hold this week. And all of these gains were essentially in the first two days of the week as the trading on Wednesday and Friday essentially negated each other. The case of Mad Cow disease has been confirmed by a British lab so now begins to long and costly task of figuring out whether or not it's an isolated incident or not. In the meantime, cattle futures are still limit down and expected to be that way into the new year (the price is normally limited to a maximum price change of 1.5 cents per day, but that was increased to 3.0 cents today and the CME said they will likely let the price drop 5.0 cents on Monday). There is expected to be a very large negative impact to the beef industry, and it will ripple through our economy. But because of the reduction in the cost of beef, there was an analyst upgrade for McDonalds' stock based on the assumption McDonalds will have lower costs. I question this as it seems lower sales as consumers shy away from eating beef will have a larger negative impact on McDonalds. Could it be the analyst was trying to protect his company's portfolio which had a heavy exposure to MCD? Nah, that would mean analysts are disingenuous and that they might have ulterior motives, and I certainly wouldn't want to be accused of mistrusting analysts' true intentions since I know they have our best interests at heart (as my tongue is pressed firmly against my cheek). In all seriousness though, the analyst may be right. Through the Mad Cow scare in the U.K., Britains continued to eat large quantities of beef and so far I haven't heard of any huge consumer concerns, yet. The story out of Italy today regarding Parmalat, the very large dairy company, says the U.S. does not have a lock on corporate malfeasance. The company filed bankruptcy as it moves to protect itself after it was disclosed that they systematically falsified their accounting. It also raises a significant question, as it did here after the Enron debacle, about the international auditing firm, Grant Thornton, who has been doing Parmalat's books since 1999. European bourses were closed today so there was no way to gauge how European stocks will react to this news. There were no economic reports today but in other news China lifted its tarrifs on steel imports. U.S. Steel was up on the news, as was Alcoa was the earthquake in Iran. Initial projections were for thousands, if not 10,000, deaths in the city of Bam in central Iran. There was no reaction in the market though. Crude oil and gold did not trade today and the bond market closed up for the day (yields down). In other sectors, the gold and gold/silver indexes topped the list of gainers with a 3.1% and 2.6% gain, respectively. All other gainers were by less than 1% and it's hard to discern anything from that. There were very few losers today, the largest being the biotech index but that was only -0.2%. Interestingly the transportation index was down today while the airline index was up, but all in all, it was a pretty quiet day. The SPX and NDX pushed to a new high for the week today (barely), but again these highs were not confirmed by the DOW. It seems the DOW and the NDX are swapping positions lately as to who is leading to the upside. The SPX can't decide who to follow. However, because the SPX seems to be the most "consistent", I'm using its daily chart below to help me determine what the market is doing. The action in the market the past two half-day sessions has been difficult to decipher as to where the market might be headed. On Tuesday I had mentioned that I thought the market might have peaked, but that the SPX and NDX would look better with one more minor new high. Today we got the one more minor new high in both of those while the DOW hung back and waited. So, my expectations for the market have now been satisfied. Does this mean we're heading down next week? Unfortunately, the price pattern is not as clear as I would like in order to be able to make a more confident call about direction on Monday. However, based on what I see so far, I'm leaning to the downside. The charts below show some details of what I'm seeing. We've been in these ascending wedges which are typically bearish in their outcome. As the ascending wedge is topping, you look for bearish divergences between new price highs and the corresponding oscillator highs. As of today's highs we have that. The reason it's difficult to be confident in this analysis though is because of the light volume. I'm not sure how much that might skew the results of these oscillators. I would like to have seen a clean Elliott Wave pattern (5 waves up) to today's high, followed by a clean 5 waves down. We had neither and I therefore have to guess at the current EW count. I don't like to guess at the count and then make predictions based on that. So while I'm comfortable saying the market has seen its highs, it wouldn't surprise me in the least to still see a poke higher. Considering this Monday is typically bullish, which will be especially true if we have no evil-doer activities, I have a hard time predicting we'll see a down day on Monday. So, whenever I'm in a quandary as to where we are, I have found it's much better to remain flat and wait for clarity in the price pattern. Much better to be sorry I missed a trade than to be sorry I'm in a trade. Let's look at the major indexes, starting with the big picture and working in closer: The SPX 500 (SPX) weekly chart: I showed the DOW weekly chart on Tuesday and mentioned that the fibonacci target, based on an A-B-C correction to the move down from January 2000, would be 10,403 where wave-C = 162% of wave-A, a very common fibonacci relationship in A-B-C corrections. The DOW has so far reached almost 10,376 so 27 points shy of this target (less than 0.3% off). The SPX has overshot its 1089 target by 9 points as of today's high (0.8%). This close to these targets after a 15-month rally is pretty amazing. So have we topped here? I can't say for sure, but the evidence for that is building quickly. Note the ascending wedge we've been in since the March low. The SPX daily chart: The SPX continues to find resistance around the 1096.51 area. If it can break free of this, there is fibonacci resistance between here and 1101. If it drops below the upper line of the ascending wedge, there is a good chance the rally is over--the coffin lid gets closed. Breaking below 1068 and we start nailing the coffin closed, and a break below 1031 padlocks the coffin closed. The EW term for an ascending wedge is an ending diagonal--it is an ending pattern to the overall move. So we've got an ending diagonal on the weekly chart for wave-C of the A-B-C. Now we have another ending diagonal for the final 5th wave of that wave-C. Check out the 60-min chart to see what we have there as well. The SPX 60-min chart: The final push up from December 10th has formed another ending diagonal. So we've got an ending diagonal on the 60-min chart finishing up an ending diagonal on the daily chart which is finishing up the ending diagonal on the weekly chart. These nested ending diagonals are bearish to the nth degree but we're still waiting for price to tell us it's over. After breaking down, price will retrace to the beginning of an ending diagonal. Therefore we should expect price to drop back to at least the March 2003 low. As for this last ending diagonal, the upper line of the ascending wedge on this 60-min chart held back price today. For now we watch the lower line of this ending diagonal. The DOW 60-min chart: The uptrend line for the rally from December 10th held up the decline in the DOW today. After a small throw-over on December 23rd from this ending diagonal it has fallen back inside. It could make another rally high from here (10,403 is that long-term fibonacci resistance target), but if it drops further below this uptrend line, that will be a strong signal the rally is over. My guess going into the weekend is that the DOW topped with that throw-over on the 23rd. But this coming Monday is typically bullish in this holiday period and therefore I'm on guard as to any bearish thoughts. The NDX 60-min chart: The uptrend line from December 17th held up the decline today while the high on December 3rd held the rally. Can you say squeeeeeeze? I believe the battle of the lines will determine the next move in this index, and the market, and therefore needs to be watched closely. My guess, as shown by the blue arrow is that the rally is complete, but will be watching action carefully here. The bearish EW count on the NDX is predicated on price staying below the December 3rd high, so if the NDX violates this, but Nasdaq does not, I'm not sure what to make of that but I'll cross that bridge if and when I come to it. The price action from Tuesday through Friday is unfortunately too muddy to make a confident call in what to expect early next week. We are entering a typically bullish week or so, but the EW picture tells me we either topped or are extremely close to topping. Bullish bets would be risky. The longer we go sideways, like we have the past two half-sessions, the greater the likelihood we'll see a push to new highs. If that happens, we might see inter-market divergences where not all the indexes push to a new high. With the flip-flopping between the DOW and NDX, I'm not sure who would make the next push higher although I suspect the DOW would only because I think institutions are going to try to get out of the more speculative stocks in anticipation of a January correction. It's easier to get out of the smaller stocks before a decline gets underway. While still wary of a rally next week, I'm still cognizant of what I mentioned Tuesday--with everyone expecting a rally, we may not see it. The expected rally around Christmas has effectively not happened. Between Wednesday and Friday, the market lost a little bit of ground. Any new money coming into the market next week, that causes some buying to happen, may just be the opportunity institutions are looking for to sell into. It will be a time to be very careful about your positions, long or short. I don't see any economic reports coming out Monday or Tuesday so we'll be on our own. We will probably continue to see light volume until after New Year's, so be careful in your trading. In these light volume days we see program trades kick in and move the market out of nowhere. I've seen the market move quickly in one direction so that an institution can sell or buy it at a better price which quickly moves it in the other direction. Stops can quickly be triggered and then price moves right back to where it was. Good luck in your trading next week. Be careful--we're close to a top, if not already there, and I expect some volatile action, if not Monday/Tuesday, then certainly after New Year's. Have a great weekend and I'll see some of you in the Futures Monitor bright and early Monday morning. Keene Little ========================================== Market Watch for the week of December 29th ========================================== ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- No Major Earnings ------------------------- TUESDAY ------------------------------ No Major Earnings ------------------------ WEDNESDAY ----------------------------- No Major Earnings ------------------------- THUSDAY ----------------------------- No Major Earnings ------------------------- FRIDAY ------------------------------- No Major Earnings ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable NEOG Neogen Corporation 5:4 Dec 31st Jan 2nd KSWS K-Swiss Inc 2:1 Dec 31st Jan 2nd ACET Aceto Corporation 3:2 Jan 2nd Jan 5th AAP Advance Auto Parts Inc 3:2 Jan 2nd Jan 5th JCI Johnson Controls, Inc 2:1 Jan 2nd Jan 5th CLBK Commercial Bankshares Inc 2:1 Jan 2nd Jan 5th -------------------------- Economic Reports This Week -------------------------- There isn't much on the economic calendar between Christmas and New Year's. Those economists still on the job will be watching Tuesday's Chicago PMI, Existing Home sales and the Consumer confidence report. ============================================================== -For- ---------------- Monday, 12/29/03 ---------------- Help-Wanted Index (DM) Nov Forecast: N/A Previous: 37 ----------------- Tuesday, 12/30/03 ----------------- Chicago PMI (DM) Dec Forecast: N/A Previous: 64.1 Consumer Confidence (DM) Dec Forecast: N/A Previous: 91.7 Existing Home Sales (DM) Nov Forecast: N/A Previous: 6.35M ------------------- Wednesday, 12/31/03 ------------------- Initial Claims (BB) 12/27 Forecast: N/A Previous: N/A ------------------ Thursday, 01/01/04 ------------------ - Markets Closed for New Year's Day - ---------------- Friday, 01/02/04 ---------------- None Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ----------------------------------------------------------------- ================================================================= To stop receiving this PremierInvestor.net Newsletter, send email to Contact Support ================================================================= DISCLAIMER ================================================================= This newsletter is a publication dedicated to the education of stock traders. 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