Nasdaq Bulls Scatter
Equities declined today led by the Nasdaq, which lost over 1% and closed .02 above the low of the day. Oversold intraday cycles caused a number of bounce attempts that failed progressively lower throughout the day.
Volume was solid on the exchanges, and breadth solidly negative as the number of declining shares nearly doubled the number advancing shares on the NYSE and more than tripled it on the Nasdaq.
Daily Dow Chart
The Dow got clipped for a minor loss, declining 24.38 to close at 10368. Those 24 points cost the Dow another support level, however, and the day high at 10442 confirmed former support as new resistance. The session low was 10368, just above old support at 10360. Today's decline landed the Dow back into early November, and represented another step in the bearish trending cycle at the bottom of this month's daily cycle downphase. A close above 10440 would be the first sign of trouble for bears, confirmed with a break of 10490-10500. Support below 10360 is strong to 10320, which is the September 2004 high range.
Daily S&P 500 Chart
The SPX also took a minor loss point-wise, declining 4.12 to close at 1163.75, losing last week's low below 1170 and going out at the low of the day. 1160-62 is important support below which there's relatively light air until the 1140-44 confluence. Unlike the Dow, the SPX is in a bearish trending move that still holds out hope of a bullish divergence if bulls can clear 1178-80 resistance.
Daily Nasdaq Chart
The Nasdaq took today on the chin, once again outperforming its peers to the downside as it did last week. The index lost 1.26 or 25.57 to close at the session low of 2008.7. Support at 2025-2030 was broken with authority on higher than average volume of 2.11B shares. There's support to 1990, below which the 1970 level is next.
Weekly TNX Chart
The treasury conducted its scheduled auction of 6 month bills today, auctioning 16B worth of bills at a high rate of 2.61% and generating a bid-to-cover ratio of 2.11. This was the lowest of the month but still above the average ratios of Q3 and Q4 2004 at 1.96 and 1.93 respectively. The 3 month t-bill auction fared worse, with 19B worth of 3 month bills fetching a bid-to-cover of just 1.7, the lowest reading since my data begins in 2000.
Ten year Treasury bonds hung at unchanged until the early afternoon auctions were completed, trading a tight range at Friday's highs. The ten year treasury yield, TNX, refused to break the 4.14% support level that has been so persistent in recent weeks, finally breaking below in the mid-afternoon. The weekly cycle has rolled over for TNX after an entirely corrective upphase since the October lows. With 4.14% violated, the rising trendline from the June 2003 low should be tested in short order, below which the 3.95%-4.0% confluence is next. While it's difficult to imagine rates plunging from these admittedly low levels, the weak bounce since October, the proximity of trendline support and the new oscillator downphases are all suggesting it. For the day, the TNX declined 1.8 bps to finish at 4.122%.
Weekly chart of Crude oil
Marketwatch reported that despite the Nymex' ongoing development of the long-awaited oil exchange traded fund (ETC), experts remain dubious as to the viability of such a fund. Unlike ETFs based on financial products or even the new gold (GLD) ETF, oil is a relatively bulky, expensive product to transport and store. Alternate solutions such as basing the ETF's net asset value on holdings of futures contracts have been suggested by the ETF's supporters, but obtaining SEC approval for such a product would be far from a slam-dunk. The success to date of the GLD ETF and the absence of viable alternatives to permit ordinary investors to buy and sell oil itself with recourse to the futures market are cited in support of the proposed oil ETF.
Crude oil was firm today, cracking the 49 level as the press reported on escalating tensions surrounding the elections in Iraq. A speaker identified as Abu Musab al-Zarqawi reportedly stated in an internet recording that, "We have declared a bitter war against the principle of democracy and all those who seek to enact it," adding that those who vote in the election are "infidels." On the daily chart of crude oil, upside confluence resistance is at 50. Combined with the toppy 10-day stochastic and what appears to be a bearish rising wedge, I expect bulls to have trouble with resistance at 50 despite what appear to me to be very bullish fundamentals. A break below 48 support would have an implied target as low as 41.80, though 45.50-46 is strong first support. For the day, crude oil closed higher by .275 at 48.80.
There were no economic reports released today, with the first data for the week scheduled for tomorrow at 10AM, with December existing home sales and Consumer confidence for January.
In corporate news, nondurable consumer product maker KMB reported earnings of 445.3M or 91 cents per share, down year-over-year from 459.5M or 91 cents per share. Excluding the company's discontinued operations, earnings were 92 cents, beating estimates by 2 cents. Revenue rose 7.7% to 3.9B from 3.6B in Q4 2003. The company attributed the rise in revenue to a 5% increase in sales and foreign exchange gains. KMB rose .97% to close at 64.4.
Building material manufacturer RYG warned that it anticipates a net loss of .39-.45 per share for the quarter just ended due to weakness in the US Dollar, higher material costs, a write-down of Mexican assets and the legal settlement in an intellectual property dispute. RYG earned 18 cents per share in the quarter ended December 31, 2003, but that included a non-recurring 14 cent tax adjustment. RYG closed lower by 11.31% at 9.25.
Online travel advertiser TZOO announced Q4 net income of 9 cents or 1.7M, up from 2 cents per share or 453K in Q4 2003 but missing consensus expectations by 4 cents. Revenue more than doubled, rising to 10.5M for the quarter but also missing expectations of 10.9M. Making matters worse was the announcement of an SEC investigation into executive trading, with the company announcing today that has provided information relating to its employee stock transactions to the SEC. TZOO closed lower by 24.6% at 55.33 on volume of 2.043M against an average daily volume of 1.608M.
MSFT announced that it does not intend to appeal a EU Court's interim ruling dismissing its request to temporarily stay the effect of the broad antitrust judgment rendered against it. MSFT said that while it won't appeal this interim decision, it intends to pursue its appeal of the main decision. MSFT has already begun complying with the various orders, divulging some its trade secrets and shipping a version of Windows without its bundled Media Player application. MSFT closed higher by 2 cents at 25.67.
American Express reported earnings at 1:30PM, announcing Q4 earnings of 896M or 71 cents, which was a 17% increase from Q4 2003's 60 cents or 763M. The company beat consensus expectations by a penny. Revenue was up 10% to 7.77B, exceeding expectations for 7.497B. AXP closed higher by 1.29% at 52.60.
After the bell, online DVD rental firm NFLX announced Q4 net income of 4.8M or 8 cents per share, up from 2.3M or 4 cents in Q4 2003 with revenue rising 77% to 143.9M. These results beat estimates of 4 cents and 139.4M. The company added 783,000 subscribers to its service this quarter, bringing the total subscriber base to 2.61M. For the day, NFLX rose .1 to close at 11.14 and was up 9.61% to 12.21 afterhours.
For tomorrow, we have relatively minor economic reports at 10AM and more corporate earnings. The question that all traders will be pondering is "when's it gonna bounce" as the indices extended last week's loss. While the decline in the Nasdaq was relentless and did real technical damage, the SPX and Dow had a much easier go of it. As discussed above, there's significant support underneath current levels, and the daily cycle oscillators are oversold and due for a bounce. Today's highs represent a minimum level for bulls to watch for confirmation of any intraday strength. This is important, because all day (in the case of QQQQ), the former lows became resistance on each subsequent stairstep lower. Catching falling knifes can be a very unhealthy trading technique, and in the daily timeframe the trend is still down.
This semiconductor equipment stock just hit new 18-month lows as it breaks through the bottom of its trading range.
New Bearish Plays
Applied Materials - AMAT - close: 15.17 chg: -0.42 stop: 16.11
Applied Materials, Inc., headquartered in Santa Clara, California, is the largest supplier of equipment and services to the global semiconductor industry. (source: company press release)
Why We Like It:
Look out below! We had AMAT on our watch list this past weekend for a breakdown below support near $15.50. We didn't have to wait long. An earnings warning from chipmaker Infineon and a 1.6 percent drop in the SOX semiconductor index was enough to push AMAT over the edge. The stock is now hitting new 18-month lows and falling through the bottom of its six-month trading range. With volume coming in above average on today's decline this looks like a technical breakdown we can short. AMAT's weakness looks even more compelling when you consider that Smith Barney came out in defense of this stock just this morning suggesting investors buy the stock at current levels. The market obviously disagrees at least for the short-term. The Point & Figure chart shows a bull-trap pattern and a drop under $15.00 should produce a new sell signal. We want to target a drop toward the $13.50-13.00 range and we want to exit before AMAT's mid-February earnings report.
Picked on January 24 at $15.17
Intel Corp - short play -
Entry point alert! INTC lost 1.9 percent and broke down through support at the $22.50 level and support at the 100-dma and the $22.00 level after chip maker Infineon issued an earnings warning this morning. Today's drop in INTC complete the bearish triangle pattern and opens our play at our trigger point $22.24. No change in our stop loss at $23.01 just yet.
BP Prudhoe Bay - long play -
Entry point alert! Shares of BPT soared 2.56 percent to breakout above resistance in the $50.25-50.50 range and hit our entry point at $50.51. This completes the bullish triangle pattern and should begin the next leg higher.
Nuveen Investments - short play -
Today's 0.9 percent decline looks like confirmation of the recent bearish reversal in shares of JNC. The drop put JNC under its rising 40-dma and we noticed consistent selling at the $37.25 mark through out most of the afternoon.
CLOSED LONG PLAY
BA breaks support
Dow-component Boeing broke support at the $50.00 mark and its 200-dma.
Boeing - BA - close: 49.64 change: -0.43 stop: 49.95
There are no surprises here. Another day of weakness in the markets and a one-percent drop in the DFI defense index was enough to push BA through round-number, psychological support at the $50.00 mark and technical support at its 200-dma. We were stopped out at $49.95 for a $1.99 loss. The technical picture looks bad and its MACD indicator just produced a new sell signal. In the news we noticed that a group of African-American employees of BA just had their discrimination lawsuit upgraded to a class action status (source: Reuters). We don't believe this news was the cause of BA's weakness but it doesn't help.
Picked on January 12 at $51.94
We have a mixed list of bullish and bearish candidates to watch.
Chattem Inc - CHTT - close: 35.13 change: +1.22
WHAT TO WATCH: If you're looking for a bullish candidate in today's bearish market environment take a look at CHTT. After a bearish a breakdown below long-term support at the 100-dma a couple of weeks ago shares of CHTT has rebounded in what looks like a bear trap. Now after two weeks of consolidating under its 50-dma the stock is breaking out and has pushed through the $35.00 level. The MACD, RSI and stochastics are all in a buy signal. The only challenge between here and $40 looks like the December high at $37.50.
Norfolk So - NSC - close: 33.31 change: -2.01
WHAT TO WATCH: After months of consistently treading higher shares of NSC is finally succumbing to profit taking. Actually the whole rail-road industry is being hit by selling pressure. The breakdown under the $35.00 level and its 50-dma looks like a bearish entry point. We would wait until after the January 26th earnings report before considering new positions.
Cymer Inc - CYMI - close: 22.85 change: -1.58
WHAT TO WATCH: We highlighted CYMI a few days ago when shares broke down through support at the $25.00 level on January 19th. Now the breakdown has reached new two-year lows with today's 6.4 percent decline on big volume. While it might be tempting to consider bearish positions here we would wait for a possible failed rally on an oversold bounce back toward the $25 mark. SLAB, another chip stock, reported strong earnings after the close tonight and is trading up sharply after hours. CYMI is also trading up after hours near $23.64. Plus, CYMI is due to report earnings tomorrow. Wait until after the earnings report to watch how investors react to the news. The bearish P&F chart currently points to a $10 target.
RADAR SCREEN - more stocks to watch
MLNM $9.28 -0.14 - MLNM continues to look like a bearish candidate with the drop under support at $10.00.
BNI $44.65 -1.37 - The railroad industry is being hit with profit taking after months of steady gains in 2004. The drop under $45 today looks like a bearish entry point in BNI. Watch for BNI's earnings report tomorrow.
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