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Daily Newsletter, Wednesday, 05/11/2005

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Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Where Does One Begin\?

Where Does One Begin?

The term "wild" would best describe today's session with the Dow Industrials (INDU) 10,300.25 +0.19% squeaking out a 19-point gain after having traded a 126-point intra-day range as traders were inundated with news that drew knee-jerk reactions.

Breadth at the big board finished positive with 9 advancers for every 7 decliners, but after an impressive reversal toward bullish leadership, the shorter-term 5-day NH/NL ratio of the NYSE, which reversed from a 12.7% reading on 04/20 to a 72.6% reading by Tuesday's close, may suggest a restful pause, with all eyes focused on PRICE for the NYSE at its recent bounce high of 7,150.

Four and five-lettered stocks at the NASDAQ, which have been showing the "you (NYSE) lead and I'll follow on strength," ended with negative breadth. Despite a mid-session decline to 1,944 for the very broad NASDAQ Composite (COMPX), today's 95 new lows were fewer than yesterday's 104.


Stocks erased marginal gains from the open in what looked to be a pre-expiration volatility move, where options expiration volatility seems to start taking place about midweek in the week ahead of monthly expiration.

One bit of economic data that may have drawn an initial "knee jerk" reaction of negativity, and you'll love this, was that the U.S. trade gap narrowed 9.2% to $55 billion in March from a revised $60.57 billion in February as imports fell despite a big jump in oil prices. Meanwhile, exports climbed to a record level. The $55 billion reading in March was not as wide as economists' forecast of $61.5 billion. Investors have been worried that the widening gap would be a doom and gloom scenario for the U.S. economy. When the gap narrows, there's the camp that fears it signals global slowing.

While the trade gap narrowed in March, the Treasury said it saw a $57.71 billion budget surplus in April, which was up sharply from the 17.58 billion when tax receipts were collected last year.

The dollar found strength with the U.S. Dollar Index (dx00y) 84.94 +0.58% back to test its still trending lower 200-day SMA (85.01) intra-day.

But things got exciting when a sell program premium was generated just after 12:00 PM EDT, which sent the major indices to their lows of the session on reports that the White House had been evacuated, as well as other government buildings in the vicinity. Early reports had U.S. fighter jets in the sky above the nation's capitol, but it was soon learned that a Cesna had "wandered" into the no fly zone.

Cisco Systems (NASDAQ:CSCO) $18.55 +1.86% topped today's most active list with just over 132 million shares traded. A positive reaction to Cisco's quarter did help the Networking Index (NWX.X) 202.42 +1.29% reclaim the 200.00 level by the close, but it was a struggle early.

Apple Computer (NASDAQ:AAPL) $35.61 -2.22% was red all session and number 2 most active among stocks after Yahoo! Inc. (NASDAQ:YHOO) $34.88 +2.40% announced it was launching a music download service. Yahoo traded in the red for the better part of the session, but launched from the $34.00 level as the clock struck 01:00 PM EDT.

Homebuilders as depicted by the Dow Jones Home Construction Index (DJUSHB) 845.52 +0.96% have been struggling to reclaim their trending lower 50-day SMA (840.16) after the Mortgage Bankers Association said that mortgage applications increased 9.4% in the week ended May 6th.

Closing U.S. Market Watch - 05/11/05


I'm showing the 5-day percentage gains/losses for the various indices tracked in the U.S. Market Watch, as this would represent the close-to-close change since our visit last week. If you're a day trader that questions a 2% intra-day gain in a stock trade (long or short), then some realization of how you're doing versus what the MARKETs are giving you sets in.

Oil prices gave back recent gains, putting to an end a 5-day winning streak that had seen June Crude Oil futures (cl05m) rise $2.57 since their May 3rd settlement. Weekly inventory figures showed mixed builds and draws. Gasoline supplies rose by 84,000 barrels, while distillate supplies jumped by 2.2 million barrels. Crude oil supplies fell by 6.1 million barrels. June Crude Oil futures (cl05m) settled down $1.62, or -3.11% at $50.45 today and look to have extended losses to $50.33 as Thursday's trade gets underway. My (Jeff Bailey's) "key level" settlement that may lift some broader equity market sentiment is a June Crude Oil settlement below $49.42. This was a "key level" of resistance until a strong gap move higher took place on February 22, where oil then went on to trade contract highs of $59.20 by April 4th.

June Crude Oil Futures (cl05m) - Daily Intervals


I believe crude oil has as much "psychological" impact on broader market equity traders as it may economic/fundamental. I also believe that COMMODITY traders trade levels as they know better than anyone, what being on the wrong side of a highly leveraged security can do to their financial status and they assess their risk one level at a time. I feel GREAT PRESSURE in the oil markets, where important near-term support is marked with my "fitted 38.2%" (PINK) retracement, which I've been following in various monthly expirations, and is tied to that sharp rebound high inflection point settlement from 01/25/05 at $49.42. My thoughts were that every short that thought they got the highs back in October, turned into a stampeding bull when oil went "boom." We can see how this level has been defended buy bulls, and perhaps many a short that saw $59.00 in April.

Now, I'll share a "not so good trade" I made on May 5th, when toward the end of that session, I ANTICIPATED that June Crude was going to settle BELOW the $49.42 level. I profiled a 1/2 bearish (short) position in ExxonMobil (XOM) $57.29 +0.61% that day at $57.21. I was stopped out the following day at $58.25 as the Crude Oil break at $49.42 never came to fruition. The pressure I feel comes from how Crude begins to find a range from $49.42-$52.11. Which way will buyers vs. sellers win out? I'd try and answer, but with an unsuccessful anticipatory short in XOM under my belt, you shouldn't be asking me. I'm "neutral" here.

DDow Diamonds (AMEX:DIA) - 30-minute intervals


Two quick intra-day observations I would want traders to be aware of. One is that today's "knee-jerk" low on the DIA did find buyers at its 03/07/05-04/12/05 downward trend that was broken to the upside on Wednesday of last week. In a "crisis" mode, we want to take some notes. Also... I did NOT see any "bad ticks" in the QQQQ, or the SPY today, but did note today's "back tick" in the DIA on the White House evacuation news. We can never say conclusively that a computerized program was set to sell TO THAT LEVEL of the "bad tick" of $101.50, but I like to observe that "bad tick" level nonetheless. Certainly the $101.50 could be a typographical error as the DIA was struggling to hold its MONTHLY Pivot of $102.46, but with the DIA near this type of MONTHLY level where institutional computers would be expected to be making some buy/sell decisions, an observation to $101.50 may be a "downside risk" assessment that computers are willing to sell to. Today's fact will show that cooler heads, and most likely some old bears that had seen their downward trend broken to the upside, become eager buyers regardless of what the news at that hour was.

In last Wednesday's Market Wrap, I reviewed "field position" with the S&P 500 Bullish % ($BPSPX) from Stockcharts.com.

Tonight, I wanted to share a sector bell curve from Dorsey/Wright and Associates (www.dorseywright.com) where I captured Tuesday's closing sector bell curve readings. Due to Market Wrap deadlines, I can't wait until tonight's readings are updated, but these are rather slow moving indicators. However, once they get moving (up to the right, or down to the left) the various sectors can move as bullishness and bearishness builds.

The comparisons shown below are from a week-to-week period. As you digest last week's Market Wrap, think of all these various sectors as being tributaries to the S&P 500 Index (SPX.X).

Sector Bell Curve - (courtesy Dorsey/Wright & Assoc.)


Since our visit last week, fore= forest/paper products and biom= biomedical actually saw a net loss of stocks to point and figure sell signals. Hmmm.... but the Biotechnology Index (BTK.X) 544.77 -0.07% is up 4.37% over the past 5-days and THE STRONGEST price performing sector. What this may tell us is that there are probably just a few stocks doing the bulk of the work, or we're seeing some rebounds from more oversold conditions. META= non ferrous metals reversed up to bear correction status after having been as high as 92% in March, and having falling to as low as 38% in early May! Remember, the playing field of RISK is 0%-100%. This rebound in the non ferrous metals would most likely be considered a short covering rally after the group has seen a strong round of distribution. The building products = buil is perhaps the strongest sector (internally) where bulls will play with stops just below the recent lows.

Now... last Wednesday, the broader S&P 500 Bullish % ($BPSPX) read 52.4% bullish (262 of the 500 point and figure charts of its components still had a point and figure buy signal intact with the chart). Today, this broader bullish % was unchanged at 53.20%. So, we've witness a net increase of 0.8% on a Wednesday-Wednesday basis, or a net gain of 4 stocks to a point and figure buy signal.

Federal Express (NYSE:FDX) $87.60 +1.33% recently gave a reversing higher double-top buy signal at $88 on Monday after a successful test of support at its longer-term bullish support trend at $83 in late April. Dorsey/Wright places FDX in the Aerospace/Airline = aero sector, but I could also see it as being a tran = transport. The sector is still "bear alert" status at 48%, and most likely, some very profitable bears are locking in some gains and demand begins to outstrip supply (selling). Bulls can play with 1/2 positions, but stop just under the $84 support.

I mention FDX and "verbalize" the supply/demand, to try and give traders/investors a depiction of what MARKET participants may be thinking. It's one stock out of 500 in the S&P.

Hmmm... United Parcel Service (NYSE:UPS) $73.85 +3.09% traded strong today after "Brown" reiterated its profit guidance for the year and said volume was "growing faster than expected."

Dow Transports (TRAN) - 10-point box


The TRAN looks to be mirroring some of the technicals discussed in FDX, and UPS got a lift today. The TRAN gave a reversing higher point and figure buy signal on 05/02/05 at 3,450 and there may well be some room for a rally to 3,650-3,660. Further strength to my "BIG Resistance would equate to a 3% gain. If the TRAN were to make that type of move, we might think the SPX.X itself could do at least another 1.5%?

It may well have been UPS that warned in early January from the $83 level that shipping volumes had tapered off that brought some bearish notions to the transports and economy itself.

How about you bar chartists out there? Does any of this make sense?

Dow Transports (TRAN) - Daily Intervals


A bar chart gives a little different look, but traders can begin to see what is going on, and use their retracement tool. Some of the VERY same levels shown in the point and figure chart are represented in the conventional retracement.

Now check this out. Do you believe "market theory" that says the transports are a good indicator for broader market direction?

S&P 500 Index (SPX.X) Chart - Daily Intervals


I've quickly slapped a conventional retracement on the SPX as I showed for the TRAN. Looks like the SPX needs further TRAN strength if it is to breach the 50-day SMA. If you've been short/put below SPX 1,183, then you're probably going to stay put for now. But keep an eye on the Transports, maybe mix in a partial long with FDX to easy any near-term heat.
 

 
 



New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
None None

New Long Plays

None today.
 

New Short Plays

None today.

Play Updates

Updates On Latest Picks

Long Play Updates

Archstone-Smith - ASN - close: 36.89 chg: +0.19 stop: 34.85

ASN is still creeping higher. No change from our previous updates on 05/09/05 and 05/08/05.

Picked on May 06 at $36.26
Change since picked: + 0.63
Earnings Date 04/26/05 (confirmed)
Average Daily Volume: 811 thousand

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Brookfield Homes - BHS - close: 46.98 chg: -0.23 stop: 42.45

BHS dipped lower today but traders bought the dip at the $46.00 level. Readers can use today's dip as a new bullish entry point. We see no change from our previous update on 05/08/05.

Picked on May 05 at $45.05
Change since picked: + 1.93
Earnings Date 05/02/05 (confirmed)
Average Daily Volume: 100 thousand

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Caremark - CMX - close: 43.19 chg: -0.51 stop: 40.95

Like most stocks CMX declined after the open but rebounded into the afternoon. Raymond James reiterated their "out perform" rating on the stock. We remain bullish and traders can use the dip as a new bullish entry point. However, if you suspect the market will dip further this week then readers can look for another dip toward the $42.00 level before initiating new positions. CMX announced today that it will present at the Banc of America conference on May 18th.

Picked on May 09 at $43.30
Change since picked: - 0.11
Earnings Date 05/03/05 (confirmed)
Average Daily Volume: 2.6 million

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First Bancorp - FBP - close: 40.03 chg: +0.08 stop: 37.00

We are still cautious on the banking sector. Meanwhile FBP's current short-term consolidation is narrowing. Traders should expect a move one way or the other pretty soon.

Picked on May 05 at $40.37
Change since picked: - 0.34
Earnings Date 04/19/05 (confirmed)
Average Daily Volume: 280 thousand

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Greenhill & Co - GHL - close: 35.61 chg: -0.53 stop: 32.49

Yesterday we warned that GHL was due for a pull back and that's exactly what occurred today. Yet traders bought the dip near the $35.00 region (actually 34.87). We see no change from our previous update on 05/10/05.

Picked on May 09 at $34.11
Change since picked: + 1.50
Earnings Date 04/21/05 (confirmed)
Average Daily Volume: 70 thousand

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Humana - HUM - close: 36.48 chg: -0.02 stop: 32.95

Traders were quick to buy the dip this morning in HUM. We see no change from our previous update on 05/09/05.

Picked on May 09 at $36.33
Change since picked: + 0.15
Earnings Date 05/02/05 (confirmed)
Average Daily Volume: 1.3 million
 

Short Play Updates

Ball Corp - BLL - close: 38.90 chg: +0.40 stop: 41.01

No change from our previous update on 05/10/05 and 05/08/05.

Picked on May 05 at $38.98
Change since picked: - 0.08
Earnings Date 04/28/05 (confirmed)
Average Daily Volume: 611 thousand

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Biomet - BMET - close: 37.40 chg: +0.05 stop: 39.51

No change from our previous update on 05/10/05.

Picked on May 10 at $37.45
Change since picked: - 0.05
Earnings Date 03/22/05 (confirmed)
Average Daily Volume: 2.4 million

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Novellus - NVLS - close: 23.96 change: +0.04 stop: 25.01

We're still watching the SOX and its overhead resistance near the 400 level. Meanwhile NVLS has bounced back toward the $24 level and its 21-dma. In the news NVLS announced that it will hold its mid-quarter update on May 31st.

Picked on April 29 at $23.40
Change since picked: + 0.56
Earnings Date 04/18/05 (confirmed)
Average Daily Volume: 4.0 million

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Catalina Mktg - POS - close: 23.64 chg: -0.71 stop: 25.25

Finally we're starting to see some weakness again in POS. The stock has been trading under resistance near $25.00 and its exponential 200-dma for the last week. Today's breakdown below the $24 level looks like a new bearish entry point.

Picked on April 22 at $23.80
Change since picked: - 0.16
Earnings Date 05/18/05 (unconfirmed)
Average Daily Volume: 468 thousand

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UST Inc - UST - close: 43.29 change: -0.83 stop: 46.01

UST is off to a good start. The company reaffirmed its 2005 outlook for record sales and profits this year but investors were not listening. Volume was again well above average on the decline.

Picked on May 10 at $44.12
Change since picked: - 0.83
Earnings Date 04/26/05 (confirmed)
Average Daily Volume: 1.0 million
 

Closed Long Plays

None
 

Closed Short Plays

Boston Scientific - BSX - cls: 30.42 chg: +0.67 stop: 31.51

After two weeks of consolidating between $29 and $30 shares of BSX finally broke out over the $30.00 level and its simple 50-dma. Technically the stock is still in a long-term down trend of lower highs and has overhead resistance near the $31.00-31.50 region. However, technical indicators suggest this is not a good spot to be short the stock and we're choosing an early exit.

Picked on April 19 at $29.05
Change since picked: + 1.37
Earnings Date 04/19/05 (confirmed)
Average Daily Volume: 5.4 million
 

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