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Daily Newsletter, Wednesday, 06/08/2005

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Table of Contents

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

Market Wrap

Truckers Put On The Breaks For Cautious Bear

Truckers Put On The Breaks For Cautious Bear

In a rather lackluster trade ahead of Fed Chairman Greenspan's testimony tomorrow, stocks edged modestly lower on a broader scale, while Treasuries found selling evenly distributed among the major maturities.

Advancers outnumbered decliners in the first half of the session, but sentiment soured after a premature release of a White House economic report, which showed a reduced 2005 real GDP forecast of 3.4%, versus a previously forecasted 3.5% from six months ago. The White House's report also showed an increased inflation estimate of 2.9%, with energy prices cited as one of the main reasons.


A flat open for Treasuries did find some bond traders heading for the sidelines. It would be my best guess that the White House's revised inflation estimate, as well as Fed Chairman Alan Greenspan's testimony before the Joint Economic Committee tomorrow morning (10:00 AM EDT) was reason enough to keep buyers on the sidelines.

I do think, based on observation, that the White House's comments regarding inflation did grab some trader's attention as the U.S. Dollar Index (dx00y) 87.88 +0.44% saw a quick turn higher from its session lows of 87.15.

Today's intra-day dollar action looked like something we would brace for around a nonfarm payroll number with a knee-jerk lower, then being quickly reversed back up! The down move comes on the lowered GDP outlook, but the strength comes on the inflation estimates where the dollar would likely find a bid from those that had been overly short the dollar under the scenario that it is a "sure thing" the Fed is nearing its tightening phase.

Spot gold as well as the AMEX Gold Bugs Index ($HUI.X) quickly reversed morning gains as the dollar strengthened.

Oil was all over the map in today's trade and proved volatile after the DOE said crude oil supplies fell by 3 million barrels, while gasoline supplies saw a draw down of 100,000 barrels. July Crude Oil futures (cl05n) settled down $1.22, or -2.27% at $52.54. One trader commented that he thought oil sold off based on the thought that refiners had shifted some focus away from unleaded gas refining toward heating oil.

Now this trader's thoughts might not make a lot of sense if we're thinking about summer weather and the need for heating oil, but under the backdrop of a capitalistic society it might. July Heating Oil futures (ho05n) $1.5528 -3.00% came rather close to trading contract highs on Monday and price gains in this complex have outperformed in recent weeks. It might make sense that refiners look to capitalize on the relative higher price of heating oil and focus their production efforts there until equilibrium is found.

I've discussed this energy dynamic in past commentary. If you're selling widgets and the blue widgets are selling for $1.00 and the red ones are selling for $0.80, which widgets are you going to produce more of?

Laughing out loud. A capitalist will produce more of the blue widgets. A socialist will want to produce more of the blue ones, but will come up with a good reason as to why he/she shouldn't. Meanwhile, a communist will do what his/her government tells them to do.

Economic data released earlier this morning showed wholesale inventories (supply) up 0.8% to a seasonally adjusted $349.96 billion in April, which was above the 0.4% increase economists had forecasted. The 13-month high in inventories drew mixed views from bulls and bears. Bulls found relief with the thought that that companies might finally be getting a handle on stockpiles, which would be viewed favorably for steady/lower inflation, while bears sense the build being further sign of economic slowing.

Sales (demand) surged 1.5% in April after a modest 0.2% gain in March. The inventory-to-sales ratio fell to just 1.18 months, down from 1.19 readings for March and February.

Stock specific news found its way to some Dow components with General Motors (NYSE:GM) $32.02 +4.19% jumping more than $1.00 on news that Kirk Kerkorians Tracinda boosted its GM stake to 7.2% from 3.9% based on preliminary results of its tender offer. The sharp gains came after Tracinda officials said only 18.9 million shares were tendered at $31.00, which was well below the 29 million shares Tracinda was hoping to buy. Buyers pushed the stock as high as $32.65 with the thought being that there might be something bullish in GM's future if holders were not so eager to tender the additional 10.1 million shares.

Heavy equipment maker Caterpillar (NYSE:CAT) $96.58 +2.16% plowed higher after the Dow component declared a 2-for-1 stock split and increased its quarterly dividend rate by 22% to $0.50 per share on a pre-split basis. The split will be distributed to shareholders on July 13.

Fast-food giant McDonald's (NYSE:MCD) $29.23 -1.14% approaches its April lows after announcing a mere 1.8% increase in May same store sales. Not bad, but the "golden arches" had been posting 4.2% rates in recent months. The company cited international challenges, with particular slowdown problems in the United Kingdom and Germany.

Among technology, shares of ImClone Systems (NASDAQ:IMCL) $35.27 +16.94% rebounded from 52-week lows after saying a Phase III study of its Erbitux cancer drug showed effectiveness against advanced squamous cell cancer.

Web searchers Google (NASDAQ:GOOG) $279.56 -4.62% and Yahoo! Inc. (NASDAQ:YHOO) $36.63 -2.16% retreated after a report from research firm Fathom, which tracks the prices advertisers pay to buy search engine keywords that launch Web search ads, said keyword prices fell in May from April, due primarily to a drop in the mortgage sector.

The Semiconductor Index (SOX.X) 430.27 +0.64% got a modest boost after the Semiconductor Industry Association said that as a result of robust demand for chips and the semiconductor companies' ability to work off excess inventory quickly, it now expects chip sales to grow 6% this year with some margin expansion.

Today's gains may be questioned tomorrow after programmable chipmaker Xilinx (NASDAQ:XLNX) $28.08 +0.89% saw its shares slide to $27.25 in tonight's extended session. The company backed it Q1 sales growth guidance, but said gross margins will be slightly narrower than expected due to a higher than expected ramp in sales of the company's newest products.

U.S. Market Watch - 06/08/05 Close


Sectors finished mixed, but it was a downgrade of "truckers" by Bear Stearns that had the Dow Transportation Average (TRAN) 3,537.73 -2.07% atop today's percentage loser list.

Dow Transport Components (TRAN) - Sorted by Net%


Dow Transport component Landstar Systems (NASDAQ:LSTR) $31.59 -5.87% was a focal point of Bear Stearns' trucking sector downgrade. The firm said while it sees potential upside to current earnings estimates for the transportation service provider based on continued gross and net operating margin from increasing transportation yield, it expects gross revenue growth to continue to decelerate.

Two stocks that I've provided some bullish commentary on, and still believe bulls can be taking partial bullish positions on, with higher targets toward the end of the year, are FedEx (NYSE:FDX) $89.70 -0.20% and United Parcel Service (NYSE:UPS) $72.36 -0.90%

DDow Transportation Average (TRAN) - Daily Intervals


The recent couple of weeks trade in the TRAN would be similar to traveling uphill at 100 miles per hour, some traffic congestion, what looked like a breakthrough at the 3,650 elevation, but today's "bear crossing" in the truckers leaves a jackknifed rig having momentum bulls moving aside.

I've seen a lot of technical analysis pointing to some "bearish cross-unders" with the MACD below Signal. Yes, this is a sign of caution and indicates a near-term loss of momentum. I think a TRAN bull that is playing the broader group would be patient on any new entries at this point, but look for the TRAN to firm up from 3,450-3,490 and have MACD easing into zero. Then look for demand (buyers) to resume their activity and keep eating away at overhead supply.

In last night's Market Wrap, Jim Brown discussed the Wilshire 5000 Index. Let's take a look at the NYSE Composite ($NYA.X) and make some ties with Jim's observations.

NYSE Composite ($NYA.X) - Daily Intervals


One event that has taken place since Wednesday is that the NYSE Bullish % ($BPNYA) reversed up to a 60% reading from 54% on Friday. Now, Stockcharts.com's reading is "bear correction" status, while Dorsey/Wright and Associates, while also reversing up to 60% is "bull confirmed." The reason for the difference in terminology is that Stockcharts.com will adjust the point and figure charts of stocks they chart with the point and figure technique when companies pay dividends. Dorsey/Wright does not penalize a stock's PnF chart when they pay a dividend. In essence, if you buy a stock at $20.00 and it has paid $1.00 in dividends, Dorsey/Wright believes you still paid $20.00. Stockcharts.com will deduct $1.00 from the price of the stock, and feels you only paid $19.00, then adjusts the stock's PnF chart to reflect the buildup of dividends over time. Now... try explaining that one when you go to report capital gains/losses and dividends (income) to the IRS at some point down the road.

Semantics aside "bear correction," or "bull confirmed," of roughly 3,000 stocks, we're seeing some meaningful increase in the number of point and figure buy signals.

Now, before bulls put on their party hats, I do want to make some points of reference here.

On the above chart, I point to a period in early April when the NYSE Bullish % ($BPNYA) was reading 66% bullish as the NYSE Composite ($NYA.X) itself had bounced from below 7,100 to roughly 7,143.

As the NYSE Composite ($NYA.X) now challenges this same PRICE level comparison, we can see that while the internals are strengthening, we're not as bullish internally at 60%.

This SAME PRICE, but not yet as strong internals would depict BEARISH DIVERGENCE at this point.

Now, you and I both know that the NYSE Bullish % ($BPNYA) is measuring just more than 3,000 point and figure charts! It is going to be SLOOOOW moving and very methodical.

Go back and review tonight's internals (chart #1) and note that a faster moving of internal strength and our NH/NL ratios at both the shorter-term 5-day NH/NL and intermediate-term 10-day NH/NL ratio are getting close to 100%. While they can stay up here for periods of time that many have underestimated, we're at some near-term overbought levels and should continue to monitor.

I could pick many sectors and say "this group is key," but using market theory, I still think the TRANSPORTS provide a pretty good tie and serve as an important sector to be monitoring.

On the above chart of the NYSE Composite ($NYA.X), I've pulled some of Jim's observations (technical levels) from the Wilshire 5000 (NASDAQ and NYSE-listed stocks) over to the NYSE. While I prefer SIMPLE moving averages (each day's PRICE is as important as the next), I did add one of Jim's exponential moving averages (today's PRICE was more important than yesterday and yesterday's PRICE more important than the day prior).

I think it "a good thing" during an option expiration to broaden out your observations a bit. On any one day, we could expect institutions to be pushing some stocks and indexes around. With the Wilshire 5000, the NYSE Composite and NASDAQ composite, its a lot tougher to push that many stocks around in a given day.

Hey! I was just noticing that the narrower S&P 100 Bullish % ($BPOEX) saw a net gain of 1 stock to a point and figure buy signal today, and that's enough to get this market reversing back up to "bear correction" status at 60% after a May low reading of 53% (we chart to 54% on PnF chart).

Of the major index bullish % charts, only the very broad NASDAQ Composite Bullish % ($BPCOMPQ) would remain in a column of "O." It saw a net gain of 0.15% today, with a bullish % reading of 43.01%. Considering roughly 3,000 stocks are tracked here, that would be a net gain of 4 or 5 stocks seeing a reversing higher point and figure buy signal. This very broad measure of market internals would currently need to see a 44% reading to reverse up to "bear correction" status, and to achieve "bull confirmed" status, it would need to read 62%.

You can view these various bullish % charts for FREE by visiting www.stockcharts.com.

NASDAQ Composite (COMPX) - WEEKLY Intervals


The www.stockcharts.com symbol for the very broad NASDAQ Composite Bullish % is $BPCOMPQ. Here we look at the COMPX itself on a weekly interval. No oscillators, just the bars with with a 40-week SMA and 10-week SMA. I've overlaid some of the more recent inflection point bullish %. See the "bearish divergence" noted in the bullish % at the most recent January highs compared to the January 2004 high? That is similar to what we're noting in the NYSE right now, so some caution is warranted among bulls.

The recent two low bullish % readings are bullish confirmation as the recent pullback low was HIGHER than the August low, as has been the bullish % reading.

I note two different scenarios of analysis at this point, which both BULLS and BEARS can use in coming sessions as it relates to the monitoring of the bullish % as well as PRICE.

If the very broad COMPX pulls back, but BUILDS additional buy signals, isn't that BULLISH DIVERGENCE from the internals? Bears may be leveraging off the 2,100 level, bulls may be booking some gains. However, if the COMPX continues to build point and figure buy signal on a PRICE retreat to 2,023-2,040, then that would be a good sign that demand still builds for stocks and bulls and bears may be eager to buy that area.
 

 
 



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: 38.03 chg: +0.12 stop: 36.26

Oh! So close. ASN traded to a high of $38.48, which was almost enough to hit our target range of $38.50-39.00. The move was propelled by some news this morning. ASN announced that it has settled a lawsuit involving accessibility issues and compliance with the Fair Housing Act and the Americans with Disabilities Act. Short-term traders may want to seriously consider exiting here for a profit as ASN does look short-term overbought and due for a dip. We're going to let it ride and see if ASN can hit our target since our stop loss is currently at break even.

Picked on May 06 at $36.26
Change since picked: + 1.77
Earnings Date 04/26/05 (confirmed)
Average Daily Volume: 811 thousand

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Canon - CAJ - close: 55.39 change: +0.59 stop: 52.85

It was a decent session for shares of CAJ, which added more than one percent today. We see no change from our previous updates.

Picked on May 29 at $55.24
Change since picked: + 0.15
Earnings Date 04/27/05 (confirmed)
Average Daily Volume: 157 thousand

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Caremark - CMX - close: 44.40 chg: -0.74 stop: 41.95

There are no surprises here. Yesterday we said that CMX was likely to pull back after its failed rally and that's what happened. Fortunately, the selling stalled near its four-week trendline of support of higher lows.

Picked on May 09 at $43.30
Change since picked: + 1.10
Earnings Date 05/03/05 (confirmed)
Average Daily Volume: 2.6 million

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Greenbrier Co - GBX - close: 28.64 change: -0.33 stop: 25.49

The Dow Transportation index was hit pretty hard today with a two percent decline and a drop below its simple 200-dma, which is normally seen as technical support (or resistance). That lead shares of GBX lower but GBX remains above its own 200-dma. If the TRAN index continues to decline then we would look for GBX to follow. Traders may be best served by standing back and waiting to see how deep GBX dips. We would watch for a bounce in the $27.50-28.00 region as a potential bullish entry point.

Picked on June 01 at $28.67
Change since picked: - 0.03
Earnings Date 06/29/05 (unconfirmed)
Average Daily Volume: 227 thousand

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General Electric - GE - close: 36.80 chg: -0.04 stop: 34.95

No change here. We're still waiting for GE to dip into the $36.00-35.50 range before going long the stock.

Picked on May xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/16/05 (unconfirmed)
Average Daily Volume: 18.7 million


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Georgia Gulf - GGC - close: 34.45 change: -0.19 stop: 30.95

No change from our previous update.

Picked on June 05 at $34.33
Change since picked: + 0.12
Earnings Date 07/28/05 (unconfirmed)
Average Daily Volume: 598 thousand

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Greenhill & Co - GHL - close: 36.64 chg: +0.21 stop: 34.99

GHL made a run for the $37.00 level but the rally failed. No change from our previous update on 06/05/05. Traders may want to consider exiting here for a profit. Our target is the $37.00-38.00 range.

Picked on May 09 at $34.11
Change since picked: + 2.53
Earnings Date 04/21/05 (confirmed)
Average Daily Volume: 70 thousand

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Humana - HUM - close: 37.50 chg: -0.67 stop: 33.99

We've been expecting a pull back. We see no changes from our previous update on 06/07/05.

Picked on May 09 at $36.33
Change since picked: + 1.17
Earnings Date 05/02/05 (confirmed)
Average Daily Volume: 1.3 million

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Microsoft - MSFT - close: 25.40 chg: -0.11 stop: 24.60

No change here either. We're still waiting for MSFT to pull back into the $25.25-25.00 range before going long the stock.

Picked on May xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/28/05 (unconfirmed)
Average Daily Volume: 70.8 million

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Marvel Enterprises - MVL - close: 21.15 change: -0.42 stop: 20.45

MVL has pulled back toward what should be support near the $21.00 level. If it breaks down here it could be headed for the $20 range and through our stop loss. Today marks the one-month countdown for MVL's Fantastic Four movie opening and we would normally expect shares to trend higher into the opening weekend.

Picked on June 01 at $21.86
Change since picked: - 0.71
Earnings Date 07/28/05 (unconfirmed)
Average Daily Volume: 911 thousand

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Nova Chemicals - NCX - close: 30.75 change: -0.56 stop: 29.99

We are still in red alert mode with NCX. Ever since the bearish reversal on June 2nd we've been suggesting that traders hesitate on any bullish positions. Currently NCX is drifting lower toward the $30.50 level, which is last ditch support before shares hit what could be round-number support at the $30.00 mark. Yet if NCX trades under $30.50 we'd probably look for the stock to retest the May lows near $29.00. We are not suggesting new bullish plays at this time.

Picked on June 01 at $33.03
Change since picked: - 2.28
Earnings Date 07/20/05 (unconfirmed)
Average Daily Volume: 660 thousand

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Sirius Satellite Radio - SIRI - cls: 5.83 chg: -0.01 stop: 5.45

No change from our previous update on 06/07/05.

Picked on May 22 at $ 5.65
Change since picked: + 0.18
Earnings Date 04/28/05 (confirmed)
Average Daily Volume: 40.0 million

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Yahoo! Inc. - YHOO - close: 36.63 change: -0.81 stop: 35.99

Ouch! Internet and search-engine related stocks like YHOO and GOOG were hit today after CNBC reported that May prices for key-word searches actually declined. Analysts were expecting prices to rise. This sent both YHOO and GOOG lower. The selling in YHOO paused near its 21-dma but this doesn't look good following yesterday's failed rally. More conservative traders may want to exit now to avoid any or further losses. We'll hold on to the play to see if YHOO bounces from what should be support at the $36.00 level. Considering the new MACD sell signal in YHOO and the NASDAQ Composite we don't have much hope and would expect to be stopped out. This has been quite a reversal after YHOO came within five cents of our target.

Picked on May 18 at $36.05
Change since picked: + 0.58
Earnings Date 04/19/05 (confirmed)
Average Daily Volume: 20.9 million
 

Short Play Updates

Ball Corp - BLL - close: 37.55 chg: -0.04 stop: 38.15

No change from our previous update.

Picked on May 05 at $38.98
Change since picked: - 1.37
Earnings Date 04/28/05 (confirmed)
Average Daily Volume: 611 thousand

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ManTech Intl - MANT - close: 28.25 change: -0.17 stop: 30.05

This morning MANT opened up weak and continued to decline following yesterday's failed rally pattern. The stock dropped to a low of $27.09 before bouncing. The rebound took it all the way back toward previous support in the $28.50-28.60 region before fading lower again. This sort of volatility can be gut wrenching. We would probably wait and watch for MANT to trade back below the $28.00 level before considering new bearish positions. Our target is the $25.50-25.00 range.

Picked on June 07 at $28.42
Change since picked: - 0.17
Earnings Date 08/15/05 (unconfirmed)
Average Daily Volume: 165 thousand
 

Closed Long Plays

Ship Fincl Intl - SFL - close: 19.10 change: -0.40 stop: 18.95

We don't know what happened but according to our records SFL just lost 40 cents today yet most of the quote services show a 10-cent gain. Looking at the intraday chart SFL gapped down to $18.98 and then shot to a low of $18.43 before rebounding higher. That would have stopped us out at $18.95. We're closing the play per our stop loss.

Picked on May 31 at $19.34
Change since picked: - 0.24
Earnings Date 05/31/05 (confirmed)
Average Daily Volume: 344 thousand
 

Closed Short Plays

Interoil Corp - IOC - close: 21.79 change: -1.45 stop: 25.55

Whoa! IOC dropped a lot faster than we expected. Shares opened at $23.24 and within minutes promptly dropped straight toward our target in the $20.50-20.00 range on very heavy volume. The intraday low was $20.07. We're not claiming that any of our readers were able to catch this play but we have to close it out at our target ($20.50). Given the intraday bounce we'll keep an eye on IOC for another failed rally under the $24.50 level.

Picked on June 07 at $23.24
Change since picked: - 1.45
Earnings Date 00/00/00 (unconfirmed)
Average Daily Volume: 352 thousand
 

Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.

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