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Daily Newsletter, Saturday, 07/08/2006

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Table of Contents

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

Market Wrap

Jobs, What Jobs?

Bulls were surprised by the Wednesday ADP forecast for a gain of +360,000 jobs in Friday's Jobs report. Jobs estimates were revised upward by dozens of analysts based on that ADP forecast. Those same bulls were even more surprised by the actual headline number on Friday of only a +121,000 job increase that was substantially below anybody's forecast. Confusion reigned again and the markets slumped on fears that stagflation was returning. Helping to give the markets a strong push lower were earnings warnings by numerous companies led by Dow component 3M.

Dow Chart - 90 min

Nasdaq Chart - 90 min

SPX Chart - 90 min

The Jobs picture clouded on Friday after a tumultuous week. In the prior week the whisper numbers for non-farm payrolls had slipped to something in the 150K range and below the 175K consensus estimate. On Wednesday data from ADP suggested we could have a blowout jobs report somewhere in the 360K range. The markets gapped down at Wednesday's open on the combination of the strong new jobs forecast and the North Korea missile problem. The markets recovered later that day on the possibility the economy was much stronger than previously expected if jobs were really going to be over 300K. Estimates were revised higher and the whisper number began to climb. Fast forward to Friday's report and a below consensus shocker of only 121,000 new jobs. On the surface that headline number would suggest less chance of a continued Fed rate hike cycle but the internals told a different story.

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The unemployment rate held steady at the cycle low of 4.6% but hourly wage growth rose +0.5% and the second highest jump in nearly a year. Hourly wage growth for the last 12 months jumped to +3.9%, the fastest rate in over five years and clearly showing some wage inflation due to a tight labor market. The average weekly earnings also jumped sharply to 4.6% for Q2 on an annualized basis and the biggest jump since Q4-1997. The combination of low job growth, low employment and rising wages sent expectations of further rate hikes higher. Additional Fed pressure came from a strong back-to-back report of new jobs from the household employment survey. This is the companion report to the non-farm payrolls and the report that provides the unemployment rate. Household employment jumped +387,000 in June after a +288,000 jump in May. Household employment simply means work at home employment and those self employed. The BLS definition for this survey sample is "the civilian noninstitutional population 16 years and older." This sustained jump household employment in addition to the non-farm or institutional jobs plus the increase in wages and drop in productivity almost guarantees another rate hike in August. Officially the Fed Funds Futures are now at 65% chance of another quarter point but there are growing worries that the Fed will move to a 50-point hike instead. The Fed looks at both employment surveys and the sharply rising wage growth. After Friday's numbers there were a few analysts suggesting the Fed could move before the August meeting. Granted those are not mainstream forecasts but the fear is growing. May was revised higher by +17K and April revised lower by -15K.

Table of Nonfarm Jobs Versus Estimates

If you are only listening to the talking heads on TV or getting your data from the newspaper you are only getting half the story. In the first graph below I have contrasted the new nonfarm payrolls with the jobs from the household survey. You can see the household numbers typically run much higher than the nonfarm jobs. If you are trying to measure the health of the economy you can't depend on either one alone. On the second graph I combined the data to show the solid pace of new job creation averaging 369,000 jobs per month since June 2005. According to analysts it takes an average of +150,000 new jobs per month to absorb new workers into the system from immigration, graduation, etc. Using only the nonfarm average for that period of +154K it would seem the economy is only breaking even and not producing material employment growth. Once you look at the entire picture it shows an average surplus of +219,000 new jobs created each month. Simply put, the economy and the labor force is growing despite what we hear in the media.

Graph Showing New Nonfarm and Household Jobs

Graph Showing Combined Monthly Job Creation

Now for the bad news. Housing related jobs accounted for 23%, or 1.13 million of the 4.9 million jobs created since 2003. Total realtors jumped from 803,803 to 1.3 million. Home construction workers surged significantly as builders tried to open new communities at a record pace. Condo construction added workers by the thousands with over 250,000 units under construction nationwide as of January this year. The mortgage industry saw explosive expansion since 2002 as record low interest rates prompted more people to own a home, buy a more expensive home and/or refinance their existing mortgages. On Friday Ameriquest announced a workforce reduction of 3800 workers in their mortgage division. Washington Mutual announced a cut of 2500 workers. KB Homes, joined the builder layoff crowd with an announced cut of 7% of its 6600 workers. In the nonfarm employment survey the construction component lost -4000 jobs and the largest loss since Jan-2005. The good news is a steady growth of new jobs but they are no longer in the homebuilding sector. Leading areas of job growth in June were Government +31K, Education and Healthcare +26K and Professional Services +25K. To me that means more white-collar jobs and less blue collar but I could be wrong. Retail also lost ground to the tune of -7K along with a drop of -8K in temporary workers. The temporary worker component is often seen as a sign of future job growth. Firms will hire temporary workers until business increases to the point to allow full time hires. A drop in temporary workers suggests a slowing in job growth but at -7K it is hardly significant in this report. The bottom line for the jobs picture is still strong overall growth with rising wages and low unemployment. It almost guarantees another rate hike but the July report is due out before the August Fed meeting. A strong July report could compound the employment growth scenario and accelerate any Fed action with a potential 50-point hike. A weak July report could serve to slow the Fed's pulse and keep us on the incremental pace we have seen for the last 17 meetings.

Economic Calendar

The economic calendar for next week is littered with reports but none are especially important or market moving. All eyes will be on the earnings parade, which begins with Alcoa on Monday. We got a hint of what that parade will look like with a flurry of warnings on Friday. 3M knocked the Dow for a substantial loss after warning that earnings would be below expectations. MMM lost -$7.29 or -9%, roughly 47 Dow points, after saying that growth had slowed in its optical division. This is the division that makes the film for LCD TVs. LG Phillips (LPL) warned on Thursday night that sales of flat panel televisions had slowed dramatically saying there was a glut of components in the system. Seems everyone stocked up for an expected flurry of buying ahead of the World Cup and it did not materialize. The LPL warning makes the MMM announcement less of a news event but MMM was punished hard. The $74 close was a four-month low and well off its $88 high in May. MMM was thought to be untouchable as a blue chip safe haven but that view was crushed on Friday. This caused investors to reexamine their thoughts on blue chip safety and only seven Dow components posted gains on Friday with only two posting gains of more than a quarter, MRK and GM.

OOPS! At 5:46 AM Friday JP Morgan (JPM) upgraded MMM to overweight from neutral citing valuation. "We think 3M is poised to benefit from cyclical leverage to high-quality growth in the late stages of the economic cycle." At 9:AM 3M warned of lower profits. You know there were some stunned faces at JPM when the news hit the wires. I guess that valuation argument makes even more sense now at $74 than it did at the $82.50 premarket levels.

Big cap tech stocks fell even further out of favor after several smaller techs warned. AMD warned that Q2 sales would be below expectations due to the current price war with Intel. Intel cut its expectations back on March 2nd and AMD has fallen -42% since that announcement on fears of the coming price war. Intel has only fallen -8% during that same period but did see a low of $16.75 in June on chip weakness and high inventory levels. PC sales have been weak and are expected to remain weak and that means Intel and AMD are waging war with the only tool at their disposal, prices. Most analysts expect Intel to miss estimates and lower guidance when they report on July 19th. This also puts pressure on IBM, HPQ and Dell on increasing signs of growing weakness in the PC sector and techs in general.

Intel Chart - Monthly

WebMethods (WEBM) warned that they would post a loss instead of a profit for the quarter on -10% lower than expected sales. WEBM now expects a loss of -1 to -5 cents compared with prior expectations of a 12 to 15 cent profit. WEBM lost -3.06 or -32% for the day. Business Objects (BOBJ) lost -5.76 or -21.5% after warning profits would be below expectations.

Labranche (LAB) lost -24% after warning that the difficult market and challenges posed by electronic trading had caused a -57% decline in its market making business. LAB said it would now post a loss for the quarter of -8 cents per share compared to First Call estimates for a profit of +8 cents. LAB said trading revenue declined from $47 million to $20 million for the quarter. The company said making a market during the steep declines in May caused it to be on the wrong side of the market especially in the emerging market ADRs. They also admitted the human factor on the NYSE trading floor was no longer able to keep up with electronic trades in fast markets. It was only a matter of time until this happened and this should be an example for expectations of other market makers. Market maker Knight Capital (NITE) lost -3% in sympathy but I would expect more weakness as investors become more cautious.

Starbucks (SBUX) lost -5% after warning that same store sales fell short of estimates for June. Estimates were for +7% growth and sales came in at +6%. No big deal for me but the stock was hammered. Brokers lined up to cut estimates after a UBS analyst said new Frappuccino products were not ramping up as hoped. I think this is overdone because Starbucks is still predicting revenue growth of up to +7% through the end of 2006. I would not buy SBUX personally because I believe there are much better companies available but $35 is decent support for those not looking for a strong return.

Best Buy (BBY) and Circuit City (CC) both lost ground due to the MMM and LPL warnings about slow LCD sales. BBY also lost ground after Radio Shack (RSH) named former Kmart and Sears executive Julian Day as CEO. Day is seen as a turnaround pro and could provide BBY with additional competition. BBY reaffirmed its outlook in an SEC filing for profits between $2.65 and $2.80 per share. However, it said profits could be flat to down modestly as compared to a slight improvement they previously expected. BBY said it planned to boost sales and cut costs to offset the reduction. Sounds easy but shouldn't they already be doing that?

Lowe's Companies (LOW), a leader in the home building products sector, was downgraded to a hold by AG Edwards before the open. This is the 4th consecutive downgrade for the company and shows how analysts are distancing themselves from the housing sector. LOW lost -4.4% and sank to a new eight month low. Home Depot (HD) lost ground as well but is was only fractional but enough to push it to a new 15 month low. You would think that slowing new home sales and rising interest rates would make fixing up existing homes even more appealing. If you are going to live there or spruce it up to sell you still need HD and LOW for supplies. I would be a buyer of these companies ONCE a bottom begins to appear.

EBAY fell again on Friday to $26.65 and to levels not seen since Nov-2003 but it was not due to any warning. EBAY has been dropping for weeks and the new Google Checkout service is just more incentive to sell. On Friday Ebay announced it would not accept Google Checkout for Ebay auction payments. Ebay said it was one of 39 online payment services not accepted. The official reason was an insufficient track record but I am sure everyone can read between the lines. Google is being seen as a bigger threat to PayPal than previously expected. Ebay also announced that Jeff Jordan, President of PayPal, was leaving to spend more time with his family. That move was seen as highly significant given the sudden appearance of the Google threat. It also suggests a bigger competitive threat than previously thought. If you are going to leave now would be the right time. No reason to sit in the big chair and take fire for the next couple years while your PayPal advantage slowly dwindles away.

EBAY Chart - Weekly

Oil prices soared to a new all time high for a current month contract at $75.78 in early trading Friday morning. The August contract has traded higher but not as a current month contract. The spike was due to near record demand for gasoline in the week leading up to July 4th. The 9.645 million barrel demand was the second highest on record and second only to the same week in 2005 at 9.721 mb. The surge brought the 10-week average to 9.41 mb and nearly equal to the 9.414 mb for the same ten weeks in 2005 when gasoline averaged only $2.21 per gallon. The current ten-week average is $2.91 per gallon. Demand continues strong despite the high prices. Oil inventories fell by -2.4mb for the last reporting week but gasoline stocks rose by +800,000 bbls. The gain was due mostly to timing of import deliveries not excess refinery production. Oil inventories are still at multiyear highs and the price is being supported by high gasoline demand and geopolitical tensions. Even at these high inventory levels the oil supply on hand represents only 21 days of forward cover. That means if imports stopped today the refineries would run dry in 21 days without help from the strategic petroleum reserve. The gas demand table below shows the rising demand as summer kicked into high gear. With the July 4th weekend behind us I will not be running that table again but will keep you informed as the summer progresses. Demand should begin to slow after this week but increase again into Labor Day.

Fifteen year gasoline demand table

August Crude Oil Chart - Daily

Oil prices "should" begin to fall if inventory levels were the only consideration. Unfortunately for drivers that is the least of the factors impacting prices. Last week was supposed to be deadline week for Iran and the prospect of an obstinate response from Iran helped push prices to record highs. That potential was pushed into next week after a meeting with council diplomat Javier Solana. There will be another meeting on Tuesday but a senior Iran official made it clear that no response would be forthcoming. Iran's top negotiator, Ali Larijani, said again that "The timetable drawn up by other people has no influence on what we do" and "we will respond in August." The UN Council had pressured Iran for a response before the G8 summit on July 15-17. This is obviously not going to happen as Iran stalls for more time. Oil prices tanked late Friday afternoon after Javier Solana said the initial encounter was a "good start" and Larijani said the meeting was "fruitful and constructive." Obviously both are diplomats trying to avoid a confrontation but oil traders used the exchange of diplomatic pleasantries as an excuse to take profits. Most traders expect oil prices to rise again ahead of the G8 meeting and the likely increase in tensions as the lack of real progress become more apparent. Boone Pickens along with several other noted oil experts predicted last week that $80 oil is just around the corner. We have yet to see a hurricane appear and the clock is ticking. Once one appears headed for the Gulf the prices will head even higher.

Helping push tensions higher was the North Korean missile test. North Korea is a nuclear nation with at least a dozen nuclear weapons. There is nothing the US or anyone else can do militarily against NK as long as it holds those weapons. NK is holding Seoul South Korea, a city of 10 million, hostage with its nuclear capability. NK has threatened to nuke Seoul if it is attacked by anyone. With its scud missiles it would not be a challenge to act on that threat. Japan asked the UN to invoke sanctions on NK for its missile test but backed down after NK repeated its often-used threat. "If sanctions are imposed we will consider it a declaration of war." You can't negotiate with a hotheaded lunatic with nuclear weapons. He knows the US would turn NK into a smoking slag heap if he did attack Seoul but that would not help the 10 million people he killed in Seoul. This makes the NK standoff just another high profile case of brinksmanship that eventually can only be controlled by China. NK imports all its oil from China and it would get very tough in NK if that oil flow was stopped. Don't pull the tail of the sleeping bear. North Korea's Seoul threat carries far less weight in China than it does in the US. China needs that oil since it is already a net importer itself. I would not be surprised to see North Korea's supplies dwindling in the near future. That would make NK more reliant on the outside world and by necessity more prone to civilized behavior.

The Q2 earnings cycle has finally arrived beginning with Alcoa on Monday. S&P earnings for Q2 are expected to grow by +12.3% followed by +15.3% in Q3 and +14.8% in Q4. Those Q3/Q4 estimates have been rising after being in single digits for several months. The gains are being blamed on the energy sector with Q2 expectations for +28% growth and materials growth of +17%. Without the energy component S&P earnings would be in the +9% range. The weakest sectors are expected to be healthcare +3% and consumer staples at +4%. Not everyone believes the Q3/Q4 earnings story and the Q2 cycle could either provide a solid foundation for that scenario or deflate it quickly. Consumer confidence is beginning to erode as home sales slow and prices drop. Consumer sales are also slowing with Wal-Mart saying on Thursday that June sales grew only +1.2% due to budget constraints on shoppers. Wal-Mart said sales were focused on necessities. The higher gasoline prices are taking their toll. Abhijit Chakrabortti, U.S. equity strategist at JP Morgan said he expects only 7% earnings growth in Q2 as information-technology companies, financial-services firms and consumer-focused businesses disappoint. He feels the market will need to see a reasonable earnings beat for Q2 plus positive guidance for Q3 and beyond to rescue the markets from another dip lower. He said without a strong positive catalyst there is no reason to move higher. Just meeting current expectations will not be enough to provide market momentum given the doubts about the economy.

According to Chakrabortti technology companies are the most likely to disappoint in Q2. They already have lowered estimates to barely +10% growth and that is the lowest growth estimate in two years. They were predicted to show +15% growth when Q2 began and have been slipping steadily ever since. Husic Capital Management said technology firms are being actively shorted by hedge funds in anticipation of earnings shortfalls. Chakrabortti said he is seeing signs of a deepening slowdown for the sector based on a substantial decline in Taiwanese production of electronic parts and components. Expectations for banks have risen but so have their costs. They are having to pay more competitive interest rates to maintain deposits and could miss estimates slightly. Analysts at Fox-Pitt, Kelton expect more than a third of the banks they cover to miss Q2 estimates. Higher mortgage rates from $3 trillion in ARM resets and the new payment structure on credit cards will pressure consumers and therefore any company that relies on consumer discretionary sales.

The potential for continued Q2 earnings warnings and actual earnings misses once the reporting begins should pressure the indexes over the coming weeks. The post jobs report Fed analysis will be the daily topic and there is no upside to that discussion for the market. Add in a few more earnings warnings and we could be on the slow road through the summer doldrums. I am still expecting lower lows ahead but they may not come until Sept/Oct. That gives us quite a while to argue economics and range bound markets. Eventually a real rally will arrive to take us to year-end but first we have to traverse the torture track ahead. I would love to be wrong and have the lows already in place but even if they are that gives us a 700-point range on the Dow for the foreseeable future. 10700 was the June low and 11425 is overhead resistance. Both extremes represent strong resistance/support and will likely hold without a strong catalyst to provide momentum. I would view a move over 11425 as a breakout and a nullification of my range bound theory. The internal range would be 10900-11325.

The internals are already showing a fading of bullish expectations despite the surprise low volume ISM bounce on Monday. New highs are declining, new lows rising and down volume increasing. Granted this was a very low volume week with total share volumes only barely over 4B shares per day but the internals still count. Ships can sink in calm seas.

Weekly Internals Table

The Nasdaq completed three days of losses with a -25 drop on Friday. This was -61 points off the Monday high and right back in the middle of its recent range. With the potential for Intel, Microsoft, HPQ and Dell to disappoint the outlook is not good. But, there is the possibility that far too much bearishness is already baked into the cake. With expectations so lousy a couple of strong earnings reports could produce another bear-b-que and short squeeze us back to resistance at 2185 or even 2225. I doubt we will see it but it is always a possibility.

We have seen far too many "Fed is done" rallies over the last nine months and so far they have all been wrong. After Friday's jobs numbers we are facing what appears to be at least one more hike but with wage numbers soaring it could be just one more in a continuing series. Now that 5.5% is nearly guaranteed and 6.0% in the Fed's sights the equity markets would normally begin to suffer interest rate altitude sickness. Factor in the potential for some disappointing earnings guidance and the queasiness should intensify. The lure of another "one and done" scenario is losing its luster given the reasons mounting against it. I believe the market is running out of supporting factors but that picture could change as earnings begin. If the first few reporters show up with sterling results the diehard bulls could try another escape attempt. The partial list of reporters for next week is far from inspiring and probably far from market moving. Between Alcoa on Monday and GE on Friday there are only a handful of material companies. This means far more attention will be paid to any earnings warnings than earnings reporters. The following week has nearly 400 reports.

Partial list of earnings next week

I would be careful adding any new long positions until the market picks an earnings direction. The energy sector may have further to rise with most of the earnings for energy the week of the 23rd but despite record oil prices on Friday many energy stocks were already showing weakness. Weak stocks on record oil prices should be a clue the market is unstable. Let that be your clue to wait patiently for a new trend to develop.
 

New Plays

Most Recent Plays

New Plays
Long Plays
Short Plays
None BRCM

New Long Plays

None today.
 

New Short Plays

Broadcom - BRCM - close: 27.75 change: -1.38 stop: 30.25

Company Description:
Broadcom Corporation is a global leader in semiconductors for wired and wireless communications. Our products enable the delivery of voice, video, data and multimedia to and throughout the home, the office and the mobile environment. Broadcom provides the industry's broadest portfolio of state-of-the-art system-on-a-chip and software solutions to manufacturers of computing and networking equipment, digital entertainment and broadband access products, and mobile devices. (source: company press release or website)

Why We Like It:
The semiconductor sector has continued to sink and last week's downgrade for semi-giant Intel didn't help matters. The oversold bounce in BRCM has failed with shares rolling over under the top of its descending, bearish channel. Friday's 4.7% decline was a breakdown under minor support near $29.00. Volume came in way above average on the sell-off, which is also bearish. Plus, the MACD on the daily chart is nearing a new sell signal. We are suggesting shorts in BRCM with the stock under $29.00. We are using a wide, aggressive stop above $30.00 for now. In reality, broken support near $29.00 should be new resistance. We are suggesting two targets - a conservative target at $25.05 and a more aggressive target at $22.75. Please note that BRCM is due to report earnings on Thursday, July 20th and we do not want to hold over the report.

Picked on July 09 at $27.75
Change since picked: + 0.00
Earnings Date 07/20/06 (confirmed)
Average Daily Volume: 15.5 million

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IAC/Interactive Corp. - IACI - cls: 25.49 chg: -0.18 stop: 26.55

Company Description:
IAC operates leading and diversified businesses in sectors being transformed by the internet, online and offline...our mission is to harness the power of interactivity to make daily life easier and more productive for people all over the world. Online properties include Ask.com, Chemistry.com, CitySearch, Domania, Evite.com, GetSmart, Gifts.com, HSN, HSE24, iNest.com, Interval Intl., LendingTree.com, Match.com, PRC, RealEstate.com, Shoebuy.com, Ticketmaster, uDate.com (source: company press release or website)

Why We Like It:
Internet stocks seem to be struggling, unless you're Google. The oversold bounce in IACI has failed and the technicals have turned bearish. The MACD on the daily chart is nearing a new sell signal. Meanwhile the Point & Figure chart is bearish (bull trap pattern) with a $16 target. We are putting our stop loss at $26.55, which is above the 50-dma. We'd consider shorts anywhere under $26.00. Our target is the $24.00-23.75 range. We do not want to hold over the early August earnings report. Readers should note that IACI has relatively high short interest at 4.8% of its 195 million-share float.

Picked on July 09 at $25.49
Change since picked: + 0.00
Earnings Date 08/01/06 (unconfirmed)
Average Daily Volume: 2.3 thousand

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Maxim Integrated - MXIM - close: 29.75 chg: -0.50 stop: 31.25

Company Description:
Maxim Integrated Products is a leading international supplier of quality analog and mixed-signal products for applications that require real world signal processing. (source: company press release or website)

Why We Like It:
MXIM is another semiconductor stock that is breaking down on multiple levels. Shares produced a failed rally near its 50-dma and the top of its descending channel a few days ago. Two days ago the daily chart's MACD indicator produced a new sell signal. On Friday the stock broke down under support at the $30.00 mark on above average volume, which is bearish. In addition to general weakness in tech and the semiconductor sector MXIM is one of many companies being investigated for its stock option practices. We are suggesting shorts with MXIM under $30.00. Our target is the $27.00-26.75 range. The Point & Figure chart points to a $17 target. We do not want to hold over the early August earnings report. FYI: more aggressive traders may want to play with a wider stop (above the 50-dma) and aim for the $25.00 region.

Picked on July 09 at $29.75
Change since picked: + 0.00
Earnings Date 08/02/06 (unconfirmed)
Average Daily Volume: 5.5 million
 

Play Updates

Updates On Latest Picks

Long Play Updates

Amer.Eagle Outfitters - AEOS - cls: 35.65 chg: +0.88 stop: 32.99

AEOS continues to power higher with Friday's 2.5% gain and breakout over the $35.00 level. On Thursday we suggested that readers not open new bullish plays if the market sours on the jobs report. Due to market weakness we remain cautious but AEOS relative strength looks buyable. Traders may still be reacting to Thursday's news with AEOS reporting June same-store sales up 11%. Readers can choose to go long here or look for a dip back toward the $34.50-35.00 region. Our target is the $38.25-38.50 range. The P&F chart is more optimistic with a $63.00 target. We do not want to hold over the August earnings report.

Picked on July 06 at $34.77
Change since picked: + 0.88
Earnings Date 08/15/06 (unconfirmed)
Average Daily Volume: 2.2 million

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A.S.V.Inc. - ASVI - close: 22.10 change: -0.69 stop: 21.85*new*

Bulls need to be careful here. ASVI's upward momentum is fading. So far the stock is holding on to minor support at $22.00 with a little help from the 50-dma. The action this past week might just be a consolidation on the way up and the below average volume suggests that might be the case. However, our market bias is not positive. Conservative traders may just want to exit now. We're raising our stop loss to $21.85, which is under the 50-dma and Friday's low. We are not suggesting new plays at this time. Our target is the $23.50-24.00 range.

Picked on June 18 at $21.20
Change since picked: + 0.90
Earnings Date 07/27/06 (unconfirmed)
Average Daily Volume: 463 thousand

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Celgene Corp. - CELG - close: 48.25 chg: +0.95 stop: 44.95*new*

CELG continues to display relative strength. The stock added 2% on Friday with a bounce from its rising 10-dma. This is a new all-time closing high for the stock. We're going to raise our stop loss to $44.95. Right now our market bias is not positive so we hesitate to suggest new long positions but CELG's strength does look attractive. We do expect some resistance at $50.00 but our target is the $52.40-52.60 range. The Point & Figure chart shows a triple-top breakout buy signal with a $57 target. We do not want to hold over the late July earnings report.

Picked on June 29 at $47.24
Change since picked: + 1.01
Earnings Date 07/27/06 (unconfirmed)
Average Daily Volume: 3.9 million

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Energy Transfer - ETP - close: 44.89 chg: -0.10 stop: 43.45*new*

Crude oil hit new highs this past week yet shares of ETP failed to participate in any oil-sector strength. Instead the stock has been stuck in a narrow, sideways consolidation - even the technical indicators have all turned sideways. Overall ETP is still inside its multi-month rising pattern but we're cautious. We're going to inch up our stop loss to $43.45 near its 50-dma, which should be technical support. We're not suggesting new plays at the moment but a bounce from the $44.00 level might be a tempting entry point. Currently our target is the $47.50 level. FYI: We do not have a confirmed earnings date for ETP. We do not want to hold over the company's earnings announcement but the problem is that we expect ETP will announce somewhere between July 10th (Monday) and the end of July. Due to this risk more conservative traders may want to exit early!

Picked on June 18 at $44.25
Change since picked: + 0.64
Earnings Date 07/10/06 (unconfirmed)
Average Daily Volume: 149 thousand

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Norfolk Southern - NSC - close: 51.55 chg: -0.71 stop: 49.99*new*

Railroad stocks have been pulling back the last couple of days. The technical indicators on NSC are starting to turn bearish and the close under its 10-dma, 100-dma and 50-dma is a bad sign. More conservative traders may want to think about an early exit here. We are going to raise our stop loss to $49.99. If you choose not to exit early but want to reduce your risk then consider putting your stop near $50.50 or the $51.00 level. We are not suggesting new bullish positions.

Picked on June 29 at $52.57
Change since picked: - 1.02
Earnings Date 07/26/06 (unconfirmed)
Average Daily Volume: 2.2 million

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Starbucks - SBUX - close: 36.04 chg: -1.84 stop: 34.98

We warned readers on Thursday that Friday's session could be a rough one for SBUX. Investors did not respond well to news that June same-store sales came in +6%, which was at the low end of analysts' expectations. Shares gapped open lower after a pre-market downgrade. We do find it interesting that traders bought the dip at $35.10. We would not be surprised if SBUX bounced back toward the $37.00 level. At this time we're not suggesting new plays and more conservative traders might want to exit early or try and exit on any bounce near $37.00. Chart readers will note that the weekly chart has produced a bearish engulfing candlestick pattern, which is usually interpreted as a bearish reversal.

Picked on June 29 at $37.05
Change since picked: - 1.01
Earnings Date 08/02/06 (unconfirmed)
Average Daily Volume: 6.0 million

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USA Truck - USAK - close: 19.10 chg: -0.25 stop: 18.99

We are going to keep USAK on the newsletter as a bullish candidate for now. The market weakness kept the stock trading sideways in a narrow range. Volume on the session was pretty low. USAK still looks poised to move higher after building a base over the last month and with our trigger above resistance we feel relatively safe. We're suggesting a trigger to go long at $20.05. If triggered then our target will be the $22.00-22.50 range. We do not want to hold over the late July earnings report.

Picked on July xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 07/20/06 (unconfirmed)
Average Daily Volume: 140 thousand
 

Short Play Updates

Juniper Networks - JNPR - cls: 15.72 chg: -0.29 stop: 16.26

JNPR continues to slowly drift lower under its trendline of resistance. Our market bias is flat to down so we expect JNPR's decline will begin to pick up speed. We would continue to consider new short positions with the stock under $16.00. More aggressive traders may want to leave their stop north of the 50-dma (16.58). Our target is unchanged in the $14.10-14.00 range. The P&F chart points to an $8.50 target.

Picked on June 19 at $15.89
Change since picked: - 0.17
Earnings Date 07/19/06 (unconfirmed)
Average Daily Volume: 13.8 million

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Medtronic - MDT - close: 47.59 change: +0.16 stop: 48.75

There are no changes from our previous updates on MDT. The stock is still producing an oversold bounce and managed to close over its 10-dma on Friday. We expect that shares will test broken support and what should be new resistance at the $48.00 level soon. We are not suggesting new plays at this time. More conservative traders might want to do some profit taking. Our target is the $45.50-45.00 range. We do not want to hold over the August earnings report.

Picked on June 21 at $49.49
Change since picked: - 1.90
Earnings Date 08/22/06 (unconfirmed)
Average Daily Volume: 10.8 million

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NitroMed - NTMD - close: 4.42 change: -0.26 stop: 5.01 *new*

NTMD lost another 5.5% on Friday putting the current decline at 12.8%. More conservative traders may want to do some profit taking. Fortunately, our market bias is flat to down so we expect NTMD to keep sinking. One concern we do have is the volume on Friday - it was very low. We're going to tighten our stop loss to $5.01. More conservative traders might want to tighten their stop towards $4.90 and the 50-dma. We're not suggesting new plays at this time. Our target is the $4.10-4.00 range.

Picked on June 18 at $ 5.07
Change since picked: - 0.65
Earnings Date 07/31/06 (unconfirmed)
Average Daily Volume: 710 thousand
 

Closed Long Plays

Asta Funding - ASFI - close: 35.89 change: -0.34 stop: 34.95

We are suggesting an early exit in ASFI. Shares tried to rally on Friday but failed under the 50-dma. Technical indicators are turning bearish and Friday's session was a bearish engulfing candlestick pattern. Now that our market bias if flat to down we'd rather jump out early.

Picked on June 23 at $36.01
Change since picked: - 0.12
Earnings Date 08/08/06 (unconfirmed)
Average Daily Volume: 165 thousand

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Kenexa - KNXA - close: 30.46 change: -1.54 stop: 29.85

We are suggesting that traders abandon ship with KNXA. The stock was very weak on Friday with a 4.8% loss and a breakdown below its 10-dma and 50-dma. There is still a chance that KNXA will bounce from the $30.00 level but we don't want to risk it.

Picked on July 02 at $31.85
Change since picked: - 1.39
Earnings Date 08/07/06 (unconfirmed)
Average Daily Volume: 178 thousand

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Lam Research - LRCX - close: 44.54 chg: -1.07 stop: 44.95

We have been stopped out of LRCX at $44.95. The SOX semiconductor sector index never broke out from its bearish channel. While LRCX was showing some relative strength a week ago the breakout over its 50-dma has failed.

Picked on June 30 at $47.25
Change since picked: - 2.71
Earnings Date 07/19/06 (confirmed)
Average Daily Volume: 3.1 million

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Verizon Comm. - VZ - close: 32.71 change: -0.31 stop: 32.45

We are suggesting an early exit in VZ. The trading on Friday looks bearish with a failed rally after the stock filled its gap down from Thursday. (Of course we don't see the gap down on this chart from stockcharts.com)

Picked on June 18 at $32.54
Change since picked: + 0.17
Earnings Date 07/25/06 (unconfirmed)
Average Daily Volume: 9.8 million

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Zoltek - ZOLT - close: 28.31 change: -0.97 stop: 27.49

ZOLT is moving further away from any bullish breakout over the $30.00 level. It was our plan to go long at $30.81, but ZOLT never hit our trigger so we're dropping the stock as a bullish candidate for now.

Picked on June xx at $xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 08/09/06 (unconfirmed)
Average Daily Volume: 810 thousand
 

Closed Short Plays

None
 

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

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