After a flat to modestly lower open, traders placed conservative bets into tomorrow's Federal Reserve decision on interest rates in what turned out to be a very tight range of trade on light volume.
While volume at the big board has been averaging 2.63 billion shares per day so far this month, today's 2.2 billion shares has the look that traders were only making minor adjustments to their equity holdings. NASDAQ's 1.86 billion nearly matched Friday's 1.85 billion shares and was notably below December's 1.99 billion share per day average.
Treasuries found some action with the shorter-dated 5-year yield ($FVX.X) falling 3.0 basis points to finish at 4.494%, while the benchmark 10-year yield ($TNX.X) fell 3.2 basis points to 4.520%. The longer-dated 30-year yield ($TYX.X) recouped some of last week's rise and fell 3.3 basis points to 4.628%.
Forward-looking Fed Funds futures currently have market participants seeing no Fed action at tomorrow's meeting. The central bank raised rates 17 straight times starting in June 2004, but has left them unchanged the last three meetings at 5.25%.
Of late, it wouldn't be a Monday without some type of merger news.
Dow components American Intl. Group (NYSE:AIG) $71.00 +0.92% said it agreed to buy the U.S. port operations of state-owned Dubai Ports. AIG will take control of six U.S. ports. AIG Global's role, officials said, is purely as an investor and will involve only the American ports.
The U.S. ports involved in Monday's transaction have been purchased for an estimated $700 million, though the exact terms were not disclosed.
Copper producer Phelps Dodge (NYSE:PD) $122.87 -0.64% jumped as high as $124.75 at the open after hedge fund SAC Capital Advisors LLC said that it would vote against Freeport McMoRan's (NYSE:FCX) $61.35 -0.74% attempt to buy its rival. SAC Capital Advisors disclosed that it and fund manager Steven Cohen had bought 10.3 million shares in Phelps Dodge, or about 5.1% of the Phoenix-based copper miner's outstanding stock. The fund, which reportedly has bought and sold shares almost daily over the last two months, said that it will use its influence to convince Phelps Dodge to hold out for a better bid.
In late November, Freeport McMoRan offered to buy Phelps Dodge for $25.9 billion in cash and stock, with amounted to roughly $126.46 per share.
Medical device maker Biomet (NASDAQ:BMET) $41.54 +4.11% jumped to a new 52-week high on speculation that U.K.-based Smith & Nephew PLC might bit $11 billion to buy the company.
One of today's most actives had shares of Nuvelo (NASDAQ:NUVO) $4.05 -79.28% plunging on heavy volume of 90.1 million shares. The company said blood-clot-busting drug Alfimeprase failed in a late-stage clinical trial. Nuvelo officials said the mechanical delivery of the drug may have disrupted the clot so that it was not adequately delivered to the site of the clot, but carried beyond it.
Closing U.S. Market Watch - 12/11/06
Today's economic report wasn't thought to be a market mover, and it wasn't. October wholesale inventories rose 0.8%, which was slightly above economists' forecast for a 0.7% gain. Sales fell 0.4% from September, but were up a healthy 6.3% versus a year ago. Compared to last month, sales of machinery, equipment and supplies were down 3.3%, while sales of motor vehicle and motor vehicle parts and supplies, increased 2.5%.
October sales of non-durable goods, which are products intended to last three years or less, were down 0.6% from last month, but were up 5.5% from last year. Compared to last month, sales of petroleum and petroleum products decreased 5.1%.
I would note that at 10:00 AM EST, when October's wholesale figures were released, the CRB Index (CEC:CRY) 312.08 -0.09% did move sharply lower from 312.50 to 310.50 in a "knee-jerk" reaction.
I'm sure the Fed is keeping an eye on commodity price. Not intra-day moves, but I would also note that since the Fed last raised its target on Fed Funds to 5.25%, commodity prices as depicted by the CRB Index have been easing.
CRB Index - Daily Intervals
June 29th was the last meeting the Fed raised its target on Fed funds to 5.25%. The recent trade at 322 in the CRB would be considered a "normal" retracement of the May-October decline and a level of near-term resistance.
Today's October wholesale data is from the month of October, and backward looking. Perhaps reflected in the CRB Index itself.
My "analysis" of the CRB Index, or what it is saying is that hyper economic growth has cooled, and the current upward trend may reflect a more "moderate growth" trend for various commodities that are used in the manufacture of goods and some services.
Energy prices were weak today. January Nat. Gas futures (ng07f) settled down 13.4 cents, or -1.77% and traded contract lows at $7.216 during today's floor trade. Trader's cited fall-like weather blanketing much of the U.S., curbing the need for natural gas to meet heating demand.
The last time gas futures settled lower was on Oct. 30 at $7.41/MMBtu, when the front-month December contract was trading.
Temperatures in the Northeast and Mid-Atlantic are set to rise 6-14 degrees above normal this week with high temperatures in the 50s to low 60s, said Jim Rouiller, senior energy meteorologist with Planalytics in Philadelphia.
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On the earnings front, shares of Dow component DuPont (NYSE:DD) $47.42 +1.10% rose after the chemical giant said it now expects to earn $3.25 per share in the quarter, which includes $370 million, or $0.39 per share, in net one-time gains as the company continues its restructuring and streamlining. The company said it was cutting 1,500 jobs at its agriculture and nutrition divisions. Analysts were looking for the company to post earnings of $2.86/share, including a $0.01 one-time gain.
After today's closing bell, mobile phone chipmaker Texas Instruments (NYSE:TXN) $29.30 -0.34% was trading relatively unchanged in an active post-market trade. The company cut its fourth-quarter outlook on lower-than-expected chip sales.
The company, which makes everything from calculators to chips for flat-screen televisions, said it now expects earnings from continuing operations of $0.37 to $0.40 a share compared with its earlier target of $0.40 to $0.46.
The company said it now expects revenue of $3.35 billion to $3.5 billion for the quarter. In October it had forecast fourth-quarter revenue of $3.46 billion to $3.75 billion.
On average analysts had expected earnings of $0.43 a share on revenue of $3.58 billion, according to Reuters Estimates.
Buyers stand their ground ....
In last Monday's Market Wrap, I noted some signs of weakness in the major indexes WEEKLY Pivot levels and established tests for WEAKNESS and STRENGTH.
With the S&P 500 ($SPX) and the S&P 500 Depository Receipts (AMEX:SPY) seeing new closing highs on Friday, I'm dragging up my 0% retracement on the SPY to Friday's closing high of $141.42, where conventional use of this retracement has the 19.1% retracement moving higher to $137.82.
S&P Depository Receipts (SPY) - Daily Intervals
Since I visit with you every Monday, I've been attaching, or "dragging up" the 0% retracement from the summer low closes when we get a new 52-week high Friday close.
In my opinion, the SPY still looks strong, it FAILED the bearish test I set in the WEEKLY Pivot levels last week, as it never traded its WEEKLY S1 (support 1) at $138.54 and showed SIMILARITY to the past
Here's the same SPY chart I showed last Monday with the MONTHLY Pivot Levels and QCharts' WEEKLY Pivot levels.
S&P Depository Receipts (SPY) - 60-minute intervals
At the conclusion of last Monday's trade, the SPY had jumped to its WEEKLY R1 ($141.56) and for the most part traded with side of that WEEKLY near-term resistance level.
Volatility watchers may want to note that the CBOE Volatility Index (VIX.X) surged to its WEEKLY R1 of 12.61 on Thursday, as the SPY fell to $141.00. It was my analysis in the Market Monitor at OptionInvestor.com that we were really seeing some pre quarterly option expiration action. In fact, that day, the UpTick volume vs. the DownTick volume on the SPY was very bullish with UpTick volume at 8.18 million vs. DownTick volume of 4.67 million.
Since Thursday, option volatility has reversed notably with the VIX.X back down below 11.00 at 10.71.
It has been a couple of weeks since I showed the daily interval bar chart of the NASDAQ-100 Tracker (NASDAQ:QQQQ) $44.06 +0.36% where I had raised the 0% retracement to its Friday, November 24 close of $44.65. Same pattern of "once above" then "no Friday close below" as the SPY chart earlier this evening.
NASDAQ-100 Tracker (QQQQ) - Daily Interval
Not much to say about the QQQQ, except that it is digesting some of November's gains.
A downgrade on Oracle (NASDAQ:ORCL) $18.07 +1.51% from last Tuesday's close of $18.86 weighed on the Software sector, with the GSO.X 184.33 +0.53% down from last Monday's close of 187.85 (see U.S. Market Watch -1.87% decline recent 5-days), where the software group really accelerated gains from mid-September for the QQQQ.
The Semiconductor HOLDRs (SMH) $34.08 -0.32% closed at $33.63 back on 09/11/06 and have traded between $32.75 and $35.95 for about three months.
With Texas Instruments (TXN) $29.30 -0.34% giving a lukewarm outlook for Q4, the heavy weight software and biotech components of the QQQQ will remain key drivers.
Play Editor's Note: The markets are likely to trade sideways tomorrow as investors wait for the FOMC's decision on interest rates. We will wait to add new plays to the newsletter until we see the market's afternoon reaction to the Fed's policy statement.
New Long Plays
New Short Plays
Long Play Updates
Amer. Electric - AEP - close: 42.20 change: +0.31 stop: 40.89
The UTY utility index turned in a decent 0.48% gain on Monday. Helping lead the way was AEP, which added 0.74% to close back above the $42.00 level. This rally past $42.00 is a new bullish entry point to go long the stock however over the weekend we suggested waiting for a rally past $42.25. More conservative traders might want to tighten their stops toward $41.50. Our short-term target is the $44.90-45.00 range. The P&F chart points to a $50 target. FYI: We do not expect shares of AEP to move very fast so it could take a few weeks to reach our target.
on December 03 at $42.03
ALON USA Ener. - ALJ - close: 29.92 chg: -0.63 stop: 28.85
We are waving the yellow caution flag here with ALJ. We cannot find any specific news to account for today's gap lower and 2% decline. Furthermore the drop today produced a new MACD sell signal on the daily chart. We're not willing to abandon the play just yet since ALJ is hovering around support near $30.00 and its simple 200-dma. Plus, the stock should have additional support near $29.00. Conservative traders may also want to raise their stops. Our target is the $33.50-34.00 range.
Picked on November 21 at $30.15
Beazer Homes - BZH - close: 46.61 change: +0.47 stop: 44.25
The homebuilders managed to produce a bounce this morning but most of the group gave back the majority of their gains. Shares of BZH out performed its peers and closed with a 1% gain. The bounce from $46 could be used as a new entry point but we're skeptical. Traders may want to wait and see if the stock dips lower toward $45.00 before initiating new positions. Currently our target is the $49.50-50.00 range.
Picked on December 03 at $45.84
Chesapeake Energy - CHK - cls: 31.78 chg: -0.30 stop: 31.49
CHK is still suffering from last week's announcement to issue more stock. The stock fell at the open and eventually closed with a 0.9% loss. The bad news is how the intraday bounce failed to make it past Friday's lows, which now look like resistance. More conservative traders may just want to exit early right here. We're not suggesting new positions at this time but we'll be watching for a rally past $32.50 to change our minds. FYI: Today's high of $32.70 looks like a bad tick. Our target is the $38.00-40.00 range.
Picked on November 29 at $33.98
Carrizo Oil & Gas - CRZO - cls: 32.07 chg: +0.06 stop: 29.75
We don't see any changes from our weekend update on CRZO. The stock's upward momentum is still in jeopardy. Conservative traders may want to cut their losses now. We are keeping CRZO on the play list because we're bullish on oil and the oil stocks. However, CRZO could easily correct back toward the $30.00 level, which would be close to a 38.2% Fibonacci retracement. We are not suggesting new positions at this time. Our target is the $35.50-36.00 range. FYI: The P&F chart's bullish target is $52.
Picked on November 29 at $32.15
D.R.Horton - DHI - close: 26.77 change: +0.10 stop: 24.95
DHI rallied with the rest of the homebuilders this morning but like most of the group the stock eventually gave back much of its early gains. We suspect that DHI will dip toward $26.00, which is where we would consider new bullish positions. Our short-term target is the $29.90-30.00 range. The P&F chart points to a $36 target. FYI: We're going to inch up our stop loss to $24.95.
Picked on December 03 at $26.59
Florida East Coast - FLA - close: 61.64 change: +0.11 stop: 58.99
FLA teased us with some intraday strength above $62 but eventually closed off its best levels of the session. The continuation of Friday's bounce is encouraging but we would hesitate to open new plays ahead of the Fed decision tomorrow. The P&F chart is bullish with a triple-top breakout buy signal (formed this week) with a $94 target. Our target is the $67.00-70.00 range.
Picked on December 05 at $62.14
GulfMark - GMRK - close: 38.31 change: -0.14 stop: 37.39*new*
GMRK continues to vacillate sideways. The consolidation is narrowing and that would suggest a breakout is around the corner. The question is what direction will GMRK breakout? We're bullish on oil and the energy sector and would use a rally past $39.00 as a new entry point. However, we are concerned that GMRK could see more profit taking so we're raising our stop loss to $37.39, which is under last week's low. More conservative traders may want to use a tighter stop. We're aiming for the $42.50-43.00 range.
Picked on November 28 at $38.70
Guitar Center - GTRC - close: 46.28 change: +0.06 stop: 43.99
There is no change from our weekend update on GTRC. The stock looks bullish given last week's breakout but there is still a good chance that GTRC will dip toward $45.00, which is where we would look for a new entry point. Our short-term target is the $49.75-50.00 range but more aggressive traders may want to aim higher.
Picked on December 05 at $46.40
Noble Energy - NBL - close: 52.19 change: +0.17 stop: 49.75
We do not see any changes from our weekend update on NBL. The good news today was the lack of follow through lower on Friday's bearish engulfing candlestick pattern. We remain bullish on oil and energy stocks but would wait for a dip near $51.00 or maybe the $50.00 level before considering new positions in NBL. The P&F chart looks very bullish with a $76 target. Our target is the $57.50-60.00 range.
Picked on November 29 at $53.11
ONEOK Inc. - OKE - close: 43.35 change: -0.29 stop: 41.35
OKE is still slowly consolidating lower. The trend remains bullish but the profit taking may not be over yet. Readers can watch for a dip near $42.50-42.00 as a potential entry point to begin new long positions. Our target is the $45.00-46.00 range.
Picked on November 28 at $42.25
Rowan Cos. - RDC - close: 35.56 change: +0.11 stop: 34.45
We are waiting on a bullish breakout over resistance. Currently we're suggesting a trigger to buy the stock at $37.05. If we are triggered at $37.05 our target will be the $41.00-42.00 range. More conservative traders may want to exit early near $40.00, which might be round-number resistance.
Picked on December xx at $xx.xx <-- see TRIGGER
Raytheon - RTN - close: 52.38 change: +0.21 stop: 49.85
This is the fourth time in the last five trading sessions that traders have bought the dip in RTN near $52.00. We remain bullish and would consider new positions here or on a dip near the 10-dma. Our target is the $54.50-55.00 range.
Picked on November 29 at $51.05
Worthington Ind. - WOR - close: 18.60 chg: -0.14 stop: 17.99
The six-week trend in WOR is bullish but momentum is waning and this is affecting the technical indicators. Today's failed rally under the 200-dma and what appears to be a bearish engulfing candlestick does not inspire any confidence in the stock. More conservative traders may want to exit early or tighten their stops near $18.45-18.50, which is short-term support and where WOR will probably test tomorrow. We are not suggesting new positions. Our target is the 19.85-20.00 range.
Picked on November 19 at $17.96
Short Play Updates
Cheesecake Factory - CAKE - cls: 26.35 chg: -0.35 stop: 27.01
CAKE is slipping toward support near $26.00 and its 100-dma. We're still waiting on a breakdown. Currently we're suggesting a trigger to short the stock at $25.65. If triggered at $25.65 our target is the $22.25-22.00 range. We do expect some support near $24.00 but given the bearish technicals on the weekly chart we think any bounce at $24 would be temporary. The P&F chart currently points to a $4.00 target. FYI: The most recent (November) data puts short interest at 11.8% of CAKE's 73.7 million-share float. That is relatively high short interest and could raise the risk of a short-squeeze if CAKE manages to rally.
Picked on December xx at $xx.xx <-- see TRIGGER
Imperial Sugar - IPSU - close: 23.07 change: +0.09 stop: 23.55
We do not see any changes from our weekend update. IPSU continues to consolidate sideways. However, we want to warn readers that IPSU witnessed a spike in volume near the closing bell tonight as shares began to tick higher. Readers might want to tighten their stops toward $23.26. We would wait for a decline under $22.60 before considering new shorts. Our target is the $20.05-20.00 range.
Picked on December 03 at $22.00
New Century - NEW - close: 34.55 change: +0.08 stop: 36.55
NEW produced a minor oversold bounce on Monday. The bounce may not be over yet. Readers can choose to open positions now or wait and watch for a failed rally under $35.00-35.50. Our target is the $31.00-30.00 range. FYI: The most recent (November) data put short interest at 22% of the company's 50 million-share float. That is a very high degree of short interest and it does raise the risk of a short squeeze if NEW reverses sharply higher.
Picked on December 10 at $34.47
NTL Inc. - NTLI - close: 24.40 change: -0.04 stop: 26.01
There are no changes from our weekend new play description on NTLI. The stock continues to look bearish and poised to move lower. We are suggesting shorts in NTLI with the stock under $25.00. There does seem to be some support near the $23.50 region but the Point & Figure chart points to a $9.00 target. We will target a decline into the $21.00-20.00 range. FYI: The most recent (November) data put short interest at 3.5% of the company's 324 million-share float.
Picked on December 10 at $24.44
21st Century - TCHC - close: 25.06 change: +0.22 stop: 26.75
Friday's bearish breakdown inspired a spike down at the open on Monday. Unfortunately, bulls bought the dip and TCHC immediately began to rebound. About midday an analyst firm upgraded the stock, which further fed the rally. Volume on the rebound was above average, which should put bears on the defensive. We would wait for a new decline under $24.84 or even $24.75 before considering new shorts. More conservative traders may want to tighten their stops toward today's high or the $26.00 level. Our target is the $21.50-20.00 range. The most recent (November) data puts short interest at over 6% of TCHC's 6.4% float. That's a very small float so 6% might be enough short interest to really increase the risk of a short squeeze should TCHC reverse higher. Bear that in mind when considering positions as you may want a tighter stop loss.
Picked on December 10 at $24.84
Closed Long Plays
Closed Short Plays
Today's Newsletter Notes: Market Wrap by Jeff Bailey and all other plays and content by the Option Investor staff.
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