The major equity indices started the week out mixed in a notably, yet surprisingly light volume trade, as investors weighed an upbeat outlook from chip maker Intel (NASDAQ:INTC) $25.34 -0.51% against speeches from various Fed officials regarding the current credit crunch and its impact on the U.S. economy.
Some signs that momentum bulls are moving back to the sidelines present themselves in the new high/new low measures as the NASDAQ's 5-day NH/NL ratio reverses back down into a column of "O" at 50.00%.
It would currently take a closing measure of 32.00% for the NYSE 5-day NH/NL measure to reverses back lower, and that looks eminent as new highs at the big board begin to stall from Tuesday's inflection high of 60, while new lows begin to build greater than the 35 found on August 28th.
The major indices did gap modestly higher at the open after Intel said its revenue and profit margin for the third quarter should come in at the high end of, or exceed, its July forecast, thanks to "stronger-than-expected worldwide demand for its computing products." The chip giant said it now sees revenue of $9.4 billion to $9.8 billion, compared with prior revenue forecast of $9 billion to $9.6 billion.
The world's largest semiconductor company also told investors that gross profit margins, a key measure of profitability, is expected to be at the upper half of the company's previous estimate of 52% of revenue, plus or minus a couple of percentage points.
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October Crude Oil futures (cl07v) were strong for a 6th-straight session ahead of tomorrow's OPEC meeting. In their first gathering in six months, OPEC's representatives reportedly have various views on output quotas after last week's employment figures here in the U.S. hinted further of a cooling economy.
One proposal floated today called for a modest increase of 500,000 barrels a day.
October Crude Oil futures settled up $0.79/ barrel, or +1.03% at $77.49.
As traders returned from an extended Labor Day holiday, greater enthusiasm for Treasuries was found ahead of next week's FOMC decision on interest rates.
The shorter-dated 5-year yield Treasury bond found another strong round of buying, falling below the 4.00% level for the first time in nearly two years.
CClosing U.S. Market Watch - 09/10/07
San Francisco Fed President Janet llen said she thinks downside risks to the U.S. economic outlook have clearly risen in the wake of recent financial market turmoil, but the implications for monetary policy still remain uncertain.
"Some markets have become downright illiquid," she said in a speech to the National Association for Business Economics convention in San Francisco. While the Fed's recent responses to the market turmoil have been "helpful, these actions have not, however, served as a panacea," she said..
55-year Treasury Yield ($FVX.X) - Daily Intervals
In my last Market Wrap (8/20/07) I had marked the "low yield" on the 5-year ($VX.X) at 4.186%. Friday's strong round of buying drove its yield further lower and today's closing yield of 3.983% should solidify a 25-bp cut in Fed Funds to 5.00%, and I would also have to think an additional 50 bp, or 25 bp cut in the discount rate.
I say this now, and will test it late, but I think any decision by the FOMC to lower rates much more than a COMBINED 75 basis points (Fed Funds + Discount Rate) would trigger a broader market equity sell off as market participants would view such action as heightened economic concern.
RRussell 2000 Index ($RUT.X) - Daily Intervals
From a macro-economic perspective, the "small caps" as depicted by the Russell 2000 Index ($UT.X) remain most vulnerable to downside price action. Most have a lesser-degree of export exposure that may come from a weaker U.S. dollar, and with Fed observing spots of illiquid credit markets, that's just another area of risk to avoid near-term.
II do observe some stability after the Fed's 8/17/07 decision to lower the discount rate, but action in the 5-year YIELD ($FVX.X) now suggests addition liquidity is called for.
S&P 500 Index (SPX.X) - Daily Intervals
When I returned to my regular duties here at OptionInvestor.com on Tuesday, September 4th, the S&P 500 Index (SPX.X) had closed back above some important resistance at 1,485 and looked as if it might be set to stage a more meaningful rebound.
However, the continued strong demand for Treasuries still suggests to me that a defensive posture is warranted as last Tuesday's 5-year Yield ($FVX.X) decline below 4.20% gave a pretty good read on Friday's job report.
It had been, and continues to be my analysis, based on observation, that the RUT.X is WEAKEST (small and broad), and the S&P 500 Index (broad) is the next weakest major index.
With the shorter-dated 5-year Treasury Yield ($FVX.X) still falling, it would have to still be my analysis that equity buyers are hesitant.
As for BIG and NARROW, the Dow Industrials (INDU) 13,127.85 +0.11% certainly has NOT set a bull's world on fire, and trades relatively unchanged from my last Market Wrap on 8/20/07 close of 13,121.
Dow Industrials (INDU) - Daily Intervals
Despite dollar weakness, which should bode well for U.S. companies that EXPORT goods and services abroad, the mega-caps of the Dow Industrials are little changed the past couple of weeks.
NASDAQ-100 Index (NDX.X) - Daily Intervals
While "big tech" remains rather volatile, the NASDAQ-100 Index (NDX.X) 1,960.20 +0.09% is the only major index to still hold a close above its 6/04/07 close. That would also be very close to the NDX's 50% retracement.
NDX heavy-weight Apple Inc. (NASDAQ:AAPL) $136.71 +3.74% got a strong bounce from its curling higher 21-day SMA today after the company said its iPhone sales hit 1 million units ahead of forecast.
If looking for an INDEX to test MARKET SENTIMENT against, this would be "the
New Long Plays
New Short Plays
Long Play Updates
Boyd Gaming - BYD - cls: 40.34 chg: -0.19 stop: 39.49
Monday proved to be an interesting day for BYD. The stock actually gapped down around 10:30 a.m. and we can't find any news to explain why. The gap wasn't very big and traders bought the dip near support around $39.50-39.60. The bounce back actually looks like a potential entry point for bullish positions. However, given the market's bearish tone the last couple of days we would hesitate to open new plays. Our target is the $44.90-46.00 range. Keep a wary eye on the simple 50-dma for potential overhead resistance. The Point & Figure chart is still very bearish following the late summer sell-off.
Picked on September 04 at $41.55
Cameco Corp. - CCJ - cls: 39.40 chg: -1.17 stop: 37.95
Uh-oh! We have to issue a bearish reversal alert for CCJ. The stock broke down under the $40.00 level and produced a bearish engulfing candlestick pattern. Shares closed with a 2.8% decline. More conservative traders might want to abandon ship right here. We would expect a test of short-term support near $38.00 and odds are good that CCJ will actually dip toward $37.50. More aggressive traders will want to consider adjusting their stop loss to under $37.50. Our target is the $44.50-45.00 range. Readers should note that the 50-dma and the 200-dma could be serious overhead resistance.
Picked on August 27 at $40.26
Brinker Intl. - EAT - cls: 28.68 change: -0.04 stop: 27.99
We don't see any changes from our weekend comments on EAT. The company is due to present at an analyst conference tomorrow morning around 10:00 a.m. ET. EAT is near the bottom of its rising bullish channel so a bounce from here could be used as a new bullish entry point. If you don't want to buy the dip then wait for a new rise over $29.00 again. EAT does not move super fast so this could take a few weeks but our target is the $31.75-32.00 range. We do expect to see EAT find temporary resistance near $30 and again at the 100-dma and 200-dma both overhead. FYI: The P&F chart is still bearish from the June-July sell-off. Meanwhile it just happens to be dividend season for EAT and they are paying a 9-cent quarterly dividend on September 26th to shareholders on record as of September 14th.
Picked on September 02 at $28.84
Global Ind. - GLBL - cls: 23.99 chg: -0.46 stop: 22.89
GLBL suffered some profit taking after one analyst downgraded some stocks in the oil services field. GLBL itself was not downgraded. We would hesitate to buy the dip here but a clear bounce from the $23.50 level might be an attractive entry point. Or as an alternative look for a rise past $24.20 as a potential entry point. Shares do have potential resistance at the 50-dma overhead. Our target is the $28.00-29.00 range.
Picked on September 06 at $24.65
Starbucks - SBUX - cls: 27.04 chg: -0.12 stop: 26.61
SBUX is looking more and more vulnerable to profit taking. The stock closed right at its 50-dma this afternoon. We're not suggesting new positions and given the market's new bearish tone readers may want to just exit early right here.
Picked on August 16 at $26.61
Wyndham Worldwide - WYN - cls: 30.07 change: -0.12 stop: 29.90
We do not see any changes from our weekend comments on WYN. At the moment we're still on the sidelines. It has been our plan to buy a breakout over $32.00 with a trigger at $32.15. So far that hasn't happened yet. Aggressive traders might want to consider buying a bounce from $30.00. We would keep an eye on the $29.70. A breakdown under $29.70 could be used as an entry point for bearish positions.
Picked on September xx at $xx.xx <-- see TRIGGER
Short Play Updates
Cintas - CTAS - cls: 35.74 change: +0.09 stop: 37.01
The early morning rally and afternoon rally attempt in CTAS both failed. This looks like another entry point for bearish positions. The Point & Figure chart is already bearish with a $29 target. We are suggesting shorts with CTAS under $36.00. There is some support in the $34.75 region but if the major averages continue lower we expect CTAS to breakdown to new lows. Our target is the $33.50-33.00 range.
Picked on September 09 at $35.65
Fastenal Co. - FAST - cls: 43.06 change: -0.42 stop: 46.01
FAST continues to dip on above average volume. Readers can choose to short it here or look for another failed rally in the $44-45 zone. We are targeting a decline into the $40.25-40.00 range. The $40.00 level and its rising 200-dma near $40 should be support. FYI: The P&F chart is still bullish, for now. FYI: The latest (August) data puts short interest at 9% of the 105.8 million-share float. That is an above average amount of short interest, which raises the risk level on this play.
Picked on September 09 at $43.48
Monster Worldwide - MNST - cls: 32.53 chg: -0.97 stop: 35.05
MNST lost 2.89% and closed near its lows for the session, which is a good sign for the bears. However, while today's action is encouraging, the stock is now close to what has been support near $32.50. If the stock bounces watch for resistance in the $34-35 region. A new decline under $32.50 could be used as another entry point. Our first target is the $30.25-30.00 range.
Picked on September 09 at $33.50
Network Appl. - NTAP - cls: 27.14 change: +0.02 stop: 28.85
The trading in NTAP continues to look bearish. We don't see any changes from our weekend comments. We're suggesting short positions now although readers could wait and look for another bounce and failed rally near $28.00 as a new entry point. We have two targets. Our first target is the $25.15-25.00 range. Our second target is the $24.00-23.50 zone.
Picked on September 09 at $27.12
Closed Long Plays
EON AG - EON - cls: 55.02 change: +0.69 stop: 53.49
EON performed a disappearing act today. The stock symbol changed from EON to EONGY.PK. Unfortunately, we missed the story on August 21st, 2007 where EON announced plans to delist from the NYSE. The company's shares will continue to trade on the German XETRA exchange in Frankfurt. We're choosing to drop EON as a play since shares have been moving so slowly and now tracking it will be an extra chore. You can find more about the company's plans to delist from the NSYE on the www.eon.com home page.
Picked on August 26 at $54.55
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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