Weekly Outlook, April 14
April 14, 2008
With General Electric bringing good things to bears and hedge hogs, the bulls finish the week on the defensive. For the five day period the Naz’100 (QQQQ) and “SPYder” (SPY) are off 2.60% to 3.65% on lighter but always difficult to handle volume.
THE WEEKLY NUTSHELL
Highlights for keeping a nascent bull rally looking constructive in the face of profit-taking:
- “Financial favors” to start the week include $5.0B PE stake in WaMu (WM), upgrade of UBS (UBS) and deal making in Alcon (ACL) and LifeCell (LIFC). “Overweight” and $195 target for Apple (AAPL) and early commodity-related gains to prop up prices and sentiment.Arch Coal (ACI) bargain-hunting on Tuesday recoups and then some, Monday’s price anxieties over company warning.
- Dow (DIA) maintains most constructive bout of profit-taking on Wednesday. Investors cheer “less-than-feared” delays of 15 or more months for Boeing’s (BA) Dreamliner. Citigroup (C) demonstrates relative strength for most of Wednesday following news of the company close to selling $12B of leveraged loans for 90 cents on the dollar.
- NASDAQ leadership Thursday on buyout news for Millennium Pharma (MLNM) and Time Warner (TWX) becomes possible Yahoo (YHOO) suitor. Intel (INTC) raised to “Buy” from “Neutral” at BofA. Out-the-gate worries of weak same-store sales results and guidance (KSS, JCP, and BBBY) are snapped off the stock discount rack. Dupont (DD) guides above views. Weaker and below estimates reading for weekly claims. TSLF results suggest financial firms aren’t desperate for extra liquidity.
Highlights for keeping bears and cautious bulls in the mix:
- Second half warning Monday afternoon in Arch Coal (ACI), weak pin action in front of Alcoa (AA) earnings season kick-off and “like clockwork” reawakened concern over crude (USO) at all-time-highs.Further technical consolidation Tuesday spearheaded by profit miss at Alcoa (AA) and semiconductor (SMH) warnings from Novellus (NVLS) and Advanced Micro (AMD). Weaker 1.9% pending homes data puts further damper on prices and sentiment. “PE” upping its stake to $7.0B in “WaMu”, dividend cut and announced deeper losses for 2008 send Monday’s optimistic bid in reverse. Apple gets cut to “Underperform.” Afternoon FOMC Minutes improve upon Congressional testimony of recent economic contraction as being “likely.”
- Added testing of nerves and key technical supports Wednesday as record oil prices (USO) following surprise inventories drawdown and UPS’ (UPS) profit warning lead traders concerns. Mortgage insurers’ counterparty credit rating reduced to “AA-” by S&P. Broker / Dealers (LEH, GS and MS) report net increases in “difficult to value” Level 3 assets, prompts concerns over additional write-downs.
- Larger trade deficit of $62.3B that will impact Q1 GDP to spook bulls. SEC filing that Lehman (LEH) liquidated three funds worth $1B in Q1 pressures market early on.
- “GE brings good things to bears.” Earnings miss and reduced guidance sends shares tumbling and weighs on sentiment. Genentech (DNA) fails to produce the right stuff with its sales miss and guidance. Sentiment swoon in Michigan to worst levels since 1982 doesn’t help market tone. Airlines get grounded on Frontier (FRNT) bankruptcy filing. WaMu (WM) rates a short-selling opportunity per Goldman after upping its quarterly loss estimates three-fold.
ON TAP THIS WEEK
It seems that for many investors, GE’s news was just too much to bear. Somewhat ironically, that’s despite a report which actually enjoyed some bullish highlights. Strong international growth and the bulk of its four-cent miss being the result of its financial arm seem to have been unilaterally tossed to the side in favor of reduced guidance from a typically conservative and “spot on” earnings provider.
Ultimately and favoring the bears, General Electric’s report was just the right combination which allowed for plenty of “what ifs” regarding valuations for other companies. Hmm, and just as investors were beginning to rally around similar bombshells in the belief the worst credit-related boo-boo’s were behind the market. That being said, sentiment did take a hit and does demand some respect as to its potential impact on short-term pricing power.
With the earnings calendar picking up markedly, highlighting the first half of the week and reasons to worry further or perhaps snap up bargains, some key names include State Street (STT), Intel (INTC), WaMu (WM), CSX (CSX), JP Morgan (JPM), Illinois Tool (ITW) and IBM (IBM). In the second half, Thursday evening has NASDAQ 100 components Google (GOOG) and Intuitive Surgical (ISRG) as two stocks which will be among the closely-watched variety.
Both Google and Intuitive Surgical are high-priced marquee names and synonymous with growth and risk tolerance on the part of investors. As such, each possesses the ability to enjoy some tone-setting capabilities for the market, as well as pole position in either the gainers or losers list that day. While Google no longer commands a spot on the IBD 100, analysts do expect profits of $4.52 per share, representing a full 42% over last year’s results. As for ISRG, shares of the current No. 1 stock on said list have somewhat mischievously been toying with its 335.10 “proper buy point.” Analysts expect earnings of .98 per share and traders, likely want even more, given the circumstances.
Interestingly enough, Friday’s concerns over the economy, courtesy of GE, didn’t seem to phase bulls in crude oil. For the week, the commodity saw record-breaking prices and gains of 4.24% in its listed and optionable proxy, the US Oil Fund (USO). If the situation were really dire, wouldn’t we expect those prices to slump and headlines of “demand concerns” to systematically pop up, left and right? Just some food for thought in-between officially-slated catalysts such as Monday’s “How’s Main Street doing?” courtesy of retail sales and whether the Fed has remained rightfully concerned about inflation via Tuesday and Wednesday’s producer and consumer price indices.
Weekly Calendar of Key Reports
Monday
Economic: Retail Sales (.1%, .2%), Biz’ Inv. (.4%)
Earnings: Eaton (ETN), Infosys (INFY)
Tuesday
Economic PPI & Core (.4%, .2%), Empire (-16.0)
Earnings Forest Labs (FRX), J & J (JNJ), M & T (MTB), State Street (STT), US Bancorp (USB), CSX (CSX), Intel (INTC), Seagate (STX), WaMu (WM)
Wednesday
Economic: Weekly Crude, CPI & Core (.3%, .2%), Housing & Bldg P’s (1.025M, 970K), IP & CU (-.1%, 80.4%), Fed’s Beige Book
Earnings: Coke (KO), Illinois Tool (ITW), Johnson Controls (JCI), JP Morgan (JPM), NO Ed & Tech (EDU), Wells Fargo (WFC), eBay (EBAY), Gilead (GILD), IBM (IBM)
Thursday
Economic: Weekly Claims (385K), Leading Indicators (.1%), Philly Fed (-14.0)
Earnings: Amphenol (APH), Bank of NY (BK), Cypress (CY), Danaher (DHR), Harley (HOG), Intl Game (IGT), Merrill (MER), Nokia (NOK), Sonoco (SON), Sunpower (SPWR), Nucor (NUE), United Tech (UTX), Cap One (COF), E*Trade (ETFC), Google (GOOG), Int’ Surgical (ISRG), SanDisk (SNDK), Stryker (SYK), Tempur-Pedic (TPX)
Friday
Economic: NA
Earnings: Amcol (ACO), Caterpillar (CAT), Citigroup (C), Honeywell (HON), Schlumberger (SLB), Wachovia (WB)
TECHNICAL PICTURE
Figure 1: NASDAQ 100 (QQQQ) Daily
Since our last report [and mostly recently approached in the last week''s Growth Stock Report], the market has continued to shape itself into one of those ambiguous patterns that bears and bulls can claim as their own. Admittedly, Friday’s price action in the “Cubes” does put the bear’s one notch closer to being in control per technicians following tools such as PS Elliott. Additionally for the bears, the broader based S&P 500 (SPY) appears to be making good on its series on lower highs. The index failed to set a new intermediate high as it hit potential overhead resistance in Monday’s session.
For the more optimistic investors out there, Friday’s broad-based price pinch was of the lighter volume type. That’s supposed to represent institutions, which control the bulk of buying and selling activity, still maintaining their collective conviction overall. For smaller investors of course, making use of that wisdom is easier said than done when at the same time, stops being honored, are being hit. The good news is, at least judging by my own discretionary eyeballed list of growth stocks, many names are still holding on technically. Supporting my database of charts, IBD’s 100 list shows 42 out of 100 names ending the week with gains versus the broader markets percentage decliner. At the same time, 80 of those stocks actually outperformed the NASDAQ and an index synonymous with growth. Net-net, the expectation would be for much less commitment to high beta names if the week’s price swoon and elevated bearish headline count, were actually a harbinger of a worsening market climate. |
MARKET LAB
Bullish Technicals
- FTD in place.
- Short-term neutral-to-oversold indicators.
- Series of higher highs and higher lows in leading / growth-heavy NASDAQ.
- 20-week bull phase until late April.
- Super Bowl indicator: NFC win = +13% yearly gainer on robust 86% historical tendency.
- Jan / Feb +15 / 21 sessions with 1% or greater range in SPX historically points at gainers across all time frames, with 89% track record of yearly 16% gainer.
- AAII, Investors Intelligence, Market Vane & Consensus readings.
Bearish Technicals
- Five year up cycle since October 2002 lows.
- Weekly H & S Top DIA with daily MA “Death Cross”
- VIX test of 200-day, Bollinger and “15% stretch.”
- Shift by PS Elliott in W4 Sells swamping W4 Buys.
- PS Elliott W4 Sell in NASDAQ 100.
- Lower highs in S&P500 spells bear market to some technicians.
Index or Sector Proxy | Ticker Symbol | Support | Resistance |
S&P500 | (SPY) | 131.90 - 133 | 136– 138.60 |
NASDAQ100 | (QQQQ) | 43 - 44 | 45.75 – 46.50 |
Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
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