Weekly Market Report – Patience Remains Best Option

** Current Market Outlook **

After taking out previous lows of this recent correction with heavy volume, the market continued its whipsaw ways by staging a big advance on Thursday.  On CNBC, the fact it was one of the biggest moves in the last couple years made a nice little headline for the day, but that’s about it at this point.  It’s easy to get wrapped up in a move like that and want to jump in and make some money on the long side.  Avoid the temptation.   Volume behind the move was surprisingly absent for such a large move.  More importantly, key resistance levels loom.  What I’m continuing to look for is decreasing sell volume as an indication that the tide is turning.  We’re not seeing that quite yet, but may be close.  As the market faces resistance in the coming days, nice short opportunities will once again emerge, but the best option right now is to remain patient and on the sidelines.

In the Model Portfolio,  (only available to premiuim members) I was forced to cover my long position in Baidu.com (BIDU) for a small loss.  Later in the week a new short position was initiated and is currently the only position in the portfolio.

** Best/Worst Performers **

– Top 10 Performing Industries For the Week –

1. Semiconductor Integrated Circuit  6.60%
2. Steel & Iron                                    6.54%
3. General Entertainment                   6.53%
4. Semiconductors – Memory            6.24%
5. Recreational Vehicles                   6.00%
6. Farm & Construction Machinery    5.75%
7. Diversified Computer Systems      5.52%
8. Industrial Electrical Equip               5.40%
9. Copper                                           5.11%
10. Aerospace/Defense                    5.00%

– Top 10 Worst Performig Industries For the Week –

1. General Building Materials          -4.60%
2. Printed Circuit Boards                 -4.55%
3. Manufactured Housing               -2.60%
4. Appliances                                 -2.15%
5. Waste Management                   -2.00%
6. Office Supplies                          -1.85%
7. Banks – Midwest                        -1.75%
8. Music & Video Stores                -1.60%
9. Education & Training Stores      -1.60%
10. Banks – Pacific                        -1.55%

– Top 5 Best Performing ETFs For the Week –
 
1. India Fund (IFN)                                      15.63%
2. Morgan Stanley India Investment (IIF)    10.45%
3. Templeton Russia and E. Europe (TRF)   9.75%
4. Morgan Stanley E. Europ (RNE)               7.75%
5. Central Europe & Russia (CEE)                7.30%

– Worst 5 Performing ETF’s –

1. Ishares Gold (IAG)                     -4.00%
2. StreetTracks Gold (GLD)           -3.91%
3. Regional Bank Holders (RKH)    -1.85%
4. Ishares Treasury (TLT)             -1.73%
5. SPDR Financial  (XLF)               – 1.58%

**  IPO’s Set to Launch This Week **

1.  Hexion Specialty Chemicals (HXN): A profitable, world leading producer of thermosetting resins used in paints, coatings and glues.  Starts trading Thursday.

2.  Home Bancshares (HOMB): fast growing Arkansas based financial holding company that’s set to start trading on Friday.

3.  Techwell (TWLL): a small, but profitable and rapidly growing semiconductor designer of mixed signal integrated circuits for video applicaitons in the consumer, security surveillance and automotive markets.  Starts trading on Thursday.

** Upcoming Economic Reports (6/19/06 – 6/23/06) **

Tuesday:       Housing Starts, Retail Sales
Wednesday: Petroleum Status Report, Mortgage Applications
Thursday:     Money Supply, Leading Indicators, Jobless Claims
Friday:          Durable Goods Orders

** Latest Blog Entries – In Case You Missed Them!**

– SelfInvestors Blog –

1. Rise To Resistance
http://investing.typepad.com/tradingstocks/2006/06/rise_to_resista.html

– ETF Central –

No new entries.

Rise to Resistance

On a day like today it’s very easy to see all that green and want to jump in with both feet and forget about where we are coming from.  Granted, if you’re swing or day trading today’s move created opportunity.  But for those not interested in the short term thrills this market has been offering recently, it’s important to keep the bigger picture in mind.  Despite today’s thrilling move to the upside (or so it seemed thrilling to CNBC), the market is still seeking a bottom and today’s move only gets us to first levles of resistance.  Nothing more than that for now.  Let’s not get too excited yet longs.. there is much work to do.

There is room to run yet before that resistance level is met, so we’ll probably get some more green tomorrow at the open.  With options expiration it should be an interesting day.  That was a big time move today, but where is the volume to accompany it?  Sure it was higher than yesterday, but not well above average.  Institutions aren’t yet putting money to work but the picture for longs is continuing to improve. 

Same story with the S&P.  Some room to run before resistance comes into play.  There is probably enough momentum from oversold conditions to clear that first level of resistance at the 200 day moving average around 1260 and touch the downward trend line at 1270.  I’ll be looking for a couple short term short plays there should it happen. 

Nasdaq & S&P500 Rise to Resistance

On a day like today it’s very easy to see all that green and want to jump in with both feet and forget about where we are coming from.  Granted, if you’re swing or day trading today’s move created opportunity.  But for those not interested in the short term thrills this market has been offering recently, it’s important to keep the bigger picture in mind.  Despite today’s thrilling move to the upside (or so it seemed thrilling to CNBC), the market is still seeking a bottom and today’s move only gets us to first levles of resistance.  Nothing more than that for now.  Let’s not get too excited yet longs.. there is much work to do.

There is room to run yet before that resistance level is met, so we’ll probably get some more green tomorrow at the open.  With options expiration it should be an interesting day.  That was a big time move today, but where is the volume to accompany it?  Sure it was higher than yesterday, but not well above average.  Institutions aren’t yet putting money to work but the picture for longs is continuing to improve. 

Same story with the S&P.  Some room to run before resistance comes into play.  There is probably enough momentum from oversold conditions to clear that first level of resistance at the 200 day moving average around 1260 and touch the downward trend line at 1270.  I’ll be looking for a couple short term short plays there should it happen. 

Ebay to Launch AdContext

Ebay (EBAY) announced yesterday that they would begin rolling out a contextual advertising system of their own called eBay AdContext, but would differ from Google (GOOG), Yahoo (YHOO) and Microsoft (MSFT) in that ads would link directly to auction goods rather than serving a generic advertising network.  Still, it’s just one more competitor that may take away publisher ad space and ultimately clicks from the big gorilla Google.  With both Yahoo and Microsoft set to roll out their own competing platform for publishers, Google should be concerned.  The competition can only be good for publishers.  While eBay has said that the service will rather compliment Google Adsense and could be run side by side, it will be interesting to see if Google will allow eBay ads to run on the same page.  Currently Google does not allow contextual advertising (ads displayed based on keywords of the page) from other companies to run on the same page.  This rigidity along with notoriously poor customer support may have publishers increasingly turning to alternatives over the next year.

 

Here’s the Reuters news story

Upon additional research, some additional info to consider:

1. There is already a system in place for publishers to display eBay auction items through contextual advertising that is independent of eBay.  One such program, fyiAds launched just a couple of weeks ago (see an example of an ad at the top of the page.

2. Like fyiAds, eBay’s system is CPA, where publisher’s only receive payment through commission on a sale of an item, rather than a cost per click basis (40 – 70% commissions).  Could be lucrative for publishers writing about high ticket items.

3. Amazon is rumored to be working on their own contextual advertising system – everyone wants a piece of Google’s pie!  In the meantime, it looks like an independent program for displaying Amazoon products is available too.

Saved By the Bull – Convincing Reversal

When the market is searching for a bottom and you see it drop like a stone with heavy volume, you have to be on the lookout for that dramatic reversal that signals a bottom.  We got it today.  In a report a couple days ago I mentioned that the reversal had me unconvinced because it was lacking volume.  That was certainly not the case today.  In fact today marked the 4th highest trading volume day in its history (the biggest volume day was on April 18th 2001 when the Nasdaq traded 3.08 billion shares – surprisingly the only time it has traded more than 3 billion shares).  While the Nasdaq didn’t close in the positive (the only negative of today’s action), it did reclaim a very important support level at its trend line off of the October 2005 lows.  Have a look.

While the S&P finally broke down below the 200 DMA, it still had support of its trend line which it bounced off of in convincing fashion today.  I didn’t go back and research volume levels for the S&P tonight, but no question it was up near a record as well.  One negative is the fact that it did not reclaim support of the 200 day moving average.  It would not at all surpise me to see the S&P retest that trend line at some point in the coming weeks.  You’d like to see that happen with declining sell volume.

The Dow broke through its 200 day moving average today too, but it was able to reclaim that support level.  Volume wasn’t quite as good in the Dow, but impressive action nonetheless.  It still has support of its trend line off the October ’05 lows around 10,500.  There certainly is a good possibility of testing that level before the summer is over.

So where to go from here?  I personally took profits in short positions today and dabbled in a couple long plays in my personal accounts when it was clear the reversal was taking shape.  This volatility has certainly created many opportunities for those getting in and out in a few days time, but those kinds of opportunities are better geared towards the trader who’s able to track the markets all day.  For most investors (who aren’t able to keep close tabs on the market during the day), the best option is to remain largely in cash while the market gyrates back and forth finding a bottom.  You’ll save yourself the stress and probably quite a bit of money by continuing to be patient.  From here, we most likely see a continuation of the springboard action we saw today for a day or two, but it should come back and possibly retest the lows.  At this point, a big long signal would occur on some kind of confirmation day (a 2% move up with heavy volume).

Is Hansen Natural (HANS) Running Out of Energy?

Hansen Natural Recent News:

The faster they rise, the harder they fall.. eventually.  None have risen faster or been discussed more in trader circles then Hansen Natural (HANS) over the past couple years.  With the stock rising parabolically with seemingly no end in sight, there will come a time when a significant correction will occur.  It looks like that time is near.  The stock staged a climax run in early May on news of a distribution deal with Anheiser Busch and  I don’t think it’s any coincidence that the stock met resistance right around 200.  Major whole numbers often mark the end of a big run.

Shorting a great company like Hansen (HANS) can be a risky move in a market that may be putting in a bottom, but there are a few scenarios where the reward vs. risk might be favorable enough for short entry.  One way I’d play this is to look for a low volume return to what is now resistance around the 20 day moving average at around 180.  You see the stock dipping below that level with sizable volume yesterday which is the first time it’s been below this support level since mid February. 

On the other hand, there is some support in the stock at 170 and I’d be looking to play this on the short side should it break below that level with heavy volume (which would most likely happen only if the market breaks key support levels)

Unconvincing Reversal

The good news – the market avoided collapse on heavy volume.  The bad news – the reversal didn’t occur in very convincing fashion.  At this point, it’s very difficult to play the market either way.  A bit late and/or too early for aggressive shorting and muuuuch too early for aggressive buying.  Best to remain largely in cash right now with a bias to the short side. 

A look at the Nasdaq below highlights the breakdown, followed by the bounce, then the resistance.. and now the retest of support and possibly previous lows.  I’m too lazy tonight to include a long term chart as well, but I’ve included where the long term trend runs through (which the Nasdaq has been testing).  This is an absolutely critical level of support for longs.  If the market can’t hold here, we’re most likely headed for "bear market" terrority.  There really isn’t much room to run from here .. The bounce off support today was important, but the lack of conviction behind the move is a concern.  It didn’t have the same oomph (hope I spelled that right) behind it, that the reversal on the 24th had.  For one, the volume was above average (barely) and higher than the day before, but you want to see that volume way above average on reversal moves.  Additionally, we didn’t get a close at the highs of the day (it didn’t even clear the opening price).  At this point we need more clues as to direction.  Some kind of confirmation move (meaning a 2% gain with very heavy volume) in the next week or so would be the signal for bulls to begin putting money to work on the long side.  Of course, a high volume move below key support levels (where we’re at or close to now) would give bears the signal to go ahead and pursue more short positions.  I’m currently dabbling on both sides just a bit, but with a bearish bias.  It will be interesting to see if the market can follow through on today’s reversal and hold the gains for the day.  It will provide another clue to just where in the heck this market will be in the next couple months.  Stay tuned!

I’m throwing in a chart of the Dow to give a look at the longer term picture.  You see the violation of the trend line off the October lows, followed by a fairly weak bounce to resistance and a retest of support.  There me be some psychological support around Dow 11,000, but more important will be that 200 day moving average around 10875.  In all likelihood it will test that support line in the coming days.

Breakout Highlights for May: Advanced Environmental Recycling Technologies (AERTA)

It’s no surprise that as goes the market, so goes the success of breakout growth stocks.  Needless to say, it’s been a rough go over the past month.  I haven’t seen this kind of anemic performance since I put my tracking database together about 2 years ago. 

  • In the past 2 weeks there was just one breakout of a highly ranked stock (ranked 50/60 or above combined technical and fundamental score) in Advanced Environmental Recycling Technologies (AERTA) which is currently up 15% since the breakout.

While the base  is a bit steep (which is more common in lower priced stocks) the volume and price action in AERTA reveal that there is a ton of demand for this one.  I’ve mentioned in several previous posts over the past couple years that stocks often provide a few buying opportunities on the way up.  The first opportunity in this one was provided on May 3rd after it broke out from the first pivot at 2.40.  I began covering this stock at www.selfinvestors.com the morning of the second breakout at 2.64 on May 18th when it was added to the database.  It’s currently overextended but may provide a decent opportunity on a pull back to the 20 day moving average.

Advanced Environmental Recycling Technologies (AERTA) develops, manufactures, and markets composite building materials that are used in place of traditional wood or plastic products for exterior applications in building and remodeling homes and for certain other industrial or commercial building purposes.  The company appears to be hitting its stride after a record year in ’05 while being named Lowe’s Vendor of the Year.  Consistency could be better but this is certainly a company to keep a close eye on.

  • In the month of May, there were just 7 breakouts in the database (that includes AERTA), with Infosonics (IFO) and J2 Global Communications (JCOM) being the only other highly ranked breakouts in the month (both rank 50/60).  IFO has risen an astonishing 89% from the first breakout point at 14.  Wow!

Again, this is a stock that has provided two breakout points but I would not have entered a trade at either point.  Technically, the first breakout occurred on May 8th at 14, but I would not have purchased here because the company was reporting earnings the following morning (I rarely hold a small growth stock through earnings).  I was looking for an entry the following morning, but the stock gapped up and never provided a low risk entry.  Considering the market looked tired at that point, it was too much risk to take on.  Of course in hindsight I wish I had pulled the trigger, but you have to stay disciplined.  The stock provided a second entry on a break to all time highs, but again, the risk vs reward doesn’t look favorable up here.  With poor market conditions and a doubling of the stock in just weeks, it’s due for a fall.

InfoSonics (IFO) is a distributor of wireless handsets and accessories in the United States and Latin America and it’s a company that continues to grow rapidly.  Earnings per share over the past 3 years have increased from .08 share in ’02 to .38/share in ’05.  2006 is expected to be another record year with expectations for .66/share. 

  • Total Stats For May
    38 Total Breakouts – 7  finished with gain (avg gain of 18%)
                                   6 finished with no gain
                                  25 finished with loss (avg loss of 11%)

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Tags: trading stocks | charts | recycable materials | JCOM

A Close Look @ The S&P500

It’s on.. Let the bull and bear tug ‘o war begin! After the bears had the run of the place over the past couple weeks the bulls have begun to step up and defend their ground a bit, but today they looked tired and counting the days to the 3 day weekend.  It seemed nearly everyone expected this morning’s bounce to be the beginning of a little buying spree from bargain hunters and short covers, but that will have to wait.  While the bleeding has stopped, it’s clear sellers still have the upper hand for now.

Today I take a close look at the S&P, starting with a long term weekly chart and ending with a one month daily chart to get an idea of what kind of shape we’re in.  In the 2 year weekly  chart you can see the long term trend line and what I would call the last line of defense for sustaining the bull market.  This support area appears to be in the 1235 – 1240 range.

On the 1 year daily chart of the S&P you can see that the area between about 1240 and 1255 is a major area of support convergence with the 200 day moving average (~1258), channel support (~1250) and the long term trend line (discussed above ~1240) all coming to a head.  I’d like to see some sort of massive capitulation (high volume selloff in the morning followed by massive volume to close out the day) with the lows at some point in this range.  That kind of action usually signals a bottom.

The one month chart provides a nice close up look of recent action.  You see the high volume distribution days and the bouncing around at support of the 200 day moving average.  On the 18th of May, the instensity of the selling subsided with a lower volume decline.  Following that, was a nice higher volume reversal day off support which can indicate that the bulk of the selling is done (much of that move was probably short covering though).  You can see there are some positive signs but we’re not out of the woods, especially considering todays big reversal off the highs to finish at the low of the day.  There is work left to do and I wouldn’t not be an aggressive buyer here (nor would I be aggressively pursuing shorts at this level).  I personally have begun nibbling on some liquid, larger caps names such as Google and Apple, but that’s about it.  I’ve been sitting on mostly cash for some time and will remain there at least through next week.

Here’s a longer term weekly chart of the Nasdaq which allows you to better see volume levels over a longer time horizon.  Notice the violation of the one year trend line.  Next stop: the "not quite" 2 year trend line around 2140.

Last but not least, the daily chart of the Dow.  Notice the violation of the trend line off the October 2005 lows which sets up the probability of a move to test the next level of support: Dow 11,000 in the coming days.

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