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Solid Up-Session

By Harry Boxer, The Technical Trader

The stock market indices had a solid up-day and closed near the session highs and 2010 highs. The day started out with a move up. Then they backed and filled for a couple hours on the Nasdaq 100, but the S&P 500 worked its way higher. By midday they reached a minor peak and then pulled back until early afternoon, only to rally again in the last hour.

Net on the day, the Dow closed up 55.03 at 11,533.16. The S&P 500 gained 7.52 at 1254.60, and Nasdaq 100 rose 11.53 at 2234.57. Both the NDX and SPX closed about a point off their high today.

Advance-declines were 21 to 9 1/2 positive on the New York Stock Exchange and 19 to 7 1/2 positive on Nasdaq. Up/down volume was about 4 to 1 positive on New York withtotal volume of a light 800 million shares. Nasdaq traded 1.6 billion shares and had a nearly 3 to 1 positive volume ratio.

TheTechTrader.com board was mostly higher, with many point-plus gainers. Leading the way today was Molycorp, Inc. (MCP) up 5.18 to 44.43, Amedisys Inc. (AMED) up 3.64 to 32.87, Adobe Systems Inc. (ADBE) 1.75 to 30.93, and low-priced XOMA Ltd. (XOMA) up 1.67 to 4.05, a 70% gain today.

Other gainers of note included Carnival Corporation (CCL) up 1.93 to 45.18, Brigham Exploration Co. (BEXP) 76 cents to 27.70, Allot Communications Ltd. (ALLT) 83 cents to 11.43, and Approach Resources, Inc. (AREX) 1.66 to 23.62. IDT Corporation (IDT) advanced 1.14 to 27.95, Travelzoo Inc. (TZOO) 1.71 to 43.82, Inphi Corporation Common Stock (IPHI) 1.41 to 19.74, Jabil Circuit Inc. (JBL) 1.89 to 19.55, Rare Element Resources Ltd. (REE) 73 cents to 10.28, and China Medical Technologies Inc. (CMED) up 54 cents to 11.74.

Among leading low-priced gainers, Hyperdynamics Corporation (HDY) was up 30 cents to 4.30, Local.com Corp. (LOCM) 38 cents to 6.75, Somaxon Pharmaceuticals, Inc. (SOMX) up 38 cents to 3.18, AudioCodes Ltd. (AUDC) 39 cents to 6.43, Axcelis Technologies Inc. (ACLS) 35 cents to 3.68, and Acura Pharmaceuticals Inc. (ACUR) 81 cents to 3.75. SuperMedia Inc. (SPMD) gained 83 cents to 8.51, Magic Software Enterprises Ltd. (MGIC) 33 cents to 7.15, and Complete Genomics, Inc. (GNOM) 57 cents to 7.46.

In addition, Incyte Corporation (INCY) jumped 1.25 to 16.43, OmniVision Technologies Inc. (OVTI) 1.24 to 30.69, SodaStream International Ltd. (SODA) 2.30 to 34.77, Jazz Pharmaceuticals, Inc. (JAZZ) 45 cents to 19.97, a new high, and CVR Energy, Inc. (CVI) 70 cents to 14.69. Exelixis, Inc. (EXEL) advanced 37 cents to 9.08, Krispy Kreme Doughnuts Inc. (KKD) 53 cents to 8.02, Vanda Pharmaceuticals, Inc. (VNDA) 1.17 to 10.17, SemiLEDs Corporation (LEDS) 4.32 to 30.42, Oncolytics Biotech Inc. (ONCY) 37 cents to 6.79, Onyx Pharmaceuticals Inc. (ONXX) 87 cents to 36.32, QuickLogic Corp. (QUIK) 30 cents to 6.46, RealD Inc. (RLD) 1.16 to 29.79, and Spreadtrum Communications Inc. (SPRD) 91 cents to 18.91.

On the downside, Kandi Technologies Corp (KNDI) dropped 1.42 to 5.28 on a secondary announcement, and ultra-short Direxion Daily Emrg Mkts Bear 3X Shares (EDZ) fell1.01 to 21.94. Those were the only point-plus losers on the board today.

Stepping back and reviewing the hourly chart patterns, the indices basically gapped up, ran up in the morning, consolidated midday, and then ran back again at the end of the day. Despite the fact that the S&P 500 made a new high, the NDX barely made one. However, they did tag new 2010 highs late in the session.

Good Trading!

Harry

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Morning Market Update

Upward Momentum Continues

US equity markets are gaining some ground in morning trading, extending yesterday’s steep advance, as traders digest a plethora of August same-store sales reports that are revealing some strength in back-to-school sales, as well as a drop in weekly initial jobless claims. Treasuries are lower, extending losses on the retail and jobs reports, and following a larger-than-previously reported decline in 2Q nonfarm productivity. Later this morning, the economic docket will release reports on pending home sales and factory orders. In other equity news, Burger King Holdings Inc. is adding to yesterday’s solid gains after CNBC’s David Faber reported the burger chains has reached an agreement to be acquired by private equity firm 3G Capital for about $4 billion in cash. Overseas, Asia moved nicely higher again, while European markets are nearly unchanged after Wednesday’s surge, and following the monetary policy announcement from the European Central Bank, where it left its benchmark interest rate unchanged at 1.0%.

As of 8:51 a.m. ET, the September S&P 500 Index Globex future is 5 points above fair value, the Nasdaq 100 Index is 6 points above fair value, while the DJIA is 21 points above fair value. Crude oil is down $0.29 at $73.62 per barrel, and the Bloomberg gold spot price is up $4.30at $1,248.60 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is flat at 82.44.

The nation’s retailers are reporting August same-store sales—sales at stores open at least a year—headlined by Target Corp. (TGT $52), which posted a 1.8% increase in sales year-over-year (y/y), just shy of the 2.0% gain that analysts were expecting. August is a key month for back-to-school sales and TGT said it is pleased with its “strong performance” in this category, as well as apparel and food. The company added that guest traffic trends remained healthy throughout the month.

Meanwhile, Costco Wholesale Corp. (COST $58) reported that its August same-store sales rose 7% y/y including fuel and the impact of foreign exchange, compared to the 4.2% increase that the Street expected. Excluding the favorable impacts of gas and currency, sales at the wholesale retailer rose 5%, compared to the 3.6% increase that was forecast.

Elsewhere, department store Macy’s Inc. (M $20) announced that it achieved a 4.3% increase in its August same-store sales, topping the 4.0% growth that was anticipated. The company said its back-to-school business through the month has been strong, led by great performances by Material Girl, the exclusive juniors brand by Madonna, as well as American Rag, its largest private brand in juniors and young men’s. M added that it is particularly encouraged by the response from its customers to new fall fashion.

Inside the mall, Gap Inc. (GPS $17) posted same-store sales in August were unchanged compared to last year, and versus the 0.2% decline that analysts were expecting.

Outside of the retail sales reports pouring in, Burger King Holdings Inc. (BKC $19) is moving higher again after CNBC’s David Faber reported that the fast-food chain has agreed to be acquired by private-equity firm 3G Capital for $24 per share in cash or about $4 billion. None of the entities involved have confirmed the report.

Jobless claims decline, productivity falls and labor costs revised lower

Weekly initial jobless claims fell by 6,000 to 472,000, versus last week's figure which was upwardly revised by 5,000 to 478,000, and compared to the consensus estimate of economists surveyed by Bloomberg, which called for claims to come in at 475,000. The four-week moving average, considered a smoother look at the trend in claims, declined by 2,500 to 485,500, while continuing claims fell by 23,000 to 4,456,000, compared to the 4,450,000 that was anticipated by economists.

Elsewhere, the final reading on 2Q nonfarm productivity was revised to a 1.8% decline on an annual basis, compared to the Bloomberg forecast of a 1.9% decrease, and following the 0.9% decrease seen in preliminary report. Unit labor costs were revised to a 1.1% increase, versus a gain of 1.2% that was estimated, and the initial 0.2% gain that was reported last month. Treasuries are lower, extending losses following the jobless claims and productivity readings.

Later this morning, the economic calendar will yield the releases of pending home sales, and the gauge of the pipeline of existing home sales is forecast to decline 1.0% month-over-month (m/m) in July, and factory orders, which are expected to show an increase of 0.2% for July.

Europe sluggish after yesterday’s steep gains and as ECB leaves rates unchanged

Stocks in Europe are nearly unchanged in afternoon action as traders take a breather from the sharp broad-based advance across the pond, while digesting a plethora of economic data, and the monetary policy announcement from the European Central Bank. The ECB kept its benchmark interest rate unchanged at 1.0%, as expected, but traders are paying close attention to the customary press conference conducted by ECB President Jean-Claude Trichet, which is getting under way and the central bank is expected to maintain its emergency liquidity measures that were put in place during the financial crisis. ECB council member Axel Weber said in August that the central bank should help banks through end-of-year liquidity tensions before determining in the first quarter when to withdraw these emergency lending measures.

Moreover, there are plenty of other economic reports from the European economic docket that are worth mentioning, headlined by euro-zone 2Q GDP being kept unrevised at 1.0% growth on a quarter-over-quarter (q/q) basis, while compared to the same period last year, output in the region grew 1.9%, compared to the initial 1.7% growth reading, which was the growth rate economists expected the figure to remain. Additional data showed euro-zone producer prices rose by a smaller-than-expected amount on a m/m basis in July, while the y/y rate of 4.0% matched expectations. Other reports rounding out the heavy economic calendar included: UK home prices falling much more than anticipated m/m in August, Switzerland’s 2Q GDP expanding by a larger amount than expected, and France’s unemployment falling solidly to help the unemployment rate in the nation improve. In other central bank news, Sweden’s central bank increased its benchmark interest rate by 25 basis points to 0.75% as expected.

The UK FTSE 100 Index is down 0.1%, France’s CAC-40 Index is 0.1% higher, Germany’s DAX Index is declining 0.1%, Switzerland’s Swiss Market Index is decreasing 0.2%, and Sweden’s OMX Stockholm 30 Index is falling 0.7%.

Asia records another broad-based advance

After receiving a boost yesterday from better-than-forecasted Chinese manufacturing data and a stronger-than-expected 2Q GDP read in Australia, stocks in Asia were higher across the board again as sentiment toward the global recovery was amplified by Wednesday’s favorable manufacturing report in the US. Japan’s Nikkei 225 Index led the advance in the region, gaining 1.5%, on strength in export issues, which benefit from sales in the US and elsewhere outside the Asian nation, even as the yen moved higher versus the US dollar and other major currencies. Additionally, equity markets in China helped pace the advance in Asia, with Hong Kong’s Hang Seng Index rising 1.2% and the Shanghai Composite Index increasing 1.3%, as auto makers showed some strength following yesterday’s report that showed passenger-car sales jumped 59% in August, more than three times July’s pace, per Bloomberg. Also, some M&A news in China aided the advance, with Chinese insurer Ping An Insurance (PIAIF $8) announced it has agreed to purchase an additional 29.1 billion yuan ($4.3 billion) stake in Shenzhen Development Bank, giving it control of the Chinese lender, and shares of both firms moved nicely higher. Elsewhere, Australia’s S&P/ASX 200 Index rose 0.8%, to build on yesterday’s solid advance on the upbeat output report in the nation, and despite a report that showed the Australian trade surplus narrowed by a larger margin than anticipated. Rounding out the day, South Korea’s Kospi Index increased 0.6%, Taiwan’s Taiex Index gained 0.7%, and India’s BSE Sensex 30 Index inched 0.2% higher.

What Health Care Plan & Rising Dollar Mean to Markets

By Mike Paulenoff

View the video chart at http://www.mptrader.com/chartsofweek/

While the new health care plan could have negative implications for business, for taxes, for the deficit, for interest rates and so on, the S&P 500 has gone straight up since its Feb 5 low. I don't know what it's been discounting, but it couldn't have been discounting the negativity implied by the health care plan. Instead, this rally has to be discounting something positive, whatever that may be.
Perhaps the market is discounting a change in November from a Democratic majority. Or it may be as simple as zero interest rates policies and a lot of liquidity and people being forced into a market where the fundamentals are uncertain and insecure at best and yet as the market goes higher people are forced into it more and more. Perhaps the fundamentals are improving, too. I don't really know. All I know it that this chart is enormously bullish, and although it deserves a rest, this rest will probably be short-term.

If there is a pullback, the first area of support is 1151 to 1141, roughly, in the S&P 500 cash. If it gets through 1140, I think we could actually go into a real correction down to the 50-day exponential, which is around 1115, and if that breaks it will continue down to the 1080 range. As long as the Feb lows remain intact at 1044, any weakness will be considered a pullback ahead of another up-leg. That's how I'm looking at a negative reaction to a yes vote on health care - as a pullback that needs to be bought.

This is especially true because the end of the quarter is in eight trading days, and lots of fund managers are under-invested and need to get in and do it before the end of the quarter. So I think that a pullback in the equity market would be cushioned by the desire to buy equities until the end of the quarter. If the equity market opens higher Monday and takes out Thursday or Friday's highs, then it's off to the races and I think the S&P 500 goes to 1200 before it pulls back.

Dollar Buying

The risk factors, other than in the equities, this coming week would be in the dollar, which started to lift last Wednesday, Thursday, and Friday and appears to have started a new upleg.

Why would the dollar go up if the negativity of the health care plan is creating selling in equities? It would be going up because of Europe, where it is still unclear how the Greece debt crisis will be resolved.

You can see on the chart that the dollar took off from its rising 50-day exponential moving average. The dollar is in a beautiful rising channel, and looks like it's headed higher, probably up around 82 1/2 - 83 on the dollar index (DXY).

Looking at the long-term trend, we can see that as the equity market took off in 2009, people became less risk averse. The dollar came down, because in the prior year when there was more risk aversion they were buying dollars for safety. Why would anyone buy dollars for safety, especially when the health care plan makes our finances that much more complicated? Again, it may point to the Europe crisis.

If you look at Fibonacci levels, a 50% retracement for the 2009 dollar decline comes in at 81.90 - 82.00 roughly. I think it can go higher than that. If the dollar opens much lower Monday and takes out last week's lows at 79.40-50, it could really have problems. However, based on what happened last week, it looks like the opposite will happen and dollar will continue going up.

What does a near-term bullish dollar imply about other markets?

Commodities' Reaction

It would seem the commodity markets would be the first to have a problem. The PowerShares DB Commodity Index ETF (DBC) still looks like it's holding by a thread between 23.00 and 24.00.

My sense is that if the dollar continues to go up, commodities will more than likely continue to go down. Historically, dollar strength has implied commodity weakness. However, as the dollar may be rising due not so much a desire to buy dollars but rather than a flight from euros, maybe the commodity sector will hold up and it won't be a 1-for-1 traditional inverse relationship.

In the DBC, a break of 23.10-.02 would take you down to 22, the next buying opportunity amid a somewhat suspicious uptrend.

The DBC is composed of industrial metals, copper, aluminum , gold, silver and energy. Let's take a look at some names in the commodity sector.

Starting with Freeport McMoran Copper & Gold Inc. (FCX), the stock has been in a big uptrend since last year. It's had an enormous run since the Dec low, but it looks to me as though it rolled over last week from a lower high. I think it will seek lower levels at the 200-day exponential level and the major trend line at around 70, which is about a 10% downmove in FCX if things really get moving based on the dollar. A shallower objective would be against the Feb support line, which is at 74. But either way it looks like it could be a victim, so to speak, of dollar strength.

United States Steel Corp (X) also looks like it's stalled at its prior highs. It got up to 66 and change and recently peaked at 63 and change. It looks like it's about to pullback towards its 50-day exponential at 55, and below that there the major trend 200-day moving average is at 45 ½. So here's another example of a commodity stock that could have a near-term problem - but it's a pullback that will be bought.

The Market Vectors Coal ETF (KOL) looks very similar to X and it, too, will pull back, but it's been in a powerful up trend. If it pulls back and breaks its flat 50-day exponential at 36 and change, it will probably go down to 33 and change and that's where I think the Street will look to buy coal and the coal stocks. That, too, is a commodity sector play that could suffer as a result of a stronger dollar and some sort of correction in equities, which means that the risk-based trades in equities and commodities over the past year or so will be taking a breather.

Newmont Mining Corp (NEM) in the gold sector, too, has been in a powerful up trend. It peaked in Dec, had a pullback, looks like a clear correction down to its moving average. It took it out where it usually does and then reversed, and has now stalled, but it doesn't look like it's rolled over in any sense. It still looks like a very strong uptrend. If it pulls back it's likely to go to below 49 1/2 or so, its prior low, and perhaps 48 1/2. If that breaks, then it could go down to the 45 - 46 area.

Spot Gold has been in a huge uptrend, too -- I'm not sure what the allegiance is to gold these days. It couldn't be the relationship to the dollar because it is not subject to inversions based on the dollar movement like it has in the past. It's almost like it's its own currency and it's being accumulated on every dip. Having said that, if it breaks 1090 this week then it will probably take the trend line to 1075 - 1076. If that breaks then you're looking at a retest of the major lows in Feb at 1044. That's where things could get dicey for gold. A break at that level really tears the technicals to bits, and then there could be a strong decline in gold.

Zero-Interest Bond Market

Finally this week, we look at the iShares Barclay's 20+ Yr Treasury Bond Fund (TLT), which is the equivalent of the 20 - 30 year bond sector in the treasuries. It is very strange as to how the treasuries have been trading. It looks like the long end of the bond market is trying to build a big base. The recent action in the last two months has seen a minor secondary base being built along with the base from the low of June '09 that has the potential of creating a W-pattern -- the W being a big double bottom. If the TLT breaks 93.25, they're going to take off and will have to fill the rest of this base up into the 100 area. That would mean that interest rates will be going down, not up, which in turn would have to mean that the economy isn't doing so well -- and possibly exacerbated by a delay in spending decisions as businesses evaluate the implications of the health care plan.


View the video chart at http://www.mptrader.com/chartsofweek/



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Credit Ratings

Excerpts from the Avid’s Live Chat Room…

The three leading rating companies, all based in New York, say that policing CDOs isn’t their job. They just offer their educated opinions, says Noel Kirnon, senior managing director at Moody’s.“What we’re saying is that many people have the tendency to rely on [the ratings], and we want to make sure that they don’t,” says Kirnon, whose firm commands 39 percent of the global credit-rating market by revenue.

S&P, which controls 40 percent, asks investors in its published CDO ratings not to base any investment decision on its analysis. Fitch, which has 16 percent of the worldwide credit-rating field, says its analysis are opinions and investors shouldn’t rely on them. The rating companies apply disclaimers about their analysis. S&P says in small print: “Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision.”Joseph Mason, a finance professor at Philadelphia’s Drexel University and a former economist at the U.S. Treasury Department, says the ratings are undermined by the disclaimers.“I laugh about Moody’s and S&P disclaimers,” he says. “The ratings giveth and the disclaimer takes it away. Once you’re through with the disclaimers, you’re left with very little new information.”

Sounds like most stock prospectuses these days. LOL If one isn’t supposed to rely on a rating agencies opinion on risk, I wonder why they would actually offer an opinion? Oh well, equities appear to be far less risky these days as compared to debt instruments…………. should seek out new highs on equities as investor’s risk appetite decreases IMO.