Month: April 2004

Real Dstribution or Just a Shakeout?

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Today definitely marked a distribution day, as all the major indexes closed lower on increased and above average volume. In fact, as you can see in this chart, the Cubes gapped up at the open and proceeded to sell off for the rest of the day, closing near the low. As mentioned in yesterday’s posting, inflation fears and inflation (and the resulting rising interest rates) are the major financial issues. Get used to hearing it, inflation, inflation, inflation. It’s showing up everywhere you look except the backassward government inflation indexes, one of which is due out tomorrow. In any event, back to the chart, it’s always possible that today could have just been a shakeout in the handle area of various bases forming handles or a check-back to the breakout point on some recent breakouts, for example the Cubes, which you see down near the recent gap and the 50-day moving average. Still, this marks the third week in a row of some influence or another: holding breath before employment report, a holiday-shortened week, the start of the earnings period, and now options expiration week. In my view, it’s best to keep the powder dry right now. PS: Coming up on poor seasonals: (“sell in May and go away”).

Volume Dryup in Handle

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The cubes appear to be forming a handle about 5% off their 52-week high. This coming on low volume and after a prior advance that ended on January 26th (see left side of chart). This could resolve itself either way, and because this week is an options expiration week short options players have an interest in holding things tight until this month’s options are wiped out after Friday’s close. The market sure is holding its breath today volume wise, that’s for sure. I was kind of expecting some volume and a relief rally after the holiday week/weekend and no major event (Iraq, Japanese hostages, bombings, etc.). A catalyst will likely come in the form of earnings news sparking a rally, earnings news failing to spark a rally (which would be more telling), or inflation news trashing the whole china shop (CPI Wednesday). Of course catalysts can always pop out of nowhere, too!

This Week Should Settle the Question…

So did we kick off a new leg up or was it just a snapback and short-covering rally that developed from the oversold conditions of a few weeks ago? Some small-cap and sector indexes have already broken to new 52-week highs and the major indexes are getting pretty close, but the volume seems a little light, but that is at least partially explained by the fact that last week was a holiday-type week and the week before everyone was holding their breath ahead of the employment report. This will be the first week for volume (and the market itself) to show itself. It’s also the week that the earnings floodgates open. An interesting question is raised by the mixed reactions we got to last week’s retail sales reports, which printed big-time numbers, but prompted selling on the news (i.e., selling on good news can be a warning sign). We will see. Also will be looking to see if divergences develop if/when we test new highs on the major indexes or if we get any distribution days. And watching YHOO to see what happens after is massive breakaway gap from it’s 3-month base.

Just hop on the bus, Gus

In the words of Bill Gross, manager of the largest bond funds in America:

“Paul Simon may have been able to articulate 50 ways to leave your lover, but Fed officials have many fewer ways to let the air out of asset valuation bubbles — notably in interest rate risk and credit risk — created by purposeful reflationary policies. And, unlike the case with the stock market bubble at the end of the 1990s, the Fed can’t just hope for an immaculate correction. This is the biggest challenge presently confronting the Fed: the exit strategy from a 1% Fed funds rate, when it is no longer prudent.”

Below is my two cents on this. There’s a longer article to write, but not today!

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Twas the night before earnings

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and all through the house, not a creature was stirring, not even a mouse. The estimates were hung by the PC with care, in hopes that an earnings surprise soon would be there. [I know, I know, some sort of Easter-time rhyme would have been more appropriate this time of year, but whatareyagonna do, it’s time to go grab a bite and a drink in Adams Morgan, so let’s move on, shall we.] Anyway, as everyone knows, YHOO reports tomorrow (Wednesday)… yada, yada, yada. The news is less important than the reaction to it, so I’m not going to waste space weighing the various theories being passed around. Why do that when there’s important work to be done, such as debating the number of angels – or analysts’ brains – you can fit on the head of a pin? No, I’m simply going to point out some interesting tidbits on the chart, which of course reflects what people do, not what they say. [I don’t know about you, but I could give a rat’s ass what people say about their investment decisions, it’s what they do that matters.] So, as for the chart above…

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Yahoo! follow up

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Today’s session painted a doji candle, which is generally interpreted as “indecision.” If the doji comes after and an advance, as is the case here, or a decline it can warn that the current trend is at risk of stalling. Today’s session was also interesting because YHOO set a new high but failed to hold it and actually closed down on increased and above-average volume. The increased volume is contrary to what occurred in the overall volume market, where volume was down about 20% from Friday’s session. NOTE: YHOO is scheduled to report earnings on Wednesday. The average estimate is for EPS of $0.11 and revenue of $498 million.

Believe it if you need it…

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Investors Business Daily and many others called Friday’s market action a follow-through day. While Friday’s action technically met most definitions of “follow through,” volume appears suspect (lowest weekly volume in the past month, although that was influenced by days of light volume in front of Friday’s employment report). Backing up and zooming out a little bit, we see that…

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Yahoo!

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It’ll be interesting to see how this plays out. YHOO has rallied over 20% in the past three weeks but as you can see volume has been average to weak. This can be seen clearly in the OBV indicator, which has failed to reach a new high along with the stock price. This negative divergence, combined with Friday’s hanging man candle and the simultaneous downturn in the stochastics indicator strongly suggests that YHOO needs a rest and there is probably more risk than reward to the long side right now. Fundamentally, YHOO is a great growth story, although at 12x estimated 2005 revenues and 67x estimated 2005 EPS there is not a lot of margin for error.

Report From Oz…

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Back from Kansas, but alas we spotted neither hide nor hair of the Wonderful Wizard, nor any of his psychedelic voyagers. So, put down your emerald-colored glasses and pick up your steak knife because besides having the biggest, badest, and actually cleanest, coal-fired power plant in Kansas (see photo album for pics), the story of Holcomb is mostly about…

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Here at last… 308,000

The wait is over and we finally printed the blowout payroll number (Consensus estimate was 123,000) and the pre-market futures are off to the races. If strong gains hold into the close and we don’t get a reversal candle (i.e., big upper shadow and close near the low) today could be the follow-through day to the Naz rally that began last Thursday. To meet the strict definition of a follow-through…

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