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Monday, July 19, 2004
Good evening Friends,
Market Recap
The Dow continues to slide, losing another -45 points today. The NASDAQ stood pat, trading flat for most of the day and closing up a fraction - this was partly due to the strength in the SOX index. Chip stocks were up today, boosting the SOX, but in my opinion, it is just a dead cat bounce from over sold levels. The market is in rough shape with only a few stocks standing out and looking good. Most charts are in bad shape and will take time to recover.
Earnings
Last week a number of companies reported earnings, many more than had reported two weeks ago. Yahoo was slammed in the first week after reporting that their earnings doubled and forecasting a descent outlook. Intel sold off last week after reporting 2x revenue from same quarter in the prior year. Intel had great earnings and a fairly bright outlook as well, but the stock was slammed on some inventory concerns. IBM and Dell both stated that the future looks bright when they reported earnings last week. Merrill Lynch started the chip slide by downgrading the whole semi conductor sector.
So who do we believe?
If these were lesser known companies then maybe we would have to stop and question the respective company's statements. But IBM and DELL are two well established companies, and they have earned the respect of investors. I prefer to believe the CEO's of these bellwethers rather than ANALysts who have become increasingly hard to trust over the last few years.
Mixed News
With the bright future that the tech companies are forecasting when they report earnings, it is odd that the market is going down. The trouble with the market seems to be the economic news that is still mixed:
- Oil prices are back up over $40 a barrel.
- The CPI index came out recently and showed a very minor up tick in prices, but it also showed that inflation is very much in check.
- Retail sales have slipped a bit recently and it is showing in the retail index (see chart).
We are approaching the back to school season which is usually a good time of year for retail. So even though many of these charts are saying lower prices ahead, the back to school season may save them.
The one area of the economy that still seems to be stuck in neutral is the labor market. We see a decrease in unemployment fillings one week and an increase the next. No one seems to be able to determine if companies are hiring or not. My personal feeling is that the companies that are reporting the hiring are the minimum wage type jobs. The higher paying jobs are reporting the lower numbers, and if true, this could be skewing the overall economy numbers. Let's face it, if it is the minimum wage jobs that are reporting the increase then our economy is not doing as well as the numbers are indicating.
Alan Greenspan is due to speak this week with his biannual report to Congress on the economy and monetary policy. I doubt he will say anything different from what he said when the rate increase was announced. In any case, if he says anything to catch people off guard, we will see the markets reflect that in a hurry.
The numbers for new housing starts will be released tomorrow. If this number is low, it will be partly due to the recent interest rate hike. This may also be the beginning of a major decline for home builders. We will have to watch this report very closely and determine if we want to start shorting housing stocks.
Looking Ahead
I do not think there will be any inspirational news this week. The markets look like they will continue to slide downward. Opportunities on the long side are few these days, but one stock bucking the trend is PLMO, up almost $4.00 or 10% today. NAVR also looks good, and of course energy stocks (the leading sector in the market) are looking good. You should be long on only a few selected stocks and over weighted on the short side in the weaker sectors. Some of the weak sectors include retail, housing, biotech, and internet. I have charts for some of these sectors tonight.
For now, the best way to trade is to play stocks bouncing off support for long positions and hitting resistance for our short positions. In my opinion, the market will head lower over the summer. I hope I am wrong, but the charts do not lie. At this point, all we can hope for is for a bottom to be put in so that the market and its charts can start repairing themselves and reverse the down trend. It will take a lot of positive news and outlooks to turn this market around anytime soon.
OTC BB Watch List
- MOBL
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