Wiser Trader Stocks and Options Newsletter
______________________________________________________________________________
Issue No. 77 May 22, 2006
Prescott, Arizona Systems@WiserTrader.com
______________________________________________________________________________
1.0
Trading
The character of the
market has changed dramatically over the past month.
1.1 Transition
There is a vast
difference of opinion regarding whether the economy is slowing and whether
the Fed may over tighten, even among Fed members. Hold on to your hats.
Commodities have been hammered. Bond buying has raised and then lowered
treasury yields. The dollar is up. Oil prices are down. Growth stocks that
have led the market are being beaten down the most (Note to self.). Indeed
nothing passed the Growth-Momentum screen this week. With these
contradictory indications, the market is trying to come to grips with the
reality of inflation and the possibility that overnight interest rates could
approach levels significantly higher than many believe. Respectable analysts
have forecasted a maximum rate of 5.0% while the latest estimates go as high
as 6.0% by the end of 2006.
FIGURE 1A
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© 2006 Desert Mountain
Systems, LLC. Members of wisertrader.com are neither licensed brokers nor
licensed advisors. Trades discussed represent recommendations made by the
editor for the wisertrader.com portfolio. The newsletter and web site are
for information only and should not be considered as personal advice. While
it is believed that the posted information is factual, mistakes can be made
in transcription. Investors should trade stocks only after verifying all
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with trading system companies.
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The intraday Williams %R
pattern in Figure 1B was seen three times this week. A snapshot of Friday
intraday trading shows how the 5-index Williams %R was locked down at -100
with zero range. The 200-day SMA for the 5-index indicator has moved to -43.
FIGURE 1B
The S&P 500 tested
its 200-day SMA on Friday, as seen in Table 1A. The NASDAQ is 1.57% below
its 200-day SMA, having gone negative for the year. Technology and small
caps have underperformed the broader market over the past month, as seen by
the percentage decline of the NASDAQ and Russell 2000, respectively.
TABLE 1A
Major Indices
|
Major Indices Year to Date
|
Relative to SMA 200
|
200 Day High Close
|
Relative to High
|
|
|
12/30/05
|
5/19/06
|
% Chg
|
Today
|
Last Week
|
|
DOW
|
10717.5
|
11,144.06
|
3.98%
|
2.84%
|
7.68%
|
11642.7
|
-4.28%
|
|
NASDAQ
|
2205.32
|
2,193.88
|
-0.52%
|
-1.57%
|
4.16%
|
2370.88
|
-7.47%
|
|
S&P500
|
1248.29
|
1,267.03
|
1.50%
|
0.74%
|
5.31%
|
1325.76
|
-4.43%
|
|
Russell
2000
|
673.22
|
722.54
|
7.33%
|
3.39%
|
11.33%
|
781.83
|
-7.58%
|
|
NYSE
|
7753.95
|
8176.06
|
5.44%
|
3.96%
|
10.15%
|
8646.96
|
-5.45%
|
One ray of hope can be
found when comparing relative percentage gains over the past 4 days in Figure
1C. The Russell 2000 and NASDAQ have begun to outpace the DOW and S&P
500, respectively.
FIGURE 1C
2.0 Market Analysis
The core CPI is running
slightly above the Fed forecast. This leads one to expect that rate hikes
will continue, perhaps slowing the economy and lowering earnings
expectations. Because of this, market sentiment has turned negative, well in
excess of actual fundamentals.
Key industry ETF’s in
Table 2A are Biotech and Semiconductors, which confirm the NASDAQ.
Transportation confirms the Dow Jones Industrial Average according to Dow
Theory. Banking and Financials are confirming indicators for the S&P
500. Gold and Housing are respective indicators for the inverse health of
the currency (inflation) and the capacity for consumer spending.
Table 2A
Indices, Key Industry ETF’s and Sector SPDR’s
|
|
1 month
|
1 wk ago
|
2 wks ago
|
3 wks ago
|
4 wks ago
|
|
Dow Jones Industrial Index
|
-1.8%
|
-2.1%
|
-1.7%
|
1.9%
|
0.2%
|
|
NASDAQ Composite Index
|
-6.4%
|
-2.2%
|
-4.2%
|
0.9%
|
-0.9%
|
|
S & P 500 Index
|
-3.4%
|
-1.9%
|
-2.6%
|
1.2%
|
-0.1%
|
|
NYSE Composite Index
|
-3.4%
|
-2.8%
|
-2.6%
|
1.9%
|
0.1%
|
|
Russell 2000 Index
|
-6.4%
|
-2.7%
|
-5.0%
|
2.3%
|
-1.0%
|
|
HGX, Phil. Housing Index
|
-12.9%
|
-4.4%
|
-5.1%
|
0.7%
|
-4.6%
|
|
IYR, Real Estate
|
-4.4%
|
-1.5%
|
-3.2%
|
0.7%
|
-0.4%
|
|
GLD, GOLD
|
3.8%
|
-7.8%
|
4.6%
|
4.5%
|
3.0%
|
|
RKH, Banking
|
-0.6%
|
-1.9%
|
-3.4%
|
0.6%
|
4.2%
|
|
IYT, Transportation
|
-1.5%
|
-4.2%
|
-2.4%
|
6.4%
|
-1.0%
|
|
SMH, Semiconductors
|
-6.0%
|
-2.1%
|
-5.6%
|
1.1%
|
0.6%
|
|
BBH, Biotechnology
|
-5.2%
|
0.4%
|
-1.9%
|
0.9%
|
-4.6%
|
|
OIH, Oil Infrastructure
|
-10.2%
|
-7.4%
|
-4.6%
|
4.8%
|
-3.1%
|
|
XLE,
Energy
|
-9.6%
|
-4.8%
|
-3.6%
|
3.0%
|
-4.4%
|
|
XLU,
Utilities
|
-0.4%
|
-0.5%
|
-2.9%
|
2.7%
|
0.2%
|
|
XLB,
Materials
|
-6.3%
|
-4.6%
|
-2.5%
|
3.4%
|
-2.6%
|
|
XLI,
Industrial
|
-2.4%
|
-2.5%
|
-2.1%
|
3.3%
|
-1.0%
|
|
XLK,
Technology
|
-6.6%
|
-1.8%
|
-4.3%
|
0.3%
|
-1.0%
|
|
XLV,
Healthcare
|
-2.8%
|
-0.4%
|
-1.3%
|
-0.7%
|
-0.5%
|
|
XLF,
Financials
|
-1.6%
|
-1.8%
|
-2.8%
|
0.6%
|
2.5%
|
|
XLP,
Consumer Staples
|
0.9%
|
-0.2%
|
-1.6%
|
1.0%
|
1.8%
|
|
XLY,
Consumer Discretionary
|
0.0%
|
-1.2%
|
-1.5%
|
1.5%
|
1.2%
|
The VIX and VXN volatility indexes are listed in
Table 2B.
Table 2B
Volatility
|
Indicator
|
Current
|
Last Week
|
2 Weeks Ago
|
Complacent
|
Cautious
|
|
VIX **
|
17.2
|
14.2
|
11.6
|
< 20
|
> 50
|
|
VXN ***
|
21.0
|
17.1
|
14.4
|
< 30
|
> 70
|
|
** Above 20 day SMA = Short-term sell signal.
***
Above 20 day SMA = Short-term sell signal.
|
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Figure 2A compares the major averages with key
ETF’s and Sector SPDR’s.
FIGURE 2A
Table 2C
Market Summary
Industries are
listed according to the Dow Jones Classification System
Major Indices For the Past Week: Dow Jones -2.1% NASDAQ -2.2% S&P500 Index -1.9% Russell 2000 -2.7% NYSE -2.8% 30 Year Bond 5.137% 10 Year Note 5.054% Leading Industries For the Past Week: Aerospace & Defense Apparel Retailers Financial Administration Distillers & Vintners Tobacco Drug Retailers Soft Drinks Beverages Food & Drug Retailers Mobile Telecommunications Lagging Industries For the Past Week: Platinum & Precious Metals General Mining Coal Mining Nonferrous Metals Recreational Services Industrial Metals Gold Mining Basic Resources Steel |
Leading Industries For the Past Month: Brewers Broadcasting & Entertainment Hotels Personal Products Beverages Media Agencies Food & Beverage Media Food Producers Food Products Lagging Industries For the Past Month: Platinum & Precious Metals General Mining Home Construction Toys Specialized Consumer Services Leisure Goods Gold Mining Consumer Electronics Exploration & Production Forestry Crude Oil $69.30 Gold for the past 30 days: USD +6.04% CAD +4.36% CHF +1.10% GBP +0.54% EUR +2.38% JPY +0.79% |
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