The ‘Second-Half Recovery’ Talk Surfaces Again
It appears two things
were responsible for the broad-based rallies we saw across the indexes
today:Â surprisingly positive economic data and Greenspan. What can I say
about Greenspan? I barely understand half the words he uses, let alone try to
decipher those words the way he puts them together! All the markets want out of
Greenspan is another 50-basis-point cut next week. End of story — as long as he
doesn’t say anything to jeopardize that, it’s good enough for a rally.
morning, which showed a .5% increase versus the .2% increase economists were
expecting. Six out of the ten components in this index of leading indicators
rose in the month of May. This release was presented to us as evidence that,
although the economy still remains weak, economic conditions may no longer be
deteriorating, and a second-half recovery may still be in the cards.
Interesting.
Perhaps it’s important to look a little further into this economic release. The
ten indicators are as follows (in order of performance): Positive indicators
were: interest rate spread, stock prices, index of consumer expectations, money
supply, building permits, and manufacturers’ new orders for non-defense capital
goods. Flat from April to March was manufacturers’ new orders for consumer
goods. Negative indicators were: vendor performance, average weekly
manufacturing hours, and average weekly initial claims for unemployment
insurance. SO — what things do the Federal Reserve impact the most through
their policies of increased liquidity and interest rate cuts? Yield Spread and
Money Supply. The Fed’s actions thus far appear to be slowing down the
recessionary pressures in the economy, but the lack of improvement in the other
key indicators indicate that there is a strong risk of failure here. The top
four indicators are directly influenced by the Fed’s actions. Unless the
monetary factors that are unduly influencing this index spread to the indicators
that have not yet shown signs of improvement, it is premature and dangerous to
call for a second-half recovery.
Ooooops, I think I ventured into Goran’s territory there!!! I’ll reserve any
further comments I have and get back to charts:
The Nasdaq was clearly defending a level of support over the past few trading
sessions that is identified on my chart shown below. The bulls were looking for
a reason to rally, and they got it! After an afternoon pullback to test
the morning lows, it was off to the races into the close. The index was pushed
along by an explosion in EBAY, an old favorite in the Internet Sector. Thanks to
Henry Blodgett raising his earnings estimate by a PENNY, eBay gained nearly 10%
today — felt like 1999 again.
Before we get too excited though, we have resistance close by around the 1760
area. If the bulls can push us through here, I would expect the NDX to trade to
the 1794 area. This level corresponds to the gap down from June 13.
Looking at the Semiconductor Index
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unchanged at the end of the day. Perhaps rumors of an IBM pre-announcement
weighed on the sector today, as it was one of the few sectors that didn’t
perform well by the end of the day.
The best-performing sector was the Biotechnology Index
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key support between 570-575 before rocketing up. The Index closed on its high
right at a crucial level of resistance. Should we clear this resistance
tomorrow, we have another level to bump against at around 630. Additional
comments can be seen on the chart.
Moving over to the S&P Retail Index
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bumping up against resistance here as well. I’ve included on the chart follow up
on a short play I suggested two weeks ago. Based on the action in the Index
today, I can see another short entry possible between 894 and 900 with a stop
again at the 915 level.
As we move over to the S&P 500 Index, we can see that the bulls and bears
have been battling it out at the 1200 level. The positive side here is that the
bulls appear to be winning at 1200. On the other side, the bears have been
successful keeping any advance halted at the 1225 level. A break above 1225 will
indicate the potential for a move into the 1232-1248 area initially. This area
is key for the bull side of the equation. A successful break of this area could
start us on the way to testing recent highs above the 1300 level.
Looking to the Dow Jones Transport Index makes me question a sustainable bounce
in the Dow, though. Although I haven’t included it here, a glance at the Dow
Jones Utilities
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move higher in the $INDU or $SPX without these two key indexes. I’m not saying
we won’t go higher in the $INDU and $SPX — I’m not even ruling out new all-time
highs in the Dow — I’m just pointing out that the sustainability of any move
higher will be suspect.
The VIX gave us a heads up to look for a potential reversal in the markets
today. After seven days down, the VIX moved up into the 27-28 area, a level that
indicated an area that would attract buyers.
Any remotely positive event or release was a catalyst for a rally today. The
markets were ready for it — seven days down is tough, and we needed some
relief. The key will be how the Indexes respond over the next two days. Yes, we
held support and turned up today, but resistance levels are very close at hand.
The bulls need to step up to the plate here and carry the momentum forward.
In the two charts below, I’ve show an update for a chart I featured in my
commentary last week:Â Bebe Stores. I suggested an anticipatory short play
based on what I saw as the beginnings of an Evening Star formation on a weekly
chart. Comments regarding the play are found on each chart.
I’ve also included a chart of Nvidia Corp.
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Goran featured this play in his commentary from Monday, June 11. Again,
comments regarding this play are found on the chart.
HAVE A GREAT TRADING DAY!
Carolyn
P.S. Mr. Kaltbaum — I’m sorry to say I was unable to finish reading your
column earlier this evening — once I got to the part where you put
“Cubs” and “World Series” in the same sentence, I started
laughing so hard I couldn’t see the rest of your words through the tears!