WEEKLY COMMENTARY - AUGUST 18th-22nd

MARKET COMMENTS -- INDU 11,659.90, COMP 2,452.52, SPX 1,298.20, RUT 753.37

The major indices are still moving in a secondary reaction rally. The volume is even weaker than the previous week for all indices. Notice should be made that the volume on down days is either greater than or equal to the volume on up days. The price-volume divergence confirms that the rally is due to end. Unless there is greater volume on the up days vs. the down days, the trend will continue to weaken. The volume in the INDU and the SPX both continue to sink, while volume for the COMP has tapered off considerably last week. The INDU and SPX are both consolidating at the 50-day MA, while the COMP is consolidating at the 200-day MA and any breakouts should be noted. The RUT is testing its June high.

The stochastics indicates a divergence with the INDU. The rally continues, yet the stochastics trend indicates waning momentum. The stochastics remain at the 80 level for the COMP and the RUT. (click on chart to enlarge)

All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved.

We ultimately expect the rally to continue, but not for long. The INDU and the SPX should be able to test the 200-day MA again, while the COMP and RUT test their previous highs. The overall volume during these rallies remains unconvincing and poses as a threat to buyers. When new short-term highs are made in an established uptrend (rally), the volume must support the price action. Therefore, if weaker volume is present, the trend is close to a reversal. As the divergence becomes more and more aware, buyers will start to question the rally, and the resulting fear and supply will fuel the reversal. Volume always confirms price action.

THE US DOLLAR/EURO, GOLD/SILVER, OIL/NATURAL GAS

(click on chart to enlarge)

All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved.

The US Dollar continues its powerful rally without resistance. I expect a pullback, soon, due to the fact that the pattern’s spike demonstrates a parabolic run happening too fast in too short of a time period. For the Euro, I expect a pullback close to the high of the breakaway gap down. The 2-year chart is in focus to show the island reversal and the ensuing, precipitous decline in relation to the long-term trend. It is obvious that the trend is completely broken and that a long-term downtrend is most probable.

Gold (AMEX: IAU) is sitting at the 77.5 support level; however the uptrend is completely broken on a technical level for the short and intermediate term. Silver (AMEX: SLV) also resembles the same pattern, both commodities ETFs having gapped down three times. We expect a pullback soon for both commodities as they have reached excessive oversold levels.

The important technical aspect of oil (AMEX: USO) is to pay attention to its response to the 200-day MA. The last time the USO found support at the 200-day MA was in August 2007, one year ago. We expect either a bounce from oversold levels to around $97 or a major one-day drop in oil cutting through the 200-day MA past $87 very soon. Natural Gas’ (AMEX: UNG) steep trajectory shows the initial stages of leveling off. The UNG is still in a parabolic downtrend having broken numerous support levels.

AFTER EARNINGS REVIEW

(click on chart to enlarge)

All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved.

FLR - Reported $0.87 per share beating analyst expectations of $0.80 per share. They also lifted their full-year forecast to $3.65-$3.80 per share up from $3.30-$3.45 per share. FLR gapped up and sold off throughout the day, hitting an intra-day low near $67.50. Even as earnings expectations were exceeded, FLR remains in a downtrend and has failed the 200-day MA. Consider this: Alan Boeckmann, Chairman & CEO of Fluor Corp., has been selling his shares all year. In August alone, he sold over 1.5 million shares.

SYY – Reported $0.55 per share beating analyst expectations of $0.52 per share. Total sales rose 5.4%, gross profit rose 5.6%, and operating income rose 10%. SYY gapped up, fill the gap intra-day while finding support at the 200-day MA and lifted higher past $31. The following day demonstrated buying leadership as SYY continued its momentum higher.

CPN – Reported $0.41 per share beating analyst expectations of $0.10 per share. Operating revenue rose 37% to $2.8 billion. CPN gapped up about 6% and sold off throughout the day, forming a bearish gap up. Bearish gap ups have a very high likelihood of declining the next day. CPN did so, but is supported at around the $15.75 level forming what may be a short-term double bottom.

BOBE – Reported $0.45 per share beating analyst expectations of $0.44 per share. However, BOBE missed analysts’ revenue target of $443.2 million by reporting $440.3 million. The Mimi’s Café chain is mostly to blame. BOBE dropped close to $28 before recovering near the open, forming a long-legged doji.

(click on chart to enlarge)

All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved.

MDR – Reported $0.77 per share on $1.79 billion, missing analyst expectations of $0.78. The miss was due to coming short of analysts’ sales target of $1.85 billion. MDR fell as low as 15.5% to $35.37 before rising just above $36. MDR continues its sharp downtrend into oversold territory. We expect a bounce in the near future as capitulatory volume has already been hit.

NUAN – Reported $0.22 per share, excluding items, beating analyst expectations of $0.23 per share. Including charges, however, NUAN actually reported a loss of $0.05 per share. NUAN also gave Q4 guidance and expected a loss of around $0.02 - $0.03. NUAN gapped down and lost 9%, but found support at the 50-day MA. The one-day reversal, resistance at the 200-day MA, and the rally on weaker volume after the reporting day should signal caution.

EL – Reported $0.61 per share beating analyst expectations of $0.56. Sales grew 14%, but 5% of the growth was attributed to the favorable foreign exchange rate. EL gapped up to $48 on heavy volume and buyers maintained momentum by bringing EL to close near its intra-day high around $51. This is a perfect example of a power spike and the follow-through day confirms that buyers are still coming into EL. The only possible resistance level for EL is April 2007’s high (not shown).

ADSK – Reported $0.39 per share, and excluding charges, would have earned $0.56 per share, beating expectations. Analysts were expecting $0.52 per share. ADSK also upped revenue guidance as they expect revenue to come in between $625 - $635 million, up from $623.1 expected by analysts. The stock gapped up nearly 12% and maintained buying throughout the day. ADSK hit an intra-day high at the 200-day MA before giving back some gains. This is a breakaway gap and I expect ADSK to either consolidate or trend higher in the short-term.

SELECTED INDUSTRY GROUPS

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All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmond Washington. All rights reserved.

This Week’s Watch:

• The DJIA and SPX will continue to test the 50-day MA, the COMP will continue to test the 200-day MA. The RUT will test its June high. Note any increases in volume (if any) on positive days during the current rally.
• Numerous retailers will report earnings. Make note of positive/negative surprises.
• The US Dollar may pullback into support and the Euro, Gold, and Silver may pullback into resistance.

Economic Reports of interest: Mon. (NAHB Housing Market Index), Tues. (Building Permits, Weekly Retail Sales, Core PPI, Housing Starts, PPI), Wed. (Crude Inventories, Weekly MBA Applications), Thurs. (Initial Claims, Leading Indicators, Philadelphia Fed), Fri (Cattle on Feed/Cold Storage Stocks)

Noteworthy Earnings Reports: Mon. (LOW, PRGO), Tues. (ADI, FMD, HPQ, HD, LZB, MDT, NVTL, OTEX, RAVN, SKS, TGT), Wed. (BYI, BJ, CTRN, EV, HOTT, JDSU, LTD, PVH, CRM), Thurs. (ARO, BKS, BEBE, BCSI, BKC, PLCE, DKS, DRYS, FL, GME), Fri. (ANN, PERY).

Contact: John C. Lee // E-mail: JCLee84@hotmail.com

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