WEEKLY COMMENTARY - AUGUST 25th-29th

MARKET COMMENTS -- INDU 11,628.06, COMP 2,414.71, SPX 1,292.20, RUT 737.60

The major indices continue to move in a secondary reaction rally. The major difference is that the volume for last week is weaker than the past two weeks’ volume. Notice the down slope in volume as the rally progresses as down days possess more volume activity than the up days in most indices. In addition, the INDU and SPX rallies have both weakened over the past week as they continue to test the 50-day MA. Both indices are in a wedge pattern, which is considered bearish. Friday has marked the 3rd rally attempt for both indices and both most penetrate their short-term recent highs for a continuation. The COMP has tested and failed the 200-day MA in addition to upper resistance around the 2475 level. Notice the tapering of volume is even greater than the previous 2 weeks. Friday’s gap up shows very little enthusiasm and we expect the COMP to test the 200-day MA one or two more times.

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

The RUT formed a double Adam-and-Adam bottom, entered into a congestion zone mid-July to mid- August, made a new short-term high, met resistance at the 765 area and is now testing the 200-day MA. The RUT must penetrate the June and August highs for the trend to continue in strength. The RUT may trade in a range if resistance levels once again pose a problem. Nonetheless, the RUT is the best performing index shown.

We are now neutral in the short-term of whether or not the rallies will continue in the same initial strength as they did in last month. The reasoning is that volume for the past 3 weeks remain weak and has gotten weaker each week, hitting new short-term lows in volume. This level of “inactivity” is a graphical representation of weak institutional inflow, which is much needed to sustain rallies. We expect a mixed, neutral movement for all four indices for this week. Expect the INDU and the SPX to continue to test the 50-day MA and the COMP to retest the 200-day MA. Again, Volume confirms price action.

ADVANCE-DECLINE (A-D) & NEW HIGHS-NEW LOWS (NH-NL) LINES

The Advance-Decline lines and the New Highs-New Lows lines for the NYSE, NASDAQ (COMP), and AMEX are shown below. The best clues come from any divergences from the indices. The NH-NL line divergence with all indices vs. their respective exchanges continues to widen. Note the continuation of the lines in a neutral or downward trend while the rallies for the indices (and their respective exchanges) continue upward. Also note the A-D lines for each exchange and how the AMEX A-D issues are divergent with the other exchanges.

(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 did make a pullback as expected last week; however, we would expect continued consolidation or a deeper pullback at least to the 75 support area. The Euro has also pulled back as expected and we believe the Euro will either trade in a range or resume its downtrend for the short-term. Note 50-day/200-day MA crossovers for both currencies.

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

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

Also expected last week, Gold (AMEX: IAU) has pulled back to the 83 resistance area. Silver (AMEX: SLV) has pulled back as well, but did not fill the previous gap. We expect both commodities to trade in a range for the short-term. Also note the imminent 50-day/200-day MA crossovers.

Oil (AMEX: USO) spiked on Thursday due to a decline in the US Dollar as well as Russia’s presence near Georgia’s two main pipelines. We expect the USO to trade in a range bound by the 50-day MA and the 200-day MA. Natural Gas (AMEX: UNG) continues to slide in a downtrend, and we expect that to continue, but also expect a sharp spike away from extremely oversold levels.

AFTER EARNINGS REVIEW

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

ADI – Reported earnings of $0.44 per share from continuing operations, missing analysts’ expectations of $0.45 per share. Q3 income rose to 4138.6 million vs. 120.4 million a year ago. Revenue rose 7% to $659 million, practically in-line with analysts’ expectations of $658.9 million. Shares opened at $31.14 and drifted down throughout the day to close at $29.29, down 9% on 11 million shares traded.

FMD – Reported a loss of $0.53 per share due to a continued weakening in the student loan market and a decline in the value of receivables vs. positive earnings of $0.83 per share a year ago. Analysts expected an average loss of $0.53 per share, missing expectations. Revenue dropped to a loss of $40.4 million vs. a gain of $197.1 million a year ago. Shares closed Friday at $3.67, up $0.06.

BJ – Reported $0.61 per share on $2.65 billion in revenue vs. $0.55 per share on $2.25 billion in revenue a year ago. Analysts expected $0.57 per share on $2.67 billion in revenue, beating earnings estimates but missing revenue targets. Shares dropped 7% to close at $37.71.

HPQ – Reported $0.80 per share or $2 billion on $28 billion in revenue. Excluding one-time items, HPQ would have earned $0.86 per share, beating estimates of $0.83 per share. The company also raised its Q4 outlook by announcing that it expects to earn between $0.95 - $0.97 per share. Shares rose 6% to $46.16 on 33.1 million shares.

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

CTRN – Reported earnings of $0.20 per share, beating estimates of $0.17 per share by analysts. Revenue rose 16% to $338 million. The company also reiterated its guidance for the fiscal year. Shares rose $1.81 or 10% to close at $20.26. Shares the previous day dropped 11%.

PERY – Reported a loss of $0.36 per share or negative $5.4 million vs. net income of $267,000 or $0.02 per share a year ago. Analysts expected PERY to report a loss of $0.02 per share, widely missing expectations. Shares got crushed, dropping 25% or $5.77 to close at $17.23.

JDSU – Reported a loss of $29.8 million or $0.13 per share vs. a loss of $17.9 million or $0.08 per share a year ago. The loss was due to heavy acquisition-related charges. Shares fell 12% to $10.42, down $1.55 on 22 million shares traded.

NVTL – Reported preliminary results and expected to earn $0.03 per share for Q2 or $25,000 vs. $8 million or $0.25 per share a year ago. Analysts were expecting $0.14 per share, entirely missing expectations. NVTL expects a loss for Q3 of $0.03 per share while analysts were expecting earnings of $0.18 per share causing analysts to revise all estimates for the remainder of the fiscal year. Due to a delay, NVTL received notice from NASDAQ for failure to file its 10-Q and may be delisted if unable to meet listing requirements. Shares fell $2.11 or 25% to close at $6.29 on 7.2 million shares.

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 may re-test its June high. Note any increases in volume (if any) on positive days during the current rally.
• Several COMP industries are bound between the 50-day and 200-day MA’s. Note any breakouts or breakdowns.
• Numerous retails will report earnings this week as well. Last week, retailers mostly reported negative earnings. Make note of both positive and negative reports.

Economic Reports of interest: Mon. (Existing Home Sales), Tues. (S&P/Case Shiller Home Price Index, Consumer Confidence, New Home Sales, House Price Index, Richmond Fed Manufacturing Index, Weekly Retail Sales), Wed. (Weekly MBA Mortgage Applications, Durable Goods Orders), Thurs. Prelim Q2 GDP, Prelim Q2 Personal Consumption, Prelim Q2 GDP Price Index, Initial Jobless Claims), Fri. (Personal Income, Personal Spending, PCE Core, University of Michigan Consumer Confidence).

Noteworthy Earnings Reports: Tues. (COCO, SFD, BGP, CHS, JCG, AEO, BIG), Wed. (BWS, MW, DLTR, TLB), Thurs. (WSM, SHLD, ENER, ZLC, NOVL, MCRS, PETM, OVTI, GCO, DELL, TIF, DLM, FRED).

Contact: John C. Lee // E-mail: JCLee84@hotmail.com // Website: www.WeeklyTA.blogspot.com

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