WEEKLY TECHNICAL COMMENTARY - Sept 2nd-5th

UPDATE: As of 5AM, Crude is down over $9/barrel!!!

HAPPY LABOR DAY!

THIS WEEK’S ISSUE:

• In Play: Hurricane Gustav, Oil / Natural Gas, Gulf of Mexico Operations, Airlines
• Market Commentary: DJIA, NASDAQ, S&P 500, CBOE VIX
• Currencies: USD, EUR
• Commodities: Gold, Silver, Industrial Metals, Agricultural, Livestock
• After Earnings Review: COCO, BWS, MW, PETM, DLM, FLE
• This Week’s Watch: Economic Reports & Notable Earnings Releases

IN PLAY: HURRICANE GUSTAV, OIL / NATURAL GAS, GULF OF MEXICO OPERATIONS, AIRLINES

After reaching wind speeds of 150 mph and getting bumped up to Category 4, Gustav has weakened considerably and is now a tropical storm. This is good news to the people of New Orleans and they are spared the fate that Hurricane Katrina brought 3 years ago. Traders discounted the potential damage of the storm by selling off oil and natural gas throughout Monday.

As of 11PM (9/1) – Oil fell $4.29 to $111.17 and natural gas fell $0.393 to $7.550.

Oil prices rose ahead of the impact in the Gulf of Mexico and on August 27, oil and gas companies implemented shut-in procedures and evacuated personnel from platforms. By August 30, 76.77% of oil production and 37.16% of natural gas production had ceased. By August 31, 96% of oil production ceased.

The following public companies have oil & gas/drilling/shipping operations in the Gulf of Mexico: Nabors Industries Inc. (NBR), Chevron Corp. (CVX), BP Plc. (BP), Marathon Oil Corp. (MRO), Exxon Mobil Corp. (XOM), ConocoPhillips (COP), Anadarko Petroleum Corp. (APC), Apache Corp. (APA), Diamond Offshore Drilling Inc. (DO), Ensco International Inc. (ESV), Helmerich & Payne Inc. (HP), Hercules Offshore Inc. (HERO), Parker Drilling Co. (PKD), Noble Corp. (NE), Pride International Inc. (PDE), Rowan Companies Inc. (RDC), Transocean Inc. (RIG), among others.

Possible refinery shut-ins and estimated barrels of production cut:

• Cupet Nico Lopez Refinery (122,000)
• Calumet Shreveport. LLC Refinery (35,000)
• Valero Saint Charles Refinery (185,000)
• Valero Refining Co. Krotz Springs Refinery (80,000)
• Shell Chem LP Saint Rose Refinery (55,000)
• Placid Refining Co. Port Allen Refinery (48,000)
• Murphy Oil U.S.A. Inc Meraux Refinery (120,000)
• Motiva Enterprises LLC Norco Refinery (226,000)
• Motiva Enterprises LLC Convent Refinery (235,000)
• Marathon Ashland Petroleum LLC Garyville Refinery (245,000)
• ExxonMobil Baton Rouge Refinery (493,000)
• ConocoPhillips Belle Chasse Refinery (247,000)
• Chalmette Refining LLC Refinery (187,000)
• Total Production: 2,278,000 barrels+ (and counting)

The USO and the UNG will gap down tomorrow as traders continue to sell of the energy sector. The USO will test the 200-day MA support. The UNG, having broken the 200-day MA in mid-July, will resume its downtrend. Investors and traders looking to short oil and natural gas may choose the Ultrashort Oil & Gas ProShares (DUG) as an option.

The airlines should see a major spike as oil sells off. Airlines to watch: AMR Corp. (AMR), Delta Airlines (DAL), Continental Airlines (CAL), UAL Corp. (UAUA), US Airways Group Inc. (LCC), Southwest Airlines (LUV), JetBlue Airways Corp. (JBLU), Alaska Air Group (ALK), AirTran Holdings Inc. (AAI), Hawaiian Holdings Inc. (HA), among others.

Watch for Hurricane Hanna in the Caribbean heading towards Florida, one storm developing near the Leeward Islands, Tropical Storm Ike heading towards the Caribbean, and one storm near the Cape Verde Islands off Africa.

MARKET COMMENTARY -- INDU 11,628.06, COMP 2,414.71, SPX 1,292.20, RUT 737.60, VIX 20.65

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 three weeks’ volume. The drop off in volume can be attributed to the pre-Labor Day holiday, however, the drop off started weeks ago near the beginning of the rally. With a drop in oil prices, the market should be able to maintain their upward direction for the very short-term, while continually displaying signs of weakness in volume. A reversal is not out of question this week.

The Dow ($INDU) and the S&P 500 ($SPX) are forming ascending triangles and may be able to breakout due to the large decline in oil. Their rallies are still weak as volume continues to become more and more unimpressive. If a breakout on low volume occurs, investors and traders should see that as a warning sign. Any breakdowns from this point in the Dow and the S&P 500 will most likely indicate that the rally has ended as both indices are on their 4^th rally attempt at the 50-day MA. The NASDAQ ($COMP) has pulled back and is currently consolidating around the 2360 – 2415 area. A break below 2325 is considered a sell signal.

The Relative Strength Index (RSI) has leveled off for the Dow and the S&P 500 and is declining for the NASDAQ. This divergence, along with the price-volume divergence, is a clear indicator that the rally is weakening from previous weeks. The fundamentals in the economy remain virtually unchanged and this week’s economic reports (on page 8) should be highly noted for any surprises.

The CBOE Volatility Index ($VIX) remains in a downtrend and looks likely to continue as the drop in oil prices will rally the markets for the very short-term.

CURRENCIES: US DOLLAR & EURO

I want to use this issue to focus not on a daily short-term chart of the USD or the EUR, but a weekly, 2-year chart to show the significance of the movement that occurred in the past +/-20 days. The USD formed a perfect double bottom, effectively ending the multi-year downtrend it’s been riding. The sharp rally that we saw is an extremely strong indicator of a reversal in sentiment. Likewise, the EUR showed a reversal in sentiment, forming a perfect double top. The USD broke through 2 key resistance areas and is now clear to resume its uptrend and the EUR broke through 2 key resistance areas, effectively breaking its multi-year uptrend. Both currencies should be able to continue in their respective directions for the short-term.

What helped the USD? For starters, the July US durable goods orders came in at 1.3% vs. an expected 0.1% increase. Existing home sales rose 3.1% to 5 million sales in July vs. an expected 4.9 million sales. However, the average selling price was $212,400 down 7.1% vs. a year ago and the supply of existing homes increased to 11.2 months from 11.1 months. This is both positive and negative news as the US housing continues to wrestle with the glut of supply and a non-improving credit environment. Personal spending in July increased by 0.2% in line with expectations vs. a 0.6% increase a year ago, however personal income fell 0.7% missing expectations of a 0.2% decrease. This and other global macro factors have put the USD in a consolidation zone.

The Top 5 most important indicators for the short-term USD:

• Non-Farm Payrolls
• ISM Non-Manufacturing
• Personal Spending
• CPI
• Existing Home Sales

COMMODITIES: GOLD, SILVER, INDUSTRIAL METALS & LIVESTOCK

As the USD spikes, it is only natural that Gold (IAU) and Silver (SLV) fall in tandem. The entire commodities universe is in a correction or worse, the start of a major downtrend. Technically, IAU and SLV look terribly weak and I have reason to believe that the current rally is only a secondary reaction, a pause, for both commodities to resume their downtrend. Both precious metals face significant multi-month resistance overhead in addition to breaking both the 50-day MA and 200-day MA. It is highly unlikely that gold and silver prices will see their highs in the short to intermediate term.

For the industrial metals ($GYX) and livestock ($GVX), I have used the Goldman Sachs Commodities Index as both are reliable indices in tracking both commodities groups. The industrial metals tracked are aluminum, copper, lead, nickel, and zinc. All commodities are well off their highs. The trend for the industrial metals group continues downward.

The $GVX livestock index includes feeder cattle, live cattle, and lean hogs. Again, live cattle are at their all time highs while feeder cattle may start to correct in the short-term. Lean hogs spiked to 90 and now stands 68.42, within 3 weeks. The livestock index has broken its trend and is likely to be the next group to start a downtrend.

AFTER EARNINGS REVIEW: COCO, BWS, MW, PETM, DLM, FLE

COCO – On Tuesday August 26, before the market open, Corinthian Colleges Inc. (COCO) reported a Q4 loss of $0.01 per share or $620,000 on $274 million in revenue vs. a loss of $0.10 per share or $8.756 million on $231.62 million in revenue a year ago. Excluding charges, COCO would have earned a profit of $0.11 per share. For the full fiscal 2008 year, COCO earned $0.25 per share or $21.3 million on $1.07 billion in revenue. Shares gapped down opening at $15.58 and sold off throughout the day to close at $13.09, down 19.3% on 11.16 million shares.

Technically, COCO formed a large breakaway gap, which in this case signals the beginning of a major downtrend. The gap formed on huge volume and also failed the 50-day MA, and has now become a confirmed short candidate.

BWS – On Wednesday August 27 before the market open, Brown Shoe Co. (BWS) reported Q2 earnings of $0.05 per share or $2.2 million on $569.2 million in revenue vs. $0.22 per share or $9.8 million, a drop of 77.4% compared to a year ago. The results included a $0.15 charge for the relocation of its Famous Footwear unit’s headquarters from Madison, WI to St. Louis, MO (the transition should be completed by the end of Q3). Analysts expected earnings of $0.06 per share on $589.9 million, missing both earnings and revenue targets. Shares dropped around $15 or down 5% in the pre-market, opened at $14.95, and closed at $15.37, down 3.2% on 1.5 million shares (over 2x average daily volume).

Technically, BWS has been trading in a range since the start of this year (8 months). Bullish indicators include: a flattening of the 200-day MA, a rise in the 50-day MA, higher lows and higher highs. There is major long-term support at $12 and major long-term resistance at $17-$18. For the short-term, BWS entered into a short-term trading range and found support at $14 on August 28.

MW – On Wednesday August 27, after-hours, Mens Wearhouse (MW) reported Q2 earnings of $0.63 per share or $32.8 million on $545.3 million in revenue vs. $1 per share or $54.2 million on $569.3 million in revenue a year ago, a drop of 39% in income and a drop of 4.2% in revenue. Excluding a one-time item, MW would have earned $0.72 per share. Analysts expected earnings of $0.70 - $0.71 per share on $553.2 - $554.6 million in revenue. Shares gapped up $1.18, opened at $21.19 and closed at $21.61, up 8%.

Technically, MW formed an area gap. Around 90% of area gaps close within a week. MW still remains close to their long-term lows and has traded in a range of $15 - $26 since the start of 2008. A breakout above $26 is considered bullish and a break down below $15 is considered bearish. MW will likely meet resistance at the 200-day MA and trade in a range bound by both the 200-day MA and the 50-day MA.

PETM – On Thursday, August 28 after-hours, PetSmart Inc. (PETM) reported Q2 earnings of $0.30 per share or $37.2 million on $1.24 billion (up 11%) in revenue vs. $0.35 per share or $47.1 million (down 21%) on $1.12 billion a year ago. Results included a one-time benefit of reductions in insurance, stock option expenses, and timing of rent reimbursement from MMI Holdings. Analysts expected earnings of $0.28 - $0.29 per share on $1.22 billion in revenue, beating both earnings estimates and revenue targets. Shares gapped up to open at $26.15 and rose higher throughout the day to close at $27, up $2.58 or 10.56% on 10.83 million shares traded.

Technically, PETM showed a classic flag set-up for a long position and formed a breakaway gap in the mid-term which can also be construed as a continuation gap in the short-term. A break from the neutral trading range on 4x the average daily volume is a huge positive and PETM is an excellent candidate for a long position. PETM meets resistance at $29, however, major resistance was broken and PETM is highly likely to continue upward.

DLM – On Thursday August 28, before the market open, Del Monte Foods Co. (DLM) reported a Q1 loss of $0.05 per share ($0.04 from continuing operations) or $10.1 million on $726.2 million in revenue vs. earnings of $0.02 or $3.5 million on $626.8 million in revenue a year ago. Revenue increased by 15.9% due to price hikes, volume growth, and new products. Discontinued operations added a $0.01 per share loss to the results. Analysts were expecting a loss of $0.03 per share, missing expectations by $0.01 per share. The stock gapped up and opened at $8.98, sold off throughout the day, and closed at $8.60 on 1.83 million shares, up $0.01 from Wednesday’s close of $8.59.

Technically, DLM is down from its recent high of $12.94 on July 13, 2007 and has been drifting down ever since. In May and June, DLM suffered from large one-day drops, sending the stock in a downward spiral. So far, DLM recovered, but on Thursday, it formed a bearish gap up, which is one of my favorite patterns to short. The likelihood of a decline from this point is extremely high. Anyone that wants to short can hold a position till it reaches the 50-day MA at $8.20. Going long is ill-advised.

FLE – On Thursday, August 28 pre-market, Fleetwood Enterprises Inc. (FLE) reported a loss of $0.42 ($0.41 cont. op) per share or $29.1 million vs. a loss of $0.04 per share or $2.3 million. $0.01 was due to discontinued operations. Revenue fell to $289.9 million from $488.3 million, down 41% vs. a year ago. Analysts expected a loss of $0.18 per share on $346.8 million in revenue, missing expectations more than double.

Technically, FLE is still in a primary downtrend and currently testing the $2 support level. Any break down below $2 warrants a short and a break out above $2.80 would be considered a “cautious” long on a double-bottom. FLE has failed the 50-day numerous times and the MA remains a valid resistance point.

THIS WEEK’S WATCH:

Economic Reports: Tues. (ISM Manufacturing, ISM Prices Paid, Construction Spending), Wed. (Total Vehicle Sales, Weekly Retail Sales, Beige Book, Factory Orders, Weekly MBA Mortgage Applications, Thurs. (Weekly EIA Inventory, ADP Employment Change, Non-farm Productivity, Unit Labor Costs, Initial Jobless Claims, ISM Non-Manufacturing, ICSC Chain Store Sales), Fri. (Non-farm Payroll Change, Unemployment Rate, Average Hourly Earnings)

Noteworthy Earnings Reports: Tues. (AVA, DHT, MATK), Wed. (CWST, CASY, PSS, GES, HRB, HOV, ISLE, JOYG, NCS, SAI, SPLS, UNFI), Thurs. (ABM, ADCT, CRMT, BRLI, BTH, CAE, CIEN, COO, FCEA, JOSB, MDZ, MOV, PEC, TTWO, TOL, ULTA, UTIW, WIN), Fri. (NSM, PTI, SCMR)

Full Disclosure: None at this time.

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

(click on chart to enlarge)

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

*For fundamental-related articles, please visit: http://seekingalpha.com/author/john-c-lee

WEEKLY COMMENTARY - AUGUST 11th-15th

MARKET COMMENTS -- INDU 11,734.32, COMP 2,414.10, SPX 1,296.31

The major indices are currently in a secondary reaction rally, coming off of short-term oversold levels. However, the rallies themselves are moving on weaker volume compared to the capitulatory volume seen during the recent sell off. This is cause for concern since low-to-average volume on a pullback in a downtrend is considered bearish. Other points of warning are the resistance levels indicated at the 50-day MA as well as the January and March lows for the DJIA and SPX. The COMP is performing the best as the index has tested its March lows in addition to penetrating the 50-day MA. However, all three are subject to a test at the upcoming 200-day MA, which has acted as resistance in May.

The MACD does not yet indicate any negative divergence to suggest that the rally may end. The current rally is in a confirmed uptrend. The stochastics, having jumped from a near oversold level of 20 to a near overbought level of 80 in one week suggests that the move has occurred to fast in too short of a timeframe. Traders should especially watch if the rally loses momentum and the stochastics are returning to the median value at 50. Any instrument is deemed to be overbought once the RSI reaches the 70 level. This level has not been breached by the major indices; however, they are all approaching that level. Be aware of these indicators to determine if a divergence has occurred or to confirm a reversal in the current trend. (Click on charts to enlarge)

All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmont Washington. All Rights Reserved.

We ultimately expect the rally to exhibit the characteristics of a secondary reaction in a primary leg down. Since the primary trend is down, this is considered a counter-trend move. It is no doubt that the recent SEC announcement on naked short-selling helped provide the fuel to spike a rally. However, due to lower volume on a weak rally, there appears to be less conviction in serious buyers. The VIX indicator shows that the general level of fear has subsided with a minor support level at 18, and a major support level at 16. In addition, the INDU, COMP, and SPX are all facing numerous resistance levels at both the major moving averages as well as previous lows. This may be a difficult rally for the bulls.

For the short-term, both the INDU and the SPX formed ascending triangle patterns, both of which broke out to the upside on weak volume. The COMP continues to breakout, but again, also on weak volume. This indicates that the buyers are still not yet convinced of the rally. Many buyers who incorrectly bought during the last short-lived rally fit into this category. There is still upside potential, however, the risk are greater due to the fact that the rally has reached a later stage near major resistance levels.

Emphasized are the Advance-Decline lines and the New Highs-New Lows lines for the NYSE and the NASDAQ (COMP). The best clues come from any divergences from the indices. The most interesting divergence occurs with the COMP and their respective A-D and H-L lines. Even though the COMP is the best performing index, the individual issues as a whole do not show the same support. What these lines reflect are far significant than what the index is saying and that any buying must be done so cautiously. (Click on charts to enlarge)

All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmont Washington. All Rights Reserved.

THE US DOLLAR, GOLD/SILVER, OIL/NATURAL GAS, AGRICULTURE, INTEREST RATES

(Click on charts to enlarge)

All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmont Washington. All Rights Reserved.

The US Dollar has shown many positives as the USD Index has not only broken through major resistance at the 200-day and the Nov/Jan lows, but has broken out to a new 5-month short-term high. As the USD re-enters into congestion, we expect either a false breakout and a return into the 71-74 range OR a pullback to the 74-75 range, where the USD will most likely make a new high. The short-term trend is bullish. The intermediate trend is in a neutral range, and the long-term trend is bearish.

Both gold (AMEX: IAU) and silver (AMEX: SLV) are still in a trading range, consolidating for many months. Currently, both commodities ETFs have penetrated the 200-day MA. Gold is testing major support at 85, while silver has already broken down vis breakaway gap, by violating major support at 16. It is likely that gold will follow suit.

A divergence can be seen between oil (AMEX: USO) and natural gas (AMEX: UNG). It is extremely likely that oil will follow in natural gas’ footsteps due to the definite break in the uptrend in the same period. The USO has broken the 40-day MA (not shown), which it followed religiously, the 50-day MA, and is nearing support at the 200-day MA. We expect a bounce of unknown magnitude due to the oversold indication of oil. However, it is clear that the trend is broken and the primary trend has reversed to the downside. The UNG, in classic bubble fashion, saw a precipitous decline about 70% faster than at the rate at which it climbed. We believe that the UNG will trade in a range following removing the excesses that started at the beginning on 2008. Both oil and natural gas are bearish in the short-term, neutral-to-bearish in the intermediate-term.

Agricultural commodities (AMEX: DBA), as a whole, are in the early stages of a downtrend. After trading in a range, the DBA reached the Feb high level, and broke down back into the range as well as breaking the 200-day MA. We expect to see a pullback rally exiting the oversold area and resuming its downtrend. The next support level is at around 30. At the failure at that level, there are no other major support levels remaining down to the 24 level.

Both the 30-year and the 10-year Treasury yields have been consolidating below resistance and are currently trading in a range. The fact that both yields were unable to break above the June high gives weight to the likelihood that both yields have started a downtrend. We expect continued whipsawing around the 200-day MA for both yields.

SELECTED INTERNATIONAL MARKETS

Brazil (NYSE: EWZ) has been in a long uptrend until the trend broke as it broke through the 200-day MA. In addition, a lack of follow-through in pushing itself back up above the 200-day confirms that a reversal has taken place. We expect the EWZ to enter into a downtrend or trade in a neutral range for several months. The same may be true for Hong Kong (NYSE:EWH) as it is currently in a consolidation phase, testing both support and resistance. A break above 17 indicates a bullish breakout while a break to 15 indicates a bearish breakdown.

(Click on charts to enlarge)


All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmont Washington. All Rights Reserved.

Japan (NYSE: EWJ) has currently broken support between the 11.50-11.75 level. We expect Japan to continue in its downtrend OR pullback and trade in a neutral range. We expect Mexico to breakdown below 52 immediately. The current consolidation pattern highly favors a continuation downward. Any break above 56 indicates a bullish breakout while a break to 51 indicates a bearish breakdown.

SELECTED INDUSTRY GROUPS

(Click on charts to enlarge)




All Charts Courtesy of Stockcharts.com. Copyright ©1999-2008 by StockCharts.com Inc., Redmont Washington. All Rights Reserved.

This Week’s Watch:

• The market and its industry groups will test the 50-day and/or the 200-day MA. Note successful and failed tests.
• Note any increases in volume (if any) on positive days during the current rally.
• Note any additional divergences between the indices and the Advance-Decline and New Highs-New Lows lines.
• Expect the US Dollar to maintain an uptrend.
• Expect agricultural and energy commodities to continue its downtrend.

Economic Reports of interest: Tues. (Trade Deficit, IBD/TIPP Economic Optimism, Monthly Budget Statement, Retail Sales), Wed. (MBA Mortgage Applications, EIA Energy Inventory, Import Price Index, Advance Retail Sales, Business Inventories), Thurs. (CPI, Initial Jobless Claims), Fri. (Empire Manufacturing, Net Long-term TIC Flows, Industrial Production, Capacity Utilization, Univ. of Mich. Consumer Confidence).

Noteworthy Earnings Reports: Mon. (CNO, SYY, CPN, COO, FLR, MDR, CUZ, CKEC, NUAN), Tues. (BE, TJX, BOBE, NVDA, AMAT), Wed. (LIZ, DPS, NTAP, IPI, DE, M), Thurs. (URBN, RRGB, KSS, A, EL, SJM, WMT, JWN, DV, BGG, ADSK), Fri. (ANF, JCP).

To request additional research, please contact the author personally at: JCLee84@hotmail.com.