Fred Bremier | Quakertown, PA

Futures were higher across the board yesterday morning. That is until the CPI report came out at 8:30 a.m. Chief Economist Scott Brown, Ph.D. described the CPI report as: “The July CPI report was horrible. Headline and core figures were higher than expected, but there were a few special factors and energy price declines will show up in the report for August...” Consequently, the futures reversed direction and the DJIA (11615.93) was down a quick 82 points, its low for the day. However, since the market is giving us a good dose of the "Chinese Water Torture,“ as one observer stated, the “senior index” reversed course and was up 185 points pre-1:00 p.m. At the close, the DJIA gained 83 points; NASDAQ (2453.67) rallied 25 points. The NASDAQ 100 (NDX/1964.38), which really swings with the direction of its large-cap technology (growth) components, closed above its declining 200-DMA. While a close above the 200-DMA usually incites a lot of excitement, from my perspective it will be much more meaningful if and when, the 200-DMA starts to flatten out and then starts to rise. On the NYSE volume contracted to 1 billion shares. There were 865 net advancing issues and more new 52-week lows (72) than highs (25).

There has been a lot of “chatter” recently concerning weak overseas economic conditions (please refer to today’s Wall Street Journal). More importantly, here at Raymond James, in discussing this with Chief Economist Scott Brown, Ph.D., Scott told me that “Real GDP fell 0.2% q/q in the Euro area in 2Q08... Growth was negative in France (-0.3% q/q), Germany (-0.5% q/q), and Italy (-0.3% y/y). Earlier this week, Japan’s real GDP was reported to have fallen 0.6% q/q in 2Q08, up 1.0% y/y. On Wednesday, the Bank of England issued a cautious outlook.”

To lend further credence to this, following is a copy of the Baltic Dry Index. According to today’s Wall Street Journal, this index is “considered a good yardstick of commodity appetite and by extension, global economic growth.”

Consistent with this, lets’ look at some relative strength trends (ratio analysis) of the U.S. market, defined by the S&P 500 SPDR Exchange Traded Fund (SPY/$129.54) versus some foreign country Exchange Traded Funds. I am attempting to glean which area (domestic of international) should be over weighted and / or under weighted.

Here is a ratio trend of the SPY versus the EAFE Index (EFA/$63.58), which represents European, Australasian, and Far East markets. On a relative basis, the U.S market is the clear winner here.

Here is a ratio trend of the SPY versus the Claymore/BNY BRIC ETF (EEB/$42.85), which represents the area of Brazil, Russia, India, and China. While only marginally so, on a relative basis, I’d place a greater emphasis on the U.S. market.

Here is a ratio trend of the SPY versus the S&P Latin America 40 Index fund (ILF/$46.60). This is a tough call. From a longer-term perspective, on a relative basis, I think it is still 50-50 or maybe 55-45, in favor of the U.S. markets. A shorter-term perspective (not shown) favors the U.S. markets.

Here is a ratio trend of the SPY versus the MSCI Emerging Markets Index Fund (EEM/$40.91). On a relative basis, I would place a slightly greater emphasis on the U.S. markets.

Here is a ratio trend of the SPY versus the MSCI Canada Index Fund (EWC/$29.59). On a relative basis, I would place a slightly greater emphasis on the U.S. markets.

Conclusion:

Please understand what I am saying here. I am not saying that the U.S. market won’t decline. It will rally and pull back. What I am saying is that based on relative strength analysis, the odds favor that the U.S. markets will decline to a lesser degree than foreign markets and rally to a greater degree than foreign markets.

Thus, within the context of managing risk (“so what else is new, Art?”), in my opinion, the U.S. market is the market of choice.

Thursday Morning 08/14

“Like a DE in a headlight” (sorry since DE’s chart has been “broken” for months, I had to slip that in) Wall Street has been caught in a quandary with the financial complex since the middle of July. One camp says financial stocks have bottomed and one camp says they are still “value-traps.” Technically, while there are financial stocks that are exhibiting positive chart configurations, similar to how the stocks topped out in 2007, it is going to take months and months for this complex to rebuild sustainable underlying bases and work through all of the overhanging selling pressure that is in place. Please don’t misunderstand me, there will be trading opportunities. However, in terms of long-term outperformance, it isn’t going to happen for quite awhile. In terms of the 10 S&P macro sectors, those exhibiting the best long-term relative strength, versus the SPX are Consumer Staples, Healthcare, and Technology. Improving short-term relative strength is being exhibited by Consumer Discretionary and to a lesser degree, Industrials.

In terms of yesterdays tape action, the DJIA (11532.96) opened lower and after an intraday downgrade of GS, C, MS and LEH, the “senior index” was down approximately 180 points at worst. At the bell, the DJIA fell 109 points, or 0.94%. NASDAQ (2428.62) fell two points, or 0.08%. The S&P Small Cap 600 Index (SML) was up! Crude Oil and Gold, having both come down “in and around” important long-term moving averages (200-DMA for Crude Oil = $110.09, 300-DMA for Gold = $826.30) bounced sharply higher. On the NYSE volume expanded to 1.20 billion shares. There were 425 net declining issues, an excellent reading.

Conclusion:

I referenced the completion of some very short-term ascending triangle patterns a few days ago by the DJIA and SPX (1285.83). Unfortunately, as has been the case recently, there was very little follow through. What follow through there was, simply brought the indices back up into initial levels of selling pressure (resistance), which “turned them back lower.” Subsequently, the indices fell back below the breakout levels. I would classify the entire event (breakout, “turn back” at resistance and move below breakout levels) as “disappointing.” As long-time market observer and acquaintance, Dick Arms described it, “It is, overall, a very indecisive situation...”

I would agree with this description because I feel a bit indecisive. Consequently, until the major indices close above resistance / retracement levels or under support, tactically, I am going to suggest again being more cautious (cut losses, hedge, or take short-term profits), not negative, but cautious...indecisive.

DJIA resistance / retracement = 11867 - 11982, SPX = 1313 - 1328, NASDAQ = 2462.

Wednesday Morning 08/13

For the past few trading session “stocks” reacted favorably to lower Crude, not so yesterday. Additionally, a downgrade of DJIA component MCD, a downgrade of GS, further credit woes weighing heavily on the financials (JPM, BAC, AIG and C down 9.5%, 6.7%, 6.6%, and 6.5%, respectively) collectively, produced lower prices across the board. Options expiration this Friday may have also affected “things.” Net-net, the DJIA (11642.47) lost 140 points, NASDAQ (2430.61) fell 9 points. The financials, as defined by the Bank Index (BKX) and Broker-Dealer Index (XBD) acted terrible. On the NYSE volume contracted to 1.11 billion shares. There were 1042 net declining issues and once again, new 52-week lows (78) beat new 52-week highs (44).

“Demand destruction, schemand construction, yeah, yeah, yeah.” But who transports commodities? Following is a chart of the S&P Road and Rail Index (GSPRAR.ST). After “failing” at resistance the index experienced a high volume decline yesterday. Consequently, the chart configuration is transitioning from “positive to neutral” or if I wanted to be nice, from “positive to less positive.” In any event and yes I am aware that Mr. Cramer discussed this group yesterday, unless the resistance, just under 560, is taken out, I would be much more cautious towards the group, willing to hedge positions...just in case. The trend lines (see following chart) (support), which will marginally change each day, currently reside at 488 and 477.

Conclusion:

Based on its relative strength trend, versus the S&P 500 (see lower frame), since NASDAQ has been one of the better acting market indices, let’s take a look at the chart.

The bottom line is that based on its multi-month down trend line (resistance), NASDAQ stalled right where it should have. Its next test will be how it handles support, “in and around” 2350. Please use this accordingly.

Side note: Similar support (8/8/08 low) for SPX = 1262; for the DJIA it is 11388.

Tuesday Morning 08/12

The same guidepost that was helpful Friday was helpful yesterday. Specifically, the geopolitical turmoil over the weekend did nothing to help crude oil. With that “tell” and despite a lower open (the DJIA opened lower by 59 points), stocks rallied for the second consecutive day. As one person said, “the energy bears were stronger than the Russian bears.” Please recall that from a short-term perspective, one sign of a market that has an underlying bid to it is when it opens lower but closes higher! The DJIA (11782.35) gained 48 points while NASDAQ (2439.95) added 26 points. In reviewing a pure relative strength line in which the SPX is used as the benchmark, small-caps and NASDAQ, and to a lesser degree mid-caps, continue to outperform. On the NYSE volume expanded to 1.25 billion shares. Using the traditional figures, there were 783 net advancing issues. New 52-week highs (84) exceeded new 52-week lows (73). With the only problem being that the Oversold – Overbought Oscillator closed yesterday at plus 4.1 (plus 5.0 and higher is considered “overbought”), the stock market’s internal action yesterday was positive.

Speaking of the S&P 500 (SPX/1305.32), overhanging resistance, as defined by the index’s March lows (broken support now becomes resistance) and a 50% retracement of the May through July decline, is looming just above yesterday’s closing price. This range of selling pressure is between 1320 and 1328. Tactically, clients with short-term positions should scale sell and/or tighten stops, starting now and further as these resistance levels are approached!

It’s interesting to see some “leadership characteristics” (high volume moves to the upside, base breakouts) show up not just in a number of growth stocks but now in the consumer discretionary stocks. At the same time, commodity-related stocks continue to sell-off. Commodity-related stocks are extremely stretched to the downside, so much that some type of counter-trend snap-back rally is due. When this rally occurs, hedge, reduce, or sell into low volume rallies, especially if, as some people I have recently spoken to, you haven’t done any rebalancing of this complex!

Conclusion:

With Gold ($824.30) trading over $903, I shared the opinion recently that it would eventually “touch or get very close to doing so” its 300-DMA. At the time the 300-DMA was closer to $823. I didn’t expect it to happen so quickly, but I think this is the nature of the environment we must contend with.

Following is a chart of Gold going back to 2001, showing the nine previous times it has tagged this important moving average. With the 300-DMA currently at $825.20, today is number 10. Suffice it to say that Gold currently stands at an important support point.

Based on your clients’ objectives and ability to manage risk, please use it accordingly.

Monday Morning 08/11

Let me mention that I don’t believe in luck. I believe in hard work and that “things” happen for a reason. But since last Friday was 8/8/08 and the Olympics started Friday in Beijing at 8:08:08 p.m. and in light of the second 300 point gain by the DJIA in one week, one has to wonder. That said, under my short-term mantra that “reaction to news is often more telling than the news itself,” when Crude Oil ($115.20 - support = $110, as defined by a 200-day moving average and “previous reaction low point”) failed to rally despite all the geopolitical tension Friday, an excellent intraday guidepost was “there for the taking.” Having just listed support for Crude Oil, let me mention that Gasoline ($2.88) has support down around $2.80 and $2.65ish. If, as Chief Economist Scott Brown, Ph.D. suggests, you add $0.70 to these prices in order to discern retail prices (what you and I pay at the pump), Gasoline could conceivably come down towards the $3.50 to $3.35 range!

Consistent with the drop in energy prices Friday, the DJIA gained 303 points, NASDAQ added 58 points. While the SPX is still contending with its 50-DMA (resistance), currently at 1297.50, both the DJIA and SPX completed the short-term ascending triangle patterns discussed Friday, implying further upside probing! Meanwhile, the DJIA, NASDAQ and S&P Small Cap 600 Index (SML) all closed the week above their 50-DMA. The SML also closed above its 200-DMA. Since these moving averages are still declining, this can only be viewed as a short-term “positive.” On the NYSE volume contracted to 1.24 billion shares. There were 1601 net advancing issues. I was shocked to see 96 new 52-week lows Friday because that reading was above Thursday’s reading (95), a day when the DJIA fell 224 points.

I spend a lot of time discussing the SPX and DJIA (see the second paragraph). Consequently, lets’ change our focus to the S&P Small Cap 600 Index (SML). Shown on page two, is a chart of the SML. As the SML approaches an important “test”, many times when “markets” approach a significant resistance point (or support), they pause and /or pullback slightly below the important point before making another attempt to get through it. In other instances they push marginally above the important point and then pause or pullback.

An important test for the SML, again one of the strongest market proxies at this time, is upon us. Stay tuned, as this will be a “guidepost” going forward!

Company Name

Ticker

Priced as of

08/14/08

RJ&A Rating

(if Applicable)

American International Group

AIG

$22.82

Bank of America Corporation

BAC

$30.18

Outperform

Citigroup, Inc.

$18.08

Deere & Co.

$66.90

Goldman Sachs Group Inc.

$166.59

JPMorgan Chase & Co.

JPM

$37.81

Lehman Brothers Holdings Inc.

LEH

$16.20

McDonald`s Corporation

MCD

$63.60

Morgan Stanley

$40.64

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Weekly Technical Commentary by Art Huprich

Friday Morning 08/15

Conclusion:

Thursday Morning 08/14

Conclusion:

Wednesday Morning 08/13

Conclusion:

Tuesday Morning 08/12

Conclusion:

Monday Morning 08/11