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Bob Coppo
Week on Wall Street

The Week on Wall Street

Friday's Action:   Stocks finished higher Friday, led by Intel's upbeat sales forecast and a strong May employment report. Adding to the positive news was a second day of declining oil prices, with light crude futures closing below $39 per barrel. Major world markets reported higher results on Friday. London's FTSE closed up 0.43%; Frankfurt's DAX closed up 1.14%, and Paris' CAC 40 finished higher by 1.22%. Japan's Nikkei closed up 0.92%, Hong Kong's Hang Seng closed up 0.78%, and Sydney's All Ordinaries finished up 0.03%. In economic news, Non-farm Payrolls in May rose by 248,000 jobs, the Unemployment Rate held steady at 5.6% and Hourly Earnings showed a gain of 0.3%. Volume came in at 1.12 billion shares traded on the NYSE and 1.43 billion shares traded on the Nasdaq. Market breadth was positive, with NYSE advancing issues over declining issues by 1.95, and up volume over down volume by 3.02; Nasdaq advancing issues over declining issues by 1.95, and up volume over down volume by 3.34. Leading sectors were Gold/Silver, +1.97%, Airlines, +1.93% and Broker/Dealers, +1.88%. Laggards were Integrated Oils, -0.53% and Natural Gas, -0.03%. Nasdaq 100 futures closed 13.50 pts higher to settle at 1456.50, while the S&P's settled up 8.30 pts at 1123.20.

Weekly Recap:   Stocks finished the holiday-shortened week on a mixed note, despite a number of positive developments. Those included an announcement by OPEC that it will increase its output to help reduce oil prices, strong same-store sales for May, a better than expected mid-quarter forecast from Intel, and a May employment report that pointed to an improving labor market. Other upbeat news on the economic front included the ISM Manufacturing Employment Index, weekly initial jobless claims, the ISM Services Index, and auto and truck sales, all of which provided evidence of a strengthening U.S. economy.

Despite the positive tone of the economy, there wasnt much conviction on the part of buyers. Volume at the NYSE averaged an anemic 1.2 bln shares for the week. Even Fridays robust jobs report failed to inspire investors, as the volume accompanying the advance was the lightest all week. Traders remained skeptical of rising interest rates and geopolitical considerations. Both items served as deterrents last week, with the yield on the 10-yr note rising 12 basis points to 4.77% and terrorists murdering 22 foreign oil industry workers in Khobar, Saudi Arabia. The latter occurred over the holiday weekend and led to a rally in the energy market where crude oil futures hit a new record high on Wednesday of $42.45/bbl.

For the week, the Dow gained +0.5%, the S&P 500 finished +0.2% higher, while the Nasdaq slipped -0.4%. The small cap Russell 2000 fell -0.1%. Next week, both the economic and earnings calendars are rather limited. Trading volume is expected to pick up somewhat, but is likely to remain below average as the summer vacation season gets underway.

The Housing Bubble:   Last Wednesday's MBA Mortgage Applications Survey was not a particularly bullish report for the housing market. The MBA index for mortgage applications declined by 1.2% to 624.6, led by a decline in the refi index. The purchase index increased modestly. Mortgage rates declined slightly, but remain well above where they stood a few weeks ago, softening the overall demand for mortgages. Mortgage interest rates are expected to rise further, slowing the housing market in the coming quarters.

But to put the above report in perspective, the chart below indicates that real residential investment has jumped far above both its historical trend and its cyclical channel, suggesting that a bubble exists in residential real estate. The data for this chart stop at the beginning of 2003, but we know investment in housing increased by 8.8% last year. This is a historically high rate of construction, but far from a record rate increase. However, 2003 marks the ninth year in a row that housing investment was positive, the first time that has ever occurred in the history of the statistic.

The US housing bubble appears similar to Japan's real estate bubble of a few years ago. Japan had a stock market bubble in the 1980s that was very similar to the U.S. stock market bubble of the 1990s. As the Japanese stock market started to burst, the real estate market continued to bubble. Japanese real estate prices rose for almost two years after the stock market crashed, with prices staying above pre-crash levels for more than five years. The boom in home construction continued for nearly six years after the stock market crash. Since the real estate bubble peak, prices for Japanese commercial, industrial, and residential real estate continue to fall and are now below 1985 levels. The prospect of higher interest rates in the US could well trigger a similar bubble burst in the U.S. real estate market, resulting in foreclosure sales, bankruptcies and mortgage bank failures.

More on SMT's Market Trend Indicator:   Last week's spotlight on our Market Trend Indicator (MTI) resulted in a flood of inquiries requesting more detail. The graph below shows the intermediate term trend of the general market (MTI). The trend is determined by the slope of the blue line shown on the graph. Changes in trend direction are indicated when the blue trend line crosses over the red moving average line.

The Dominant Market Cycle (DMC) is shown at the bottom of the graph. Cycle lengths are calculated from top to top and from top to bottom. The DMC is useful in predicting the next trend change date. Trend changes may also occur around half cycle dates.

Key Reversal Points are shown as circles on the line graph. Key points will often act as important support and resistance levels.

The MTI has consistently out-performed a buy-and-hold strategy. The indicator is updated daily and is available to subscribers of our Basic Service. To learn more about the MTI and the other features included in this service, click HERE.

The COT Report:   The latest Commitments of Traders report from the CFTC shows that Commercial Hedgers bought some 5,000 S&P 500 futures contracts last week to bring their net short position to -15,016 contracts. Large Traders remained net short -42,501 contracts, with the entire offsetting net long position of +57,517 contracts held by Small Traders, the so-called "weak hands". For the Nasdaq 100 futures, Commercials bought some 2,900 contracts to bring their net long position to +25,160 contracts. Small Traders were net short -20,270 contracts in the Nasdaq. Commercial action in Dow futures saw the smart money buy some 50 contracts to bring their position to net short -996 contracts.

Commercial Hedgers were better buyers in the S&P's last week but remained net short, while Small Traders increased their net long position. For the intermediate term, their opposing positions should be considered bearish.

Sentiment Surveys:   The latest Investors Intelligence survey showed that the percentage of bullish newsletter writers came in at 45.1%, while the percentage of bears was 24.5%. The bullish ratio (bulls/bulls +bears) was 64.8%.

The latest AAII survey showed a decrease to 33% bulls, and a decrease to 27% bears. The bullish ratio came in at 55%, while the 4-week moving average is 48%. One thing to note about the AAII survey is that, while membership in this organization is quite large as investor groups go, the number of members that actually participate in the survey is very small. Thus, large fluctuations in survey results from week to week are not uncommon.

The latest Market Vane survey came in at 63%, indicating that the majority of commodity trading advisors (CTA's) remain bullish on the future direction of the S&P's.

The Short Term Outlook; 1-5 Days:   We said in Thursday night's column that the odds favored making lower lows on Friday, but the S&P's had a better chance of closing higher on the day. The S&P's gapped up at the open on the favorable jobs report and did close higher. Friday's price action was mixed, so we don't have a clear directional bias for Monday. Buyers were unable to hold the line Friday, and we saw the Naz make an intra-day reversal, closing on it's low for the day. That's a short-term bearish sign. In fact, trading was much less impressive than the closing numbers indicated. Volume was extremely light on both the NYSE and the NASD. Usually, an emerging up-trend will move on increasing volume, and that isn't happening, at least so far. Both the SPX and the NDX topped out Friday at trendline resistance before settling lower at the close. The daily stochastics lines are rolling over from overbought territory, suggesting that the path of least resistance is to the downside.

SMT's Pivot Point Forecast; 1-2 Weeks:   Our Pivot Point RS indicator is currently on a SELL signal. Our next Pivot Point is forecast to occur on or near June 4th.

The 60-min SPX chart below shows that the StochRSI indicator is in the NEUTRAL zone. For Monday, resistance for the S&P's comes in at 1130.50 and then 1137. Support lies at 1116.50 and then 1109. For the Naz, resistance comes in at 1465.50 and then 1479. Support lies at 1446.50 and then 1441.

The Intermediate Term Outlook; 2-6 Weeks:   The Risk Aversion Indicator, represented by the NDX:Dow Ratio, has been a good forecaster of the general market trend over the last couple of years. As the chart below shows, the ratio crossed below its 70-day exponential moving average at the end of January, coinciding with the year-to-date high for the Nasdaq Composite on Jan 26th. The slope of the EMA has now turned flat however, confirming the trading range the market has been locked in over the last three months.

Our Market Trend Indicator (MTI) is currently positive and trended slightly higher on Friday.

Good Trading!

Charts and data appearing in today's column are courtesy of:
StockCharts.com

Have you traded any of our recommended plays along the way? We'd love to hear from you and how you did. Please send your stories to comments@talkingpoints.com.

Jeff Neal
Tech Watch

New Chip Sales Momentum a Boon for the Semiconductor Sector

By Jeff Neal
Optionetics

Recent sales data released by the Semiconductor Industry Association showed better-than-expected numbers in the chip arena. Revenue generated by semiconductor sales in the first quarter increased more than 34 percent from the previous year and it even showed an improvement from the fourth quarter of last year, which is really significant considering that the fourth quarter represents holiday sales typically the heaviest of the year. This indicates a definite increase in business spending which is indeed great news going forward for the semiconductor industry.

The forecast for the rest of 2004 seems to be even rosier with personal computer sales to increase 15 percent over the 2003 figures. The numbers for cellphone and DVD sales are also to increase at a 16 percent and 35 percent clip respectively according to the Semiconductor Industry Association. The increases are primarily attributed to a higher level of corporate spending even though consumer spending still remains strong.

The key fact is that after years of depressed business spending levels we are finally seeing an uptick. A recent information technology poll found most IT executives plan to expand their technology budgets almost 7 percent on average for 2004. The target of much of this spending will be personal computers and other electronic devices fueling further growth for the chip sector. This current growth is further evidenced by the fact that semiconductor plants are operating in excess of 92 percent capacity. This is a huge improvement from the dismal 60 percentile numbers seen previously at the bottom of the business cycle. This also indicates that semiconductor sales are terrific for all segments of the industry.

Economists also have taken note of the good news related to increased chip sales. They have historically considered semiconductor sales a great measuring stick for technology spending due to the fact that semiconductor components are found in virtually every electronic device. This is why this important data is monitored regularly to forecast corporate spending and determine current trends.

Many major technology companies has seen their first quarter earnings exceed expectations leading other sectors. For example, non-tech companies saw a revenue increase of around 14 percent while technology companies posted an average just over 21 percent, according to Zacks Investment Research. This has prompted many chip industry experts to say that the renewed technology spending will start a new prosperity cycle.

Of course there are still major economic issues that still loom large on the horizon and have the potential of raining on the parade. One such concern is the ongoing conflict in Iraq which generates an environment of uncertainty which consequently makes many business executives nervous and could deter spending. In addition, the ongoing chatter about inflation, which if it shows signs of getting out of hand will certainly spur interest rate hikes which, could dampen economic growth. Finally, there is always the risk that the chip sector becomes overly confident and increases inventories way beyond needed levels especially given the cyclical nature of many semiconductor companies.

However, as of now, the chip sector indeed appears to have a very healthy 2004 to look forward to. This includes the major blue chip semiconductor companies such as Intel to the small to mid-cap firms like Skyworks. Each type of company should profit handsomely in 2004 especially if corporate spending hits the forecasted levels.

Happy Trading.

Each week, Mr. Swing analyzes his database of more than 9,200 securities to scan for swing trading opportunities. But be warned: Do not expect a fast way to make money. Mr. Swing is going to show you how you can accumulate small gains weekly, ultimately making money through a disciplined, low-risk trading approach. While he realizes that this short-term swingtrading approach is not for everyone, he hopes that the information given at MrSWING.com will be useful to you in the near future...

Larry Swing MrSwing.com

These are your Swing Trading Opportunities for this week: Talking Points member - Over the nearly two years that we have carried the Mr. Swing's Place column, Larry's picks have consistently put in great performances. Don't miss out on the full swing-trading content available at Mr. Swing.com. Take advantage of some of the great programs available by clicking here. Long Swings: bullish   SWINGS ^ click here BSX,Boston Scientific IWM,iShares Russell 2000 Index Tr GLW,Corning Inc RHAT,Red Hat Inc ASKJ,ASK Jeeves MAV20 >=500000 AND CLOSE>12 AND FORCE3<= 0 AND FORCE13>=0 AND ADX10>30 AND HIGH < HIGH1 and HIGH1 < HIGH2 AND CLOSE > SMAC10 and CLOSE > SMAC20 Short Swings: bearish what is short selling? SWINGS ^ click here T,AT&T Corp VZ,Verizon Communications MAV20 >=500000 AND CLOSE>12 AND FORCE3>=0 AND FORCE13<=0 AND ADX10>30 AND LOW >LOW1 and LOW1 > LOW2 AND CLOSE < SMAC10 and CLOSE < SMAC20 WINDOW ^ click here BSX,Boston Scientific RIMM,Research in Motion NVLS,Novellus Systems UTSI,UTStarcom Inc GILD,Gilead Sciences MAV20 >=500000 AND CLOSE>7 AND ADX10 > 30 AND PDI10 > MDI10 AND HIGH < SMAC5   WINDOW ^ click here T,AT&T Corp ADM,Archer-Daniels-Midland MAV20 >=500000 AND CLOSE>7 AND ADX10 > 30 AND PDI10 < MDI10 AND LOW > SMAC5 1-2-3-4 ^ click here BSX,Boston Scientific RHAT,Red Hat Inc QLGC,QLogic Corp DNA,Genentech Inc IMCL,ImClone Systems MAV20 >=500000 AND CLOSE>12 AND ( ADX10+ ADX20)/2 > 30 AND ( PDI10+ PDI20)>( MDI10+ MDI20) AND LOW< LOW1 and LOW1< LOW2 AND HIGH< HIGH1 and HIGH1< HIGH2   1-2-3-4 ^ click here T,AT&T Corp SYMC,Symantec Corp ADM,Archer-Daniels-Midland BLTI,BIOLASE Technology MAV20 >=500000 AND CLOSE>12 AND ( ADX10+ ADX20)/2 > 30 AND ( PDI10+ PDI20)<( MDI10+ MDI20) AND LOW> LOW1 and LOW1> LOW2 AND HIGH> HIGH1 and HIGH1> HIGH2 CROSS ^ click here IWM,iShares Russell 2000 Index Tr RHAT,Red Hat Inc AA,Alcoa Inc FCX,Freept McMoRan Copper&GoldB DOW,Dow Chemical MAV20 >= 500000 AND CLOSE >12 AND SMAC5 > SMAC15 AND CLOSE < SMAC5 AND CLOSE > SMAC15 AND HIGH<HIGH1 AND CLOSE > OPEN   CROSS ^ click here ADP,Automatic Data Proc MYL,Mylan Labs CPB,Campbell Soup CZN,Citizens Communications QLTI,QLT Inc MAV20 >=500000 AND CLOSE>12 AND SMAC5< SMAC15 AND CLOSE> SMAC5 AND CLOSE < SMAC15 and LOW > LOW1 and CLOSE < OPEN REVIVAL ^ click here BNI,Burlington Northn Santa Fe KMG,Kerr-McGee CKFR,CheckFree Corp KROL,Kroll Inc MDG,Meridian Gold MAV20 >=500000 AND CLOSE>12 AND (CLOSE1 - LOW1) <= 0.1 * ( HIGH1- LOW1) AND ( CLOSE - LOW) >= 0.95* ( HIGH- LOW) AND CLOSE > SMAC15 AND CLOSE > SMAC50   REVIVAL ^ click here 0 MAV20 >=500000 AND CLOSE>12 AND( CLOSE1 - LOW1) >= 0.9 * ( HIGH1- LOW1) AND ( CLOSE - LOW) <= 0.1 * ( HIGH- LOW) AND CLOSE< SMAC15 AND CLOSE < SMAC50 REVERSE ^ click here 0 MAV20 >=500000 AND CLOSE>12 AND HIGH2 > HIGH1 AND HIGH1 > HIGH AND LOW2 > LOW1 AND LOW1 > LOW AND CLOSE2 <= OPEN2 AND CLOSE1 <= OPEN1 AND CLOSE >= OPEN AND VOLUME>1.5* MAV20   REVERSE ^ click here 0 MAV20 >=500000 AND CLOSE>12 AND HIGH2 < HIGH1 AND HIGH1 < HIGH AND LOW2 < LOW1 AND LOW1 < LOW AND CLOSE2 >= OPEN2 AND CLOSE1 >= OPEN1 AND CLOSE <= OPEN AND VOLUME>1.5* MAV20 TRIANGLE ^ click here ERES,eResearchTechnology Inc CEPH,Cephalon Inc LNC,Lincoln Natl Corp PAAS,Pan Amer Silver FAF,First American MAV20 >=500000 AND CLOSE>12 AND CLOSE> SMAC20 AND HIGH2 > HIGH1 AND HIGH2 > HIGH AND LOW2 < LOW1 AND LOW2 < LOW AND HIGH1 > HIGH AND LOW1 < LOW   TRIANGLE ^ click here CAG,ConAgra Foods MAV20 >=500000 AND CLOSE>12 AND CLOSE < SMAC20 AND HIGH2 > HIGH1 AND HIGH2 > HIGH AND LOW2 < LOW1 AND LOW2 < LOW AND HIGH1 > HIGH AND LOW1 < LOW BREAKOUTS ^ click here JBHT,Hunt(J.B.)Transport SHFL,Shuffle Master NUTR,Nutraceutical Intl ITRI,Itron Inc LACO,Lakes Entertainment MAV20 >=200000 AND CLOSE>7 AND HIGH>=MAX40 and HIGH1 <> MAX40_1 AND VOLUME>1.5 * MAV20 AND CLOSE > OPEN AND VOLUME1 < MAV20 and ( ( CLOSE - LOW ) ) >=0.75*( HIGH - LOW )   BREAKDOWNS ^ click here MDCO,Medicines Co ETH,Ethan Allen Interiors MAV20 >=200000 AND CLOSE>7 AND LOW<=MIN40 AND LOW1<> MIN40_1 and VOLUME>2*MAV20 AND CLOSE < OPEN AND VOLUME1 < MAV20 and ( ( CLOSE - LOW ) ) <=0.25*( HIGH - LOW) REVERSALS ^ click here RDEN,Elizabeth Arden MYGN,Myriad Genetics MAV20 >=200000 AND CLOSE>12 AND LOW <= MIN40_1 AND VOLUME>2* MAV20 AND CLOSE > OPEN   REVERSALS ^ click here 0 MAV20 >=200000 AND CLOSE>12 AND HIGH >= MAX40_1 AND VOLUME>2* MAV20 AND CLOSE < OPEN REVIVAL (Track1) + REVERSE (Track2) + TRIANGLE (Track3) are different scans developed by MrSwing. Try for yourself to find the LIST that fits you the BEST... Tracks, Breakouts & Reversals are explained in our new section called: SWINGLAB... REVIVAL (Track1) + REVERSE (Track2) + TRIANGLE (Track3) are different scans developed by MrSwing. Try for yourself to find the LIST that fits you the BEST... Tracks, Breakouts & Reversals are e explained in our new section called: SWINGLAB... FBN (Short) - Chart of the Week Larry Swing Furniture Brands International Inc. has been selected as one of my top (short) swing ideas for this week. To reduce your capital outlay and increase your leverage, I recommend buying this Company’s put options to maximize short-term profitability. Please read on for more swing details…        Furniture Brands International Inc. (NYSE:FBN) Industry: Consumer Cyclicals   Sector: Furniture & Fixtures  Employees: 20,250  Market Cap: 1.42 Billion Institutional Ownership: 95.0% Insider Ownership: 9.55% Shares Issued & Out: 56.1 Million Present Short Position: 2.25 million Recommended Option Swing Play: Company Information: www.furniturebrands.com Option Information: www.optionsxpress.com Option Symbol: FBNRE   Type: PUT   Exchange: AMEX Strike Month: JUNE 2004   Strike Price: 25.00 Swing Trade Information: Trade Strategy: Buy Put Options (Short-Term : Bearish) Trade Targets: Common (5%) / Option (50%+) Trade Composition: 40 % Technical / 60 % Fundamental Trade Duration: 1 to 7 trading sessions Risk/s: strong market rally; pre-mature short covering; sector (broad) short covering Entry Strategy: Buy FBNRE When FBN Trades Below $24.50 I recommend that traders buy the put options (symbol:FBNRE) when the underlying common stock (symbol:FBN) trades below $24.50. Exit Strategy:  Sell FBNRE When FBN Trades Down 5% I recommend that traders close out their put option positions once the underlying common (FBN) trades down 5% from your opening position. My short-term target on this stock is $22.65; mid-term $20.14.   “If” FBN gaps lower on market opening Friday June 4th., wait for short covering in first 15 minutes then initate your put option positions. You should be buying your put option positions on price strength, about 15-30 minutes after market opening. Stop-Loss: Place a 3% Mental Stop-Loss Limit: (Based On The Common ) If the common stock rises 3% above the equivalent entry price of your options, I recommend selling all of your options “at market” to minimize losses. Note: You should move your mental stop loss down as the common stock falls. The best way to protect your intra-day profits and minimize potential loss, is to keep your stop-loss about 3% from the common’s intra-day low price. Urgent: Don’t forget to write down the equivalent entry and target price for the underlying common stock, as soon as you purchase your options. It is much easier for novice option traders to buy or sell these options based strictly on the price or movement of the underlying common stock. Risk/s strong market conditions; sector price strength   Need More Help: *also see Larry’s trading tips at the bottom* Business Summary: Furniture Brands International, Inc. is a leading manufacturer (largest U.S. home furnishing manufacturer) of residential furniture in the United States. For the three months ended 3/04, Furniture Brands’ revenues rose 7% to $658.5 million, while net income rose 14% to $33.2 million. Revenues reflected improved results of Thomasville, Drexel Heritage and Henderson locations. The Company’s net income reflected lower interest expenses. Primary Trade Catalyst/s: 1. Company Warns On Q2 Guidance Furniture Brands (FBN) announced late Thursday June 3rd (after-hours) that they were lowering their revenue and earnings outlook for the second-quarter of 2004, citing substantially weaker demand at each of its six operating companies and identifying an industry-wide slowdown in consumer sales. Furniture Brands said they expect earnings per-share for Q2 to come in at 37 cents to 39 cents, down considerably from previous estimates and/or forecasts of 44 cents to 48 cents. These estimates include a $0.04 charge for closing of facilties.   "Notwithstanding the strong order activity in the first quarter