Update: Week Ending January 18, 2014

by: Nasser Khraishi

The long awaited consolidation came, but it was not clear whether it was a one-day affair - Monday the 13th - as the charts suggest, or it is still going on, as my oscillators suggest. The consolidation is registering as a minor topping-off on the weekly charts, with actually the DJIA and the NASDAQ composite gaining for the week. The S&P 500 registered a minor loss for the week.

The most notable numbers for the week were the long-awaited retail numbers, which were above expectations, and the inflation numbers, with both the PPI and CPI scoring higher than expectations. The 5-year, 10-year, and 30-year bond rates all declined. Gold (NYSEARCA:GLD) continued its attempt to stage a reversal. Barring an unexpected event, I still think that both bond rates and gold will resume at one point, say 3-4 weeks from now, the inevitable march upwards for rates and downwards for gold.

The individual issues, on the other hand, were subjected to very interesting volatility that is reminiscent of the action I remember in the early 2000′s. You see, perceived winners are rewarded with undeserving rewards, and losers are punished with unwarranted demise. Start with the retail sector, where I am heavily vested and the group as a whole represents 1/4 of my trading set. The retail numbers were better than expected, and most pre-announcements were better than expected. Yet, it was a gruesome and punishing week for most, if not all, issues in that domain. Yes, the Michigan sentiment survey did come lower than expected, but overall the weekly initial claims were better.

The more interesting action was really in pharma, and in particular biotechnology, with the JP Morgan conference in San Francisco. Out of that group, Geron (NASDAQ:GERN) is in my trading set. In effect, again, none of the fundamentals or the prior knowledge changed, yet the stock suffered a double digit percentage drop, for what seemingly should be good - or at least benign - news. In effect, despite my feeling that the event was anti-climatic from the perspective of Geron's investors, it went to highlight what was repeated by many over many years: biotechnology investing is for the long term. Here you have a situation where if you were a momentum investor - on the long or the short sides - you could have been whipsawed on both sides, within a single week! On the other hand, if you were a long term investor, then the CEO's comments can only be construed to be that GERN is so confident of their product - Imetelstat - that they do not feel the pressure to either issue a secondary offering or to engage into a hurried partnership that shortchanges the investors. I view this as good news since my historic problem with small company investing has always been capital dilution. A pessimist should not have construed this weeks' event as more than a benign, non-event!

Similar violent action came to other sectors, and were attributed to earnings reports. Though, the responses in many instances were delayed or reversed. Look for instance, in the banking sector, at the price action for (NYSE:GS) and (NYSE:JPM) and you see what I mean. Caterpillar (NYSE:CAT), Intel (NASDAQ:INTC), and (NYSE:CSX) in my trading set showed erratic, earnings related behavior. On the other hand, the whole of the Manufacturing, Food, Drug and Agriculture group was showing uncharacteristic weakness.

The technology group highlighted Intel (INTC) and HP (NYSE:HPQ) as the most peculiar contrast of all. You see, both rose unexpectedly due to JPM's "leap of faith" comment relating to the PC Business, just to see INTC hammered due to a (somewhat) positive earnings reports. Pundits explained it as due to future outlook by Intel highlighting weakness in PC business. Now if you look at the 8% rise in HPQ and the JPM comments, you may get as confused as I do when I hear analysts and see bipolar market reaction. Mind you, INTC did climb for the week! A similar weekly action can be spotted in the rail and trucking business, where (NYSE:CNW), (CSX) and Norfolk (NYSE:NSC) are in my trading set. In particular, if you look at CNW and CSX you can see that bewildering gap up, followed by the post earnings update / release gap down.

My regular table for the indices follows.

Index/ETF Symbol and Name Daily 3-EMA-7 Weekly 3-EMA-7 Perceived Trend
SPX S&P 500 Index Up Up Neutral
DJIA Dow Jones Industrial Average Up Up Positive
COMP NASDAQ Composite Index Up Up Positive
GLD SPDR Gold Trust ETF Up Down Positive
VIX CBOE Volatility Index Down Down Negative
FVX CBOE 5 Year Treasury Note Yield Index Neutral Up Negative
TNX CBOE 10 Year Treasury Note Yield Index Down Up Negative
TYX CBOE 30 Year Treasury Bond Yield Index Down Up Negative

As usual, the reminder is that the movement of the treasury yields is negatively correlated with the price of the underlying instrument.

As for my trading set, my short term "Perceived Trend Oscillator" stood at a "neutral" -8%. This is in contrast of the "neutral" reading of 25% in the previous week. Here it is worth mentioning that it actually bottomed at a "sold" -38% on Monday, the 13th.

As you can see from the table below, I am more vested in the market this week than last, even though there were not many fresh signals during the week, but it seems all were in the technology sector. I am guessing that this is a delayed response to the CES event.

The full trading set table is as follows.

Symbol and Company Name Daily 3-EMA-7 Weekly 3-EMA-7 Perceived Trend Is a Current Holding?
GERN Geron Corporation Down Up Negative Yes
JPM JPMorgan Chase & Co. Up Up Neutral Yes
GS The Goldman Sachs Group, Inc. Up Up Neutral
WFC Wells Fargo & Co. Up Up Positive
NLY Annaly Capital Management, Inc. Up Down Positive
MO Altria Group, Inc. Down Up Negative
T AT&T Inc. Down Down Negative Yes
VZ Verizon Communications Inc. Down Down Neutral Yes
GPS The Gap, Inc. Down Down Negative Yes
ANF Abercrombie and Fitch Co. Up Down Neutral
JWN Nordstrom, Inc. Down Up Negative Yes
TGT Target Corporation Down Down Negative Yes
DIS The Walt Disney Company Neutral UP Negative
MCD McDonald's Corp. Down Down Negative Yes
MDLZ Mondelez International, Inc. Up Up Neutral
BA The Boeing Company Up Up Neutral
LMT Lockheed Martin Corporation Up Up Positive
CAT Caterpillar Inc. Up Up Positive Yes
DE Deere & Company Neutral Up Neutral Yes
EMR Emerson Electric Co. Up Up Neutral Yes
DOW Dow Chemical Co. Neutral Up Neutral Yes
ADM Archer, Daniels, Midland, Co. Down Up Negative
MON Monsanto, Co. Down Up Negative
POT Potash Corp. of Saskatchewan Inc. Up Neutral Positive
PFE Pfizer Inc. Neutral Up Positive
BMY Bristol-Myers Squibb Company Up Up Neutral
ABC AmerisourceBergen Corporation Up Up Neutral Yes
AAPL Apple, Inc. Down Up Neutral Yes
INTC Intel Corporation Up Up Positive Yes
CSCO Cisco Systems, Inc. Up Down Positive Yes
HPQ Hewlett-Packard Company Up Up Positive Yes
CVX Chevron Corporation Down Neutral Negative
BP BP plc Up Up Neutral
NGG National Grid plc Up Up Neutral
NI NiSource, Inc. Up Up Positive
WMB Williams Companies, Inc. Up Up Positive
WM Waste Management, Inc. Down Up Negative Yes
CNW Con-way Inc. Up Neutral Neutral Yes
CSX CSX Corp. Neutral Up Negative
NSC Norfolk Southern Corp. Neutral Up Negative Yes

Disclosure: It is important that you understand and agree that all information provided in this newsletter rely on publicly available data and tools with no guarantees of quality or suitability for any purpose, and that I can be long or short in any of my trading-set equities, at any time, with or without regard to indicated trends and described analytics, and that I do not give buy or sell or any other financial recommendations, and that any and all actions based on this commentary are solely the responsibility of the reader.