Update: Week Ending January 25, 2014

Includes: DIA, QQQ, SPY
by: Nasser Khraishi

This was a shortened week, and I know many long investors are thankful for that. After all, it was a tough week. As mentioned in last week's summary: "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."

Well the jury came back with a preliminary decision, and it is that the consolidation continued and it is now official. Mind you, the separation of the three indices continued, with the DJIA being the more corrected than the S&P 500 or the NASDAQ Composite. This was true for most of the week, till more or less Friday. Further, the Composite dipped below last year's closing only on Friday. The S&P 500 was below by mid the week before, while the DJIA spent all of the month below last year's closing.

The oscillators are suggesting a consolidation at the same level of the second week of December. It is to be seen next week if we dip to the consolidation level of September and October. If we do exceed that, then it would be safe to start thinking in terms of the summer of 2012, as that was the deepest consolidation we got in the last 3-years beyond the correction of the summer of 2011.

From a fundamental point of view, in reality I cannot see anything new to cause radical change. The earnings reports, at least for my trading set, were not that bad. As a matter of fact, some of the issues that got an earnings boost are now trading below the pre-earnings level!

In essence, the Fed meeting this coming Tuesday and Wednesday is suddenly requiring extra attention. Yet, as this is the last meeting chaired by Dr. Bernanke, it is clear that expectations for anything radical should also be watered down. It is my view that this should have more impact than the busy schedule of earnings releases will, and mainly because of the watered down expectations. Hence, any indication of action by the "in limbo" Fed will be viewed to be more radical than it is really meant to be.

From a technical point of view - beyond the discussion above - one noteworthy aspect is that my trading set monitoring is showing worse bias than any of the consolidations mentioned above. A very alarming sign of a possible continuation of this current consolidation. As such, I would be weary of adding to positions until the picture becomes clearer. Yet, it is clear that industrials and retail are being punished badly, more so for retail.

As for particular stocks, Geron (NASDAQ:GERN) continued its march upwards on Tuesday, even though no news were released. Dow Chemical (DOW) had the same unfortunate fate as Apple (NASDAQ:AAPL) with some "activist investor" buying a negligible 2.5%, and yet feeling that they can dictate on the remaining 97.5% how to run this century+ company.

In noteworthy events, Verizon (NYSE:VZ) and Intel (NASDAQ:INTC) were both punished for doing business together. Another one of those awkward market moments! Think of it this way, if disposing of the Media assets by Intel was bad for INTC, then why is it not good for Verizon? I cannot make sense of it, and that is why I continue to trade technically.

On the retail front, Target (NYSE:TGT) seems to have alienated half of South Korea, and it seems that whatever fallout from the Credit Card data piracy issue may go beyond the USA. I guess for retail, we will have to wait till the first week of February to get the earnings reports and hence have a feel for that segment of the market.

Treasuries and Gold were the biggest beneficiaries of the weekly action. The 5-year, 10-year, and 30-year bond rates all declined, and significantly so. This played well for mREITs in particular, as Annaly (NYSE:NLY) is in my trading set. Gold (NYSEARCA:GLD) continued its attempt to stage a reversal, though in reality it did have a mixed week. Barring an unexpected event, I still think that both bond rates and gold will resume at one point, say within a month from now, the inevitable march upwards for rates and downwards for gold.

This unexpected event will not, in my view, be related to any market consolidation, unless of course it plays out as a significant market correction. It will actually be due to Fed action or statements. You see, for the life of me, I cannot discern where that highly publicized tapering played out!

Looking at the Fed balance sheet, I just cannot see it!

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 Neutral Up Negative
DJIA Dow Jones Industrial Average Neutral Up Negative
COMP NASDAQ Composite Index Up Up Negative
GLD SPDR Gold Trust ETF Up Down Positive
VIX CBOE Volatility Index Up Neutral Positive
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 Neutral 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 an almost oversold "neutral" -63%, which was the lowest reading for the whole week on Friday. This is in contrast of the "neutral" reading of -8% in the previous week.

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 Up Up Positive Yes
JPM JPMorgan Chase & Co. Down Up Negative Yes
GS The Goldman Sachs Group, Inc. Down Up Negative
WFC Wells Fargo & Co. Up Up Negative
NLY Annaly Capital Management, Inc. Up Down Positive
MO Altria Group, Inc. Down Up Neutral Yes
T AT&T Inc. Down Down Negative Yes
VZ Verizon Communications Inc. Down Down Negative Yes
GPS The Gap, Inc. Down Down Negative Yes
ANF Abercrombie and Fitch Co. Up Down Neutral
JWN Nordstrom, Inc. Down Neutral 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. Neutral Up Negative
BA The Boeing Company Up Up Negative
LMT Lockheed Martin Corporation Up Up Negative
CAT Caterpillar Inc. Neutral Up Negative Yes
DE Deere & Company Neutral Up Negative Yes
EMR Emerson Electric Co. Down Up Negative Yes
DOW Dow Chemical Co. Up Up Neutral Yes
ADM Archer, Daniels, Midland, Co. Down Up Negative
MON Monsanto, Co. Down Up Negative
POT Potash Corp. of Saskatchewan Inc. Neutral Neutral Negative
PFE Pfizer Inc. Down Up Negative
BMY Bristol-Myers Squibb Company Neutral Up Negative
ABC AmerisourceBergen Corporation Down Up Negative Yes
AAPL Apple, Inc. Neutral Up Positive Yes
INTC Intel Corporation Neutral Up Negative Yes
CSCO Cisco Systems, Inc. Up Down Neutral Yes
HPQ Hewlett-Packard Company Up Up Neutral
CVX Chevron Corporation Down Neutral Negative
BP BP plc Up Up Negative
NGG National Grid plc Up Up Positive
NI NiSource, Inc. Up Up Neutral
WMB Williams Companies, Inc. Up Up Neutral
WM Waste Management, Inc. Down Neutral Negative Yes
CNW Con-way Inc. Up Neutral Negative Yes
CSX CSX Corp. Down Up Negative
NSC Norfolk Southern Corp. Up 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.