Update: Week Ending February 15, 2014

by: Nasser Khraishi

Tea-leaf reading from last week proved accurate, with thanks, in no small part, going to my market oscillators. Yes, this round of consolidation is proven over. Even if next week is unexpectedly a down week, it would actually be a different round (a la September-October of last year)! In particular, the NASDAQ Composite has broken through the YTD high.

I still think worry should persist. Effectively, it was the DJIA that truly had a decent consolidation and less so for the S&P 500. The NASDAQ Composite hardly registered anything, despite the intra-week action the week before. In essence, the Buffett indicator of total market capitalization as a ratio of the GDP, and the Soros indicator of the separation between the slow moving averages and the current pricing are still suggesting that a correction is still in the books. Remember that the Composite and the S&P500 are much broader indices than the DJIA.

There is no point in repeating the logic, as it was discussed in detail in my January 11 update. I found it humorous though that certain writers started referring to the last couple of weeks as a "mini-correction." As I mentioned before, my classification of a consolidation, correction or crash relates to charts and not to a specific high-to-low arbitrary level.

As this language is one that I will continue to repeat in future posts, let me again clarify what I mean by consolidation, correction and crash. As far as I am concerned, if I see the reversal only in the daily charts, then it is a shallow, short-lived "consolidation." If the reversal shows in the weekly charts, then it is a medium depth and duration "correction." A "crash" will show up as a reversal on the monthly charts. .

The market seemed to like the Fed Chairman's testimony on Tuesday. This was the first look at Yellen in the driver's seat. We shall hear more when the Fed meeting minutes are released this coming Tuesday - even though it was not "her" meeting. In addition to the FOMC minutes, the CPI and PPI for January are due next week. This combination should be enough to assert one direction or another for the Fed.

As for my trading set, as expected, the retail sector showed mixed action, with The Gap (NYSE:GPS) and Disney (NYSE:DIS) showing strong recovery signs. Department stores (Nordstrom (NYSE:JWN) and Target (NYSE:TGT)) are interestingly in the dumps. I cannot explain that. It may be related to employment numbers, but that does not make much sense given what we know about retail numbers to date. You see, even though the retail numbers released the past week were not strong, the Michigan Sentiment survey was better than expected.

Verizon (NYSE:VZ) shot back at AT&T (NYSE:T) making the price war official. As such, a budding recovery in the stock price, in attempting to recover from the damage of AT&T's earlier action, was brutally squashed! Cisco (NASDAQ:CSCO) showed impressive resilience in the face of the latest earnings fiasco. I am becoming more of the opinion that the company needs new blood. The Apple (NASDAQ:AAPL) melodrama closed an act with Icahn grudgingly accepting a "draw." It still boggles my mind that AAPL caved in. I truly thought that they had something better to do with their money other than playing the "proven log-normal random game" of following stock prices.

The recovery in industrials and railroad continued. As I consider Waste Management (NYSE:WM) a transportation company, it really starting showing life too. Con-Way (NYSE:CNW) did not participate in this sector's attempted recovery though.

Interestingly, utilities are showing some strength. Williams (NYSE:WMB) did not participate, though. Yet, given what we discussed above in retail and industrials, this move by utilities seems to indicate that the overall market move should be upwards for the coming weeks, regardless of any "consolidation of the month" behavior - that I hope will continue.

Treasury rates are starting to show bottoming behavior. Gold (NYSEARCA:GLD) on the other hand is showing interesting strength given all we discussed to date. Despite my stated and repeated position on gold, traders should watch out for FOMC, CPI, and PPI for signs to prove me wrong. Otherwise, long term rates are going up, and gold is going down for the foreseeable future.

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 Positive Positive
DJIA Dow Jones Industrial Average Neutral Positive Positive
COMP NASDAQ Composite Index Positive Positive Positive
GLD SPDR Gold Trust ETF Positive Neutral Positive
VIX CBOE Volatility Index Neutral Positive Negative
FVX CBOE 5 Year Treasury Note Yield Index Negative Positive Neutral
TNX CBOE 10 Year Treasury Note Yield Index Negative Neutral Neutral
TYX CBOE 30 Year Treasury Bond Yield Index Neutral Neutral Neutral

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 "bought" value of 38% on Friday. The lowest value for the week was a "neutral" 13%, a far out-cry from the clear "oversold" of -78% on Monday the previous week. This improvement was shared by the mid-term indication of the "Daily 3-EMA-7″ column in the table below.

As such, as we assumed in the last update, this round of consolidation was over!

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

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.