Stock Tiger Update

For Monday December 4, 2006  

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Dow -27.80 at 12194.13, Nasdaq -18.56 at 2413.21, S&P -3.91 at 1396.72

For the full week the Dow lost 0.7% Nasdaq down 1.9% and S&P dropped 0.3% For the S&P and the Dow this is the second week of declines which had not been seen for 4 months.

The Nasdaq was the weakest of the major indices

Chart TD Ameritrade

In general the markets have been overbought but seemed to need some news at least so the media could have something to blame a pullback on as that can help encourage some additional sales to lock in gains.

On Thursday there was a disappointing Chicago PMI report showing a contraction in business activity for the first time in 3 1/2 years. Then on Friday the ISM index (Institute for Supply Management) for November fell to 49.5 (consensus was 52.0), so going below 50 for the first time since April 2003. This is how it looked from the last report a month ago and you can see it has been going down for over a year.

Chart RTTNews

Also on Friday Chicago Fed President Michael Moskow made some comments that the market was not thrilled with. He said that the risk of inflation is greater than the risk of slow growth, and expects 2007 growth to be below 3%.

According to the Stock Trader's Almanac though, December has historically been the best month for the S&P 500, turning in an average 1.7% gain. However, with the broader market up more than 14% from its mid-July bottom, another sign of economic weakness puts the question of if a typical year-end rally is still possible.

It is interesting that even with the above "news" there was buying again near the end of the day Friday. Not enough to get into positive territory and not on heavy volume but shows the bulls are still interested or maybe some short covering for the weekend.

We do not actually know what if any catalyst will come to move markets higher other then their momentum. Housing prices had dropped about 9-10% and that could help buyers however many people were borrowing against their home but can not do that when their home value is dropping. Some are  forecasting an additional 10% year-over-year decline in home prices form 2007.

The home sales are not back to the 2002 level. Not sure if chart support works in this field.

Even with the not rosy outlook it can take a while to really drastically change the markets. The market cycles can be self generated and if a trend is in good shape it can take a lot to change it over the medium term of many months.

The Dow dropped on Monday after the holiday but found trend line support for a rally but as you may remember, I am typically cautious with what may become a bear flag. The Tuesday/Wednesday move did not really make a flag but the pullback acted the same and midday Friday I expected that we may see the 50-day come into play but the dip buyers jumped in. The volume Thursday and Friday was higher on the sell side so not so encouraging short term. I would actually rather see a pullback to the 12,000 level then some new base building for a while before a new move up though the market does not regularly listen to me.

Utility stocks continued their move and this index broke out on Friday. If you keep any utility stocks then you know they generally pay a higher dividend then other stocks. We show one in our picks area and others that have made break outs this week are PPL OKE CMS and MIR. This chart shows the MACD did break above its negative divergence trend on Friday also and these stocks may continue in the coming months.

The Nasdaq pulled back the most of the indices but it is still above the break out line as shown on this weekly chart. Tech stocks were weak as it seems some buyers shifting back into metals, oil and other commodities.

The Nasdaq-Dow ratio chart shows the test of the lower trend line that held so far. In the lower section showing only the Nasdaq is near the trend line

The Nasdaq-S&P 500 also at the trend line. A break here would suggest higher caution in tech stocks.

Our BPCOMPG moving sideways right at resistance and trend line would expect to see it drop at least to the 20-day EMA.

The SOX weekly has the 50-200 hugging each other so a bigger move could be close.

The extension on top of the big V on the QQQQ dropped back to the support line and trend also and on the first chart looks pretty good.

On this shorter term chart however it shows a bear flag that formed then the break down on Friday. Looks like we will see the $42.50 50-day EMA tested.

The S&P 500 dropped below the trend but recovered and does not look too bad but does have negative divergence on the stochastics.

Its ratio chart hit and briefly broke the trend line but then started this pullback.

The Russell 2000 - would also not be surprised to see the 50-day EMA tested.

Meanwhile the NYSE made all time highs again this week.

We cannot know the reason for a good continuation of a rally into 2007 but history is on our side. We have many times written of it and here is another view of the same information showing how on average for the period after the 4-year low the market goes up over 50%.

Fed funds futures now price in nearly a 100% chance the Fed will cut interest rates to 5.0% by March. This is up from 73% likelihood before the ISM report. This attracted more bond buying but of course the Fed only controls the short term rates.

The 30-year rates are now close to the year's low and note the RSI is now below 30 so it seems not too long before the rates bottom and bonds can be shorted. The rates on the chart are one decimal over so now the close was 4.57% so in negative yield curve territory which is still pointing to a recession to come in 2007.

The 30-year bond price now getting close to the year's high as the RSI gets near 70. These two charts are not exact mirrors so watching both will help to spot a change in the trend.

Oil has made a pretty good move this week back to it recent range high.

And the US dollar continues its decent so prices will rise in the USA on all imported goods. While the market is up a over the last 3 years the dollar lost over 20% of its worth. Europeans who hold USA stocks loose two times on market declines now as they lose as the stock prices goes down but the money they receive also is worth less so many have been lightening up.

The CRB made up of 17 commodities, on the  weekly chart shows a nice move back above the 38% retrace this week so this is likely now to continue. Information about the composite of the CRB is on the crbtrader site.

Here is the 5-day view of gold.

Chart TD Ameritrade

And the long term view. The stochastics are back above 80 but it looks like they may stay there a while as the MACD has only recently turned back up above the zero line.

The daily chart now looks like a test of the 38% line at $660 have pretty good odds.

Gold Bugs - unhedged broke the horizontal and is basing there now.

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The hedged XAU gapped up so a filling of the gab may be a pullback to buy.

The XAU to gold ratio is far away from giving its 200-50 crossover buy signal but it is again at the trend line and a break out there is also a buy signal.

As we have SWC a palladium stock as a long term play here is the Palladium price chart. It is right at the trend line and a move back over $342 would be quite bullish.

We have started a new month and just before getting to some new picks lets take a look at a couple of the November picks that continued nicely after our initial buy.

Actually IAL is a muli-month move as Aluminum has done well. This was bought at the $38 break and it sill looks ok with a stop under $44.

FRPT was one we had a a buy many times and often mentioned how of OTC stocks this is one that is a real company with real products and sales. Our first November buy was at the trend line break when it gapped up and we used the 15-min rule to buy though it was actually a buy a couple of days later if you missed it as it pulled back. They had a super contract then a partnership then an announcement they are moving to the Nasdaq. They had two more break outs since then and the latest was on Friday. The most profits would have been to hold you full amount purchased but we still believe that it is a good practice to sell some on each initial move after a buy. This locks in some profits in case it reverses and you then have some cash to buy for another break out when one comes and profits to protect on any unforeseen events that make it fall..

CRVL also had several break out levels. We bought in November at the $46.87 break and it went up over $10. It broke out again on Friday but it did not hold. Yet.

JOBS had a couple of breaks also and looks to be setting up for another at $17.85 to maybe fill the gap.