Stock Tiger Update

For  Monday October 30, 2006  

Hello - Hope you weekend is going well

Fridays closing numbers:

Dow -73.40 at 12090.26, Nasdaq -28.48 at 2350.62, S&P -11.74 at 1377.34

For the week, Dow  +0.7% the S&P 500 +0.6%,  and Nasdaq  +0.4%

The above if from The Onion  

Invincible is about what it has been feeling like. On the Dow chart you have not seen a red candle like Friday's for over a month so it is good to see some profit taking.  The charts below show how vertical the move has been during the last 3 months. There have been good consolidations as the indexes moved up but no real pullbacks.

The Friday drop is being marked up to the low GDP as the Commerce Dept. reported that Q3 GDP rose only 1.6% (consensus 2.1%) in Q3, the slowest pace in three years. Much of the decline is from the 17% drop in residential construction activity. The slower housing though is not news really as it has been going on a while now and that would have little to do with the drop in chips stocks or the Dow but maybe some will catch on that the likelihood of a recession is growing - (more on that later) and the the chances of the housing market just quickly recovering are less then slim.

It is still an interesting time of year. Many mutual funds close their fiscal year at the end of the month and depending on if they have a settlement date on trade date of 3 days later, the final trades must be done at least by Tuesday. Fund managers who had been  lagging the market have been chasing to try and add points and that was a large amount of the buying lately.

Hedge funds also have or had  large short positions and as the S&P started going up they kept adding more shorts but many could not or would not increase their margin so were forced to cover and that increases the buying. The one good thing about shorts for the longs is every short is a buyer at some point. The Dow closed at the October trend line.

The Dow 15-min chart is a good example of how broken support becomes resistance. The Dow broke the first yellow support line and fell to the next support and 200-period EMA. Then it rallied back up to the broken support which is now resistance at the pink arrow. It then repeated that action a second time. The stochastics are now under 20 so we will see if it can rally a bit more on Monday. We know about the Mutual Funds wanting to close out the month as high as they can but the shorts could gain an edge. Election day is November 7 so there are some who would like to keep the market up till then but if the markets drop there are a lot of profits to lock in.

The Dow Utilities had the second day of pullback so will watch the 445 level for a bounce as if that break then the next support is near the 50-day..both RSI and stochastics are still overbought.

The Nasdaq gapped down and put in its largest decline since the first week of September.

On the weekly chart you see it sill looks ok and closed above the previous weeks low.

The Nasdaq is also still above the ratio chart compared to the S&P 500. A break below will foretell a larger pullback soon.

The semiconductors were especially weak on Friday as you can see. The 38% Fibonacci has been support and if it fails then the 50% is the next stop. I am using the SMH  ETF to show as this can be shorted like a stock but no up tick rules.

The Russell 2000 also gave back all its previous days gains but only caution as it is so close to the Yearly high it would be a shame not to reach it soon. I do not think we will see more then 8 days before a larger correction.

My favorite Value Line weekly still looks good......

The NYSE high-low index at 99 so the market can go up but it is really in the clouds.

We showed this 60-min Gold Bugs chart last time and said we were not yet embracing the move and you see it has pulled back to the 50 period and the break out line so if it can hold then we will be more impressed but we still have not found many good setups in the metals. HMY and RNO were recent good ones for us short term and we have a new setup a bit further down.

Gold metal is nearing the downtrend line and horizontal strong resistance...

The CRB a basket of 17 key commodities has rallied from the 50% retrace and it now at the 38% so I would say it is more likely to pullback again but a break out could take it back to the broken trend line.

Darn - wanted the dollar to go higher Friday but the Dollar-to-Euro index broke below the 2-month trend line.

The yield sure is the comparison of the 10 year and 3 month rates and when the 3-month yield exceeds the 10-year yield, it is called a negative yield curve.

The last two recessions in the US were from July 1990 to March 1991, and from March 2001 to November 2001 and the yield curve had been negative. The last time it went to 0.86 and now it is at 0.915 so the likelihood of a recession in the next 6-9 months is greater then 50%. With the latest GDP number at 1.6% it does not have far to go. Actually this is the current popular definition of a recession meaning if GDP growth is negative - and some would say it needs to be negative for a period of time. There is another definition of recession that uses the GDP peak. In that case the economy is expanding as long as the GDP is going up but when it peaks and begins to fall for a quarter then it is obviously not expanding but declining so could also, in this definition, be called a recession. (not growing but receding) In this case we have been in a recession a while. Regardless, it looks like there is one coming even using the more common recent definition as GDP and the housing slowdown and negative yield curve all point.

I said we have a Gold stock to watch. GBN is basing above the 200-day and a move over $1.70+ would make for a trade at least.

This next one is not a stock but a group of them but it trades like a stock. This is the first time we have used an ETF on the watch list but thought a good way also to track the gold stock health. GDX would enter the gap at $37.65

Yet again the BTK biotech ETF made highs. Unfortunately not many biotech stocks are in a good risk/reward setting for a buy right now but we present four of them here.

HGSI we bought at the $12.25 break out and then it returned to test that are and now is to a new break out watch at $13.30. Some of you may still have this and you see the next level after this would be the yearly high just under $14.00.

CRGN is  another biotech that may be setting up and it looks like a break over $4.20 would at least be a scalp.

RGEN also in this sector and we want a break out at $3.50. Note the recent crossover of the 50-200 EMA

ALXN the forth would break out at $39.00

Here are a few various ones to watch this week.

OWENQ would break out at $1.20- thanks Lenka for noticing this one.

CRYP not a great one but with our luck on the gaps lets add it to our list. Not a real exact price built you can see above $17.00 then $18 a bigger level.

TONS is a steel stock and is building just under the 200-day so a break there may take it to the next resistance as shown.

LTON had some heavy volume Friday and a trend line break and its next level is at $5.70. Would like a pullback to the trend line first and would buy some there but will play it anyway if it just breaks out.

IOTN looks pretty good above $4.70.

 That's all for now -  will have many more picks during the week.

Remember to check the ........Earnings Calendar on all overnight holds

Check the  message board also for other good stock candidates as there are several there right now.

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