McDonalds made it’s first ever MSW daily screen last night after it said that second quarter earnings should jump by 60%. For the day, the fast food company was up over 5% while other large cap stocks also gave the street solid earnings reports. Apple moved more than 3% after comments were made by a “talking head” over at Piper Jaffray prior to an earnings release on Wednesday. IBM, Microsoft and Yahoo are all expected to report results in the coming days. The chart associated with this post is telling us that Large Caps are gaining strength versus Small Caps. Time will tell but yesterday could have been the first round of confirmation.

I thank Trader Mike for bringing this chart to my attention!

Some familiar “Large” names expected to report today:
KO – Coca-Cola
JNJ – Johnson & Johnson
IBM – International Business Machines
USB – U.S. Bancorp
YHOO – Yahoo, Inc.

Piranha

This post contains a portion of the general analysis from the MarketStockWatch.com Weekly Screen: 7/10/2006 to 7/14/2006

Said on last week’s Weekly Screen Analysis (7/8/06):
“I still have doubt in my mind about this rally because it didn’t confirm within seven days.”

I want to start by stressing the importance of paying attention to the overall market (a statement I made to start last week’s analysis). If the market starts to pullback, so will the majority of stocks (another repeat statement). It will be very important to watch the leading stocks to see how they react to any corrections and/or pullbacks (a third statement from last week – this statement told us to sell test positions turning against us as noted on the daily screen on Wednesday and Thursday). So what do we do and how can we gauge what’s going on in the market?

I am looking for stocks that are holding up better than the major indexes. Stocks that fall less than the overall averages is a good place to start. My first list to check is the MSW Index, then the MSW watch list and finally I will search the daily screens and overall market for stocks that look like leaders based on their recent relative strength (when I say recent, I mean the past 5-8 trading days).

To start; how much did the major indexes fall?
NASDAQ: -4.4%
DOW: -3.2%
NYSE: -2.5
S&P 500: -2.3

Looking at the MSW Index, we see that every stock fell for the week, so which ones dropped the least?

GRMN: -1.75%
TS: -2.71%

These were the only qualifying stocks from the MSW Index that fell less than the major indexes. Garmin (GRMN) fell less than every major market index and found support near $95 and the 50-day moving average. It did qualify for distribution, the first in 13 full weeks. TS was strong but the stock has formed a trend line that is pointing down (I will add this trend line to the weekly chart; it can be seen best on the daily chart).

Looking at the MSW Watch list from last week, we see one solid stock:
KNOT: -1.29% (down less than the major averages)

With this in mind, we see that only two stocks maintained their leadership status based on this analysis but several of them are still above key support levels and will remain on the MSW Index because they are still better than most of the options out there. Only two stocks on the MSW Index contain RS ratings less than 90 (CME and ADVS with 89 and 88 respectively). Only one stock from the watch list last week currently holds a RS rating less than 90 (BLKB with an 86 – no longer listed).

Last week I said this: “Although the ratio turned positive, we ended on a sour note with the only negative daily reading of the week on Friday. We had our fewest new highs of the week and our most new lows for one day of action. Sprinkle in the fact that both the DOW and the NASDAQ fell 1.2% on slightly higher volume and we can start to become concerned if we have open positions.”

The foreshadowing was written on the wall with new lows expanding as the week wore on. We logged another negative NH-NL ratio with the weakest rating since the week ending June 17, 2006. We also witnessed the second most new lows logged in one week for the entire year of 2006 with only June 17 higher with 310 (the only week above 300 since October 15, 2005). With the market breaking down and the NH-NL ratio confirming, we are in some serious trouble. I have closed my test buys and moved back to cash (except for several long term option positions) and I advise that you all take serious looks at any stocks you may currently own. The sharp reversal in the market was not a surprise and I was not hurt much at all since I was only placing positions about 1/3rd my typical position size. This is the exact reason why I place test buys; all indicators weren’t in sync (specifically the NH-NL ratio).

Follow our three most important Indicators:
1. The price and volume of the major indexes
2. The action on the NH-NL ratio
3. The action among leading individual stocks

As we already know, all three indicators are extremely weak and all three indicators are heading down! The NASDAQ is at a nine month low and has violated all recent support; starting with 2,200, then 2,100 and then 2,050. The relative strength rating is at multi-year lows and is pointing straight down (a very steep drop over the past two months). The next low would be near 1,900 which was set back in April 2005. Looking at the retracement levels, we see that the NASDAQ has violated the 61.8% level of 2,178, the 50% level of 2,125 and the 38.2% which sits at 2,071.9. Based on all the information at hand, I would expect some type of bounce on Monday but that’s not a given especially since the Trader’s Almanac states that most Mondays are down after a negative Friday. We are definitely in a correction because the NASDAQ is down 14.2% since its 52-week high and 7.6% since January 1, 2006.

The DOW and S&P 500 have also violated all support levels but are in much better shape than the NASDAQ. The S&P 500 is only down 1% for the year and 6.8% since its 52-week high. I tend to rely on the NASDAQ more so than the DOW but it is interesting to see that large caps are gaining some steam while small caps are getting trounced. I have two charts posted on page two of my charts link that show the transfer of strength going from small caps to larger caps.

The larger story lies with crude oil as it hit an intra-week high of $79.86 while closing at $78.71. Crude showed a large intraday reversal on Friday but still closed with a slight gain for the day. It broke out above the $75 resistance this week and was helped by the tensions in the Middle East and growing tensions with Korea. As long as missiles are being fired in the Middle East (outside of Iraq), crude and gold will travel higher while stocks struggle to hold their ground.

Gold reached a low near $550 but has now retraced about 62% and is trading back within the channel lines that date to 2005. Using retracement level logic, we would think that gold would pullback at this time but world tensions may change the formula and change human psychology.

All in all, we had a very negative week and I have no idea what next week will bring but I do know that I can’t lose much money because I don’t have much of it risked at this point in time. With that in mind, I am able to sleep at night without worrying if my account will be slaughtered tomorrow or the next day. I have moved portions of my cash to alternate investments while the market is taking its sweet old time to rally higher and urge you all to speak with your accountants and/or financial planners to do the same. These are not high interest investments but slightly better than the basic money market rates available. I have also been researching housing prices here in NJ because I know that the big builders are having trouble selling their back-log of homes. It’s still early in my opinion but I look to purchase several properties over the next few years to build an additional investment patch and/or income stream (this idea is still in the works).

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273 - This Week

As for new highs vs. new lows – here are the facts:
Monday showed a ratio of 102-147
Tuesday showed a ratio of 99-193
Wednesday showed a ratio of 90-185
Thursday showed a ratio of 43-386
Friday showed a ratio of 34-455

Piranha

Need I say more?

I want to post about a subject that frequently appears in discussions online in recent years (especially over the past several months). It’s about authors and their sheep followers that continue to predict these great depressions and crashes. I am not saying that it can’t happen but their readers sure make them rich by reading most of their negative crap. What happened to the predictions from the books in the late 1970’s and early 1980’s? Read the book titles from the 1970’s and 1980’s and then read the book titles from today (listed below). Are you seeing a pattern? I didn’t go back to the 50’s or 60’s but I could find similar titles and then many more in the 1930’s. My point is: don’t believe everything you read and stop panicking by reading books from theorists (talkers, not doers). I must give credit to many of the books listed by Martin Schwartz and his book Pit Bull. I enjoyed reading it over my last vacation as it was very funny and educational (not a “how to” book).

Theorists make money selling books that sell fear while investors and entrepreneurs make money by following their ideas with money and hedging against a possible crisis. I learn from history and history shows us that these “crisis” books will always sell during tough times. Readers eat up this garbage because most people are trapped in the rat race working their asses off just trying to stay afloat. Their attitudes are typically piss-poor and they love to read about huge negative events (especially a crash that may hurt others).

Also notice how the same authors try to write books when the market starts to go back up again. For example, Howard J Ruff was writing about the crisis in 1979 through 1982 but then started to write about how to invest as a serious investor in 1987. Guess what: he was on the wrong end of the crisis in 1982 (the tail end) and the wrong end of the boom in 1987 (crash later that year). These “fools” are always late to the party and sell millions of books to the “average” person that engrosses themselves in fear!

These people, both now and then are not very accurate, they sell garbage in my opinion and I ignore it at all costs! I just hope many of you can do the same and make decisions based on what “YOU” see and not based on book sellers! Invest for now, ignore the garbage but be prepared for worst case scenarios by taking necessary steps but don’t radically change your life based upon the writings of a few authors that probably don’t invest themselves.

Books from the Past:
Crisis Investing: Opportunities and Profits in the Coming Great Depression by Douglas Casey (Hardcover - Jul 1980)

Crisis Investing for the Rest of the 90’s by Douglas Casey (Hardcover - Oct 1993) - WOW was this wrong in 1993!

What the smart money is betting on in 1985: By Doug Casey by Douglas R Casey (Unknown Binding - Jan 1, 1985)

The Coming Currency Collapse and What You Can Do About It by Jerome F. Smith (Hardcover - Sep 1980)

Profits from silver by Jerome F Smith (Unknown Binding - 1983)

How you can profit from the coming devaluation by Harry Browne (Unknown Binding - 1970)

You can profit from a monetary crisis by Harry Browne (Unknown Binding - Jan 1, 1975)

How to Prosper During the Coming Bad Years - A Crash Course on Personal and Financial Survival by Howard J. Ruff (Mass Market Paperback - 1979)

How to Prosper in the Coming Bad Years by Howard J. Ruff (Mass Market Paperback - Jul 1981)

Making money: Winning the battle for middle-class financial success by Howard J Ruff (Paperback - 1986)

Howard Ruff’s crash course for the serious investor by Howard J Ruff (Unknown Binding - Jan 1, 1987)

How to Prosper During the Coming Bad Years by Howard J. Ruff (Paperback - April 1984)

Books from Today:
The Coming Collapse of the Dollar and How to Profit from It : Make a Fortune by Investing in Gold and Other Hard Assets by James Turk and John Rubino (Hardcover - Dec 28, 2004)

The Coming Economic Collapse : How You Can Thrive When Oil Costs $200 a Barrel by Stephen Leeb and Glen Strathy (Hardcover - Feb 21, 2006)

Defying the Market: Profiting in the Turbulent Post-Technology Market Boom by Stephen Leeb and Donna Leeb (Hardcover - Jun 3, 1999)

Empire of Debt : The Rise of an Epic Financial Crisis (Hardcover) by William Bonner, Addison Wiggin (November 11, 2005)

The Great Bust Ahead: The Greatest Depression in American and UK History is Just Several Short Years Away. This is your Concise Reference Guide to Understanding Why and How Best to Survive It (Paperback) by Daniel A. Arnold (November 25, 2002)

Image courtesy of http://mirrorimageorigin.collegepublisher.com/media/paper144/stills/x5jf138r.jpg

Piranha

The NASDAQ is getting slammed below the recent up-trending support line as it trades below the June low (intraday action). If the NASDAQ closes below the June low, the attempted rally would be completely erased. Looking at the NH-NL ratio for the NASDAQ, we can see how new lows are rocketing higher as new highs are plummeting to almost nothing today. New lows use the number scale to the left of the chart while new highs use the number scale to the right of the chart.

Crude oil is also up over 2.5% as it broke above the resistance level of $75 a barrel. The daily chart highlights the break above the trading zone between $70 and $75. I told you to cover all “long” losing positions last night or positions that were turning against you with a slight gain. I will be very interested to see how the afternoon finishes and will update the day’s action on the daily screen tonight with all interactive charts telling the story in real time.

Piranha