Credit Card ’s Talk

The first chart shows the daily SPX (black line and right scale) and the NYSE Oscillator (NYMO) 50-day MA (blue line and left scale). Previous patterns indicate when the NYMO 50-day MA falls below negative 20, then a bottom will be in place and SPX will be in position for a sustainable rally. Currently, the NYMO 50-day MA is negative 15 1/2 and the daily NYMO is negative 15. So, the daily NYMO will have to stay below negative 15 1/2 for sufficient time and levels to bring the NYMO 50-day MA below negative 20.

The vertical line in the first chart shows April 2005 technical indicators are in somewhat similiar positions compared to current indicators. In March and April 2005, SPX fell from the high at 1,229 to the low at 1,136, from early-March to late-April, before starting the uptrend. Over the current downtrend, SPX fell from the high at 1,326 in early-May to a low at 1,235 last week. The similarities indicate SPX could trade between 1,230 and 1,260 for one to three weeks and then the NYMO 50-day MA may be in position for a SPX bottom. Also, the NYSI (below price chart) may fall into position for a SPX rally.

The second chart is an SPX monthly chart that shows the monthly middle Bollinger Band, currently 1,228 1/2, has held throughout the recent cyclical bull market. Consequently, a fall below that level may indicate a greater fall and the start of a cyclical bear market. Below the price chart is the monthly MACD, which gave a bearish crossover last week. However, the crossover is valid only if it closes the month bearish. Above the price chart is the monthly Money Flow, which remains positive, although has deteriorated, which may indicate the tail-end of the cyclical bull market.

It seems most likely SPX will hold the monthly middle Bollinger Band and begin a summer rally in June. Currently, SPX is in the second longest period in history without at least a 9% correction (1,206 is a 9% decline from 1,326). Also, the current cyclical bull market, within the structural bear market that began in 2000, is of above average length. However, it seems, a 9% or more correction and the end of the cyclical bull market will more likely take place at another time, perhaps this fall or in the first half of 2007.

Free charts available at PeakTrader.com Forum Index Market Forecast section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

Under Armour, Inc. (UAI) debuted on November 18, 2005 at $31. The maker of branded performance clothing is growing its brand recognition via the use of hip brand promotion that is trying to wrestle away interest from the traditional buyers of Nike (NKE).

Under Armour has targeted the youth and athletic market where it competing with the established and strong Nike brand. Under Armour has a projected five-year annual earnings growth of 22.50% versus 14% for Nike. But on the valuation side, Under Armour is discounting in significant premium growth over that of Nike. Under Armour is trading at 46.19x its FY07 and a PEG of 2.75 versus 14.27x and a PEG of 1.06 for Nike. Clearly, Under Armour will need to perform to its lofty expectations going forward; otherwise, the stock will sell off. Nike is a superior value play.

Vonage Holdings Corp. (NYSE/VG) debuted on Wednesday at $17, the mid-point of its estimated IPO pricing range of $16-$18. The provider of Voice over Internet Protocol (VoIP) is an early entrant into the rapidly growing area of VoIP and presently has about 1.6 million subscribers but the company has yet to turn a profit. VoIP uses a broadband connection to make phone calls.

High advertising costs to acquire customers have hindered margins. Vonage is the current leader due to its early entry into the VoIP business but I see the company facing a difficult uphill climb as intense competition surfaces from major cable companies and the Skype service from eBay (EBAY).

The reality is Vonage has to spend extraordinary money on acquiring customers whereas for cable companies and eBay, there is already a significant customer base to market to. Vonage will soon realize this.

Hedge fund manager and the host of the hugely popular ?Mad Money? show on CNBC said Vonage is a ?piece of junk,? which I have to concur with. And with Vonage currently trading down at $13, the market may also view Vonage as over hype and not enough substance.

George Leong is the founder of Investornomics.com (http://www.investornomics.com) - a provider of independent stock and option trading commentary. He has a degree in finance/economics and offers over 15 years of research experience in investing and trading.

The stock market often closes a week in the middle of a perceived primary-trend range. SPX closed at about 1,234 Fri, which is between a multi-year Fibonacci level at 1,253 (i.e. 38.2% retracement level from the peak in 2000 to the trough in 2002) and the 20 day MA at 1,212 (which was general support over a recent rally).

It’s possible, SPX can rally to 1,253 short-term. However, longer-term (perhaps in Aug and Sep), SPX seems destined to fall sharply. A Goldilocks economy (of neither too hot nor too cold) is priced-into the stock market, and if any future economic data show either output growth has slowed more than expected or inflation has risen more than expected, then massive selling may take place.

There are several intermediate-term technical indicators that make me cautious. VIX (S&P 500 Volatility Index) shows an extreme level of complacency. VIX fell below 10 last week, to a 12-year low. Consequently, the SPX to VIX ratio hit an all-time high last week. Moreover, both the Transport and Utility Indices to VIX ratios have rocketed at parabolic rates recently, to over 50% beyond previous year’s highs. Also, a ratio of large cap to small cap stocks (e.g. S&P 100 to Russell 2,000) is near a multi-decade low, which indicates big institutions, who tend to buy large cap stocks, are not convinced of the rally. Moreover, the SPX to U.S. Dollar ratio is near a historically high level. There’s typically an inverse relationship between the U.S. stock market and the U.S. dollar, because a weaker dollar spurs export growth, which is normally bullish for the stock market. The high ratio indicates it’s more likely the stock market will fall, since the dollar depreciation has stabilized for over six months, at far lower levels than a few years ago, and then risen somewhat recently.

SPX has open gaps at 1,221, 1,174, 1,143, and 1,138. Nasdaq also has several open gaps, including one at 1,905, which is currently 275 points lower. The stock market has been a market of deep rises and deep falls. For example, just over the past 13 months, Nasdaq fell 305 points (in two months), then rose 440 points (in four months), then fell 300 points (in four months), and then rose 300 points (in three months). Moreover, VXN (a Nasdaq volatility index) rose only six to nine points over the two deep falls, and declined from 28 to 12 (an all-time low), over the past 13 months, which made it a particularly unforgiving short-term trading market.

Economic reports next week are: Mon: Existing Home Sales, Tue: Consumer Confidence, Wed: Durable Goods Orders, New Home Sales, and Fed’s Beige Book, Thu: Unemployment Claims, Fri: GDP and GDP Price Deflator, Employment Cost Index, Michigan Consumer Sentiment, and Chicago PMI.

Notable earnings next week include:

Mon: AXP TXN XRX PBI CEGE CD

Tue: AMZN DD SEBL WWY BIIB IMCL X N VLO LMT BDK GLW SUNW SE SWY MDG RFMD MCHP SSTI NANX

Wed: BA AHC COP CSX CL SBUX K KMG MSO NEM CHIR OSIP CRA FON HMC HCA

Thu: BMY GSK ELN GP XOM APA KLAC SYMC XMSR WMI BR RTN AET PD AU ABX KGC PAAS ZEUS GR WEN JNS DCX

Fri: CHV BHI AEP ADM BWNG

Large caps may outperform small caps over the next few months, i.e. small caps may fall greater than large caps. So, IWM (Russell 2000) and SPX (S&P 500) puts may be better than QQQQ (Nasdaq 100) and OEX (S&P 100) puts. With volatility levels at all-time or multi-decade lows, the steep decline in volatility, since the cyclical bull market began in Oct 2002, may shift into an uptrend. So, market conditions may improve for short-term traders, including daytraders.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.

The chart below is a three-year weekly comparison chart of the Price of Copper (candlesticks and right scale), PD (dashed pink line and left scale), and FCX (dashed green line). PD and FCX are two of the largest three copper producers (along with PCU). Last week, copper traded almost entirely above its weekly upper Bollinger Band and closed above 280 cents a pound Fri. Moreover, both the weekly RSI and ULT closed above 80. Furthermore, the weekly MACD and CCI are at extreme levels.

The chart shows copper traded well above its upper Bollinger Bands only twice before over the current bull market, i.e. in the first quarter of 2004 and in the fourth quarter of 2004. Both times copper fell sharply. Also, over the past three years, PD and FCX have risen by higher percentages than copper. However, currently, PD, FCX, and copper are higher by roughly equal percentages, which indicate a pullback in copper is already partially discounted by PD and FCX.

FCX reports earnings Tue. Last quarter, FCX beat earnings expectations by 43 cents. After an initial five point bounce to over 60, it eventually rose to 65, and a month later fell to 50. FCX is at a double top around 65. PD paid a $5 per share special dividend in Dec and announced another $2 special dividend in early Apr. Copper has risen from 200 to 280 cents per pound over the past 3 1/2 months with mean prices of about 190 in the fourth quarter and over 220 in the first quarter. One analyst noted for every penny per pound rise in copper, PD earnings rise 8 cents per share (annually).

Given the severely overbought level of copper, either a volatile consolidation or a large correction will take place soon. Normally, PD and FCX are more volatile than copper. However, PD, FCX, and copper may move by roughly the same percentages. Consequently, the chart indicates, if copper falls from 280 to 260, PD may fall from 85 to 80. Moreover, copper tends to move closely with gold, which reached over 600 last week, although gold is less overbought. However, gold stocks are also partially discounting a pullback in the price of gold. Within the next few months, gold may fall to 550 or 500.

Charts available at http://www.peaktrader.com Forum Index Market Forecast section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

Previously, I’ve noted similarities between the recent SPX and the 1994 SPX, which suggested a bottom at 1,197, and the April 2005 SPX, which suggested a bottom at 1,228. Last week, SPX fell to 1,219 and rallied strongly to close at 1,252 Friday. Currently, intermediate-term technical indicators suggest SPX may have reached or is close to an intermediate-term bottom and may begin a rally soon.

Below is a two-year daily chart of SPX (black line and right scale) and NYSI (blue line and left scale) with 50-day MAs of VIX NYMO and CPC above and below the price chart. The gray arrow indicates similarities between the current SPX and the Apr 2005 SPX. The indicators suggest there may be a final wash-out below 1,200 or a continuation of the volatile trading range e.g. between 1,220 and 1,260 next week. SPX may then begin an uptrend for at least several weeks.

However, fundamentally, SPX may be in a volatile range throughout the summer, rather than rally to new highs, because the general price level is high enough to carry on uncertainty about monetary policy. Consequently, SPX upside may be limited, e.g. 1,280 or 1,290, although all the intermediate-term technical indicators should turn bullish in June or July. Currently, the NYMO 50-day MA and daily NYSI have not turned bullish, although the CPC 50-day MA is at an all-time bullish high.

Free charts available at PeakTrader.com Forum Index Market Forecast section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

The first chart shows SPX and the NYSE Oscillator (NYMO) 50-day MA. Previous patterns indicate when the NYMO 50-day MA falls below negative 20, then SPX will begin an uptrend. However, the NYMO 50-day MA hasn’t fallen below negative 20, which indicates either volatility, a test of the recent low, or a further pullback.

Above the first chart is the daily NYSE Summation Index (NYSI) and daily NYMO with its 20-day MA. The NYSI is not low enough to indicate a sustainable SPX rally. Also, the daily NYMO indicates SPX is currently near severely overbought. Moreover, previous patterns indicate the NYMO 20-day MA needs to fall below negative 30 for SPX to begin a sustainable rally.

Below the first chart are the SPX MACD and CBOE Put/Call (CPC) 10-day MA. The SPX MACD created a bullish crossover late last week, while the CPC 10-day MA is at an extreme enough level to indicate the SPX rally is sustainable. However, the gray arrow shows similar extreme levels of these indicators can still allow one more SPX pullback after a bounce.

The second chart shows SPX is near resistance at 1,295, i.e. the 50-day MA, the two day pause of the steep fall, and a Fibonacci level. If SPX rises above and holds 1,295, it may test the high at 1,326. However, resistance may hold after rising from the low over a week ago. If the correction is over, which is unlikely, SPX will often bounce off the 10-day MA.

The third chart is a monthly SPX chart. The zigzag line shows that the previous three times SPX pulled-back, it fell roughly 75 points in two or three months. However, this time, SPX fell roughly 75 points in just over two weeks. The middle monthly Bollinger Band, currently 1,230, is the cyclical bull market support line.

Above the third chart is Money Flow, which shows money is flowing into SPX at a lower rate. Also, below the third chart is the monthly MACD, which is converging towards a bearish crossover. Consequently, it seems, the cyclical bull market, which began in late 2002 may end in 2006 or early 2007.

SPX may trade in a volatile range, e.g. between 1,250 and 1,300, until the FOMC announcement June 29th. If the NYMO 50-day MA falls below negative 20 and the NYMO 20-day MA falls below negative 30, which will likely take place in June or July, then SPX will be in position to begin a sustainable rally.

Free charts available at http://www.PeakTrader.com Forum Index Market Forecast section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.