Stock Picks

Could it be the stock market as a New Year’s Resolution has given up extreme volatility? With the exception of Tuesday’s rally, 2012 has come in like something of a lamb. Perhaps we’ve just had the right amount of good news and not-so-good news to keep the market lukewarm during this first week of trading. Oh well, time will tell. It’s only been a week.

 The market sold off this morning as eurozone concerns seemed to trump favorable employment numbers. However, stocks managed to recoup their losses by midday. The major averages drifted mostly sideways during the afternoon hours finishing with a mild downside bias.

 The Standard & Poor’s 500 Index closed at 1,277.81, up 1.61% for its first week of trading in the New Year. A respectable opening week to be sure, but at the same time, feels a little bit like kissing your sister. I guess I’m just spoiled by all of those big weekly swings we saw during the latter half of last year. At any rate, the closely-watched S&P 500 continues to toy with its late October high with no resolution as yet.

 The Dow Jones Industrial Average posted a weekly gain of 1.17%, while both the NASDAQ Composite Index and the NASDAQ 100 Index fared considerably better gaining 2.65% and 3.44%, respectively.

 A healthy number of S&P 500 component stocks got off to a great start this year. The weekly leaders were Netflix Inc. (NFLX), up 24.53%, Micron Technology (MU), up 14.47%, Denbury Resources (DNR), up 14.37%, Federated Investors (FII), up 13.07%, LSI Corp. (LSI), up 12.94% and Pulte Homes (PHM), up 12.52%. At the other end of the spectrum this week’s biggest losers were Williams Cos. (WMB), down 17.05%, AutoNation Inc. (AN), down 9.30%, Sears Holding (SHLD), down 8.12%, Abercrombie & Fitch (ANF), down 8.05%, MasterCard (MA), down 8.02%, MetroPCS Comm. (PCS), down 7.60% and Family Dollar Stores (FDO), down 6.99%.

 The top weekly performers among our thirty main Morningstar industry group averages were Automotive (MG330), Metals & Mining (MG379), Manufacturing (MG620), Chemicals (MG110), Electronics (MG830) and Computer Hardware (MG810). The worst performing groups were Tobacco (MG350), Utilities (MG910), Food & Beverage (MG340), Internet (MG850) and Telecommunications (MG840). These five laggards were the only group averages to close down for the week.

This week’s seesaw trading continued today with stocks moving modestly lower. Trading volume seemed almost nonexistent at times, especially this afternoon, as it became clear many market participants wrapped it up early and headed out for the long holiday weekend.

 Market performance stats for 2011 are now officially in the books. It was certainly a year in which market volatility reigned supreme. Regardless of your preferred arena, this was true of equities, currencies, commodities and even debt securities. If you were looking for opportunities as a swing trader this past year you probably had a heyday or you had your head handed to you–hopefully less of the latter.

 The Standard & Poor’s 500 Index technically finished negative for the year, but the margin was so minuscule it is hardly worth noting. Let’s just say the S&P 500 finished unchanged on the year and leave it at that.

 Other major market indices offered a variety of year-end results. The Dow Jones Industrial Average, representing the big blue-chips, picked up a nifty gain of 5.53% for the year. However, the smaller-cap Russell 2000 Index registered a decline of 5.45% for 2011. The NASDAQ Composite Index lost 1.80% for the year, but the higher-cap NASDAQ 100 Index gained 2.70%.

 The gold and silver markets separately provided both a bull and a bear market over the span of 2011. The SPDR Gold Trust (GLD) advanced 33% from the beginning of the year to its late August price peak. From there, GLD declined almost 18% to finish out the year. The iShares Silver Trust (SLV) soared more than 56% during the first four months of 2011 and then declined 43% over the remainder of the year. The Global X Copper Miners ETF (COPX) lost more than 35% in 2011.

 The U.S. Dollar appears to have established an important bottom this year, while interest rates plunged and Treasury bond prices soared. The PowerShares DB US Dollar Index Bullish Fund (UUP) finished down a little more than 1% for the year, but has rallied more than 7% from its mid-August low. The summer basing pattern provided a solid launching pad.

 The CBOE 5-Year Treasury Yield Index (FVX–X) dropped almost 59% this year hitting a new all-time low in September. Also astonishing is the rally we saw in longer-term Treasuries. The iShares Barclays 20+ Year Treasury Bond Fund (TLT) climbed nearly 29% and is back at levels not seen since the end of 2008.

 The year’s biggest gainers in the Standard & Poor’s 500 were Cabot Oil & Gas Corp. (COG), up 100.53%, El Paso Corp. (EP), up 93.10%, Intuitive Surgical (ISRG), up 79.64, MasterCard Inc. (MA), up 66.36%, Biogen Idec Inc. (BIIB), up 64.13%, Humana Inc. (HUM), up 60.05% and Chipotle Mexican Grill (CMG), up 58.82%.

 The worst performing S&P stocks this past year were First Solar Inc. (FSLR), down 74.06%, Freeport-McMoRan Copper & Gold (FCX), down 69.36%, CSX Corp. (CSX), down 67.40%, Alpha Natural Resources (ANR), down 65.97%, Netflix Inc. (NFLX) (last year’s top stock), down 60.56%, American International Group (AIG), down 59.74% and Bank of America (BAC), down 58.32%

It was a strong finish to a strong week. A Santa Claus rally is well underway and based on today’s action we could see more upside into next week. Yes, trading volume was light in today’s pre-holiday session and has tapered off in recent sessions, but both the Standard & Poor’s 500 Index and the Dow Jones Industrial Average are in the process of clearing some important hurdles.

 The S&P 500 gained 11.33 or 0.90%, closing above its 200-day price moving average. The index is also pushing up through the short-term downtrend line I’ve referred to in my recent reports. The S&P 500 moved up 3.74% for the week.

 The Dow Jones Industrial Average added 124 points today or 1.02%. For the week, the Industrials are up 3.60%. The DJ-30 closed today at a new multi-month high, pushing up through my lateral trend line, which connects the recent October/December highs.

 The NASDAQ Composite Index was up 0.74% today and 2.48% for the week. The Index, which continues to lag both the S&P 500 and the DJ-30, is now testing its 50-day price moving average. The Russell 2000 Index gained 0.33% today and 3.59% on the week.

 Dow components leading this week’s charge behind the blue-chips were Bank of America (BAC), up 7.69%, General Electric (GE), up 7.17%, Walt Disney (DIS), up 6.74%, Chevron Corp. (CVX), up 6.58%, Exxon Mobil (XOM), up 6.31% and Caterpillar Inc. (CAT), up 5.79%.

 The strongest performing groups of the week were Materials & Construction (MG630), up 5.50%, Banking (MG410), up 4.96%, Chemicals (MG110), up 4.95%, Energy (MG120), up 4.77%, Automotive (MG330), up 4.74%, Health Services (MG520), up 4.59% and Electronics (MG830), up 4.37%.

Stocks extended the rally today on several pieces of favorable economic data. Although the revised third quarter GDP figure of 1.8% came in slightly below the expected 2%, weekly jobless claims fell to a new multiyear low and consumer sentiment rose for the fourth straight month. All in all, the U.S. economy continues a pretty clear trend toward improvement. And when the headlines are free of any bad news out of Europe, our stock market seems to respond favorably to the economic positives here at home.

 The Standard & Poor’s 500 Index closed at 1,254 even, up 10.28 or 0.83%. The S&P is approaching an important test. Price is currently just below both its 200-day moving average and the intersection point of a downtrend line drawn from the July highs.

 The Dow Jones Industrial Average gained about 62 points or 0.51% to close at 12,169.65. An important test for the DJ-30 will be at the lateral trend line connecting the late October high with the early December high or about the 12,265 level. The NASDAQ Composite Index closed up 0.83% and the Russell 2000 Index gained 0.68%.

 Leading the blue-chip average higher were Bank of America (BAC), up 4.59%, JPMorgan Chase (JPM), up 3.50%, General Electric (GE), up 2.04%, Walt Disney (DIS), up 1.87% and Hewlett Packard (HPQ), up 1.65%. Three names which I consider to be defensive consumer stocks, McDonald’s Corp. (MCD), Coca-Cola Co. (KO) and Wal-Mart Stores (WMT) all closed modestly lower today.

 Some of today’s strongest sector-based ETFs were the HOLDRS Semiconductor (SMH), up 2.53%, SPDR KBW Regional Banking (KRE), up 2.37%, SPDR Select Sector Financial (XLF), up 2.11%, HOLDRS Internet (HHH), up 1.77% and SPDR Dow Jones REIT ETF (RWR), up 1.48%.

Well, that sure was a couple of directionless market days to end the week. Today was just as unexciting as yesterday. The Dow Jones Industrial Average danced around on both sides of the unchanged level in today’s final minutes of trading, but that’s probably to be expected with today’s options expiration.

 Stocks began the day with a rally, but the buying fizzled out about an hour into trading and the major market indices finished the day mixed. As for the week, the bears were the clear winners. Even though more data pointing toward an improving U.S. economy surfaced this week, it was not enough to overcome the continuing worries over Europe’s ongoing problems. 

The Standard & Poor’s 500 Index added 0.32% today, but posted a decline of 2.83% for the week. After dropping below its 50-day price moving average on Wednesday, the S&P 500 has failed in its attempts over the past two days to close back above it.

 The Dow Jones Industrial Average closed flat on the day, down about two and a half points. The blue-chip average fell 2.61% this week and now finds itself back below the 200-day price moving average. The NASDAQ Composite Index gained 0.56% today, but posted a weekly loss of 3.46%. The Russell 2000 Index was up 0.84% today, but down 3.13% on the week.

 The top weekly performers in the S&P 500 were Vulcan Materials (VMC), up 15.59%, Novellus Systems (NVLS), up 7.92%, PG&E Corp. (PCG), up 4.55%, Edwards Life Sciences (EW), up 4.43% and Mylan Inc. (MYL), up 4.40%.

 The worst performing S&P stocks were First Solar Inc. (FSLR), down 30.13%, Sears Holding Corp. (SHLD), down 18.96%, Best Buy Co. Inc. (BBY), down 17.50%, Alpha Natural Resources (ANR), down 16.33%, Joy Global (JOY), down 15.58%, Harman International (HAR), down 13.91% and Salesforce.com (CRM), down 13.58%. Over one hundred of the five-hundred component stocks of the S&P 500 recorded a weekly loss of more than 6%. Most of these stocks display a decidedly bearish pattern on a weekly chart.

 Both the precious and base metals took a beating this week. The SPDR Gold Trust (GLD) was down 6.71% for the week, breaking down through its September/October lows. The iShares Silver Trust (SLV) fell 7.92% this past week and is testing its September low. The Global X Copper Miners ETF (COPX) dropped 9% and the Market Vectors Steel ETF (SLX) moved down 6.47%. 

The U.S. Dollar and long-term Treasury bonds did very well this week, while the Euro plunged. The PowerShares DB US Dollar Index Bullish Fund (UUP) was up 1.67%. The iShares Barclays 20+ Year Treasury Bond Fund (TLT) rose 4.81% for the week and the CurrencyShares Euro Trust ETF (FXE) fell 2.49% to a new 11-month low.

The stock market finally arrested its slide of the past few days, but gave back most of today’s gains before closing with modest plus signs. Stocks began the day with a rally on news that jobless claims for last week fell to their lowest level since May of 2008. Also giving a boost to stock prices early was a jump in the Empire State manufacturing index, which rose to a new seven month high. The index climbed to 9.5 in December from 0.6 last month. Many economists expected the index to rise to only 3.0.

 The Dow Jones Industrial Average climbed to a high of 11,965.99, up almost 143 points in the first hour of trading. It appeared as though the 12,000 level might once again be tested, but by the close of trading the DJ-30 retreated to 11,870.48, up 45 points or 0.38%. The blue-chip average is currently nestled between its 50-day and 200-day price moving averages, which are getting increasingly closer together.

 The Standard & Poor’s 500 Index closed today at 1,215.75, up 3.93 or 0.32%. At its high, the S&P 500 tested the underside of its 50-day price moving average today, but like most of the other major indices closed well off its session high. The NASDAQ Composite Index finished almost unchanged up 0.07%, while the NASDAQ 100 Index lost ground closing down 0.28%. Both NASDAQ indices are decisively below their respective 50-day price moving average.

Looking at some of the Worden Market Indicators, aka our T2s, I made an interesting observation. The NASDAQ advance/decline line (T2125) when plotted along with the NASDAQ Composite Index on a comparison chart shows a negative picture for the second half of this year. The NASDAQ advance/decline line actually started to show some subtle signs of deterioration relative to the Composite Index back in May of this year. A rather prominent negative divergence then formed with the last gasp rally into the July price highs. While the advance/decline line did show satisfactory participation during the rally from the early October lows, the very recent rally attempt during the final week of November and the first week of December noticeably lagged in terms of the number of NASDAQ stocks going up. Moreover, the A/D line has now moved below its November low and is very close to testing its October low. It won’t take much from here to send the A/D line down through its October low and thus a new multi-year low. For all intensive purposes the stock market has maintained a trading range since the beginning of August. A couple of times over the course of the last few months (i.e. the early October low and the late October high) it genuinely appeared as though we would see some kind of resolution. To date, no such resolution has come and the market remains, albeit volatile, but confined within a sideways trading pattern–virtually trapped in a vacuum with almost no trading volume to speak of. Many wildcards, especially Europe continue to control the frequent ebbs and flows affecting investor sentiment. Stocks continue to endure a period of uncertainty which has almost everyone on Wall Street desperately searching for clues. Personally, I still believe the prudent strategy is to play defense and keep exposure to equities at a minimum. The technical condition of this market still suggests to me anyway that risk levels remain high and that primary concerns should not lie with missing the next rally.

The Federal Reserve left interest rates unchanged today and reiterated they will stay the course in keeping rates low for at least another year. The Fed said the economy “has been expanding moderately,” but the unemployment rate will be slow to come down. 

It seems investors were looking for something more along the lines of a new stimulus package or even the mention that the possibility exists. While stocks did begin the day on a positive note, gapping higher on the open, prices peaked less than an hour into trading. Stock prices fluctuated over the next several hours, but maintained the lion’s share of their gains. The Dow Industrials were up 107 points going into the Fed statement, but the announcement pulled the rug out from under the market. The major averages almost immediately turned south under pressure of heavy selling. Over the next 80 minutes the Dow dropped nearly 225 points from its pre-statement level. Stocks did manage to stabilize and even bounce a little during the final twenty-five minutes of trading, but it was still a down day for Wall Street. 

The Standard & Poor’s 500 Index closed at 1,225.73, down 10.74 or 0.87%. The S&P Index is testing its 50-day price moving average right here. The Dow Jones Industrial Average pulled back a little more than 66 points or 0.55% to close at 11,954.94. The DJ-30 is sitting almost right on top of its 200-day price moving average. The NASDAQ Composite Index fell 1.26%, while the Russell 2000 Index lost 2.06%. 

Today’s leading gainers in the Standard & Poor’s 500 were Urban Outfitters (URBN), up 5.33%, NetApp Inc. (NTAP), up 2.13%, MetroPCS Communications (PCS), up 1.91% and Pfizer Inc. (PFE), up 1.81%. Those with the biggest declines were Best Buy Co. (BBY), down 15.46%, Harman International (HAR), down 7.26%, MEMC Electronic Materials (WFR), down 7.06%, Goodyear Tire & Rubber (GT), down 6.09%, Starwood Hotels & Resorts (HOT), down 5.61% and Macy’s Inc. (M), down 5.27%.

 Gold, silver, copper and steel all took another big hit today. The SPDR Gold Trust (GLD) fell 2.19% and is very close to a test of its 200-day price moving average. Every dip since early 2009 has held above this long-term moving average. The iShares Silver Trust (SLV) dropped 2.20%. The Global X Copper Miners ETF (COPX) lost 3% and the Market Vectors Steel ETF (SLX) was down 2.40%.

 The U.S. Dollar soared today and the Euro tanked. The PowerShares DB US Dollar Index Bullish Fund (UUP) broke out to a new ten-month closing high, up 0.98%. As UUP came off its August lows I wrote in my note of September 6: “This is a big positive for UUP and is likely an important reversal to the upside.” I continue to find the overall pattern on the weekly chart of UUP to be very bullish. The CurrencyShares Euro Trust (FXE) plunged 1.21% today breaking decisively below its October low and hitting a new eleven-month closing low.

Today’s stock market action was pretty much the inverse of yesterday. The market started positive and moved higher throughout the day. We saw some increased volatility over the final ninety minutes of trading, but the major averages finished near their session highs with strong gains. Stocks also managed to make headway for the week.

Our stock market received a big boost this morning from news coming out of the euro zone. As a result of the European Union summit, “European leaders agreed to sign an intergovernmental treaty that would require them to enforce stricter fiscal and financial discipline in their future budgets. All seventeen members of the European Union that use the euro agreed to the new treaty, along with six other countries who wish to join the currency union one day. Only Britain failed to go along.”

Equity investors also liked the positive reaction of European Central Bank President Mario Draghi, who said “it is a very good outcome for euro area members and it’s going to be the basis for a good fiscal compact and more disciplined economic policy in euro area countries.”

Also helping to fuel the rally was today’s report that U.S. consumer confidence has hit a six-month high.

The Standard & Poor’s 500 Index closed at 1,255.19, up almost 21 points or 1.7%. The S&P 500 tacked on 0.88% for the week. The weekly high was just shy of testing the 50-week price moving average. The Dow Jones Industrial Average gained over 186 points or 1.55% today to settle the week at 12,184.26. The blue-chip average gained 1.37% for the week. The NASDAQ Composite Index climbed 1.94% today and 0.76% for the week. The Russell 2000 led all major indices closing up 3.14% today and logging a weekly gain of 1.41%.

This week’s top performing stocks in the Standard & Poor’s 500 were Gannett Co. (GCI), up 12.01%, Monster Worldwide (MWW), up 8.58%, Dean Foods Co. (DF), up 7.57%, Teradyne Inc. (TER), up 7.29%, eBay Inc. (EBAY), 6.89%, Netflix Inc. (NFLX), up 6.81% and Lennar Corp. (LEN), up 6.68%.

The biggest decliners were Juniper Networks (JNPR), down 11.95%, Tesoro Corp. (TSO), down 11.06%, Darden Restaurants (DRI), down 9.09%, Newfield Exploration (NFX), down 8.16%, SunTrust Banks (STI), down 7.27% and Frontier Communications (FTR), down 7.03%.

Two-thirds of our thirty main Morningstar industry group averages finished the week with a gain. The strongest groups were Real Estate (MG440), up 3.62%, Food & Beverage (MG340), up 1.81%, Health Services (MG520), up 1.63%, Drugs (MG510), up 1.25%, Insurance (MG430), up 1.17%, Retail (MG730), up 1.14% and Banking (MG410), up 1.09%.

The worst performing industry groups for the week were Leisure (MG710), down 1.01%, Telecommunications (MG840), down 0.91%, Chemicals (MG110), down 0.77%, Metals & Mining (MG130), down 0.69%, Specialty Retail (MG740), down 0.56% and Aerospace/Defense (MG610), down 0.48%.

The market began today’s holiday-shortened session with a rally that peaked about an hour into trading. With the Dow Industrials up more than one hundred points at the morning highs the bears came a calling. Sellers stepped in and erased all of the day’s gains, taking stocks once again into negative territory. Staying consistent with the recent theme of declining equity prices, Black Friday marked the end of a very bad week for stocks. The bulls are likely giving thanks this week included only three and a half trading days.

Late last week (Nov. 17) I wrote, “with a number of asset classes, such as stocks, gold and oil all moving lower today it is apparent many investors are selling to raise capital. This is something we saw during the second half of September resulting in some pretty steep drops…with today’s close of 1,216.13, the [S&P 500] Index has moved back down into the 1,215 – 1,220 area. As you know from my recent reports, I believe this is an important level for the S&P 500 to hold. More selling pressure here and the S&P 500 could be headed for a test of my next trend line, currently at about 1,125.”

The Standard & Poor’s 500 Index closed today at 1,158.67, down 4.69% for the week. The S&P 500 has now declined 9.84% from its recent high reached on October 28. I believe the trend line I referred to in last week’s commentary remains very much in play. The trend line currently intersects the 1,125 level on the S&P 500, which is a likely target area for this pullback.

The Dow Jones Industrial Average finished the week at 11,231.94, down 4.78%. The NASDAQ Composite Index posted a weekly loss of 5.09% and is down 10.85% from its late October closing high. The small-cap Russell 2000 Index was especially hard-hit this week dropping 7.39%.

As one would expect, only a small handful of S&P 500 component stocks finished this week with a gain. The best weekly performers were Frontier Communications (FTR), up 1.70%, AutoNation (AN), up 1.67%, Biogen Idec (BIIB), up 1.44% and NVIDIA Corp (NVDA), up 0.79%. S&P stocks down the most this week were Netflix Inc. (NFLX), down 18.19%, AK Steel Holding (AKS), down 16.29%, Alpha Natural Resources (ANR), down 15.38%, Monster Worldwide (MWW), down 15.19% and Nabors Industries (NBR), down 14.04%.

The U.S. Dollar has maintained its recent strength having another good week and fast approaching a challenge of the early-October high. The pattern on a weekly chart is very attractive and suggests an upside breakout is close at hand. The PowerShares DB US Dollar Index Bullish Fund (UUP) gained 1.86% this week and is up 3.27% since I wrote on November 4, “The prospect of an intermediate-term bottom in the Dollar remains alive.”

Commodity prices have continued to slide since hitting a peak earlier this year. The PowerShares DB Agriculture Fund ETF (DBA), which lost 2.56% this week, has now fallen below last month’s low and is testing its 52-week low.

This week’s worst performing groups among our thirty main Morningstar industry group averages were Metals & Mining (MG130), down 7.53%, Electronics (MG830), down 7.01%, Internet (MG850), down 6.87%, Banking (MG410), down 6.81%, Energy (MG120), down 6.36% and Manufacturing (MG620), down 5.89%.