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FirstAlert[tm] 5/20: Good News, Bad News For Stocks

fa_logo_sq_225px-w_bwMay 20, 2009 (FinancialWire) (By Dr. Joe Duarte) — Research in Motion (NASDAQ: RIMM), Apple Inc. (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT) and Cisco Systems (NASDAQ: CSCO) are among the stocks that have powered the Nasdaq 100 Index ($NDX) higher since March.

Elsewhere, just as the bears were looking to make their move, the S&P 500 (SPX) held its fall at its 20-day moving average, giving the bulls another chance to try for new highs from the March bottom.

The market is clearly showing some resiliency here. Yet, at the same time, it is not out of the woods either. There is overhead resistance at three points, which are so closely clustered that you have to wonder whether they can be breached to the up side. First, there is the 930 area, the May 8 high. Above that is the 935 area, where the upper Bollinger Band was at the end of trading on 5-18. Bollinger Bands are above and below the market, and move with the market, as dynamic envelopes. You can find an excellent treatise on Bollinger Bands in “Market Timing for Dummies” and “Trading Futures for Dummies.”

What’s important about Bollinger Bands is that as volatility decreases, they start shrinking around the price action of the market. And that usually means that a big move is coming. The most recent signal from the bands came on April 30, right before the current rally. The bands are starting to close in around the market once again. It will take a few days before they squeeze down far enough to predict another big move.

The next important resistance level for the S&P is 950. If the index can move above that it has a fairly clear path toward 1000.

Here is where we are. There is a good deal of uncertainty about what the Obama administration will do over the summer. Health care reform and energy policy are at the front of the agenda.

There are some rumblings about health care reform, which may ease some of the pressure on that sector. According to The Hill, Senator Ron Wyden (D-Oregon) is putting together and heavily lobbying for some kind of workable compromise, which may delay or reshape the universal, government sponsored, portion of the plan. This is the area of “reform” that has spooked the market, as some fear that a government program will eventually put private insurers out of business.

Energy policy is a whole different ballgame. The White House continues to push for cap and trade, a hard to understand and nebulous plan which seems to behave as a hidden tax on anyone who uses fossil fuels.

Looking at the Pharmaceuticals Index (DRG) and the Oil Service Index (OSX), it’s clear that both sectors are trying to force their way higher. Oil service is up against key moving average resistance, while the drug stocks have been moving slowly higher. As we noted here yesterday, Warren Buffett has been adding to his Johnson & Johnson (NYSE: JNJ) holdings, according to SEC filings. JNJ is one of our health care holdings here as well.

The next important area of the market is technology. The Nasdaq 100 Index (NDX) is an excellent barometer of large cap technology stocks, as it houses Microsoft, Cisco Systems, Apple and Research in Motion among others. Here we see another good piece of news. NDX has crossed above its 200-day moving average, the line that traditionally divides bull and bear markets. As with the S&P 500, there is resistance to be overcome. With NDX the key chart range is 1400 to 1435.

A purely technical look at the stock market shows that the bulls have not given up. There was clearly some profit taking last week. But the market held at key support levels and is trying to rebuild its head of steam in order to attempt a move toward new highs from the March bottom.

There are some positives and some negatives at work. The biggest positive seems to be that money wants to come into stocks. The negatives include political uncertainty and the fact that the summer, a period of low volume and trader apathy, lies ahead.

For now, we retain a trading posture. We have some open positions in all of our sections and continue to rely on ETF timing for much of our activity for now. But it’s clear that the short term, barring an unexpected event, has improved.

The Investrend Earnings Calendar features Advance Auto Parts (NYSE: AAP), expected at $0.91 versus $0.86 a year ago; Ann Taylor Stores (NYSE: ANN), expected at $-0.15 versus $0.47 a year ago; Deere & Co. (NYSE: DE), expected at $1.08 versus $1.74 a year ago; PetSmart (NASDAQ: PETM), expected at $0.3 versus $0.32 a year ago.

The Investrend Economics Calendar lists EIA Petroleum Inventories (10:30 a.m.), FOMC Minutes Released (2 p.m.).

The Investrend Events Calendar showcases ADY, CELG, DLR, SCOR at JMP Securities LLC Research Conference; AEP, CEG, ED, DTE at Edison Electric Institute Annual Finance Committee Meeting; AFL Analyst Meeting; ARIA, IDRA at Biotechnology Industry Organization International Convention; ARQL, DNDN, RGEN, CEPH at Leerink Swann Novel Cancer Therapeutics Roundtable Conference; BDK, BLT, LEG, WHR at Longbow Research Consumer & Commercial Products Conference; BJS, PXD, CHK, NE at UBS Oil & Gas Conference; BPFH, EIG at SunTrust Robinson Humphrey Financial Services Conference; CBE, GWW, TYC EMR at The Electrical Products Group Spring Conference; GS, ICE, TRAD, NYX at Fox-Pitt, Kelton Global Securities Industry Conference; KSU, CNI, CSX, NSC at Wolfe Research Global Transportation Conference; MSFT, JNPR, MA, INTC JPMorgan Global Technology, Media and Telecom Conference; STV, ASIA, CSIQ, AOB at Oppenheimer China Dragon Call Conference; SYK Analyst Meeting; TMO Analyst Meeting.

The Investrend Money Index is an indicator of the depth of market direction or indirection. While not always including the same stocks, the NYSE/NASDAQ 50 Most Actives indicate the direction in which the mass of money is flowing. Last session’s trading showed 29 advancers versus 21 decliners. Advancers were led by Tenet Hlthcre Cp (NYSE: THC) up 23.11%, Gen Motors (NYSE: GM) up 7.63%, Oceanfreight Inc. (NASDAQ: OCNF) up 6.55%. Decliners followed Huntington Bancshares Incorpora (NASDAQ: HBAN) down 7.62%.

Vote in the Investrend Poll Question of the Day at Investrend Information (http://www.investrendinformation.com).

I Investrend Website of the Day: http://www.playsportstv.com/

Quote of the Day: “That so few now dare to be eccentric marks the chief danger of our time.” John Stuart Mill

Today is: Eliza Doolittle Day.

Happy Birthday: William Bradford, Seth Pomeroy, Dolley Madison, Honoré de Balzac, John Stuart Mill, William Fargo, James Stewart, George Gobel, David Hedison, Anthony Zerbe, Joe Cocker, Cher, Tony Stewart.

Today in History: Portuguese explorer Vasco da Gama arrived at Kozhikode (previously known as Calicut), India, in 1498. Napoleon Bonaparte led his French troops in 1813 into the Battle of Bautzen in Saxony, Germany, against the combined armies of Russia and Prussia. Levi Strauss and Jacob Davis received a U.S. patent for blue jeans with copper rivets in 1873. Cuba gained independence from the United States in 1902. The Saturday Evening Post published its first cover with a Norman Rockwell painting in 1916 (”Boy with Baby Carriage”). Amelia Earhart took off from Newfoundland in 1932 to begin the world’s first solo nonstop flight across the Atlantic Ocean by a female pilot, landing in Ireland the next day.

[FirstAlertTM was created by Gayle Essary, founder of Investrend Communications, Inc., parent of Investrend Information (http://www.investrendinformation.com). The opinions expressed in FirstAlertTM do not necessarily reflect the opinions of Investrend.]

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