Monday, February 2, 2004
Issue Contents:
| 02:58 | U.S. Economic Calendar Key releases and earnings. |
| 03:31 | Groundhog Day Shadow or no shadow? |
| 04:01 | Carter G. Woodson Black history month. |
| 04:08 | Ernest Hendon An unexpected survivor. |
| 04:28 | Household Debt You think you've got it bad? |
| 04:34 | Easy Money Inflating asset prices. |
| 09:02 | Daily Swing Trade Survey of stock watchlist. |
| 09:04 | Daily Swing Trade Today's stock setups. |
| 09:25 | Swing Trading Principles Knowledge base. |
| 09:28 | Reminder The reload button. |
| 13:23 | Service Interruption ISP is down. |
| 16:16 | Active Trader Transcript Real time forum log. |
| 19:12 | Economic Data Summary of key releases. |
Monday, February 2
Earnings Highlights: PCAR, and conference calls with IP, ETR, and PCAR.
- 8:00AM U.S. Federal budget for fiscal year 2005 is released.
- 8:30AM Personal Income and Outlays
- 10:00AM Constructions Spending
- 10:00AM ISM Manufacturing Index
- 11:00AM 4-Week Treasury Bill Announcement
- 1:00PM 6-Month Treasury Bill Auction
- 1:00PM 3-Month Treasury Bill Auction
- 3:00PM U.S. Treasury announced quarterly borrowing requirements.
Tuesday, February 3
Earnings Highlights: AEP, HCA, AVP, and conference calls with TYC, AVP, AEP, HCA, SPOT, CL, F, and CSCO.
- 7:45AM ICSC-UBS Store Sales
- 8:55AM Redbook
- 9:00AM U.S. Treasury's Borrowing Advisory Committee meets in Washington to make quarterly refunding recommendations.
- 10:00AM Challenger Job-Cut Report
- 10:00AM Treasury Secretary John Snow testifies on budget issues before the Senate Finance Committee in Washington, D.C.
- 12:30PM Chicago Federal Reserve Bank President Michael Moskow speaks about the U.S. economic outlook at the county Chamber of Commercie in South Bend, Indiana.
- 1:00PM 4-Week Treasury Bill Auction
- 4:00PM Motor Vehicle Sales
Wednesday, February 4
Earnings Highlights: PTEN, RYAAY, LVLT, ETR, CL, CHRW, and conference calls with BUD, HET, CECO, CHRW, INTC and PIXR.
- 7:00AM Bank Reserve Settlement
- 7:00AM MBA Purchase Applications
- 10:00AM ISM Non-Manufacturing Index
- 10:00AM Factory Orders
- 11:00AM 3-Year Treasury Note Announcement
- 11:00AM 5-Year Treasury Note Announcement
- 11:00AM 10-Year Treasury Note Announcement
- 12:15PM Federal Reserve Governer Susan Schmidt Bies to speak at the Bond Market Association annual legal and compliance conference in New York.
Thursday, February 5
Earnings Highlights: HET, ALL, APCC, BUD, and conference calls with AES, ALL, LVLT, APCC, and MXIM. PCAR splits 3:2.
- 7:00AM Bank of English Rate Announcement
- 7:45AM European Central Bank Rate Announcement
- 8:30AM Productivity and Costs
- 8:30AM Jobless Claims
- 11:00AM 3-Month Treasury Bill Announcement
- 11:00AM 6-Month Treasury Bill Announcement
- 11:00AM Chain Store Sales
- 3:00PM Treasury STRIPS
- 4:30PM Money Supply
Friday, February 6
Group of Seven finance ministers and central bankers to meet in Boca Raton, Florida today. Foreign exchange rates is high on the agenda.
Earnings Highlights: PIXR, CI, and a conference call with CI.
- 8:30AM Employment Situation
- 3:00PM Consumer Credit
It's Groundhog Day, starring Punxsutawney Phil! While this tradition has roots going back to Europe, perhaps Groundhog Day the movie is more instructive:
(Buy.com) - Frank Capra meets Rod Serling in this high-concept comedy that thoroughly follows through on its premise. As a cynical weatherman, Phil Connors (Bill Murray) finds himself trapped by a blizzard he failed to predict and doomed to repeat the worst day of his life over and over again. At first he is horrified at the prospect of living forever in the small town of Punxsutawney, Pennsylvania, home of the groundhog, but eventually he must discover the key to moving his life forward.
Once again, for the fifth year in a row, TV weatherman Phil Connors (Bill Murray) is forced to cover the Groundhog Day ceremonies in Punxsutawney, Pennsylvania, an assignment he truly despises. But this year something truly bizarre happens after he finishes the report: When he wakes up the next morning, ready to leave, he discovers it's February 2 all over again. He tries to tell his producer, Rita (Andie MacDowell), what's happening, but neither she nor anyone else understands; only he remembers that they've already lived through Groundhog Day.
When the same thing happens the next morning, he thinks he's going insane and wreaks havoc all through the town. More and more mornings pass, all of them February 2, and all of them with an ever angrier Phil. Desperate to escape, he even tries suicide, but still another February 2 dawns.
As he starts realizing that his exploits are not making time march on any quicker, Phil begins to change his behavior, performing a series of lifesaving tasks until he becomes a model citizen, hoping it will be enough to get him out of Punxsutawney forever. Along the way he learns more about the people around him--and himself--than he ever thought possible.
The moral of the story is as applicable to traders and investors as it is to life itself. All of us can take something from each go-round of the sentiment cycle. Life is short, and hopefully we learn from our mistakes so that we get wiser as we get older.
February is Black History Month.
(MSNBC) - As children, we joked that the only reason February was chosen was because it is the shortest month of the year. The truth is, February was chosen because of the tremendous number of African-American pioneers and institutions born in this month -- from W.E.B. Du Bois and Langston Hughes to the NAACP and the first Pan African Congress.
I think this story was not planned to coincide with Black History Month, but it is a touching reminder that it wasn't long ago -- and some might even say it still is -- when America was a very different place.
Ernest Hendon, an unexpected survivor, died on January 16th, aged 96
(Economist.com) - THEY said Ernest Hendon did not look his age when he stood, two years ago, in front of the Alabama House of Representatives in Montgomery. His back was straight, his eyes bright. He felt good, he told reporters; and better still now that the Alabama House had expressed regret for what had been done to him. “I feel this means that it won't happen again,” he said happily.
Mr Hendon remembered the day the bus arrived, in 1932. It carried doctors and nurses who had come to do a study among the syphilitic sharecroppers. In exchange for their help they would get free medical examinations, burial insurance, free transport to and from the hospital in Tuskegee and—a rare treat—the chance to stop and shop in town. On the days they were examined, the men got a free hot meal. Along with 398 others, Mr Hendon, then 24, signed up to take part.
He was already unwell, though he himself, like most of the men, was not sure what was wrong with him. The doctors called it “bad blood”, a term that also covered anaemia and general weariness. Some of the volunteers were given, for a while, the fierce and ineffective syphilis treatment of the time: injection with arsenic compounds and mercury ointment for the crusted ulcers on their skin. Mr Hendon, like many of the others, was not. He was given “pink medicine”, or aspirin, and “some kinda brown-looking medicine”, which was iron tonic. When a “last chance” for free treatment was offered, Mr Hendon turned up and was given a spinal tap: “They give me a test in the back and they draw something out of me.” “They said it would do you good,” he said later.
None of it did him good. The doctors and nurses were not there to cure, but to observe the progress of untreated syphilis. Patients who are untreated sometimes develop no symptoms, and sometimes spontaneously recover; but they can also suffer liver deformity, heart damage, paralysis and insanity. Burial insurance was offered because the data for the study was to come from the men's autopsies. But none of this was communicated to them.
For 40 years, the Tuskegee Syphilis Study continued. Mr Hendon went for his examinations and, after 25 years, got a certificate of appreciation from the surgeon-general. The men especially liked Eunice Rivers, a motherly black nurse who made them feel at home in the hospital. Several of the doctors and nurses were black, and the Tuskegee Institute, which ran the hospital, was a black university. There was dignity in the proceedings, and a sense that the doctors cared about the health of poor blacks. At that time, few others did.
Ignoring penicillin
Yet the study also showed clearly the parternalistic racism of the age. The federal Public Health Service wanted not only to compare the effects of syphilis in blacks and whites, but also to stop black “degeneracies” spreading to the white population. It made no secret of this. The Tuskegee study was mentioned in reports and cited at conferences. The fact that it was doing nothing to cure Mr Hendon or the others was, however, kept quiet.
Certain moments were tricky. In 1942, the army drew up a list of likely recruits from Macon County. Many subjects of the study were on it, presumably including Mr Hendon, who was the right age. Having seen them, the local recruiting board ordered them to be treated for syphilis; but the assistant surgeon-general intervened to have their names removed from the list.
The next year, penicillin became an effective treatment for syphilis. It was not given to the Tuskegee subjects unless they asked for it. By 1948 the Nuremberg Code, inspired by revelations of experiments in the Nazi death camps, set standards for medical studies on human subjects. In Tuskegee, things went on as before.
No serious questions were asked until 1972, when a whistle-blower from the PHS talked to the Associated Press. Once exposed, the study was ended immediately. That very year, the surviving subjects filed a lawsuit against all the individuals and institutions involved. The government agreed to pay out almost $10m, of which Mr Hendon's share was $37,500, with free health care for life.
He had confounded expectations by living so long. More than 100 of the subjects died of the disease or related complications, together with at least 40 unwitting wives, and 19 children contracted syphilis at birth. A longer-lasting legacy was black distrust, which continues, of government doctors and clinical trials.
Mr Hendon was too ill to go to Washington when President Bill Clinton apologised, in 1997. Instead, he watched by satellite. But five years later he was in smiling form when Alabama said sorry. “I survived,” he said. “That's good.”
From the January 29th edition of The Economist:
Purloined from The Economist Global Agenda, dated January 30.
Easy Money
Is America’s Federal Reserve running risks with inflation?
(Economist.com) - THE Federal Reserve left its key interest rate unchanged at 1% this week, and said it could still afford to be “patient” before raising rates. Although many economists do not expect the Fed to increase interest rates until next year, others argue America is now growing at such a clip that the Fed needs to touch the brakes to prevent inflation taking off again.
As growth has picked up, so has the talk about inflation. The explosive growth of the third quarter (8.2% at an annual rate) started the debate. The slower but more sustainable growth of 4% in the fourth quarter (according to figures released on Friday January 30th) will keep the issue alive. Booming commodity prices and a weakening dollar (which could push up import prices) also argue for a pre-emptive rise in interest rates.
But concerns that inflation is about to pick up are probably overdone. For one thing, inflation is currently too low. Over the past 12 months America’s core consumer-price index (ie, excluding food and energy) rose by only 1.1%, and the Fed’s favourite measure of inflation, the core personal consumption expenditure deflator, by only 0.8%—the smallest rise in the 45-year history of that index. This is well below most estimates of the Fed’s desired rate of inflation of 1.5-2%. So the Fed would be happy if inflation rose a bit.
On present trends inflation could even fall further. Inflation is not driven by the rate of growth, but by the amount of slack in the economy. When output is below its potential, inflation tends to fall even if growth is brisk. Goldman Sachs estimates that America’s GDP growth is still almost two percentage points below its potential.
There is more evidence of slack in the labour market, where weak demand for new workers is helping to hold down wage growth. Average wages have risen by only 2% over the past year and are unlikely to pick up by much until the unemployment rate, currently 5.7%, falls to 5%. Meanwhile, productivity has surged by 5% over the past year, resulting in a sharp drop in unit labour costs (see chart). This is another reason to expect inflation to edge lower over the next year.
The falling dollar is a risk, it is true, but it has yet to have an effect: import prices have been broadly flat over the past year. One reason is that, although the dollar has fallen sharply against the euro, its broad trade-weighted value has fallen by only 8% over the past 12 months. Movements in currencies also tend to have less impact on inflation in America than elsewhere, partly because it imports less. Nevertheless, a further sharp fall in the dollar would eventually feed through into inflation.
Prices, then, are in little danger of being pushed up by the cost of labour or of imports. Might they be pulled up by demand? The latest figures suggest not. With wages almost flat, consumers are relying on tax cuts to boost their take-home pay. The $14 billion-worth of child tax credits mailed out in July and August helped to boost third-quarter consumer spending by 6.9% at an annualised rate. But without this artificial stimulus, growth in consumer spending slowed to just 2.6% in the fourth quarter.
Ben Bernanke, a governor of the Federal Reserve, has argued that there is no need to raise interest rates until inflation starts to rise. He may be right about consumer-price inflation. But there is a big risk that the current “easy money” policy is spilling over into inflation in the price of shares and houses.
Not only does this risk creating another bubble, but rising asset prices are encouraging already over-indebted households to borrow yet more to invest in already-pricey assets. Total household debt rose by 11% in the year to the third quarter of 2003, more than twice as fast as incomes. In a new report Andrew Smithers, a London-based economist, argues that American share prices are at least 60% overvalued. House prices also look alarmingly high.
The debate about whether the Fed should worry about booming asset prices when inflation is low is therefore likely to hot up again in coming months. A big difference between today and the bubble of the late 1990s is that inflation is now even lower, so the risks of deflation are greater if the Fed gets monetary policy wrong.
The Fed’s dilemma is simple. It needs to keep monetary policy loose to prevent inflation falling. Yet by holding interest rates low it may be fuelling an asset bubble, which when it bursts could make deflation even more likely since there is much less room for fiscal and monetary stimulus than after the bursting of the previous one.
Monetary policy is extraordinarily loose. An old rule of thumb is that when interest rates are lower than the rate of growth in nominal GDP, monetary policy is expansionary. Nominal GDP has grown by 6% over the past year, well above the 1% rate of interest. A small rise in interest rates would still leave monetary policy very loose. But it would give a warning to investors in shares and houses that the good times cannot last forever.
Today, I'll be providing analysis on a number of stocks on our watchlist. If you want to take a sneak peek at some of the charts that have already been prepared, they're here.
Last Friday, we featured HON, JNPR and ATML.
HON was not triggered on Friday, and I will not continue to stalk this one today.
The buy setup was triggered on JNPR and today we'll see if it can continue on to the first upside target, the January 27 swing high of 30.22. The stop loss should be raised to Friday's low of 28.15. Intraday traders can look for buy setups above Friday's high.
ATML did not trigger. Traders who want to continue pursuing the buy setup here should lower their buy stop to Friday's high of 7.18 with an initial stop loss of 6.90.
BRCM failed on a test of top, and for intraday scalping, a break of last Friday's low will have us looking for sell patterns on the 10 or 15 minute charts in case it heads down to test the January 23 swing low.
CHKP is right at the do or die point. We can call this a very marginal classic bull flag since volume has been contracting all the way since the January 20 swing high. Again, the buy stop is triggered on break of last Friday's high, and the initial stop loss should be placed at last Friday's low. The upside target is the January 27 swing high, but this setup is really ugly.
CPWR formed a bull flag and began to head back up last Friday. For intraday traders, look for buy setups above last Friday's high in case it continues up to test the overhead target of the January 26 swing high. ADX is extreme on the daily chart at over 47, but the fact is that this is a cheapie and it's not been rallying for a long time, so Greater Fools may rush in on this one.
This is a potential spike top on HAL that setups up a small hit and run swing trade on the short side. I will sell short on break of last Friday's low. There are two placed to put the initial stop loss. One is just under last Friday's high; the second is to use the day's high, whatever it might be when the short sale is triggered. I will use the tighter stop and only take this trade home IF it closes near the low of the day.
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Don't forget to check out the section on Swing Trading Principles!
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Real time forum log.
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Personal Income +0.2%
Consumer Spending +0.4%
(Econoday.com) - Personal income inched up an expected 0.2 percent in December, held back by a decline in worker pay. Wages and salaries fell 0.3 percent or $15.6 billion in the month, consistent with December's flat jobs market. A one-time $7.5 billion Social Security payment in the month to retirees helped to hold up income.
Personal consumption expenditures gained 0.4 percent. Gains were led by a strong 2.1 percent rise in durable goods spending. Spending rose only 0.1 percent on services and fell 0.2 percent on nondurables.
Construction Spending +0.4%
(Econoday.com) - Construction spending rose 0.4 percent in December, half as much as expected by market players. This was the smallest monthly gain this quarter, but total construction expenditures are still up 7 percent from a year earlier. Residential construction spending posted a 0.9 percent gain in December, less than the 2.1 percent rise recorded in November and the 2.5 percent increase posted in October. While residential construction spending rose less in December than the two previous months, it was 13.7 percent higher than a year ago. Nonresidential construction spending declined 1.1 percent for the month. The nonresidential sector remains the weak point in construction.
ISM Manufacturing Index 63.6%
(Econoday.com) - The ISM manufacturing index inched up 0.2 points in January to 63.6 after gaining 2 points in December and 4 points in November. The level of the ISM index was slightly lower than expected by market players after economists revised up their forecasts for the ISM index last Friday after the NAPM-Chicago surged for the month. The actual ISM index might be a bit disappointing to equity investors who were looking for a higher number. However, there is no question that the ISM survey reveals a lot of strength in the manufacturing sector in January.
6-Month Bill Treasury Rate 1.000%
(Econoday.com) - The ISM manufacturing index inched up 0.2 points in January to 63.6 after gaining 2 points in December and 4 points in November. The level of the ISM index was slightly lower than expected by market players after economists revised up their forecasts for the ISM index last Friday after the NAPM-Chicago surged for the month. The actual ISM index might be a bit disappointing to equity investors who were looking for a higher number. However, there is no question that the ISM survey reveals a lot of strength in the manufacturing sector in January.
3-Month Bill Treasury Rate 0.920%
(Econoday.com) - The 3-month bill rate rose to its highest level in two months, reflecting the Federal Reserve's statement last week that has incrementally heightened the risk of less accommodative monetary policy. At 0.920 percent, the rate on the 3-month bill is 3 basis points higher than last week. At 2.30 vs. 1.86, the bid-to-cover was firm especially given the slightly larger size of this week's auction ($19 billion vs. $18 billion last week).