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Tuesday, July 03, 2007

Merger-Acquisition-Distribution-and FIREWORKS!





Monday morning Merger and Acquisitions are back in the spot light with several noteworthy developments. From a record setting $48.5 billion dollar private equity buyout of BCE to AT&T’s $2.8 billion dollar buyout of Dobson Communications and rumors of Bear Stearns as a potential takeover target. There has been recent concern over the vitality of private equity and M&A activity and with Monday mornings being the typical announcement of such activities, today’s developments were received enthusiastically across the board. Also contributing to today’s broad based rally (note: all 10 economic sectors closed in the green, albeit on declining volume) on the first trading day of the 3rd quarter, the yield on the 10-year note (TNX-drop the last decimal place for the current 10 year note’s yield) broke down below the mentally significant 5% level. Today’s ISM index played a significant role in allaying economic concerns with the manufacturing index coming in at 56 (note: any reading above 50 indicates expansion). Rate sensitive sectors benefit from the lower yield (lower interest rates) and this would certainly be good for the most significant sector, Financials. Keep in mind that most of the M&A activity has been financed with debt, so lower yields are meaningful in that respect.

As mentioned previously, today’s rally was broad based and led by rate sensitive sectors, Steel, Gold and Silver. The only group that showed notable weakness was Home Construction. The fly in the ointment at this point is the rising cost of a barrel of crude, now topping $71 a barrel for some light-sweet. The market has shrugged this off for the time being, but keep an eye on this because sooner or later and most probably sooner, it will come to the forefront-especially as developments in terrorism around the world take center stage. On a technical note, the Nasdaq 100 reached its highest level since June 2001.

Turning to my comments from June 5th video, I noted that according to the Stock Trader’s Almanac, pre-election June is typically stronger. Also noted, the Nasdaq’s summer rally, the 12 day period starting the 3rd to last trading day of June until the 9th trading day of July, on average has seen a 3.2% gain in the Naz since 1987. Almost prophetically the Nasdaq100 was up 1.28% on June 27 (the 3rd to last trading day of the month) and thus far has seen a gain of 2.38%. According to the STA, June is also the last month of the Nasdaq’s best 8 months.

Excluding the Nasdaq, July is the best month of the quarter for the market, this is in part due to the inflow of retirement funds. The first trading day of July has also seen the Dow Jones up 14 of the last 17 years, today makes that 15 of the last 18. Also of some interest, the first trading day of every month, averages more than all the rest of the year’s trading days combined. The benefactor of pre-election year July is the Russell 2k, averaging 2.1% and up 5, down 2. The STA is a useful tool to keep handy.

Now that we have dispensed with useful facts, lets delve into useless opinion. My collection of private, custom indicators are all looking quite bearish. In fact, lately it seems that all of the big spikes in volume have had a distributive bias according to my interpretation of my indicators. I am seeing continued negative divergences in just about every indicator on just about every index, save for some intraday time frames. There is room for more upside according to my working hypothesis, in fact I would not be even a little surprised if we saw a high volume gap up culminating in a sort of “blow-off” top. I’m not expecting much from the market with the shortened holiday week, which may actually explain in part the diminished volume today on all of the major indices. Or it could simply be a lack of enthusiasm for another push higher going into the summer doldrums. In any case, I’ll be spending the majority of my time looking for short set-ups and long opportunities in seasonal and safe-haven issues.

On a personal note, I have family in town for another couple of weeks and I’ll be one of the many cutting out early to enjoy an extended holiday this week. Videos will resume shortly and this week’s subscriber list will be out most likely Tuesday evening. Last week’s list, to my amazement, had some ideas that worked out almost exactly as expected in terms of time, entries, exits and targets. There were certainly some very worthwhile and profitable ideas in there and many more that are still in very good position. If you missed it, I will do a feature video in another week or so on the ideas presented. The list includes long and short ideas, short-term trades, swing and position trades, set-ups, entries, stops and targets for most ideas. Thanks a bunch to all of you who eagerly jumped on the opportunity to sign up for the 1st list, I hope you found it worthwhile. If you are interested in receiving this week’s list, HERE ARE THE DETAILS. Check back frequently as I’ll be throwing a couple of ideas out there soon. Enjoy your Fourth of July.

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