Thursday, May 3, 2007

It Was The Thursday Before.....

"Avoid having your ego so close to your position that when your position falls, your ego goes with it."

Colin Powell
Former Chairman,Joint Chiefs of Staff


This is a weekly chart of the S&P 500 showing how close the year 2000 closing high of 1527 really is. This level seems to be acting like a magnet, as fewer and fewer stocks are carrying the rally. None-the-less, it still looks there is going to be a serious attempt to get there. How soon will probably depend on the unemployment number released this coming Friday morning. The anticipation of the release of this economic number will probably be on the minds of every trader today, especially in the afternoon.

The chart below gets boring, but it makes a point that as this rally continues, fewer and fewer stocks are carrying the load. The advance/decline average is sloping down as we go higher. This could be a bearish sign but it could also be setting up a type of spring-board action to propel the market to that old high. So much depends on Friday's number.

This chart is similar to the adv/decl moving average, except it uses the percentage of stocks trading above their 40period moving average. It has shown some key divergences in the past, and is worth keeping an eye on for a macro view.

Below are the Broker Dealer Index (XBD) and the Dow Jones Transportation Index. If both of these indexes were following the last part of the rally in the overall market, it might take some of the skepticism away from the move. If they join in, getting that old high will not be difficult to accomplish. Might be a big "If".


The above charts are comparing the Nasdaq Composite Index to the NDX Nasdaq top 100 stocks. Lately the rally is mostly concerned the larger cap names and has not been as deep including the smaller cap issues. This is really illustrated in the second chart which compares the advance decline moving averages of both indexes. The larger cap names are where the action is taking place.

Juniper Networks and Cisco Systems are two examples of large-cap stocks leading this rally. Cisco reports earnings next week.


Kennametal Inc. (Kennametal) is a global supplier of tooling, engineered components and advanced materials consumed in production processes. It provides metal cutting tools and tooling systems. Kennametal specializes in developing and manufacturing metalworking tools and wear-resistant parts using a specialized type of powder metallurgy. It also manufactures and markets a line of tool holders, tool holding systems and rotary cutting tools by machining and fabricating steel bars and other metal alloys.

Kennametal is a stock that should be looked at on a fundamental basis as well as a technical one. If Dow Jones is reportedly worth $100 a share like some opinions voiced yesterday, then Kennametal is worth taking a look at. They are both in different sectors, but there is value there. With all the leverage buy outs taking place, KMT should get a look.

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