Interview: Contravisory Research---Noonan, William---Analyst
>> welcome back to “after the bell.” the bond market was closed today in observance of veterans day. things return to normal monday but the currency market was up and running. the dollar took a pause, falling against the yen and euro. pound, also in the plus column. the dollar has been on a tear lately reaching a two-year high against the euro. most of that has to do with interest rate differentials. the fed continues to raise rates while the european central bank remains on hold. u.b.s. and goldman sachs raised their forecast for the dollar versus euro and yen and lehman brothers said investors should add to their bet that the dollar will rise against the european currency. the dollar has been gaining after federal reserve officials raised rates seven times while their european, japanese counterparts left rates unchanged. wal-mart, world’s largest retailer, reports earnings ahead of theble00onday. our next guest says if market technicals are an indication, the company will likely show improvement in the bottom line. he is bill noonan, strategist and analyst with contravisory research. wal-mart’s trading range is between $45 and $60 a share for the last five years or so. what signs are we looking for to break out of the doldrums?
>> we typically look at how the stock is performing relative to the market over time so we basically have been looking at resistance right now at around the $47 or $48 level for wal-mart. and it has broken above that, actually, interestingly, in the past week or so so coming out of a long-term decline by our definition has been negative for us for a couple of years. recent improvement suggests it could surprise to the upside on monday.
>> monday, we do have earnings. you told us you had been shorting wal-mart shares the last year and a half or so and have recently covered those shorts. today’s wal-mart’s relative strength index chart shows it will probably drop sooner rather than later. tell me about your current strategy with wal-mart?
>> it has had a little bit of a run here and could be a little overbought in the short term and technically the trend is still down, and it’s been down for a long time, a couple of years, a normal negative cycle for us. once you get to that point, you are look for improvement over successive months. wal-mart has been improving the last couple of months and as long as it stays over the 200-day moving average for us, i would be willing to look at it to buy.
>> if we look at a wal-mart chart dating back through january 2004, we see a succession of lower highs up until this week. is this a possible break of trend of lower highs?
>> absolutely. and while we don’t anticipate that, we’re basically chickens. we wait for evidence to accumulate. we want to see the breaks confirmed. which, to us, it’s very close to that right now. so, yeah, i think that is constructive, that it has broken above previous highs and we’ll see, i would expect that on monday it―or investors it appears are looking for a positive surprise, notwithstanding a short-term pullback, we might consider the stock in the months ahead.
>> wal-mart is reporting earnings ahead of the bell on monday. what aspect of the earnings release will move the stock?
>> we don’t look at the underlying fundamentals, our philosophy being that observing the relative price, the underlying fundamentals are reflected in the trends. recent performance suggests that those numbers, earnings, could surprise on the positive side.
>> could you be more details on that? could we get above $49, if we hit $50, would that be significant in terms of breaking resistance?
>> yes, absolutely. at $50, if we were to update our signal, at that point it would go from a down trend to an up trend. within an up trend, you might have various pullbacks along the way but once we do turn positive, we generally get 18 to 20 months of outperformance so if we turn positive on the stock which is $50 is possible, it’s the expectation that it could be an outperformer the next 12 to 24 months.
>> who is the better long-term trend, wal-mart or target?
>> if from our perspective, we’ve been recommending target. it’s still in an up trend and a stronger stock than wal-mart from a technical perspective and we would continue to favor target at this point. if wal-mart does improve fundamentally which would be reflected in relative price trends, maybe in the future we might look at wal-mart to add but at the moment target is the stronger of the two stocks.
>> you described retail overall as a divergent sector. could you explain that for me? >> definitely. the retail sector―i should say first of all that over the past six to nine months we’ve had negative change for the retail sector, consumer discretionaries specifically. having said that, within the retail space, there are opportunities to buy and potholes, too, so you have to be very selective in there. the target versus wal-mart is a case in point. in the same industry group we favor target over wal-mart and that could change.
>> thanks a lot. bill noonan, analyst with contravisory research. a fund manager met with more than 3,000 shareholders. we’ll tell you who it is.
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Listen Market briefing --- Lori (medium)
NYSE --- Deb (fast)
Oil price --- Bob (fast)
Nasdaq --- Robert (slow)
>> and a poll of analysts shows more than half of those surveyed predict prices will fall next week. back on wall street, the dow and s&p 500 were higher for the third week. general motors led automakers higher and basic materials stocks also had a good day. for more on today’s trading action, here’s a areort from deborah kostroun at the big board.
>> even with the bond market closed because of verns day, there was a rally but below average volume. general motors hit a 13-year low yesterday and was the worst performer this week in the dow jones industrial average but a turnaround in today’s session. looking at the gainers in the s&p 500, auto stocks at the top of the list along with materials and real estate. general motors, biggest leader on the dow jones industrial average on the day after united auto workers members voted to approve a plan to help g.m. trim healthcare costs. materials performing well after copper rising for the fourth straight week after inventories of the metal used in things like homes, cars and appliances, increasing less than forecast in china. china is the world’s largest buyer of copper. that helps out the material stocks, especially phelps dodge, helped out by the record high copper prices. monsanto boosting fiscal 2007 profit forecast, helping out monsanto in the materials index. the philadelphia gold and silver index as we are talking about copper, looking at gold, up almost 3%, gold rising for the fifth straight day on signs of increased demand for gold as an alternative currency and helping many of those stocks. as we’re talking about commodities, looking at crude oil, for the week, it was down 5%. in friday’s session, closing below $58 a barrel. gasoline for the week down 8% and the energy stocks, the worst performers this week of the 24 industry groups in the s&p 500, it was down 4%, but what we did see in friday’s session, the energy stocks have been down most of the week but you saw many of the oil services up on the day. so closing out the week on an upnote. i’m deborah kostroun at the new york stock exchange.
>> thank you. transportation stocks powered the nasdaq higher for a fourth straight week. robert gray has details on the nasdaq trading from the market site in times square.
>> -- we’ll get to that in a moment. first, the drop in oil prices helped boost the market but there were other catalysts and bob bowden has the story.
>> it was a week where, if oil prices were the dog, stock prices looked like the tail. looking at the oil price moves this week, crude prices down every day except tuesday. if you look at the s&p 500 index, it’s a mirror image, up every day except tuesday, the one day oil rose. that’s the day-to-day view with the inverse correlation every day this week. crude oil overall down 5% and oil stocks moving down in tandem. seven of the worse―worst 10 all in the oil sector. foreign investors showing renewed interest in the u.s., whether measured by dollar strength as the euro feld to a―fell to a two-year low against the resurgent dollar yesterday, the euro down $1.16 on thursday. the euro, by contrast, worth as much as $1.35 as recently as january. another indication of foreign investor interest, treasuries. 10-year yields fell as foreign investors bought a record amount of 10-year notes in yesterday’s auction. stocks reacted to third-quarter earnings reports. stuart freeman is chief equity strategist with a.g. edwards and attributed the rally in stocks to lower oil prices and third-quarter corporate profits.
>> the numbers in the third quarter, 64% of them were better than expected and we’re just about through earnings season and i think analysts are liking what they’re hearing about fourth quarter and next year and i think all those things are allowing the valuations, which are very attractive in the market , allowing investors to buy these stocks here.
>> turning to tech for a moment, while some stocks fell this week, some tech stocks fell like cisco systems after reporting revenue last quarter slightly below analysts’ estimates. down over 2% on the week. overall, tech stocks rallied, in particular, chip stocks, large cap names like intel and applied materials, weeks with better than 4% gains for beth of those games and freescale semiconductor hitting an all-time high today.
>> as promised, let’s check with the nasdaq and robert gray.
>> lori, energy prices helping boost stocks again on friday. the nasdaq rising for the ninth day of the past 11 sessions, closing above the 2200 level for the first time since august 3. august 3, the nasdaq touching 4 1/2-year highs. for the week, the nasdaq up 1.5%. the nasdaq 100 also rising on the session, as well, and rising to its highest level since january of 2002. volume was below average as it was veterans day on friday. the bond market was closed. we did see advancers outpacing decliners in the session. in friday’s trading, we saw the transports rising, nasdaq transportation index, to another record during the session. the internet stocks also rising, in fact, reaching their highest level since february 15 of 2001 for that goldman sachs internet index and the biotech index pacing gains, as well. the biotech index up some 10% from the october 12 lows. transports helping lead the gains on the week, including internets and biotech stocks higher for the week, as well. dell was rising during friday’s session after reporting earnings thursday after the close, said they were going to buy back at least $1.7 billion worth of their own shares and see fourth-quarter earnings as much as 42 cents a share, matching the average estimate. the prior week, dell disappointed investors saying they would not meet their own revenue forecast for the second straight quarter and shares falling two weeks ahead of the report so giving back some of the losses in friday’s session. other movers include portalplayer, maker of components for apple. gilead sciences rated new buy at deutsche bank and microsoft at its highest level since late august. at the nasdaq, i’m robert gray.
>> thank you. new developments at six flags, the theme park company urging shareholders to reject an offer by daniel snyder to boost its stake in six flags. snyder is offering $6.50 a share to triple his stake in the company to about 35%. management says snyder is trying to take control of six flags without paying full value. the stock was little changed. shares of wal-mart are near a three-month high. we’ll find out if investors should sell the rally or hold on for a while. we’ll be right back.
