InvestmentHouse.com

Jobs Report Tops Expectations

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 07 Mar 2010 18:20:00 +0000

SUMMARY:
- Jobs number may have been a throwaway, but stocks rally all the same.
- NASDAQ joins small and mid-caps over the January highs while SP500 moves into that January range.
- Jobs report tops expectations, kind of, with some good news and some bad news.
- Government jobs will lead the jobs recovery through summer, but does that help?
- Treasury revises deficits massively higher longer term and for 2010 as projectsion prove futile.
- Nice rally leaves many stocks extended after good runs, but others are setting up to start stepping up.

Regardless of the validity of the jobs number, stocks post an impressive rally, at least on NASDAQ and the growth areas.

The jobs report on Friday was a throwaway given the terrible weather that skewed the results. It was still better than expected, however, and investors took it as a positive. It originally called for a loss of -20K jobs to start the week, but then Lawrence Summers said we could have -100K or
-200K jobs lost due to the weather. Expectations were revised to a -68K level in the aftermath of those comments. -36K topped expectations but did it really? Prior to this, expectations were for a 20K decline. Therefore, you always have to look past the headlines on these numbers to see what is really going on.

In any event, the market did not seem to mind. On Thursday, I said that once the jobs report got out of the way (whether it was good or bad), the market would show its next move. It did start to do that; buyers came in and jumped the market higher. Even SP500 gapped higher on Friday, and it was aided by financials and many stocks across the board as breadth was strong. There was a strong early surge in the first hour, and then there was a gap around the half-hour point. That is where SP500 gapped into the bottom of the January consolidation at 1131. It gapped through that number and rallied further, it consolidated, and then it rallied toward the top of the bottom of the January range. That may sound confusing, but you have to look at things in that respect. This is a wide trading range, and how far it can make its move inside the range is an indication of how strong the move is. The SP500 gapped higher and raced to the peak, putting it in the middle of that range. It was, no doubt, a strong move in terms of price and bringing the buyers back into the market. . NASDAQ also enjoyed a strong move. It gapped sharply higher as well and rallied through the top of its January range and made it by .7. It closed above the prior January high and rallied on stronger volume. Now it joins SP400 and the SP600 small caps, moving through the January peak to a new rally high following the March 2009 lows.

OTHER MARKETS

Dollar. The dollar started stronger given some decent economic data. It was trading at 1.3559 Euros prior to the open, better than the 1.3581 shown on Thursday. As the day wore on, the dollar once again faded off its highs. At the close it was down against the Euro (closing 1.3618), breaking back above the 1.36 level that used to be the bottom of the range. It has broken through several times and can easily rally back up since the ice is broken, but it had also failed to take advantage of that move. It is getting shoved back down each time. It is a strange move because one would expect the dollar to strengthen as the economy strengthens. Investors obviously were not that excited about the jobs number. They must have viewed it as something of an anomaly given that the weather plays such a significant roll. It is strange that the dollar is not surging higher with the market if this is based on a stronger US economy. The dollar is still in its uptrend, but it made a break lower on Wednesday that broke its near-term trend. Since then, you have to watch it closely to see what it does. It could continue to consolidate and start higher as it did in late December and early January. Indeed, this is a very long, strong move from mid-January up to the end of February, and one would expect some kind of consolidation. It is giving it right now, and it is still in decent shape thus far. It has not rolled over by any means.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Oil. Oil prices had set up and are now making their move toward the top of the range. It had a nice, strong surge in February, it had the consolidation, and then the start back up this weekend. If the US economy will recover, and if China and India remain strong, then demand for oil should be higher. There is still concern about Europe, but the market is pricing in more demand for oil, and it is starting to bump into the upper end of its range that it has traded in the past five months. It has been stuck here for some time, and this will be an important test. It made a higher low on the last test, it rallied and consolidated, and now it is sprinting toward that high. My anticipation is that it will break out this time. It may stall back somewhat afterward and come back, but it has the momentum since it rallied and paused before taking on the old high. Oil closed up on the session, depending on what market you are looking at. New York (81.77, +1.56) happens to match, almost to the penny, the Light Sweet Crude Index.

http://investmenthouse.com/ihmedia/xoil.jpeg

Gold. Gold was struggling on the session. It did not make a clear break to the upside, although it did close positive (1,133.80, +.70). There is a bit of a different read depending on which market you look at. During the week, it made a renewed break higher from the prior trendline break in February. It broke the downtrend line, tested it, and rallied this week. It closed the week testing that move, sitting right on top of a support level. Gold looks ready to move higher again. For those interested in gold, you can play this rally up to the prior peak and likely higher toward the all-time high hit in December (over 1200).

http://investmenthouse.com/ihmedia/xgld.jpeg

Bonds. Bonds have been trading strangely, but they were trading on Friday as one would anticipate if we assume the economy will recover. If the economy recovers and the Fed raises rates, then you would anticipate bond yields to rise and bond prices to fall. That is exactly what happened. The 10 year bond closed with a yield of 3.60% on Thursday. On Friday, bonds sold off sharply as stocks rallied, closing the 10 year at 3.68%. That is a significant one-day rise that shows there was finally some selling in bonds. Bond investors bit the bullet and fell in line with the fact that the Fed must raise rates if the economy will continue the recovery. It may be a slow recovery in process, but it is a recovery nonetheless. Bonds are in jeopardy of peaking out. After rallying back the past two weeks, they have come up to a resistance point and are in a position where they could turn over and fall back down looking at the TIPS where the next support is at the 103 level.

http://investmenthouse.com/ihmedia/tip.jpeg

TECHNICAL

INTERNALS

Breadth. Breadth had a very strong upside session with 3.8:1 advancers on NASDAQ and 4.7:1 advancers on SP500. With the SP500 moving up to the January ranges, as well as SP600 and SP400 trading sharply higher to new rally highs, you would anticipate breadth to be solid as it was on Friday.

Volume. Volume moved up on NASDAQ, moving back over above average on that index and trading at almost 2.3B shares, up 10% on the session. That was a very solid move higher on that strong, above-average volume. It was not as high as prior volume, but it was the good surge in volume that you want to see when an index moves to a new high. Volume on the NYSE was up 10% as well, trading 1B shares. Unfortunately, that does not get it above average. Even though SP500 moved up to the prior peaks and the mid-caps and small caps solidified their move over those levels, volume is still somewhat anemic. Can we really complain about that? Yes and no. I would like to see better volume given that the indices are taking out prior highs. Before this, it was just a trade up inside the trading range, and you should not worry that much about volume in that case. I would like to see expanding volume on this move. NASDAQ is showing it. Looking at the NASDAQ chart, there was high volume early in the week as the market gapped higher. There is no doubt that the techs are showing this kind of volume.

CHARTS

NASDAQ. NASDAQ's volume was up, and there was strong volume early in the week as NASDAQ broke higher over the February interim peak. It was a very strong move with good volume, and that shows plenty of buyers backing the rally to the upside. NASDAQ moved through the January range, clearing the intraday peak by 0.7. It was not much, but cleared it, so that shows that some of the ice is being broken. People always want to attach significance to one specific point in any move. That is usually a fool's errand because the market will overshoot to the upside and downside before it hits equilibrium. This does not answer all of the questions, but it does show when you consider the volume and recovery in stocks such as AAPL and GOOG that the tech buyers are back in the mix. There is still upside here, and it would take a big reversal to bring the sellers in and push this back down.

SP500. While it did rally, SP500's volume was still below average. It was somewhat of a disappointment given that the index is bumping up into the key level of the January consolidation. It is halfway into the mix and showing good strength to the upside. The question is whether it will make it out of here. I anticipate, with the other indices breaking through, that the SP500 could get up to this level and then the other indices SP600 and SP400 will come back to test their breakouts. When that happens, SP500 will come back and test around the 1125 level, where are there is support. It can use that as a staging area for the next move up toward the breakout over the January peaks. It was in an ABCD down pattern, but it looks like it will try to break that up and follow the rest of the indices higher thanks to the financials helping out and lending more support on Friday.

SP600. SP600 added to its gains on Friday. It already broke over the top of its range early in the week, and it even tested it for one day before moving higher and solidifying its gains to the new rally high. When the small caps move well, that is a positive for the economy because they indicate what is coming up ahead. If the small-cap stocks are anticipating greater earnings (as they are by building in higher prices), that means a better economy down the road.

SP400. The SP400 are speaking the same language as the small caps, as they showed the same movement, fortifying their positions above the January high. It was a very strong move, and the mid-caps are also a good indicator for the future health of the economy. It is not as good as the small caps because they are very much dependent on the US economy alone, rather than other economies overseas, to buy their products. But it is still a good thing to see.

DJ30. The Dow Jones is still not at its January peak. Similar to the SP500, it is right at the bottom of the range but has not made a break over. Indeed, SP500 is leading the Dow with respect to its advance. Dow volume was still rather anemic, and that is what SP500 is showing as well.

SOX. The SOX is nowhere near its January peak. It has been lagging, but it has made a higher low over a support level. On Thursday, it reached way down to that support level intraday and snapped back. There are chip stocks that may prove to be buys for us, and I was looking at some late last week. I held off putting them on the report, but we could definitely move in with some chip stocks this week because they are not overbought like many other stocks that have led this move higher. The market moves up in waves. Once some areas are extended, the money will come out of them a bit and be taken elsewhere as the big-money funds look around for other places to put the profits. That means they will be looking to other areas that have lagged somewhat that would be chips and financials, for instance. These are places we need to be looking for the next move higher.

Does this mean that there is no trouble? Not necessarily. Three indices the SOX, Dow, and the SP500 have not made their breaks higher. The moves from other indices have mitigated the danger to the downside, but some of the stocks in leadership are still in patterns that could suggest selling. That does not mean the entire market will sell. It could just be those particular stocks in those sectors that sell off, but we need to be aware that the SP500 and two other indices have not made the new highs yet. SP500 gives every indication that it intends to make that break, but we have to see it do so. It may take another two weeks for it to make that break if it comes up and tests back before moving higher. I would not complain about a test, but I want to emphasize that it is not going to be a straight, upside shot. Everyone is convinced that the upside is at hand and will stay here, so we need to watch out for other sectors that are in trouble and may act as a drag on the indices. They could also give us downside plays even as the rest of the market moves up. We have both upside and downside plays in hand, and that can be profitable; we took a lot of gain off the table on Friday and during the rest of the week.

LEADERSHIP

Retail. Retail continues to move higher. Retail stocks, despite a low consumer confidence reading, show tremendous upside gains. Same store sales were solid this week, and they have already built in a lot of gains prior. There were strong moves over the past four weeks for many of these stocks, and they have made us some money along the way. ANN is one of these. PNRA consolidated laterally and made a strong breakout on Friday. Retail continues to perform well; indeed, it outperformed much of the market. As with the small caps' relationship to economic improvement down the road, retail stocks tend to start higher early when they anticipate there is economic improvement (and thus better consumer consumption down the road). We have been seeing that for months with the retail stocks.

Financial. Financials are moving up. GS started to break higher on Thursday and gapped to the upside on Friday, continuing that move. JPM joined in the action on Friday after a brief flag consolidation and gapped higher. WFC had been moving up slowly on low volume over the past few sessions. It gapped higher on Friday on stronger trade, though it is at some resistance. It is definitely not in a buy position until there is a test.

Technology. Technology is running well after being shaky just a few weeks back. AAPL was one of the problems in testing the key range in January, but it put that to the side with a gap above that level on Friday. This is a breakaway gap: there is strong volume and move over the prior resistance levels. AAPL is putting its iPad out in April in the US and many other countries. I am looking for a chance to move in on this breakaway gap. There is usually a sideways lateral move, and that gives the opportunity to take up new positions. It looks like AAPL might be a good play. Do not give up on a stock just because it gaps. Breakaway gaps can be great indications and setups for new runs to come because, when a stock makes this kind of gap, it tends to run in the direction of the gap after a bit of hesitation. We look for that and then can move in. GOOG is also showing solid strength, and we picked it up. I noticed it was moving, and I am kicking myself for not getting in right where it showed that the buyers were back in at a key support level. It gapped higher on Friday on strong volume. It is also not in a position to buy right now. It did clear some important resistance, and if it comes back and fills this gap, we might be able to squeeze in a play up to 575 maybe beyond that if things continue to improve.

Energy. Certain parts of energy continue to improve. CVX is starting to break higher and clear some resistance, and that gives it room to run up into the next range. We might be able to get a trade out of that. It is not going to run to 100 overnight, but we might get a trade out of that kind of setup. CNQ, a Canadian natural resource, mimics the price of oil. Now that the price of oil has broken toward the top of its range, it cleared an important resistance range and gapped higher on Friday.

The refining sector took off rather unexpectedly; cost-versus-pricing has hit a sweet spot, and they have taken off to the upside. VLO is moving past the January and early February resistance, as well as resistance points at that level from prior months on strong volume. We will see if it backs off and comes back and tests this level we could then have a nice trade going to the upside.

Semiconductors. Semiconductors have not rallied as much as the rest of the market. FCS has formed something of a triangle, making a higher low. I am not saying this is ready to buy just yet, but it did have distribution this past week and held up. It is interesting, and I will watch that to see if anything comes out it that we can take advantage of. TQNT made a nice break higher after a horrible gap down in October. It has broken higher and come back to test its break, holding the 10 day EMA. It has some room up to the gapdown point (indeed, up to the October peak). $7.00 to $8.50 is not a bad run, and we could pack in a 20% gain on the stock play alone. MSCC broke higher over a consolidation point as well, and is moving on solid volume. It is something we may get a play out of, and I just want to see what will give the best risk/reward. Remember, the overall market has put in some big moves and is somewhat extended, particularly sectors that have been moving well. They are extended, and you do not want the throw a bunch of new money at them right now. We were letting our positions taken last week and earlier this week run higher for us on Friday. I did not want to buy a bunch of new positions, but wanted to take some gain. It is all about when you move in and when you buy. A stock can continue to run after a big move; you can get lucky that way, but stocks often surge and rest. The entry point is important, particularly when things are a bit extended and you are looking for trades

Steel, Coal, Industrials. Steel is having some issues. STLD moved up on Friday; indeed, it was up for the entire week and more. But it is still part of the downside ABCD pattern. There was low volume as it moved up on Friday, and it is still in a big, thick resistance band. I am still looking at it as a potential downside play because it has rallied with the market on the move higher, but it has not changed the complexion of the pattern at all. The character is still the same, i.e., it is in a negative pattern.

BTU was up on Friday, and its volume was better. It may make something out of this, but it is in that ABCD downside pattern. I want to watch this and see how it resolves. If this break higher can hold, we will forget about it for the downside and see what forms upside. Looking at the market, you cannot have rose-colored glasses on either way as to what is going on. Look at both sides and have plays ready for both based on what stock patterns are showing. Then, when the market moves, you can make your plays. The market was moving up on Friday, and we made a lot of money to the upside because our downside plays did not come into play (so to speak) on Friday's gains.

CAT was not that strong on Friday. It has an ABCD pattern as well. It gapped higher but volume was still anemic, and it is still below serious resistance. It tapped that resistance on Wednesday. There are still strong, well-known stocks that are struggling, and that is why the SP500 has not broken through its January peaks yet. A big part of that, of course, was when the financials were not moving anywhere. It was difficult for SP500 to make any serious upside traction.

THE ECONOMY

Please view the Economy Video at the following link:

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

http://investmenthouse1.com/ihmedia/Economy.wmv

THE MARKET

MARKET SENTIMENT

The VIX has been tanking, down another 1.3 on Friday. Volatility gapped lower and is now at the mid-January low. All of the fear in the market in late January and February has dissipated, and it is now trading back at the recent low. That is what set off the next run higher, of course. You have to watch for that a little, although the action on Friday put some nails into the theory that the market will roll over any time soon.

Looking at the big picture, volatility is down below 20. The typical range used to be from 20-30, but volatility can run significantly lower. It is trading at a support point where it traded in 2008, mid-year, and then again in 2007. Going back even further, it is still well above the ranges hit from 2004 to 2007 as the market rallied back. Even though it seems low right now, as the market rallies, it can get lower and still have no trouble for stocks moving higher.

VIX: 17.42; -1.3
VXN: 17.92; -1.18
VXO: 16.81; -1.12

Put/Call Ratio (CBOE): 0.83; -0.18

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 42.1%. Bulls rising but slowing the move (41.4% last week) after the 5 point run the prior week. Rising from 35.6% and over the 35% threshold level below which suggests bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Getting close to the 35% level that is the threshold for what is considered a bullish climate. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 22.7%. Down from 23.3% last week, also slowing the move after dropping from 27.8%. Over 35% is considered bullish for the market, so still a ways off even though bulls are falling to a bullish level. Continuing the rise from 16%ish on the lows this leg where it held for several weeks. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +34.04 points (+1.48%) to close at 2326.35
Volume: 2.283B (+10.23%)

Up Volume: 1.918B (+641.662M)
Down Volume: 367.213M (-441.357M)

A/D and Hi/Lo: Advancers led 3.83 to 1
Previous Session: Advancers led 1.41 to 1

New Highs: 257 (+124)
New Lows: 9 (0)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +15.72 points (+1.4%) to close at 1138.69
NYSE Volume: 1.051B (+10.58%)

Up Volume: 968.004M (+383.386M)
Down Volume: 73.986M (-276.005M)

A/D and Hi/Lo: Advancers led 4.74 to 1
Previous Session: Advancers led 1.33 to 1

New Highs: 558 (+300)
New Lows: 49 (+27)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +122.06 points (+1.17%) to close at 10566.2
Volume DJ30: 184M shares Friday versus 165M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

Big economic reports coming out are the initial claims, the weekly claims report on Thursday, and retail sales on Friday along with the Michigan Sentiment. Business inventories will be interesting to see with respect to whether businesses are still liquidating inventories or trying to build inventories in anticipation of economic recovery.

As for the market itself, SP500 is bumping up against this resistance level and trying to follow NASDAQ, SP600, and SP400 higher. It is likely to come up and bump this level; the momentum is definitely to the upside now. We do not have a lot of stocks within leading sectors that are in good position to buy. We were just letting our positions that we took earlier rise and make money for us. Indeed, we took quite a bit of gain off the table on Friday because the moves have been strong to this point, and the indices have broken through resistance. Often there is a test quickly after they make this break. With SP500 moving up toward the peak, it would be natural for it to bounce up, hit that level, then come back to test before moving back through. We were taking some gain off the table because, number one, there was the gain. In some positions, we wanted to take options because they were March options and there were good gains to take off the table. But we also always take gains as we move up because we are not out of the woods there can be reversal off this level. The action for the last couple of days pushed that to the back burner, but we cannot forget about it altogether. SP500 has not made a break, and until it does, it is still suspect. We did take a lot of nice interim gain off the table because it was there, and you do not want to lose it after such a strong run. This was a late-week run, and when there is a late week run, you typically get some kind of giveback to start Monday. You buy on Monday and sell on Friday.

We are still going to look for upside plays there could be some out there. There are sectors that have not participated in this rally. They may have been leaders earlier in the rally, but have had to consolidate and may be setting up. We will look at those for upside positions because they can still move higher. Indeed, we took a couple of positions at the end of the day on Friday because they were in good position and held their gains. We will continue to look for those, but we will not be buying everything we can get our hands on. At the same time, I still want to look at downside positions. They did not pan out for us. We were ready in case they did, but a lot of those stocks are still in the same patterns and did not change their character even though the market shot higher and NASDAQ broke through it January peak.

We will still be looking downside because, number one, they present opportunity whether the market moves higher or not. Secondly, if the market does reverse for some reason, we have to deal with that. Right now, there are issues still out there. Europe is having trouble even though it showed better data on Friday. Europe is a day-to-day soap opera. Then there is the issue here at home with regards to spending and the healthcare bill they will try to push through over the next week or two. That is locking up a lot of money we simply do not have. The market has not reacted adversely to it yet because there has been so much liquidity from the Fed, but it will have to start raising at some point, and there are more auctions of bonds next week as well. At some point, the market has to choke on it. It has not done it yet, and the market can always run further than you think it can or should. Do not get into over-thinking the market. Be ready, as we have been, whether it breaks upside or downside. You will have to throw away some plays, but be ready to use the other half of the plays you have in your quiver and ready to shoot. We will look for opportunity to the upside on stocks that are not extended. We will look for a pullback at some point to be able to move in and pick up some of these stocks that have made good rallies and are going to be testing. PCLN, NFLX they are out there. They have made good moves and will come back to test again. We need to be ready for those, and we will have a few downside plays in case there is a reversal. That does not look to be in the cards, but the low volume on the NYSE is still a worry along with the fact that the large caps have not caught up with their kin. But the ones that are ahead are the growth stocks, and that bodes well overall for the market. Have a great weekend.

Support and Resistance

NASDAQ: Closed at 2326.35
Resistance:
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak

Support:
2320 to 2326.28 is the January high
2319 from the September 2008 peak
2292 is a low from January 2008
2273 to 2282 marks bottom of January 2010 lateral peak
2275 - 2278 from the February 2008 and April 2008 lows
2245 from July 2008 through 2260 from late 2005.
The 50 day EMA at 2226
2210 (from September 2008) to 2212 (the July 2009 closing low)
2205 is the November 2009 peak
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
The 200 day SMA at 2070
2060 is the August peak
2048 is the early October 2009 closing low
2015 from an early August 2008 peak

S&P 500: Closed at 1138.70
Resistance:
1151 is the January 2010 peak
1156 is the Sept 2008 low
1185 from late September 2008
1200 from the July 2008 low

Support:
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1119 is the early December intraday high
1114 is the November 2009 peak is breaking
1106 is the September 2008 low
The 50 day EMA at 1104
1101 is the October 2009 high
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The 200 day SMA at 1039
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low

Dow: Closed at 10,566.20
Resistance:
10,609 from the Mid-September 2008 interim low
10,730 is the January 2010 peak
10,963 is the July 2008 low

Support:
10,496 is the November 2009 high
10,365 is the late September 2008 low
The 50 day EMA at 10,318
10,285 is the late December consolidation peak
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
The 200 day SMA at 9670
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

March 05 - Friday
Unemployment Rate, February (08:30): 9.7% actual versus 9.8% expected, 9.7% prior
Nonfarm Payrolls, February (08:30): -36K actual versus -68K expected, -26K prior (revised from -20K)
Hourly Earnings, February (08:30): 0.1% actual versus 0.2% expected, 0.2% prior
Average Workweek, February (08:30): 33.8 actual versus 33.7 expected, 33.9 prior
Consumer Credit, January (15:00): $5.0B actual versus -$4.5B expected, -$1.7B prior (revised from -$4.6B)

March 10 - Wednesday
Wholesale Inventories, January (10:00): 0.2% expected, -0.8% prior
Crude Inventories, 03/06 (10:30): 4.03M prior
Treasury Budget, February (14:00): -$210.0B expected, -$42.6B prior

March 11 - Thursday
Continuing Claims, 2/27 (08:30): 4495K expected, 4500K prior
Initial Claims, 03/06 (08:30): 460K expected, 469K prior
Trade Balance, January (08:30): -$41.0B expected, -$40.2B prior

March 12 - Friday
Retail Sales, February (08:30): 0.2% expected, 0.5% prior
Retail Sales ex-auto, February (08:30): 0.0% expected, 0.6% prior
Michigan Sentiment, March (09:55): 73.8 expected, 73.6 prior
Business Inventories, January (10:00): 0.2% expected, -0.2% prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Good News, Bad News Faces the Market

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 28 Feb 2010 19:35:00 +0000

SUMMARY:
- Good news, bad news faces the market again, and once more the market overcomes a sloppy start to close with gains.
- Gains on Friday, but still status quo after a week of lateral consolidation.
- GDP rises to 5.9% though consumption fails to match expectations.
- Chicago PMI rises nicely as manufacturing continues as the leading sector.
- Existing home sales drop 7.2%, a weak bookend to the 10.2% drop in new home sales.
- Leadership is solid in some sectors, but the old leaders need a lot of work.
- Indices appear to want an upside move to test the January rally peak. Then things get interesting.

Market shakes off weak start, continues weeklong lateral consolidation.

Things were choppy on Friday and in a relatively narrow range once more. Stocks started a bit higher, and the futures faded early before the bell only to rebound, fade, and then chop around through the afternoon. A steady trend higher closed the indices out with gains. It was not much of a gain, but not bad given the adversity the market had to overcome. It was the last day of trading for February, and I want to note that volume was higher on the SP500 and stocks held their range. After the two-week rally off the sharp January to February selling, the market slid sideways to consolidate and test. That is not bad action. It was good action with respect to NASDAQ and the SP600. They rebounded, broke above a resistance level, and then moved laterally to close out the week. SP600 had the same action. It was a solid rally, it broke back above the October peak (and even the late-January consolidation area), and then slid laterally above near support at the 10 day EMA. It is very difficult to find fault with that kind of action. The indices rallied back up to this prior January peak and moved sideways. They could not move past that level, and the indices rolled over. This is a classic point where they could weaken again and fall. When there is a steep correction after a run higher, often the rebound takes the stocks back up just below that level where they test and may ultimately fail. They were not doing that last week; indeed, they overcame adversity to do that.

The SP500 was a bit more problematic. It has not broken above its November and December consolidation range. It tested it, it kissed it last week, but it faded back. It also moved in the lateral range to consolidating the two-week rally off the February low. It is struggling to catch up with NASDAQ and the small caps and put itself in better position to rally back up toward the January peak. It may not catch up with them, but that remains to be seen. Friday and all of last week brought a status quo move, and that is the lateral consolidation after bouncing. The question is whether growth will win out (i.e., NASDAQ and SP600) and move up, or whether the struggling SP500 will dominate the market and weigh it down, pulling it back to the downside. Friday did not provide real answers to that effect, but it did show an important theme in the market last week. The economic data was better in some cases, but it was taxing the market in others. The market continually had to fight to overcome the negative data. On the positive side, the second iteration of the Q4 GDP came out on Friday at 5.9% versus 5.7% expected and originally reported. It was good news, but it was mostly with respect to inventory liquidations. That really did not change, and it cast doubt on whether this can continue in quarters to come. Most everyone believes it will not continue, but that is how a recovery often starts: inventories are written down and written off, and new production takes their place.

The Chicago PMI that came in stronger than expected. Manufacturing continues to improve and provide the backbone to the economic recovery. On the downside, there is still economic data that is weakening. Existing home sales fell 7.2% after an 11.2% decline in new home sales reported earlier in the week. There was very weak consumer confidence reported earlier in the week at 46. On Friday, Michigan Sentiment was not terrible at 73.6, but it did not meet expectations. That is still on the low end of the range for that particular economic report. As bad news tends to come in threes, there was the continuing saga of the European Union and the woes of Greece. On Friday, the Greek prime minister said the worst fears regarding the Greece economy are confirmed. The prime minister said that everything that could possibly be wrong with Greece and its economy is exactly as it was feared. You do not hear that very often. Either he has turned over a new austerity leaf and is trying to be as candid as possible (in an effort to get the unions under control and stop them from striking), or else he just wants to commit political suicide. Maybe it is a bit of both.

The market managed to rally back from this mixture of good and not-so-good data. That is the other theme of the week: overcoming bad news and managing to either rally or hold the lateral consolidation. That is always a positive for the upside. Whenever bad news hits the market and it refuses to go down, that indicates the sellers are done selling and the market can move higher. While the action for the week was good in that respect, there are still hurdles to climb even for NASDAQ and SP600 as the market moves forward.

OTHER MARKETS

Dollar. The dollar struggled on Friday. The dollar was trading in the 1.36-1.38 range, and the dollar rallied sharply last week. When economic times got concerning and there were fears concerning Europe, the dollar rallied. It is still a safe haven, and it was driven it below 1.36 Euros. It bounced back on Friday (1.3616 Euros versus 1.3554 Thursday). Against a basket of currencies, it closed flat, but it is still in a nice uptrend. The dollar may come back to test, as it has done periodically, but there is nothing negative with respect to where it is right now. Indeed, it broke over an important resistance level, tested it, and rallied further last week. The dollar remains strong, rebounding from that long selloff. That is aiding us with respect to inflation because as the dollar strengthens, oil becomes relatively cheaper for the US. We are no longer importing as much inflation with every barrel of oil.
http://investmenthouse.com/ihmedia/dxy0.jpeg

Oil. Oil traded in a range, just as stocks did last week. It was moving laterally after its two-week rally. It posted up below the November peaks, which is a resistance range, and it moved laterally to close out the week. It did manage to gain on Friday ($79.57, +1.25), but it was a widely varied week. Oil is approaching the top of its overall trading range and getting more volatile as it does so. That would be understandable given the mixed data coming out from Europe, the US, and other parts of the world. Demand levels are falling in Europe and the US. While they are still strong in China, India, and other BRIC countries. Oil is bouncing up and down, but note how it is bouncing in the top part of its range. It is not breaking out and does not look like it will threaten a breakout anytime soon. However, the higher low suggests it may attempt the top of the range once more. There is still demand out there. With the US growing to 5.9% GDP in Q4, I would expect oil to hang in there because we are still the largest consumer of oil on the planet.
http://investmenthouse.com/ihmedia/xoil.jpeg

Gold. Gold had a decent day on Friday. It is also trading in a range, moving laterally all week. It struggled, falling on Wednesday and almost giving up its breakout over its down trendline running from December into early February. It did hold that level, tapped it twice on Wednesday and Thursday, and gapped higher on Friday ($1,118.30, +11.20). It was a very strong move on the gold index to close out February. It is holding its breakout, but that does not mean it has resumed the uptrend. It looks favorable to do that, although it looked favorable to do that a week ago, and again as it tested. It is mired in its own breakout over the trendline and is having trouble getting back up.
http://investmenthouse.com/ihmedia/xgld.jpeg

Bonds. Bonds were rallying to end the week. The 10 year closed up (3.62% versus 3.64% Thursday). It was over 3.7% earlier in the week. It was a dramatic drop in bond yields as bond rallied. Why are bonds rallying? Ben Bernanke has said The Fed is going to have to raise rates and that is always the first step. They start talking about it before they can do it. Moreover, they made their first test run of a rate hike, raising the discount rate by 25BP two weeks ago. That tells everyone that The Fed is starting to take the necessary steps to move us back into a tightening mode. He is telling bondholders to get out of bonds over the next several months, yet they were not doing that last week. Worries about the economies and Europe are still pushing investors into US bonds. It is still a safety move despite our debt.

Bond investors, despite the Bernanke warnings, are not that sanguine about the economic future for the US. Much of that has to do with what is going on in the EU. Even though credit default swaps on US corporate debt are coming down faster than they are on European debt, there is still concern that the US is potentially facing a double dip, similar to what Europe is heading toward right now. We do not have the pull out of the recession we wanted. GDP was up at 5.9%, but this is not that strong of a recovery. It is not the recovery of Q3 in 2003 when the economy surged 7.4% and there was a massive explosion of new businesses in the United States. There are not that many new businesses being created when you look at the state rolls and filings with respect to LLCs, sole proprietorships and limited partnerships. They are not expanding the way they were in 2003 not even close. Small business continues to struggle, and it is not getting any relief despite the President's claims that he is a fierce advocate of small business. He is not. His policies are not benefiting small businesses, and it will get worse with healthcare and other issues that the Obama administration will continue to push (cap and trade, etc). There are problems out there and the bond market is acknowledging that. It is not ready to sign off on the 5.9% GDP gain as the indication that the recession is over.
http://investmenthouse.com/ihmedia/tip.jpeg

TECHNICAL

INTERNALS

Breadth. Flat at -1.1:1 on NASDAQ and + 1.6:1 on NYSE. Again helped by the small and mid caps.

Volume. Volume was down slightly on the NASDAQ, falling to 2.1B shares. It rose almost 9% on the NYSE to 1.2B shares, moving and staying above average on the NYSE. There were some positives there, but it was mainly the end-of-month volume as positions were moved around before March started. March is the last month of the first quarter, so we could potentially see new money put into the market to start next week.

CHARTS

NASDAQ. NASDAQ again posted a modest gain, but the main factor here is the range trade a week of moving laterally after the two-week rally. It managed to hold the November and December consolidation, and that is a positive. Volume remained above average as it moved laterally, testing lower and bouncing up. That can indicate that buyers are stepping in at this key support level, picking up stocks. It would suggest that NASDAQ could bounce higher and test the lows in the January lateral move, which would be near 2275.

SP600. SP600 had the same action. It reached lower intraday, bounced back, and held in a tight, lateral range. It is also holding above the October peak. It is at the lows in the lateral January consolidation. It was at an inflection point earlier in the week, where an index or stock will test and then fall back again after rebounding from a first significant correction. This will be the big test for the SP600 and NASDAQ if it rallies to that level next week. Will they turn back down at that point, sell off, and give a larger correction? That has happened many times in the past, and we will just have to see if it happens here.

SP500. SP500 is unable to break out above the significant November and December range. NASDAQ broke it and has held, and SP500 has failed to break it and has fallen back. It is still inside of the range that runs from 1100-1105. This is a jumbled area for the SP500. People like to pick out the 1100-1105 area as a significant level, and it is. There are many highs and lows in this range as well. Some of them are at 1085 where it has held many times and bounced back. Indeed, it sold back to 1086 on Thursday and snapped back from there. That will be a key level as well. The November and December peaks are an important level as is 1085. A break either way above that is a positive, and below that is a negative. Even if it breaks above this level, it is still going to have to test to move through the January peak. If it makes this breakout, that will be the inflection point for SP500 as well. NASDAQ is almost there, and SP600 is there right now. That will determine whether this market moves higher or corrects. Until then, it is banging around in a range. We are trying to play short-term trades up and down that range using stocks that are well positioned to move up or down. We do not want to play stocks that are in this jumble and do not have definite patterns or momentum going. I have been trying to put plays on the report that are very solid patterns whether upside or downside and not ricocheting back and forth inside of a trading range. The problem is that these trading ranges are narrow, and that makes it more difficult to play.

LEADERSHIP

Healthcare. Healthcare looks good across the board. MDZ has a nice cup-with-handle pattern, a breakout, and a test. SCLN had a big run and a selloff, but it has based and formed a nice flag pattern. HUM is trying to make a break off this nicely formed pennant pattern. AET is trying to rally off the 200 day EMA. HOLX is making a nice breakout on good volume. Across the board, healthcare has good patterns. That is an example of finding good patterns to the upside or downside that can make us money. Those are the ones we are focusing on, rather than those that are bouncing around in a trading range.

Transportation. KSU is in a nice pattern. A cup, it broke higher, it has tested. It was surging on Thursday, it came back some on Friday, but it is still holding. If it makes the break higher, it is ready to run further.

Auto Parts. Auto parts are doing well. TEN has a nice cup-with-handle pattern and is breaking higher. BWA has rallied, consolidated with a double bottom, broke out, and is testing again. It looks ready to make the break back to the upside.

Retail. Retail continues to look strong. ANN is surging higher on strong volume, hitting a new rally high. PCLN started back up on Friday after an excellent test of the gap higher on earnings. JOSB broke a downtrend, rallied, bounced back up, and it is consolidating laterally, looking to make a break higher as well.

Steel. MTL is not that great of a pattern. High, tried to double bottom and did rally, but it sold off and gapped lower. It is trying to hold at a key support level. It may do that, but it is not a great pattern. We might get a trade out of it, but it is an iffy proposition right now. AKS has a similar pattern, though it broke below its support levels and is now bouncing back up to them. Whether you are looking at metals, most industrials, or energy, the patterns are not as solid. Those areas led nicely in 2009, but then started to struggle over the past few months and have suffered. They have broken down their patterns and are now in the process of trying to rebuild them, though they are not there yet. Many of them are just jagged patterns, as you can see with AKS. Is neither in a good position to move upside nor one that would give you confidence to move into. That is what is happening with a lot of the older leadership. It has to consolidate again, but the bases have not set up yet. On the other hand, healthcare and auto parts have set up good bases and look as if they could continue higher and become leaders to the upside.

THE ECONOMY

Please see Economy Video at the following link:

http://investmenthouse1.com/ihmedia/Economy.wmv

THE MARKET

MARKET SENTIMENT

VIX: 19.5; -0.6
VXN: 19.78; -0.74
VXO: 19.16; -0.35

Put/Call Ratio (CBOE): 0.88; -0.15

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 41.4%. Significant jump in bulls, rising from 35.6%. 35% is the threshold level below which suggests bullishness. After the move bulls moved up. Perhaps this lateral market consolidation will be enough to send the indices back up. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Getting close to the 35% level that is the threshold for what is considered a bullish climate. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 23.3%. As with bulls, a significant change in bears, falling from 27.8%. That indicates more overall market bullishness. Of course it comes after the rally, but at least the market is hold the gains with a consolidation. Down from 26.1% the prior week and 22.2% before that. Over 35% is considered bullish for the market, so still a ways off even though bulls are falling to a bullish level. Continuing the rise from 16%ish on the lows this leg where it held for several weeks. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +4.04 points (+0.18%) to close at 2238.26
Volume: 2.146B (-2.29%)

Up Volume: 1.172B (+357.317M)
Down Volume: 1.007B (-475.164M)

A/D and Hi/Lo: Decliners led 1.16 to 1
Previous Session: Decliners led 1.32 to 1

New Highs: 100 (+19)
New Lows: 11 (-5)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +1.56 points (+0.14%) to close at 1104.49
NYSE Volume: 1.247B (+8.85%)

Up Volume: 734.639M (+189.283M)
Down Volume: 497.273M (-87.11M)

A/D and Hi/Lo: Advancers led 1.65 to 1
Previous Session: Decliners led 1.06 to 1

New Highs: 210 (+64)
New Lows: 18 (-5)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +4.23 points (+0.04%) to close at 10325.26
Volume DJ30: 282M shares Friday versus 242M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

Next week is the start of March, and you will often see new money put to work as a month starts. Not only does the wind blow in March, but it typically is an upside month for the stock market. In other words, the probability is that March will be a positive month. That would mean that the consolidation that is happening in NASDAQ, SP600, and even SP500 would resolve to the upside and maybe get a breakout over this January consolidation range. That is going to be the big question as the market moves forward. Will it be able to get up to that level, in the case of SP500? If it does, the question is whether it will be able to move through, or whether it will go into a larger correction as you typically see after a nice trend higher. There is that deeper correction, a recovery attempt, and then a fall down to an even deeper and lengthier basing period. That is what this is right now a basing period. The economy is on the mend. The Fed is still being loose with money even though it says it will tighten. We are looking at a recovery period, but it is just a slow lethargic recovery. Thus, a basing process after the big 70% run in the stock market since the March 2009 low seems to be the most likely course of action. It is difficult, if not impossible, for the market to move 70% and then correct modestly over a four-week period only to resume another big upside move.

Even though the GDP is expanding, there are enough roadblocks to keep it from being a great recovery. The logical course of action is a further basing period. That might be the logical course of action, but often the market does not do what we think would be logical. Nonetheless, we have to watch for that as the market continuing higher. Indeed, it likely will try to continue higher next month with NASDAQ rallying up toward the January lows. I say that because of the consolidation this past week where the market overcame negatives almost on a daily basis and continued to hold the range. With that kind of tenacity over a key support level, we would look for it to continue up and test the next level as the minimum move it would make on the next bounce. Again, with NASDAQ as well as SP500 and SP600, that will be a key point and a potential inflection point for this correction from January to early February as well as the relief bounce experienced in response to that correction.

Economic data is well stacked for the week. There is nothing scheduled on Monday, but that does not mean nothing will happen. New money could be put in the market, we could hear something over the weekend with respect to Greece or Spain ( or Portugal or Ireland or Italy). There is always that potential, as well as income and spending. That leads to the inflation number with the PCE. We will have the ISM manufacturing index, the Challenger jobs survey, the ADP employment survey, and ISM services. Then there is continuing claims, productivity, factory orders will be important especially after durable orders this week. They were very solid, but it was all on orders of Boeing aircraft. That is not necessarily a bad thing, but I would like to see the orders spread out over more industries. There will be a full plate of economic data next week as the indices take on the January peaks.

While the market is in this in between range, we will continue to look for the solid patterns that are not jerking around in a trading range. That does not mean we will ignore trading ranges. If there is a range that has a large enough span, we can play that to the upside and downside when a stock or the index gets up to that level and looks like it will come back down. Most of what we are seeing right now have been narrow ranges over the past couple of weeks, so we are looking mainly at patterns whether they are auto parts, healthcare, or in retail. Those look solid for upside plays. We have other stocks in other sectors on the report as well, but we have to find the right range to take advantage of those. This is a choppy period; it is not a steady uptrend. There was the trend up, a break down from that trend, a larger correction, and a relief bounce. We are still in no-man's land. For instance, NASDAQ is over key support, but it is still below key resistance and is right in the middle of them. This is more difficult to invest and trade in. We are looking for great stocks in great positions to move into because they can deliver nice gains. They are not trapped inside of a range subject to the whims of the market. Stocks trapped in a range right now are trading with the market because the market is trapped in a range. That could be good or bad, but with the market bouncing back and forth each day inside the range, it is very difficult to trade a narrow range. Therefore, we have to avoid them for now and wait until a trend sets up for them meaning a break higher or break lower. I will be watching very closely to see if NASDAQ gets up into the 2275 range. From there all the way up to 2325, it has a key test ahead of it. If SP500 gets up as well and breaks out over the November and December peaks, it will also have an important test ahead of it. We do not want to be caught in plays that are trading on the range because gaps can kill you inside of a narrow range, especially if there is a breakdown of that range.

We still have plenty of action ahead of us. The market still has not tipped its hand. It looks like it wants to try higher toward the January peaks, given the action this last week where it shook off the bad news, held over support, and kept trying to make the move higher. With that in mind, we will look for a break to the upside. If it comes, we will play it with good stocks and see what happens. If we get the breakdown, we will be closing up our upside plays that are problematic and looking to play more downside. Have a great weekend.

Support and Resistance

NASDAQ: Closed at 2238.26
Resistance:
2245 from July 2008 through 2260 from late 2005.
2273 to 2282 marks bottom of January 2010 lateral peak
2275 - 2278 from the February 2008 and April 2008 lows
2292 is a low from January 2008
2319 from the September 2008 peak
2320 to 2326.28 is the January high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak

Support:
2210 (from September 2008) to 2212 (the July 2009 closing low)
The 50 day EMA at 2211
2205 is the November 2009 peak
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
The 200 day SMA at 20522055
2048 is the early October 2009 closing low
2015 from an early August 2008 peak

S&P 500: Closed at 1104.49
Resistance:
1106 is the September 2008 low
1114 is the November 2009 peak
1119 is the early December intraday high
Bottom of the January 2010 consolidation 1131 to 1136
1133 from a September 2008 intraday low
1151 is the January 2010 peak
1156 is the Sept 2008 low
1185 from late September 2008
1200 from the July 2008 low

Support:
1101 is the October 2009 high
The 50 day EMA at 1099
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The 200 day SMA at 1033
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low

Dow: Closed at 10,325.26
Resistance:
10,365 is the late September 2008 low
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,730 is the January 2010 peak
10,963 is the July 2008 low

Support:
The 50 day EMA at 10,289
10,285 is the late December consolidation peak
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
The 200 day SMA at 9618
9430 is the early October low
9387 is the mid-October peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

February 26 - Friday
GDP - Second Estimate, Q4 (08:30): 5.9% actual versus 5.7% expected, 5.7% prior
GDP Deflator - Second iteration, Q4 (08:30): 0.4% actual versus 0.6% expected, 0.6% prior
Chicago PMI, February (09:45): 62.6 actual versus 59.7 expected, 61.5 prior
Michigan Consumer Sentiment, February (09:55): 73.6 actual versus 73.9 expected, 73.7 prior
Existing Home Sales, January (10:00): 5.05M actual versus 5.50M expected, 5.44M prior (revised from 5.45M)

March 01 - Tuesday
Personal Income, January (08:30): 0.4% expected, 0.4% prior
Personal Spending, January (08:30): 0.4% expected, 0.2% prior
PCE Prices - Core, January (08:30): 0.1% expected, 0.1% prior
Construction Spending, January (10:00): -0.5% expected, -1.2% prior
ISM Index, February (10:00): 57.8 expected, 58.4 prior

March 02 - Wednesday
Auto Sales, February (14:00): 3.8M prior
Truck Sales, February (14:00): 4.4M prior

March 03 - Thursday
Challenger Job Cut Survey, February (07:30): -70.4% prior
ADP Employment Survey, February (08:15): -10K expected, -22K prior
ISM Services, February (10:00): 51.0 expected, 50.5 prior
Crude Inventories, 2/26 (10:30): 3.03M prior

March 04 - Friday
Initial Claims, 02/27 (08:30): 475K expected, 495K prior
Continuing Claims, 02/20 (08:30): 4617K prior
Productivity-Rev., Q4 (08:30): 6.2% expected, 6.2% prior
Unit Labor Costs, Q4 (08:30): -4.4% expected, -4.4% prior
Factory Orders, January (10:00): 1.2% expected, 1.0% prior
Pending Home Sales, January (10:00): 1.7% expected, 1.0% prior

March 05 - Saturday
Unemployment Rate, February (08:30): 9.8% expected, 9.7% prior
Nonfarm Payrolls, February (08:30): -20K expected, -20K prior
Hourly Earnings, February (08:30): 0.2% expected, 0.2% prior
Average Workweek, February (08:30): 33.7 expected, 33.9 prior
Consumer Credit, January (15:00): -$3.8B expected, -$1.7B prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Fed Discount Rate Hike Rattles Market

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 22 Feb 2010 00:03:00 +0000

SUMMARY:
- Fed after hours discount rate hike rattles market but cannot keep it down.
- CPI turns down the heat on the inflation after the PPI stoked the fire a bit.
- Dollar breaks below 1.36 euro again, but again recovers.
- Oil continues its rally toward the top of its range.
- Indices continue their climb toward the January peaks though SP500 still has to deal with another key level first.

Once more stocks overcome a tad of adversity.

A solid two week rally continued Friday as stocks once more faced some headwinds but in the end came out on top. Not a big move but you have to be at least somewhat impressed with how stocks fight back and how money rotates through the market. Friday the large cap techs struggled, but the 'over there' sectors (industrials, energy, metals and other commodities) scored solid gains.

The adversity du jour came from the Fed and the ripples fanning out from its move. After hours Thursday the Fed raised the Discount Rate, the rate banks charge one another for short term loans at the 'discount window' needed to meet liquidity demands, 25BP to 0.75%. The Fed and its band of merry soothsayers explained that this was a technical move and as such is not typically made at meetings but as a matter of ordinary course. Thus it was made outside the last meeting ended last week.

That it was raised is in keeping with exactly what Ben Bernanke said earlier in the week, i.e. that the Discount Rate would be raised; he just didn't say when. That it is done outside rate decision meetings is not exactly true. During the Greenspan era it was raised often in conjunction with the Fed Funds Rate, and I recall one specific event when it was raised with the FFR and the journalism majors on CNBC were lathered up about the move. It is a technical move: it is kept a bit higher than the FFR to make it something of a penalty to have to use it. The reason: the Fed wants banks to go to each other to meet capital requirements, not the Fed. The Fed removed the 'penalty' on the rate during the crisis to remove any stigma or hesitance about going to the window. Now it is just putting it back on in order to wean banks off of the free money from the Fed, preferring, as it should, that they go to the open market.

The market initially took the news as a necessary step before the Fed could start hiking rates. That is exactly what it is, but the Fed has not said when it will actually start hiking rates. One Fed official said about three months back that the 'extended period' language in the statement meant 6 or so months. Thus as that language was still in the last statement it is a pretty good guesstimate to say another six months from then, or in late summer. Regardless, the Fed is laying the necessary groundwork for the inevitable rate hiking, doing just what it said it was going to do.

Initially the market was down after hours and into the pre-market, but after investors digested the facts they again bought into the market. After all back in 2005 and 2006 the Fed was hiking rates 25BP each meeting and the stock market still climbed. Eventually the Fed goes too far and chokes things when it should be doing the opposite, but that is how the Fed, envisioned as evening things out and avoiding imbalances, creates the very imbalances it supposedly helps us avoid.

In any event, the market swallowed the news and once again, as it has done all week, it overcame adversity and rallied back to close positive. Not a big move by any means, but again stocks turned positive after opening lower.

Stocks also received some help from the CPI that came in tame, even negative on the core, cooling the worries the PPI stoked Thursday. The dollar bounced on the Fed move, falling below 1.36 euro, but as it lost some strength on the day stocks recovered. By the close the indices were all positive though SP500 still has an important fight ahead of it next week as it sits just below the top of the November/December consolidation.

OTHER MARKETS

Dollar. Again the dollar was up early, rallying on the Fed raising the Discount Rate. Why? If it suggested the Fed was closer to raising the FFR, the higher rates would support a stronger dollar. Pre-market the dollar traded to 1.3522 euro. As you know, that 1.36 level is the bottom of the range it has made with 1.38 at the top. The dollar faded some as the session wore on, and though it closed stronger (1.3606 versus 1.3612 Thursday), the fade was enough to bring stocks back up. It also rose on the Dollar Index as well, but there too it gave back a big upside gap.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Gold. The yellow stuff traded basically flat, and that is not bad at all. Thursday the PPI looked hotter and gold bounced up. Friday the Fed raising rates could have taken some luster off gold as it would be perceived the Fed would fight inflation possibilities. With the core CPI negative there was more pressure to push gold lower. It gapped lower but it rebounded after testing the same support at 1100. Gold, as with stocks, is overcoming adversity and holding up very well. The pattern is still the break over the December/January/February down trendline and a subsequent test. We could get a buy out of this.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil. Oil continued higher in its range, heading toward the peak at 82-83. It also overcame the rate hike and stronger dollar (stronger dollar means you can price oil in fewer US dollars) to continue its rally upside in its range. At 80 oil has his some resistance from the November consolidation range, but the range does run higher. After this two week move it could take a day off, but again, it could have done that Friday given the news, but it did not.

http://investmenthouse.com/ihmedia/xoil.jpeg

Bonds. The 10 year bond yield actually fell as bonds rallied even as the Fed took the first step in the tightening show. Typically bonds would sell as investors figure the Fed is going to raise rates and take the value out of their bonds. Wasn't the case Friday, similar to stocks, as bond investors figured it was still quite a ways off.

http://investmenthouse.com/ihmedia/tip.jpeg

TECHNICAL

INTERNALS

Breadth. Flat as you would expect on the flat session (1.1:1 NASDAQ, 1.4:1 NYSE).

Volume. Volume picked up on Friday of all days, moving up to average on both NYSE and NASDAQ. That after three sessions of below average trade as the indices moved higher. A bit of adjusting before the weekend on expiration Friday, nothing more than that. Still a low volume move up and the next question is whether volume comes in as SP500 tries to break the last resistance before the January peak.

CHARTS

SP500. Another upside session but it took a bit to get there. Nicely tapped 1100 on the low, holding above the 50 day EMA, and then rallying for a modest gain. On the high it tapped at the range marking the top of the November/December consolidation and backed off. After a couple of weeks moving upside it was not ready to take on that resistance ahead of the weekend. This coming week is an important one as the large caps face the last serious resistance point before it can try and continue its climb to test the January peak, the high on this rally that started back in March 2009.

NASDAQ. Struggled at first as well, gapping lower, then recovering to a modest gain. NASDAQ is in the neutral zone, i.e. above the 2205 peak of the November/December consolidation and below the bottom of the January peak at roughly 2272 (resistance is always a range). Again, it is rather typical after the first significant correction for an index or stock to come back to test the prior range, either the bottom, middle, or even try a breakout. That is the key test; everything else is warm-up. NASDAQ was able to move even with the large cap NASDAQ 100 posting a modest loss. That indicates the techs could climb on up to that key level this coming week and give us the first real look at what is left in the tank for this recovery bounce.

SP600. The small caps are already at the lows of its January consolidation. From laggards to leaders the small caps are going to give us the look this coming week along with NASDAQ. Thus far they are showing no fear heading toward this level. No hesitation Friday as they led the market gains.

SOX. The chips are slowing down a bit. They cleared the December consolidation last week and advanced the gain a bit more Friday, but lost more off the high than they gained on the close. Slowing down the move. Maybe just a pause but a key group to watch: they led off the last low and led on the downside this time. They are not leaders in the sense of this upside move, but we will watch in the event they turn lower as a warning shot for the other indices.

LEADERSHIP

Energy, Industrials, Metals. These 'over there' stocks led Thursday and as the dollar weakened off its highs Friday these sectors scored another solid session.

Technology. Techs were not upside leaders Friday, but they were not in bad shape. AAPL is setting up an interesting pullback/flag over the 50 day EMA. GOOG was lower but looks good in a modest test.

Semiconductors. Some individual chips discussed in Thursday's report show some of the issues for the sector. BRCM has rallied just past the 78% Fibonacci retracement, sitting right under the January peak, showing a doji on the candlestick chart. Potential roll back down in its range. MRVL is showing a gravestone doji at the 61% retracement, also the C point in a potential ABCD pattern; that gives a potential play down toward 17 before a flip to play the upside off the D point. The point: chips are lagging and showing indications they can slide back. Not a massive rollover, just continuing existing patterns. Definitely worth watching this coming week.

Financial. Still not getting off the dime to help SP500 as that index tries to take on and take out the November/December consolidation. JPM rallied past its 200 day SMA and into the resistance over 40, but it gave it up on the close, showing a tombstone/gravestone doji. If SP500 is going to break through that consolidation level it will need their help. GS, MS, WFC are showing some kind of life, but they will have to improve if they are going to give SP500 the help it needs.

THE MARKET

MARKET SENTIMENT

Volatility is in a nose dive, making a lower low Thursday and again Friday after spiking to a new high since early November. Getting to the level it bounced in past moves but no indication right now it is ready to turn.

VIX: 20.02; -0.61
VXN: 20.81; +0.16
VXO: 19.19; -0.44

Put/Call Ratio (CBOE): 0.84; +0.04

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 35.6%. Moved back over the 35% threshold level below which suggests bullishness. Bulls fell even as the market rallied for two weeks. Bounced up from 34.1% last week. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Getting close to the 35% level that is the threshold for what is considered a bullish climate. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 27.8%. As bulls rose bears did as well, indicating more bearishness in the market still despite a modest tick higher in the bulls. Up from 26.1% the prior week and 22.2% before that. Over 35% is considered bullish for the market, so still a ways off even though bulls are falling to a bullish level. Continuing the rise from 16%ish on the lows this leg where it held for several weeks. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +2.16 points (+0.1%) to close at 2243.87
Volume: 2.07B (+3.95%)

Up Volume: 1.058B (-331.444M)
Down Volume: 1.054B (+419.425M)

A/D and Hi/Lo: Advancers led 1.13 to 1
Previous Session: Advancers led 1.45 to 1

New Highs: 147 (+45)
New Lows: 11 (-2)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +2.42 points (+0.22%) to close at 1109.17
NYSE Volume: 1.121B (+16.67%)

Up Volume: 621.04M (-90.863M)
Down Volume: 438.328M (+200.687M)

A/D and Hi/Lo: Advancers led 1.4 to 1
Previous Session: Advancers led 2.21 to 1

New Highs: 147 (+42)
New Lows: 14 (+2)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +9.45 points (+0.09%) to close at 10402.35
Volume DJ30: 241M shares Friday versus 185M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

The Fed is likely on the sidelines for awhile and the market can focus on domestic reports (new and existing home sales, GDP second iteration, Chicago PMI) as well as anything that comes out of Europe and its Greece issues. Didn't hear much from the continent to end the week other than the strikes occurring in Greece in protest of austerity requirements given the Greek government lied about its spending. Hmm. Kind of like the US and all its 'off balance sheet' expenditures that don't really count in the budget, right? Greece, US, UK, Ireland, Italy, Portugal, Spain. Who else is out there? Don't you get a d j vu all over again to something called the Latin American debt crisis of the 1980's and early 1990's? Same problems but of course that could never happen in the more stately economies of Europe and the US.

Of course I digress, but that is the backdrop to this entire stock market move. It may end up with some additional calamity to settle the books and obtain balance once more (as many sage economists have said, you don't solve a massive credit problem with more credit, though that is what we are trying to do here and in Europe); that is down the road. As always we simply watch what the market is doing and how we can profit from it. We cannot avoid a calamity, and if it is as bad as it could be it really won't matter other than whether we sock away enough food and such. But again, I digress.

As noted in the Summary, there are many places to watch. SP500 as it takes on the top of the November/December consolidation. SP500 as it tests its January peak and NASDAQ as it rallies to do the same. SOX as it tries to continue after something of a stall as the mid-December lateral move. There is definitely a showdown coming with the January high. For a time it looked as if the indices would not make that move and indeed they may not all manage it. Nonetheless SP600 will do it and NASDAQ likely will as well. That would also mean that SP500 would break through the next to last resistance level to at least wave at that January high. Then the next major inflection point is reached and the market will show its hand.

We will continue to play that move. Even though the market is up for two weeks and many stocks are a bit stretched, the market tends to move in waves and thus there will be stocks to play upside if the move continues. Then we see how the test plays out and if need be take the gain and look to the downside.

It is not cut and dried what the market does if it reaches that prior high. With the correction preceding this bounce history says anticipate a bigger corrective move to the downside. Of course there is still massive liquidity in the system and as noted early last week, that money could mean that the January selling is all the market takes and would be heading toward a new breakout now as in June and July 2009.

So we play the upside as the move continues but we also note that many stocks are stumbling even as the market moves higher, an indication that the market may indeed hit the wall at that prior January high. We can play some of those as well. Indeed, as noted in the Market Summary, some of the chips are in position to head lower near term before they continue overall upside moves. Take what the market gets, right? Just have to be a bit nimble here and look for entry points in patterns, using shorter term timeframes such as the 60 minute chart in conjunction with the daily chart to fine tune entry points. We play the move and then see what happens at the critical inflection point as again, it looks as if at least NASDAQ will join SP600 at that level.

Support and Resistance

NASDAQ: Closed at 2243.87
Resistance:
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows
2292 is a low from January 2008
2319 from the September 2008 peak
2326.28 is the January high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak

Support:
2210 (from September 2008) to 2212 (the July 2009 closing low)
The 50 day EMA at 2207
2205 is the November 2009 peak
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
The 200 day SMA at 2042
2015 from an early August 2008 peak

S&P 500: Closed at 1109.17
Resistance:
1114 is the November 2009 peak
1119 is the early December intraday high
1133 from a September 2008 intraday low
1150 is the January 2010 peak
1156 is the Sept 2008 low
1185 from late September 2008
1200 from the July 2008 low

Support:
1106 is the September 2008 low
1101 is the October 2009 high
The 50 day EMA at 1098
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The 200 day SMA at 1028
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low

Dow: Closed at 10,402.35
Resistance:
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
The 50 day EMA at 10,279
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
The 200 day SMA at 9572
9430 is the early October low
9387 is the mid-October peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

February 19 - Friday
CPI, January (08:30): 0.2% actual versus 0.3% expected, 0.2% prior (revised from 0.1%)
Core CPI, January (08:30): -0.1% actual versus 0.1% expected, 0.1% prior (no revisions)

February 23 - Tuesday
Case-Shiller 20-city, December (09:00): -3.1% expected, -5.3% prior
Consumer Confidence, February (10:00): 55.0 expected, 55.9 prior

February 24 - Wednesday
New Home Sales, January (10:00): 355K expected, 342K prior
Crude Inventories, 2/19 (10:30): 3.08M prior

February 25 - Thursday
Initial Jobless Claims, 02/20 (08:30): 460K expected, 473K prior
Continuing Claims, 02/13 (08:30): 4570K expected, 4563K prior
Durable Orders, January (08:30): 1.5% expected, 0.3% prior
FHFA Housing Price I, December (10:00): 0.7& prior

February 26 - Friday
GDP - Second Iteration, Q4 (08:30): 5.7% expected, 5.7% prior
GDP Deflator - 2nd, Q4 (08:30): 0.6% expected, 0.6% prior
Chicago PMI, February (09:45): 59.0 expected, 61.5 prior
Michigan Consumer Sentiment, February (09:55): 74.0 expected, 73.7 prior
Existing Home Sales, January (10:00): 5.50M expected, 5.45M prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Retail Sector Shows Strength Friday

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 14 Feb 2010 19:44:00 +0000

SUMMARY:
- Market survives a week full of news and geopolitical intrigue.
- Greece was bad, but Friday EU GDP was disappointing and China again raised bank reserve requirements.
- China real estate, industrial capacity facing big Japan-like bubbles
- Retail sector faces adversity, shows strength Friday.
- Market looks a lot like June and July 2009 so don't write it off just yet.

Earnings may be mostly over but there is no lack of news or intrigue.

Earnings were mostly over, but there was no shortage of news. The news was dominated by Greece and the PIIGS and whether there will be a bailout from significant countries in the European Union. That dominated the trade on the week and pressured the market considerably. Note that the market did not break down on the week; indeed, it drifted to the upside even with the bad news. Looking at a 60-minute chart of the week, you can see how the action unfolded. Typically, there were gaps up or down, but there were recoveries. There was a gap lower with a recovery on Wednesday, Thursday, and Friday. The market continued to show resilience in the face of negative news. Most of that negative news was outside of the US. The US had good earnings, and there were decent economic reports that showed a continued, steady (though not dramatic) improvement in the underlying economics. That has been enough, thus far, to hold the market together and keep it moving higher. Friday was an explosive news day taking everything into consideration. It was settled during the week that the EU, or the IMF, or a combination thereof would bail out Greece and, by extension, bail out the other PIIGS (Portugal, Ireland, Italy, and Spain). The issue was whether the rest of Europe could handle the bailout.

There was more water splashed on the situation on Friday when China increased the reserve requirements for its banks by 50BP. That is the second such increase within a month. The European Union's GDP was much lower than expected at 0.1% growth versus 0.3% expected and 0.4% in Q3. It is down 2.1% year-over-year. That is a significant drop as Europe is supposedly emerging and growing stronger coming out of the 2008 crash. That is obviously not the case. Germany's GDP was flat versus a 0.7% gain in Q3. Italy fell 0.2%. France was strong at least as far as EU terms are concerned rising 0.6% versus the 0.2% gain expected. This slowing of GDP growth in Europe is very serious. Europe never got over the problems of 2008. It papered over them, as did the US, trying to fill the chasm with printed Euros. It has never cured the problem, and cracks are starting to show up cracks that a lot of money printing and huge deficits are causing. They cannot hem in the underlying problem, and that is a major concern moving ahead in 2010. It may not show up until later in the US, but I am very concerned that it will eventually appear.

As noted earlier, it did not hamper the US markets. They did not go much of anywhere, but it did not break them down. There was a lot of bad news swallowed by them, and that is a good sign. Looking at the SPY intraday chart, Friday is an indication of the same. There was a big gap lower because there was serious news to deal with a rally, a selloff, and then a steady comeback. There was the same action on Thursday. It was both short covering and real buying. There was buying because at the end of the day, Berkshire was moving into the SP500. There had to be a lot of reshuffling with respect to market cap and what stocks were bought and sold. Berkshire was going in with a big market cap, taking the place of the stock that was coming out, so there had to be a lot of buying and selling. There was buying, but we also had the short covering along with that. Considering that the indices have been in a roughly five-week pullback, you can understand why there was a bounce into the end of the week in front of a three-day weekend. No one wanted to be caught on the wrong side of the fence with a long weekend and with all the issues still on the table. There was a nice bounce coming up, but when you look at the patterns, there are also good-looking stock patterns. They are down at the start, but vastly improved as the day went on. Again, that was a pattern for the week. The market was able to overcome bad news and weak starts to make some headway against the rather new short-term downtrend for 2010.

OTHER MARKETS

Dollar. With the trouble in Europe, there was a flight to safety in the dollar. That bolstered it and its continued trend to the upside. It was not a runaway move, however, because the dollar has moved into a significant resistance point from the June and July consolidation. It runs from roughly 79 to 81.50. Intraday, the dollar hit at 80.75 on the high, so it is right in the middle of that range and bouncing. Nonetheless, it put in another good day (1.3618 Euros versus 1.3692 Thursday). During the day, it was down below 1.36 Euros, trading in the 1.35 range. That is significant. 1.36 - 1.38 is the range it has bounced up and down in lately, and that is what the traders are watching. If it makes a breakout above that, then it has cleared this resistance and we are looking up at 82 - 83 as the next range. 84 is the next serious resistance for the dollar.
http://investmenthouse.com/ihmedia/dxy0.jpeg

Oil. Oil had a difficult session. It had a good week, bouncing off the 200 day EMA and making a higher low above the December low. It sold back somewhat on Friday and was roughed up a bit given the strength in the dollar and given that oil inventories were higher than expected at 2.4M barrels. It had a bit of a rough day, but it was a modest setback. It bounced well off the low.
http://investmenthouse.com/ihmedia/xoil.jpeg

Gold. Gold had another session of flat trade after a good bounce for the week. It was slaughtered over a week ago with Chinese news and the problems in Greece. It recovered and held up very well on Friday even with more trouble out of Europe and China raising its bank reserves. It sold off a little but bounced back. It was a deflationary move when it tanked on the news, but it has recovered and shrugged it off on Friday. It is not that much of a deflationary story with this particular move. Nonetheless, the yellow metal is in a base it has come back. It tried to double bottom but failed. It has now come back and looks like it will make a lower high and continue back down to 1050 (where there is solid support from the October peak) and base out. It could be just over halfway through a longer base, and bases set the foundation for further gains. Thus, I do not see gold as an immediate buy given that it failed on this move. It is setting up for a break higher in the not-too-distant future, however.
http://investmenthouse.com/ihmedia/xgld.jpeg

Bonds. Bonds sold off despite the economic uncertainty coming out of Europe and the turmoil with bank regulation in China. On Friday, the 10 year bond closed down (3.69% versus 3.72% Thursday) as bonds rallied back given some of the uncertainty over in Europe. There was some of that factored in, but bonds were selling off overall. That is typically an indication that investors do not see much trouble down the road.

The US sold many treasury notes, as it has been doing, but they were not well-received auctions. They were not complete busts, as with some Greek auctions, but the US had to offer significantly higher interest rates than anticipated to lure buyers into the market. We raised the money we wanted to raise, but it will cost us more. That adds to the debt burden that every man, woman, and child in the US bears right now (roughly $125K by conservative GAO estimates). We are bringing in the money, but it is costing more, so our debt service goes up as well. We are engaged in a vicious cycle, and the bond market is showing the wear and tear since fewer people want our paper. We are not nearly as bad as some of the other countries. Some are already above 100% with respect to their debt-to-GDP ratio. We are not near that, so I suppose we are a bastion of economic sanity over here. Although, when you look at the rest of the western economies, that seems to be the case.
http://investmenthouse.com/ihmedia/tip.jpeg

TECHNICAL

INTERNALS

Volume. Volume was up 5.5% to 2.1B on NASDAQ, and it rose 25% to 1.3B on the NYSE. I cannot put too much emphasis on that because a lot of that volume was late in the day with the SP500 rebalance. That is why volume jumped back above average on SP500. Do not take that to the bank, however. Even though it is an incongruity with a Friday trade before a three-day weekend, the SP500 rebalance was the culprit.

Breadth. The advance/decline line was tame. Advancers led 1.5:1 on NASDAQ, and it was a dead heat on the NYSE at 1:1. That is not too bad given that the Dow and SP500 closed down for the session.

CHARTS

NASDAQ. NASDAQ was able to break through its 10 day EMA on both Thursday and Friday after giving them up intraday. It closed at the 18 day EMA. There is better volume, but I am throwing that out even though that is on NASDAQ as well. It just does not tell us much. It is in the teeth of the November and December trading range, putting it just below the October peak. This is a very important resistance range, all the way up to 2205. The 50 day EMA is sitting there as well. There are a few layers of ice on top of NASDAQ. It looks as if it wants to break down again, but there are days were it is moving higher. Techs are trying to lead, and it very well could break out. Liquidity is still there. The Fed is still printing money even though Bernanke's testimony said they would stop at some point. The money is still hitting, but it is a matter of whether there is enough to push it through. If SP500 does not make it, NASDAQ has less of a chance.

SP500. The SP500 made a recovery during the week, and that was in the face of a lot of bad news. That can be viewed as a positive. It never did break over the 10 day EMA, which is the closest resistance in any downtrend. It tried to make the move, but it has not yet. It has not collapsed yet, however, so there is a positive. It is holding at the September peak, unable to make the break through at this juncture. This pattern is a bear flag. There is a selloff and a rebound that takes it to resistance. It took it to the October peak when it bounced in early February. It then collapsed down to the bottom of that range before bouncing this week and taking it up to resistance at the September peak. The question is whether it will collapse to the next lower rung at 1025 or make the break to the upside. Looking at the pattern, you would say no. Even though it did show resilience last week, the path still appears to be downside for the SP500. Will it hold 1050 or can it break through 1075? It is in an important range, and we will see how it plays out. If I were to throw a dart against the wall, I would say it will test a bit more, but you never know what the market will do, particularly when there are so many geopolitical events affecting the market on a daily basis.

SOX. The semiconductors were an important mover. They were the first to fall, and they were the first to try to bottom and start to bounce. They made it back up to a key level at the September and October twin peaks. They actually moved through the 50 day EMA intraday on Friday, only to give it up on the close. It also closed just below the top of the range represented by September and October. That is showing its own bear flag after making a lower low, but it did pop up to an interim high. It has broken the immediate trend, but it still has serious resistance to crack through. Many people are looking at semiconductors right now, and they had a good week. The question is whether they can continue after a week of decent gains or if they will fall back down. The overall bias in the entire market is somewhat down, and it will be tough for them to make the move. They were the leaders, however, and if anyone in any group will make a move, I would anticipate it being the semiconductors.

SP600. The SP600 had a decent bounce of its own, particularly to end the week. That took it up to the September peak and the 50 day EMA. That is a good move. It closed the high and did not back off at all. The small caps are the canaries of the economy, and we will see if they continue to improve as the numbers have been showing. If it does not follow the European model, then it could break higher and give us a good look and indication as to what will happen with our economy in the summer.

LEADERSHIP

Retail. On Thursday night, there were after-hours earnings in the casual dining area that were taking those stocks down, and that sector had been a solid leader in the market. I was concerned, with the after-hours selling, that it would bleed into Friday the market would lose a leadership group. BWLD had its wings plucked off and it crashed and burned. PNRA reported earnings and was down after hours, but after gapping lower, it reversed and closed higher. It is maintaining its uptrend. The buyers were ready to step in, and that is a very good sign. One of the other after-hours reports was CMG, and it gapped lower as well, but then it reversed and surged close to 4% on the session. That is big volume, and I am happy to see that one of the leadership groups in the market was still able to show strength in the face of adversity.

Energy. Energy continues to struggle. HAL has a bear flag. There was the same action in SLB on Thursday. CHK is a stock in natural gas that I still like. It is trying to hold at the 200 day EMA and make a higher low. These are not what you would call fantastic patterns to the upside, but they are possibilities for rebounds (at least with respect to CHK). We will see if HAL can make something positive out of a bear flag. Across the energy sector, the patterns are not good. They have work to do, and that is the case in many of the market sectors.

Metals. FCX double bottomed and bounced, finally showing some good volume to end the week. There is nothing wrong with that, although it is not taking off to the upside given the general sluggishness in the market. It performed very well considering what China was doing with the banks and the reserve requirements. Metals are tied to what happens in China and Brazil. Whenever China sneezes or does something to slow down its expansion, it shows up in the metals. AKS shows that steel is recovering, similar to copper, but the patterns are not fabulous. They are not the good patterns we were playing before the start of the New Year.

Agriculture. MOS broke through the 50 day EMA, and this is interesting. This is similar to FCX, CHK, and some of the other stocks that have come down and held the 200 day EMA and put in a double bottom and bounced. That is the one pattern that is working near term to the upside right now. It is that short double bottom over a key support level, mostly (and usually) at the 200 day EMA.

Financials. I have not looked at financials lately because they have not done anything. That can be something good given that a lot of the market was selling off. GS has been moving laterally for a couple of weeks after selling off sharply and jumping higher in early February. It has not done anything, but it has been holding up the SP500 because it has not sold off. All of the financials are in a similar situation. They sold down early in the month and have now rebounded some. They are trying to hang on but are struggling. JPM is showing the same kind of action.

Healthcare. Healthcare remains one of the strong areas, but it is sporadic. RMD is a position we picked up as it gapped over resistance, held on a test, and took off to the upside again on solid volume. We always look for that kind of solid, consistent play. AMED continued higher on Friday as well. They are showing gains. They are not runaway gains, but they are positive. Not all stocks in healthcare are performing well, although there are better setups across those sectors versus other areas of the market. That is because it is a more defensive area. I like healthcare because it is defensive as well as a growth area. You can still get great moves in upside even when the rest of the market turns a bit negative.

THE ECONOMY

China is learning the Greenspan lesson from 1999.

Please view the Economy Video at the following link:

http://investmenthouse1.com/ihmedia/Economy.wmv

THE MARKET

MARKET SENTIMENT

VIX: 22.73; -1.23
VXN: 22.97; -0.46
VXO: 23.24; +0.15

Put/Call Ratio (CBOE): 0.91; +0.05

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 34.1%. Sharp decline in bulls as the impact of the prior 4 week decline finally hit. Of course it hit just as the market bounced this past week. Still, it is now below the 35% level, down from 38.9%, and that is considered bullish for the market overall. After peaking at 53 on this move the bulls continue to run, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Getting close to the 35% level that is the threshold for what is considered a bullish climate. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 26.1%. A commensurate rise in bears, jumping from 22.2%. Over 35% is considered bullish for the market, so still a ways off even though bulls are falling to a bullish level. Continuing the rise from 16%ish on the lows this leg where it held for several weeks. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +6.12 points (+0.28%) to close at 2183.53
Volume: 2.162B (+5.45%)

Up Volume: 1.331B (-440.453M)
Down Volume: 808.504M (+482.233M)

A/D and Hi/Lo: Advancers led 1.47 to 1
Previous Session: Advancers led 2.88 to 1

New Highs: 63 (+8)
New Lows: 22 (+2)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: -2.96 points (-0.27%) to close at 1075.51
NYSE Volume: 1.328B (+25.08%). Volume was up but thanks to the Berkshire addition to the index.

Up Volume: 550.91M (-291.498M)
Down Volume: 758.725M (+550.969M)

A/D and Hi/Lo: Advancers led 1.04 to 1
Previous Session: Advancers led 3.17 to 1

New Highs: 96 (+10)
New Lows: 38 (-1)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: -45.05 points (-0.44%) to close at 10099.14
Volume DJ30: 296M shares Friday versus 194M shares Thursday. SP500 rebalance volume my friends.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

TUESDAY

There will be plenty of economic data coming out, and you can bet there will be more data with respect to what is happening in Europe and China. The US will get a good look at what is going on with capacity utilization and industrial production. There will be minutes from the FOMC. There will be several regional PMI or manufacturing reports. That will give a good look into just how the US is proceeding. This is all after a three-day weekend, which is a very long time when you have so much information and intrigue swirling through the world. Asia and Europe will be open on Monday, so there is plenty of time for news to hit, and the market is extremely news driven right now.

The market still looks weak from our perspective. The SP500 and the bear flag it formed this past week could be viewed as a positive because it absorbed a lot of bad news and still rose. Looking at the overall pattern, however, this is a stair step lower. It is not even an ABCD pattern because there is not the sharp impulse move higher. It moved up, leveled off, and then just carried through the momentum to the peak. It is simply stair stepping right now, making lower highs and lower lows. It is at an important level, and it could make the break higher. They are showing resilience, and we could get a continued bounce higher if there is no bad news. A test up to the bottom of this old peak in January would be a very good indicator of how the market strength is. If it did, it would likely fail and come down for a deeper test. That is historically what the market does, but it does not necessarily have to do that. It can stair step down to the 1025 level or 1000 level and form a nice base in through March or April. That is just about the time that earnings are ready to come in for Q1, and then it could be ready to make a move higher.

The question is what news is out there to drive stocks higher at this point. We are through earnings, and they were not bad. There has been plenty of decent US economic news, but the market has sold off over the past month or so. Where will the good news come from with Europe in trouble and China trying to reign in its economy? The liquidity that has been driving the market is still out there. Ben Bernanke says it will be removed at some point, but he cannot afford to remove it now. He is a student of history, and he has seen what Japan did and what the US did during the Great Depression and the 1970's. He does not want to be saddled in the history books as the Fed Chief who pulled away the punchbowl too quickly before we were in a recovery. The problem is that he is not getting much help from the administration. Their policies will not do much to create the kind of booming economy that our free enterprise system works best with. He has his hands full with a difficult task. He will keep the liquidity open as long as he can because there is no sign of inflation. There is something of a deflation worry, as gold has been telling us. When the news hit out of Europe and China, when the negatives came in, gold went down instead of bouncing. People were afraid that there would be deflation, not inflation. Remember, gold is at its best when there is uncertainty and a worry of inflation. Worries of deflation spiked it out of a double bottom and it made a lower low. Given the news coming out of Europe (even though there will be a rescue), I am still leaning toward there being further downside before there can be a sustained bounce. By sustained bounce, I mean one that can have a real chance of breaking the January peaks. There can be that bounce I was talking about that moves up to those levels to test. Historically, that would be something seen in a deeper correction. We will have to watch for that.

We have some downside plays and will continue to look at them over the weekend. Since the market bounced back this past week, you can bet there will be more bear flags from stocks that were hit hard, recovered, but are stalling at a resistance level. We will be able to pick some downside plays in the event that the market continues lower. If that is the case, we will let our current downside plays run. We will also look for some upside because, as you have seen, there are great stocks in good position to move higher. We have had excellent gaps to the upside that have held, and the stocks are moving higher. There is a dichotomy in the market. It is not sure what it wants to do internally because there are stocks heading higher and stocks heading lower. We have not reached the point where there is a predominant negative or positive theme that drives all stocks one way or the other. Indeed, we are in a rather mild and ordinary correction after a whale of a run off the March lows. The closest thing we can look back to is the June and July correction after that initial run. If you look at this and compare it to now, they look very much the same. Step down, bounce, a lower low, and then a takeoff.

It still looks negative to me, but it still could come back. As in June and July, if it will hold, it will hold right where it has been at the September and October lows. They look very similar in pattern. They held at those prior lows and bounced off that. It has made significant lows, it has come back to test them, and it is either going to hold or break higher. We are in an important inflection point, and we will stay flexible. Keep buying stocks or positions (up or down) that are at good risk/reward levels. That means you have plenty of upside or downside, but you have a good stop point close at hand. Then, if it breaks, you can get out of dodge and look for bigger and better gain. We will try to play both sides of the fence to be ready for the break because, at some point, it will break. Without a doubt, the market does not move sideways forever. With the similar look right now from June and July, I want to be ready to take the ball either way. Once the market tips its hand, we will close out one side and move in the other direction. We can still make money even as the market bounces up and down in this range. Have a great weekend.

Support and Resistance

NASDAQ: Closed at 2183.53
Resistance:
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2191 is the October 2009 peak
The 50 day EMA at 2203
2205 is the November 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2218 is the August 2005 peak
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows
2292 is a low from January 2008
2319 from the September 2008 peak
2326.28 is the January high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak

Support:
2155 is the March 2008 intraday low
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
The 200 day SMA at 2032
2015 from an early August 2008 peak

S&P 500: Closed at 1075.51
Resistance:
1078 is the October range low
The 10 day EMA at 1078
1084 to 1080 (September 2009 peak)
The 50 day EMA at 1098
1101 is the October 2009 high
1106 is the September 2008 low
1114 is the November 2009 peak
1119 is the early December intraday high
1133 from a September 2008 intraday low
1150 is the January 2010 peak
1156 is the Sept 2008 low
1185 from late September 2008
1200 from the July 2008 low

Support:
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The 200 day SMA at 1024
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low

Dow: Closed at 10,099.14
Resistance:
The 50 day EMA at 10,267
10,285 is the late December consolidation peak
10,365 is the late September 2008 low
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
The 200 day SMA at 9531
9430 is the early October low
9387 is the mid-October peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

February 12 - Friday
Retail Sales, January (08:30): 0.5% actual versus 0.3% expected, -0.1% prior (revised from -0.3%)
Retail Sales ex-auto, January (08:30): 0.6% actual versus 0.5% expected, -0.2% prior
Mich Sentiment, February (09:55): 73.7 actual versus 75.0 expected, 74.4 prior
Business Inventories, December (10:00): -0.2% actual versus 0.2% expected, 0.5% prior (revised from 0.4%)
Crude Inventories, 2/5 (11:00): 2.42M actual versus 2.32M prior

February 16 - Tuesday
Empire Manufacturing, February (08:30): 18.00 expected, 15.92 prior
Net Long-Term TIC Fl, December (09:00): $50.0B expected, $126.8B prior

February 17 - Wednesday
Housing Starts, January (08:30): 580K expected, 557K prior
Building Permits, January (08:30): 615K expected, 653K prior
Export Prices ex-ag., January (08:30): 0.5% prior
Import Prices ex-oil, January (08:30): 0.4% prior
Industrial Production, January (09:15): 0.8% expected, 0.6% prior
Capacity Utilization, January (09:15): 72.6% expected, 72.0% prior
Treasury Budget, January (14:00): -$46.0B expected, -$91.9B prior
Minutes of FOMC Meet, 1/28 (14:00)

February 18 - Thursday
Continuing Claims, 02/6 (08:30): 4500K expected, 4538K prior
Initial Claims, 02/13 (08:30): 430K expected, 440K prior
PPI, January (08:30): 0.8% expected, 0.2% prior
Core PPI, January (08:30): 0.1% expected, 0.0% prior
Leading Indicators, January (10:00): 0.5% expected, 1.1% prior
Philadelphia Fed, February (10:00): 17.0 expected, 15.2 prior
Crude Inventories, 2/12 (11:00): 2.42M prior

February 19 - Friday
CPI, January (08:30): 0.3% expected, 0.1% prior
Core CPI, January (08:30): 0.2% expected, 0.1% prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Market Responds with Afternoon Rally

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 08 Feb 2010 04:35:00 +0000

SUMMARY:
- Market responds as expected with an afternoon rally on the heels of further selling.
- Jobs data pulls the old switch-a-roo as payrolls fail to post a gain but unemployment falls.
- European PIIGS threaten a 2008-like slump as leverage questions breed fear.
- Friday rebound eases worries, but has to prove it was a character change.

Market sells again but rebounds in the last hour.

The Friday jobs report was somewhat preempted by the PIIGS running through the European Union on Thursday and its deleterious effect upon the stock market. Nonetheless, jobs did have their impact on Friday. The futures were negative beforehand, but bounced positive after the jobs report. There was a dichotomy in the report, and it was not as expected. There were 20K non-farm payroll jobs lost, but the unemployment number fell (9.7% versus 10% the prior month, 10% expected). The latter was able to boost the market higher despite massive revisions in the true number of jobs lost during the recession. That is rearview mirror information, so the market did not pay it much mind. The market opened a bit lower and tried a bounce, but then sold negative. We used that failed bounce to take some downside gain off the table. Then we would sit back and wait for the market to bounce. We were anticipating some short covering and wanted to get in on some other downside positions. We still thought the character of the market had not changed. The market bounced and sold, and it held the same low it held on two prior occasions during the day. It bounced higher, made a lower high, and it bounced and started to roll over after lunch. We took some positions there, but they came back to bite us somewhat as the market rebounded late and gave us the expected short covering to end the week. We did not panic, but we took a few more positions in the stocks that were still good plays to the downside. We did not get into many of the others from the report on Thursday because they sold early and did not rebound enough to make them good plays. We would be playing the edges, and that is more difficult. I thought we should wait and see if they rebounded more next week. There was a big reversal at the end of the day that sent many stocks back up even to positive; it even sent the indices positive by the end of the day. The question is whether this was just a short-covering rally or if there was a reversal. You cannot tell on the first day, particularly since the index patterns are atrocious. We will have to see how the market plays out in the first part of next week. It is important to note that the move itself did not change the downside character of the market.

The main issue facing the market was when the PIIGS started running through Europe on Thursday. Portugal, Italy, Ireland, Greece, and Spain are all in trouble. They have huge deficits, and the problem is the cost of insuring their debt through credit default swaps. You may remember those from the fall of 2008 everyone had too learn what they were very quickly because their spreads were rapidly widening, and the cost of these insurance policies in some cases went up 1000% overnight. The credit default swap spreads are exploding in Europe. They are getting much wider, and wide equals risk. If a spread is wide on an option, then it is either thinly traded or there is a lot of risk associated with it (or both). This is happening with the credit default swaps in these countries. It is becoming an increasingly expensive proposition for the countries that have been buying the debt of Greece. This is a dangerous time, and the ramifications are huge if Greece goes under. If Greece has to default, that is a serious issue that will ripple across the globe. Even the US 5 year credit default swap spreads widened by 30-40BP on Thursday alone. This is not just a European issue, and you can see that when you look at gold. One would think that gold would be surging during all this uncertainty, but it had a very tough week. It rebounded on Friday from its lows to close positive, but the fact that it is not rising when there is great uncertainty in the world indicates there is a worry of deflation rather than inflation.

OTHER MARKETS

Dollar. After a slight pause to start the week, the dollar surged higher Wednesday through Friday. It was fueled by the fear in the rest of the world, and particularly world currencies such as the Euro that dove down versus the dollar. Even the yen was lower against the dollar. Some are saying this was just because of an unwinding of the carry trade that is where you borrow against one currency and invest elsewhere and pocket the difference. With the dollar rising, they say it had to be unwound because it was being used as a carry currency to some extent. That was probably part of what caused the spike higher, but it was also a safe-haven play. One cannot ignore that the EU is in trouble, and it boggles the mind to see some people on TV treat this episode just as they treated the summer of 2008. Things were going down rapidly, but they refused to acknowledge that fact. The Euro had been moving up steadily against the dollar, and it is now being squashed because of the worries in the EU with the PIIGS nations. The dollar is rallying because people want to put their money in a safe currency. Even with all of our debt, we are still considered safe. The question is, if we keep spending as we are now, will we be in the same place Greece is five years down the road? Our credit worthiness could be questioned by the credit-rating mechanisms and, more importantly, the investors around the world. They are the ones with the final say. The dollar enjoyed a solid week, but it was at the expense of other currencies and at the expense of many stocks as well.

Gold. Gold tried to bounce and make a double bottom off the December low, but it was unable to do so. It peaked on Wednesday and then was massively crushed on Thursday. It sold again on Friday. It broke through support, but managed to rebound and close positive ($1,065.38, +.38).

Oil. Oil had another tough week of its own. It did bounce as well, but it was shoved lower. It was unable to recapture all of the losses it felt during the day and closed down ($71.85, 1.29). When it was posting $4.00 losses intraday, then -$1.29 was not a bad session. It also held at the key support from December where it bottomed. It is right at the average of the trading range from August through September. Everything was on the recovery trail at the end of the session. That leads me to question whether it was just short covering (which I believe it was), versus some renewed buying just because it was time to buy. That is possible; maybe the economic data in the US is good enough. We will have to see how that plays out next week.

Bonds. Bonds were up all week, but they were back and forth. At the end of the day on Friday, the 10 year closed at 3.57%. That yield was down from the 3.60% posted on Thursday. Bond were rallying and pushing the yields lower once more. It was not too long ago that bond yields were up at 3.8%, and they are now down at 3.57%. There are worries out there, and the bonds have rallied accordingly.

TECHNICAL

INTERNALS

The internals were hardly impressive. Advancers did move positive on the NASDAQ as it recovered, and it lead the recovery at 1.2:1. That was pale compared to the -6:1 on Thursday, but you have to take into account that it was a reversal session, so they do not swing that quickly. Interestingly, decliners on the NYSE led -1.4:1. That shows that there were still plenty of stocks downside, even though the indices recovered to positive. Narrow rebounds indicate short covering.

Volume moved up on NASDAQ to 2.7B and on the NYSE to 1.5B. You can argue that that is a reversal: the markets came back, rallied off lows, and closed positive on rising gain. There has definitely been a sharp selloff for the past three weeks and a good reversal off a support level. It could be a reversal, and maybe they will move up from here. The momentum could keep things going on Monday or Tuesday. We will see, but again, I view this as something of a short-covering move. The selling is not over yet. There are issues out there bigger than the economic data from the US, and that is a major overhang for the market as it trades over the next few weeks. In other words, investors will have to see what happens with these credit default swaps, what their spreads do, and how the rest of the world reacts to the debts in the EU PIIGS.

CHARTS

SP500. The SP500 reversed off support and did so on volume. This does not tell us whether or not the selling is over. It could be good for a short-term bounce since it held a support point and bounced. There was a significant selloff. It was 1100 down to 1050. 50 points in a couple of days is a lot of selling in a short period of time, and a bounce-back is normal. We could see a bounce back up to 1075 (the prior low from late January). There is other resistance there from the September peak. We will have to see how high it bounces, but I do not feel this changed the character of the move. The bias is still downwards, although the buyers might have put in a statement on Friday.

NASDAQ. NASDAQ showed the same action. There was higher volume (higher than already high volume on the Thursday selling), a selloff down to some support at 2100, and then a reversal to positive. Once again, you had the move back up after a selloff. Will that lead to more upside? It very well could. 2150 is a barrier, but the big barrier is at 2200-2205. NASDAQ will have to show us. If there is a big reversal like that, it could definitely be a sea change in the market. However, looking at the selloffs over the prior three weeks, it was due for a short-covering rally this time around. That is what we got, and now the question is whether a short-covering rally can turn into a full-fledged bull rally (in other words, the longer-term buyers come back in and buy). There has been significant damage done, and there is significant resistance to overcome. It is hard for an index to sell off like this and then find the kind of support it needs to break out and run again. It could be that this reversal leads to a rebound that comes higher than these prior levels. It may slingshot it back up to test the bottom of this range. There are many possibilities, but you also have to look at probabilities. I think this was short covering after a big selloff. We have been putting our money on it finding resistance and continuing down. Unless it proves otherwise, that is what we will continue to do.

SP600. The small caps showed the same action. They came down to an important support level where we figured they would come to. 310 was one of the levels that showed a lot of support. It could fall to 300 as well, but it decided to reverse off that level. It had a nice recovery to positive, and we will see how far it bounces to start the week. It has serious resistance of its own, but we will have so see how it works.

SOX. SOX was never down as much. It was down, but it reversed and was sold off harder than the other indices. It tested close to the bottom of its support range and reversed, basically following the rest of the market.

The indices reversed, they did so on high volume, but the internals were rather weak as far as breadth. There are many patterns that have the same look they did before Thursday. They bounce, but they still have that downside bias to them. If the buyers come back in flush with money and ready to buy, nothing is going to stop them. There has been a lot of technical damage, however, and it has hard for those kinds of moves to hold up. It will probably sell off again and have more downside before this is resolved. That makes sense because that is the way stocks typically act. They shoot up, they have big gains, and then they come back and start selling (and sell a bit harder than before). The downside is a bit stronger than it has been on any of the other moves. When that happens, there is technical damage done and they tend to move laterally and base out before they take back off to the upside. When you have this kind of selloff, "V" or knifepoint turns are not as common.

LEADERSHIP

Technology. It is interesting to note that technology performed better. There is hardly a pattern of strength for AAPL, but it bottomed, bounced, and it bottomed again. It is still holding support at 190. It could very well bounce higher and come back to test the prior peaks. It is not a pattern of strength, but there is a double bottom set, and techs were showing more money flowing their way. GOOG was the same story. It did not break down further as the rest of the market sold off to end the week. It held tight at 525 and is showing some strength. INTC held at this steady and constant support level at 19. MCHP also did not sell off; it held tight at 26. This pattern repeated over and over again.

Industrials. Industrials came back. BUCY was in free fall, breaking below a key level at 50, but it reversed to close above that level and showed a hammer doji. After a selloff, that can mean a break higher, but it can also just be continuation doji. This has not been a huge selloff it has been a one-day event, so it is less likely to be a meaningful rebound. JOYG may be in position for a bounce. It has come down to support at the August peak, and it coincides with the 200 day EMA. It is showing a hammer doji as well. It is at a more significant selloff and may be ready for a bounce. That would be all because this is what you would call a damaged pattern that has to base out. DE did not break down, either. It hit the intraday low, but it reversed to hold the range it has been trading in for just over a week.

Metals. The metals are showing some of the same type of action. FCX has been in the doghouse for a while, but it has made a double bottom at the 200 day EMA as well as other important price points at 65. MTL reversed off this trendline. If it holds, that makes it a good trendline because that would be a third test of it. It is not a pretty pattern, but it looks like it wants to bounce. They do not all look great, but there is enough life in some of these. They are holding support and could put in a bounce to start next week.

Energy. APA sold down to a support level and rebounded off the intraday low. This is a common theme. SLB came down to our target, tapped above the 200 day EMA as well, and reversed. It made us nice gain and bounced. This is not a good pattern, but it is one where it could bounce higher as it trades in this range. We will have to see how much strength there is next week. DO recovered too, and it recovered off a support level. This is damaged goods, however. It could have a knifepoint turn, but the odds are not great for that.

Retail. Retail continues to be one of the stronger areas. ANN had nice same store sales, and it had a nice doji test on the gap. It could be ready to move back up. COH was a downside play. It bounced, but this is not what you would call a strong pattern. BWLD is another stock that, while it was down on the week, it did not really sell off. It is just moving in a range, holding the short term EMAs.

Overall, the indices are still showing a downside bias. There is also leadership that is showing a downside bias, but there are pockets (tech, retail, and some metals) that show they could post a near term rally or bounce off of the selloffs because they held a prior low and are trying to put in small double bottoms.

THE ECONOMY

'Backwards' jobs report leaves pundits puzzled.

The jobs report on Friday was the main news after Thursday rattled the entire world's financial markets with the issues arising out of the EU countries. Non-farm payrolls fell 20K, and that was almost the mirror image of the expected gain. That was not helpful, but the unemployment rate fell to 9.7%, versus the 10% reported prior and expected. An important aspect was that the workweek moved up to 33.3 hours versus 33.2. It has been stagnant for quite some time at that level, and any rise is a positive. Although, that is a very low number of hours worked for the week, and it has to get closer to 36 before it makes a difference. Nonetheless, this market will grasp at anything, and you have to start turning before you can get to good levels.

The non-farm payrolls were down 20K, but that was not the worst of it. Revisions were terrible. December was -150K versus -80K originally reported. November was written up to 64K versus the 4K reported. In October, it was written way down to -224K versus the -127K originally shown. Overall, the revisions were based upon a change in the benchmarks to more accurately reflect what happened during the year. The revisions showed 1.2M additional jobs lost. In other words, since the recession started, there were -8.4M jobs lost versus the -7.2M previously reported. That is fairly staggering. That leaves 14M people unemployed. The tough aspect of this recession is that the unemployed typically stay unemployed for a period of two months. During this recession, the average period of unemployment has been seven months. As the weekly new jobless claims show, they continue to add onto the unemployed payrolls. That is a great burden on the economy and society. The unemployment rate did fall to 9.7%, and that is a positive. This usually means that, as the country comes out of recession, the entrepreneurs cannot find a job so they start their own businesses out of desperation and the inability to find a "normal" job. The interesting thing is that the household survey showed that 541K more people were working in January. That is the largest jump in 5 years. That is a positive because jobs recover ahead of the non-farm payrolls number. That topped the 430K that were unemployed or lost their jobs in the household survey, and that gave the net jump higher to jobs. Further, the job pool fell by around 250K. That always makes the unemployment rate look better simply because people are leaving the workforce. You have a mixed showing. There are actual positives where, in the months before, there were no positives at all. There is improvement in the household survey. Even the disgruntled workers came in at 16.5%, down almost 1 point from the 17.4% in December. There is improvement even on that level.

Temporaries rose 52K. That is four months in a row temporary hiring has improved. That is important because companies typically hire people on a temporary basis before they make permanent offers. On a temporary basis, an employer does not have to provide healthcare and that type of thing. You can hire them, see if they work out, and then make a full time offer. It starts in baby steps, and there were good forward steps taken in January. Without the revisions and adjustments, there is still a 10.6% unemployment rate. That shows where the problem is because many of the other numbers are just numbers games. The actual number of people is what we should be measuring, and that puts it at about 10.6%. That is as the government does it as most people would measure it, it would be around 16%. There are still discouraged workers that have given up, and there is a 50% increase since President Obama took the office. He has the unfortunate position of being the president at the time a recession hit. George Bush had the same issues, and other presidents did as well. There is improvement, but the question is whether it is sustainable. That depends on whether the economic bounce we see is sustainable as well. It would be nice to see some of the stimulus money given back to people to invest in businesses versus trying to prime the pump with credits for hiring employees. It is somewhat heartening to hear that many people on the financial stations and other places are saying a jobs credit will not do anything. It is interesting to note that when George Bush was dealing with his recession, the idea was floated by some to have a credit for hiring people just like we are doing now. The irony is that there were many Democrats who came out against it saying they tried it in the past and it had no impact on net jobs. They were absolutely right; it does not. It is interesting how the focus and logic shifts depending on who is in the White House or who is in charge of Congress.

THE MARKET

MARKET SENTIMENT

The VIX surged to a new rally high on Friday as the market sold off early. Remember, the market did sell off through the middle of the day, but then it recovered. As it recovered, of course, the volatility fell. There was a higher low and a huge surge on Thursday. It was running well on Friday before it came back. Once the VIX makes a big move, it can really run. It will hold tight for a long time, but then it breaks the ice and can easily slide higher or lower. Thus, what happened on Friday may not mean much. There is a big gravestone doji, and that could mean it is going to turn down. However, you have to think that it has broken through the ice. It may shoot back up if the market was just subject to short covering on Friday ahead of a weekend and after a big selloff. Although volatility faded back, that does not say to me that there was a major problem with respect to a reversal to the upside in the market.

VIX: 26.11; +0.03
VXN: 25.96; -0.03
VXO: 25.28; -1.25

Put/Call Ratio (CBOE): 1.21; +0.15

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 38.9%. The selling took further toll on bulls, dropping them from 40.0%. After peaking at 53 on this move the bulls continue to run, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Getting close to the 35% level that is the threshold for what is considered a bullish climate. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 22.2%. Surprisingly bears fell for the week, down from 23.3% after a brisk rise up from 16%ish on the lows this leg where it held for several weeks. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +15.69 points (+0.74%) to close at 2141.12
Volume: 2.751B (+0.41%)

Up Volume: 1.907B (+1.61B)
Down Volume: 866.637M (-1.666B)

A/D and Hi/Lo: Advancers led 1.19 to 1
Previous Session: Decliners led 6.03 to 1

New Highs: 16 (-4)
New Lows: 52 (-1)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +3.07 points (+0.29%) to close at 1066.18
NYSE Volume: 1.563B (+5.33%)

Up Volume: 832.375M (+792.031M)
Down Volume: 712.345M (-727.385M)

A/D and Hi/Lo: Decliners led 1.42 to 1
Previous Session: Decliners led 7.64 to 1

New Highs: 63 (-15)
New Lows: 89 (+25)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +10.05 points (+0.1%) to close at 10012.23
Volume DJ30: 308m shares Friday versus 304M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

The dollar will play a role in what happens in the stock market. It may not be the leading cause, but it may be a symptom of what is going on. Whether the dollar continues to rise or not could tell what will happen with the rest of the stock market. The dollar is gaining strength because of worries overseas. Maybe that is what it was telling us when it reversed its downtrend and started this rally the rally that is becoming stronger as the world economic picture grows weaker. People move to US currency even though we have unreal amounts of debt. It is just not as unreal as some of the places in Europe and other parts of the world. People are putting their money into US currency, and that is a symptom of what may happen next week. One of the things we need to consider is the reversal on Friday. I consider that short covering while others consider it a reversal signal. We will find out in the first couple of days in the week.

The earnings season is winding down, and there will be more economic data. Retail sales are a big component, but that is out late in the week. There is not a lot in the beginning of the week to drive things, so we will get to see what the market will do. The bias is down right now. We will have to see if liquidity comes back in to stir it back to the upside. Many Fed members, including Bernanke, are going to be speaking next week to Congress with respect to how and when they will remove all of the stimulus. That is something the market has factored in and will be listening to next week. There are still a lot of negatives out there, but it is when everything gets negative that things can turn positive again. I just do not think the selling is over yet. There are still unresolved issues. As long as serious issues remain unresolved and are incalculable (such as how bad the credit default swap will be in the EU), the market views that as uncertainty and does not like to move higher. No one wants to buy in that kind of uncertainty. When things get as bad as they can get, that is typically when the uncertainty is resolved (because it cannot get any worse than it is) and the market rallies. We are not at that stage right now.

We have downside positions we took on Friday and that we have had over the course of the last few weeks. We will keep those on. We will see how the stocks bounce early in the week. We can play upside bounces on stocks that can move well. There are stocks that can race higher if things go well. FCX is capable of doing that. There are other stocks that have sold off but held support and have set up a double bottom pattern. We can make a play off those. As for the others, we will be watching for them to rebound in their downtrends, hit resistance, and set up new downside. We have played others to the upside while they rebound and set up to the downside. Then we take our gains, flip out of the upside, and look at the downside plays. This is a market you have to trade right now because many patterns are broken and have to go through a healing process. There has been a deeper selloff than on any of the prior moves to the upside, so you have to do some work to get your house back in order. Then you can set up another run like the one we see in FCX spanning July through November. We will employ the same theory right now, which is to take what the market gives. That means we play good movers as the market bounces, and as it stalls out, we switch into plays that are set up to fall and can let our current plays fall again. Have a great weekend, and enjoy the Super Bowl.

Support and Resistance

NASDAQ: Closed at 2141.12
Resistance:
2143 is the October 2009 range low
2155 is the March 2008 intraday low
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2191 is the October 2009 peak
2205 is the November 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
The 50 day EMA at 2212
2218 is the August 2005 peak
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows
2292 is a low from January 2008
2319 from the September 2008 peak
2326.28 is the January high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak

Support:
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
The 200 day SMA at 2020
2015 from an early August 2008 peak

S&P 500: Closed at 1066.19
Resistance:
1070 is the late September 2009 peak
1078 is the October range low
1084 to 1080 (September 2009 peak)
1101 is the October 2009 high
The 50 day EMA at 1104
1106 is the September 2008 low
1114 is the November 2009 peak
1119 is the early December intraday high
1133 from a September 2008 intraday low
1150 is the January 2010 peak
1156 is the Sept 2008 low
1185 from late September 2008
1200 from the July 2008 low

Support:
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The 200 day SMA at 1019
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low

Dow: Closed at 10,012.23
Resistance:
10,120 is the October 2009 peak
10,285 is the late December consolidation peak
The 50 day EMA at 10,314
10,365 is the late September 2008 low
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
The 200 day SMA at 9481
9430 is the early October low
9387 is the mid-October peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

February 05 - Friday
Nonfarm Payrolls, January (08:30): -20K actual versus 15K expected, -150K prior (revised from -85K)
Unemployment Rate, January (08:30): 9.7% actual versus 10.0% expected, 10.0% prior
Average Workweek, January (08:30): 33.3 actual versus 33.2 expected, 33.2 prior
Hourly Earnings, January (08:30): 0.3% actual versus 0.2% expected, 0.2% prior
Consumer Credit, December (15:00): -$1.7B actual versus -$10.0B expected, -$21.8B prior (revised from -$17.5B)

February 09 - Tuesday
Wholesale Inventories, December (10:00): 0.6% expected, 1.5% prior

February 10 - Wednesday
Trade Balance, December (08:30): -$35.0B expected, -$36.4B prior
Crude Inventories, 2/5 (10:30): 2.32M prior
Treasury Budget, January (14:00): -$60.0B expected, -$91.9B prior

February 11 - Thursday
Initial Claims, 02/06 (08:30)
Continuing Claims, 02/06 (08:30)
Retail Sales, January (08:30): 0.4% expected, -0.3% prior
Retail Sales ex-auto, January (08:30): 0.4% expected, -0.2% prior
Business Inventories, December (10:00): 0.4% expected, 0.4% prior

February 12 - Friday
Michigan Sentiment, February (09:55): 74.8 expected, 74.4 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

You Know the Market Wants to Correct When ...

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 01 Feb 2010 04:29:00 +0000

SUMMARY:
- You know the market wants to correct when . . .
- Good earnings surge NASDAQ, then it purges
- GDP soars, but market yawns as the numbers behind the numbers are not as impressive . . . even as some pundits want you to believe.
- Market correcting because it rallied far and needs to or it sees something nefarious down the road. Can you tell which?
- Week packed with economic data, more earnings, and a market that has a lot of sellers.

Just needs to correct after a run or something wicked this way comes. Take your pick.

The market definitely wants to correct when there are strong earnings that are either ignored or a good initial gain is given up. MSFT posted outstanding earnings and gapped higher, but then it reversed on high volume. AMZN produced great earnings and gapped sharply higher, but then it reversed and gave it all up. Another sign of correction is selling after a strong economic report such as the GDP for Q4. That was the fastest growth in six years, and yet the market still sold. Initially, futures gapped higher and were holding their gains as the market opened and rallied. It did not hold up through the rest of the day, however. The market peaked, and the sellers came and sold off the market into the close on Friday. We expected short covering to come in, and it looked like it was doing so early in the session. There were good earnings and a good economic report. There was plenty to get the shorts scared and wanting to cover over the weekend, but even that was not enough to keep the sellers out of the market. They came back in and sold it despite those earnings and despite the good economic data. You know the market wants to sell when it ignores those two major areas that are the reasons why the markets rally.

Is the market ready to correct, or is there something more nefarious afoot? There has been a big run; the indices are up 70%. The March lows, where the SP500 bottoms, is a tremendous run up near 1200. It makes sense that there should be a correction, and one is underway. This is clearly a sharp pullback that is in a two-step process right now. Others have been one step down. There are two big legs both occurring at the end of the week. Selling off at the end of the week and down into the close on Friday is not necessarily a good sign, but there is still a lot of liquidity out there. After all, the Fed is still pumping out money. At the FOMC result this past week, it indicated that it will start taking the stimulus back, but it does not have a timetable for that. It has just started the talk about it, and that precedes actual actions by a few months. It looks like we will still have plenty of liquidity. The market looks many months down the road. It does not base long-term decisions on earnings this past quarter. We will see stocks gap higher or lower based on the past earnings and immediate outlook. As for the more sustained action several months down the road, the market prices that in over time rather than just on a day.

As seen on Friday, the economic data is still increasing. There was a good Chicago PMI, and the Michigan Sentiment was up. The GDP for Q4 the first iteration of it was very strong. There are other issues in the world, however. The EU is already heading back down. Germany is in trouble, and Greece is having issues selling its bonds without offering a lot of money. Spain and Portugal are under pressure, and Ireland is starting to turn up on the radar as a problem. S&P said that the UK was no longer the safest banking financial center on earth. Europe is starting to head back down. They had the same kind of stimulus as the US and are heading back down earlier than we are. They also started to recover faster than we did, but they may be going into a double dip and providing the US with a road map for the way down. We are essentially doing what they did, although their debt is not nearly as high as ours is.

This is a point to be very careful with worries of a double dip, yet the administration is talking about additional stimulus. This time it is talking about a small business stimulus, which may not help. It is based upon hiring, and it is very difficult to hire someone when you get just a credit. If you do not have the work for them and you get a one-time credit, then that does not offset the salary. The government is asking small business to get $5K off the taxes per employee, but you have to make up the rest of it out of your own pocket (and hopefully with profits). If there is not enough business in the first place that would require a business to hire someone, taking $5K off of a $15-50K salary is not going to induce them to bring that person on board if there is no work for them. The government is once again trying to tell you how to use your money very specifically instead of giving a credit and letting a business owner use it the way they see fit. How much can we rely on this being a potential move down ahead of a double dip? Not a lot at this point. The market rallied 70%, and it is down 7% right now. It is having a correction after a big run, and that is the most likely scenario. The path of least resistance has been down at this point. There is still room to correct and maintain a healthy overall gain. There are plenty of consolidation levels on SP500, NASDAQ, and other indices as well. It is jumping the gun to assume there will be a double dip and that the market is already pricing in a dive lower based on the action we saw the past two weeks. The economic data is still expanding and earnings are improving. Conspiracy theorists (and I have been called one on occasion) would tend to jump to that conclusion. I have my doubts about how strong this economy is, but the market is the market. It will do what it does and we have to watch it in order to position ourselves well. That is why we were taking gain off all the way up. We were buying new positions, but we were also taking a lot off the table and closing up positions as it started to sell. We are now are looking at downside positions. There could be real trouble out there, but no one knows at this point. The market is going to sell, we will make money as it goes down, and we will see how the leaders set up for a move back up. That will tell us a lot more than anything else will. That is when the leaders base out and get in good positions to rally once more.

OTHER MARKETS

The dollar was stronger, surging higher on Friday (1.3864 Euros versus 1.3970 Thursday). It was at roughly 1.42 just days ago. The greenback is surging after this test, continuing its relief bounce and coming up to critical resistance from the September 2008 peak, a low in December 2008, and then a range in the summer of 2009. There are lows and highs right at the 79.50 range it is trading at right now. A key week is coming ahead for the dollar, and it is likely to consolidate some more. We have had a strong move, a great test, and then another strong move. It could break up to 80 or even crack into the 81 area and then come back to consolidate. The dollar is very strong, and that is putting a damper on other sectors and other markets as well.

Oil closed down ($72.65, -1.20). It tried to consolidate near $75, but it has fallen down to the $72.50 level where there is support from August. It is trying to hold here. It bounced Wednesday and Thursday. It looked like it would bounce Friday because it was up a lot of the day, but then it turned over and closed at the lows. It may hold here, but it looks like it wants to sag down to 70. Oil is under pressure as the dollar continues to rally. They have an inverse relationship.

Gold, while it was somewhat down, was essentially flat again ($1,8180, -4.40). It is holding the December low and is still in play for a possible double bottom. That is just a pretty picture until it really makes a move that shows it is breaking higher from this support level. It keeps it interesting as we look ahead to see what the yellow will do and what the other markets might do in response.

Bonds rallied. As stocks were up originally on the GDP and earnings data, the 10 year was at 3.67%, up from 3.6 5% on Thursday. Then it reversed and closed at 3.60%. That is a hefty move in one session, and as bonds rally, yields fall. Concerns about the economy would send bonds higher. Why would bonds be rallying when the economy is supposedly recovering? It could be the lurking fear of a double dip or inflation, but one would think inflation would tear into bonds. There is something making investors nervous again and pushing bonds higher. Bonds did spike at the end of last year, but then they sold off and it looked like things were recovering. They are now marching back up and clearing an important interim peak. They are making a higher high again after the lower high. We have to keep our eye on bonds moving down the road.

TECHNICAL

INTERNALS

The advance/decline line was not too bad on Friday. NASDAQ saw -1.8:1, and that was better than the -2.5:1 on Thursday. The NYSE was a bit worse with -2.2:1 versus -2.6:1 on Thursday. It is still over 2:1 to the downside, which is more than we saw during the stagnation period. Things have started to move and the breadth ramped up.

Volume jumped again to over $3B shares on NASDAQ. That surge saw the biggest volume in months. The NYSE volume was up 41% to 1.58B shares. It was not the biggest volume in months, but it was big volume nonetheless. It occurred on the downside, and that showed distribution. That is high-volume selling where the institutions are dumping their shares they bought on the way up. If there is a lot of technical damage done, stocks will have to base out again before they can make substantiate moves higher.

CHARTS

SP500 had two big days down, three lateral, then two days down again. It was very heavy volume at the end of the week. Buyers are not rushing in to save the market, so the sellers are using the end of the week to dump shares. The SP500 closed roughly at the September peak, so it is still holding some support at this level. There is a significant layer of support from 1075 to 1050. It could come down to 1025 as well. There is a point in November, October, and then again a peak in August. There is a series of support levels that the SP500 could step its way down to. One of them is at 1025, and then down to 1000 where the 200 day EMA is lurking (but it is really more around 1112). There is no indication the selling is slowing with high volume on the downside. We will have to see where it lands. We were looking for a potential bounce back up to test the high, and it may still come. Trends do not like to give up easily. The S&P could come down to 1050, then rally back up, and try the level at 1100-1112. It could also go up to 1125-1130 before rolling back over. That is what makes these turns tricky. If it is a normal correction, it should bounce up and try to test. If there is something more insidious at work, it could dive straight down. The strength of the decline is indicative of the perceived problem in the market.

The NASDAQ is in the same situation. It tried to recapture 2200. It bounced up to that level on the high (2203), but it was unable to break back through the November and December peaks. It turned and made a new low on the selloff as it declined 1.5%. That puts it still in this range. There is a range of support running below 2100 and all the way down to 2040. There is a big range of consolidation as the market gave back many of the moves as it climbed higher. That is indicative of a momentum lag on the way up, but it gives it support points on the way down. As with SP500, it is still stepping lower with no indication of trying to slow down. I am looking at 2050 or 2000 as a pullback, and that is substantial. If it goes straight to that level, something bad is up. If it checks up in the general range of 2100-2150 and rebounds, then that is more in line with what has been seen before. Even if it fails, it would be more of a normal correction.

SP600 had a tough day, but it is not in as bad of shape as some of the others. It did break out of its lateral consolidation, as did the other indices on Thursday and Friday. It is holding at support at 20 and has a range down to 311-310. There is a lot of price congestion and a late August peak. There is a bit of head and shoulders action. Again, many of the same things the other indices are showing.

Semiconductors are struggling. They have given back most of their gain, knifing lower on Friday. It is in the middle of the range of consolidation from September into early December. There is support around 300 from an August peak, and then there are lows in September and one in early October. The 200 day EMA is coming up just over 300. It is the same as the others; it is selling hard, it will test some deeper support, and then we will see how it bounces and what kind of strength is there when it is done. The indices are in high-volume selloffs with the mutual funds dumping shares. It is a matter of how far they sell down on this move, and then how they bounce in response. Thus far, the bounces have been very anemic. We have not seen any type of big bounce just lateral shuffling that has been unable to bounce back and pick up any buyers to the upside. It is all downside right now, and we have to see where they bottom and how they bounce to tell what kind of correction the market will have.

LEADERSHIP

Technology. AAPL was down. It has broken through the 200 level and is at a key range at 190. There was a big chunk torn off there. It is one of the major leaders and a bellwether, and it is struggling. MSFT gapped higher and reversed; it had good results but got no respect. There is a weakening top with MACD, a lower high, and it broke down. There is a bear flag and it is tanking lower. I did not want to get in front of it and its earnings, but it turned out that would have been a good play. Even though it reported strong earnings, MSFT was swept back. CSCO had a same kind of action. It did not break down at hard and it has key support at 22 that could hold it up.

Restaurants are still doing well. PNRA is holding up nicely, and BWLD is also holding up well. Retail stores are struggling, however. WSM is back to the downside, and it made a stronger breakout of the lateral consolidation at 20. There was a lot of this: the selloff, the inability to bounce, then sliding laterally and breaking lower.

Energy. APA tried to consolidate laterally and is breaking lower as well. CVX did not announce great earnings, and it is down all the way to the 200 day EMA. That is at least holding for now. SLB is breaking down from its lateral consolidation attempt. CHK is selling off as well. None of these are ready to buy yet they need to do some consolidation.

Biotechnology. CELG is holding up well. It had a nice pullback to the 50 day EMA, and it could result in a play at some point. We took AMMD off the table to let it make its test. It is now coming back and could set up another buy in a few days. ISRG is still holding its gap. It was down on the session, but it is in good position and could yield a buy.

Industrials. TEX finally broke down. It tried to slide laterally, but it broke on a bit higher volume. It was not a major selloff, however. BUCY was an early leader, but it has given back that gain. It broke down into the range from 50-55. It will be critical to see if it will hold and base out. It is interesting that it never broke back up to 60 to make the right shoulder of a head and shoulder pattern.

Metals. FCX has sold off steadily. It is now down to the 200 day EMA at 65 where there is other price support. Other metals are down as well. Dollar-related "over there" stocks are in trouble and selling off as the dollar rises. Most other sectors are under pressure as well. There are pockets of strength as there always are, but there is a lot of pressure on the market overall. The distribution makes it difficult for stocks to find any footing right now, and that is why we are playing a lot of downside.

THE ECONOMY

First look at Q4 GDP ostensibly solid but you have to look at the numbers behind the numbers.

The Q4 GDP was the first iteration (there are three), so a lot of estimates were made with respect to what some of the numbers are. It gives a good idea of what is going on. It came in at 5.7% versus the 4.7% expected and 2.2% in Q3. That shows that we have technically emerged from the recession. There were two back-to-back quarters of positive GDP data. That is the headline number and it was the fastest since Q3 of 2003. I am not here to say that GDP was terrible. I am not enamored of the number for a number of reasons, but there are positives there. Consumer consumption was up 2%, and that was better than anticipated. It was expected to come in at 1-1.15% growth, so it was quite good. Consumers are buying, but the question is whether any of this is sustainable. The big boost to the number was inventories, adding 3.4%. If you take out inventories, then there is a 2.3% GDP. That is not bad, it is still positive. It is the second one in a row matching Q3, but that shows the driving force behind the improvement. Was it the kind of inventory growth that shows a lot of buying? Inventories went from -150B to -30B. That means that, while there is improvement, there is still just slower liquidation of inventories. They are not growing. It is like the housing market; it is not going down as fast as it used to. When the PMI numbers were negative, they were not going down as fast as they were before. They were improving, but were still bad. Did this make a lot of difference to the market on Friday? The futures were up ahead of the number, and they bounced modestly on the number and then gave back the gains. They were trading exactly where they were with slight gains after the number came out. It did not surprise the market that it was 1% better than expected. Indeed, the market was not very excited about it.

In talking with some economists, they said the consumer consumption that was up 2% was due to Cash for Clunkers and the first-time homebuyer credit. The question is whether there be that kind of consumption in the first quarter of 2010 without that stimulus. They are planning other stimulus, but it will be difficult to get that through Congress. We will have to see because people are weary of spending a lot of money. We spent hundreds of billions already with what some would call good results. There was a 5.7% GDP increase, but you have to look at where the increase was. I am not saying it is a bad number, but it is not as strong as it could be. For instance, many pundits were crowing that there was a 13.3% increase in PC equipment and software purchases in Q4. They said that showed signs of sustainability, but if you go back each of the years in the fourth quarter, there is a similar type of jump in consumption. This is not true for last year because no one was buying anything, but there was purchasing at the end of the year all the way back to the previous recession and our emergence from that. That is because there was an increase in credits and expensing for equipment and software. If you bought it, you have to take advantage of the expensing and the credit. When companies try to take full tax advantage, they make all the purchases in the fourth quarter, as late as possible, so it shows up and they can take it on their taxes that they pay in March or April. That is being smart with their money, and it happens every fourth quarter while we have had credits and accelerated expensing in place. It was no surprise that it went up because that was the time of year. What was surprising was there were pundits thinking this was a sign of renewed buying. They have said that every fourth quarter now since 2003. We have to step back and look at what is really going on. It was inventories, and it was the particular quarter with expensing and tax considerations that helped push this higher. I will not complain this is good. I hope it is sustainable, but we will have to see. The market did not do much after the number came out. Indeed, later on in the session, it turned over and completely sold off into a close on Friday. Historically, that is a bad thing for the market.

THE MARKET

MARKET SENTIMENT

The VIX posted a modest gain, but it was no huge surge given the size of losses, at least on NASDAQ. The rest of the NYSE indices posted nominal losses, such as SP500 with a 1% loss. Considering that stocks were down 2% on the indices just the other day, that was not much. The VIX jumped a bit. It was down early when the market rallied, but it is not where it was and has not taken out the peak from last week when it surged on Thursday and Friday's selling. This Thursday and Friday were pikers by comparison, and it is still at a relatively low range. It is testing and could break higher, but it was interesting that it did not explode higher on Thursday or Friday when there was significant selling underway.

VIX: 24.62; +0.89
VXN: 25.8; +0.89
VXO: 24.46; +1.46
Put/Call Ratio (CBOE): 1; +0.2

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 48.3%. Once again bulls have peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Thus for now this is more of the same as bulls get a bit pessimistic as the indices rise again and VIX falls. Hit 52.2% three weeks back, the highest level on this run. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 16.9%. Virtually in a flat line the past 6 weeks, down from 28% in mid-November. No sign of real worry based on this reading. This is the lowest level of the entire rally and is at a bearish level. Peaked near 28% on this round, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: -31.65 points (-1.45%) to close at 2147.35
Volume: 3.093B (+10.61%)

Up Volume: 649.357M (+46.501M)
Down Volume: 2.463B (+193.35M)

A/D and Hi/Lo: Decliners led 1.82 to 1
Previous Session: Decliners led 2.5 to 1

New Highs: 44 (+3)
New Lows: 33 (+13)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: -10.66 points (-0.98%) to close at 1073.87
NYSE Volume: 1.581B (+41.71%)

Up Volume: 495.049M (+163.308M)
Down Volume: 1.076B (+298.83M)

A/D and Hi/Lo: Decliners led 2.21 to 1
Previous Session: Decliners led 2.6 to 1

New Highs: 83 (-12)
New Lows: 61 (+5)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: -53.13 points (-0.52%) to close at 10067.33
Volume DJ30: 316M shares Friday versus 240M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY and the WEEK AHEAD

There is a lot of data coming out next week, along with many more earnings. Earnings are not just a January event anymore. The first two weeks of February can be every bit as busy as the heart of January. There will be personal income and spending and the ISM. The Chicago PMI, which is usually a precursor, was up to 61.5. That topped expectations of 57.2 and beat the 58.7 in December. They were expecting an improvement in ISM, and it will be written higher before Monday.
The other big news of the week will be the employment numbers. ADP is on Wednesday, and then initial claims will be out on Wednesday. Factory orders are important, but it will be the non-farm payrolls in the spotlight on Friday. That will take all of the interest, and they are expected to rise. That would make two out of three months of modest gains. When you couple that will improving data, many people will be saying we are out of the recession and home free. Maybe we will be, and I hope we are. That would be fantastic, but I do not know how strong the move will be. There are a lot of caveats based on the kind of spending we have taken out and the debt we have racked up. I am concerned with what the future holds, but I will enjoy what we are getting for now.

The market is engaged in an old-fashioned, butt-kicking selloff. There are big downside sessions where 1-2% is being lost to the downside. There has been a leg and somewhat of a pause (it is hard to call this a second leg), and then it is coming down further. It will continue to sell. It might be nervousness ahead of the jobs report, then there may be a bounce ahead of it. There are expectations of positive growth, and there will be nervousness that it could be better than expected. The shorts will want to cover. It is on Friday as well, so maybe we will get that covering at some point. For now, the market shows that the path of least resistance is still to the downside. There was no bounce to the upside when it tried to consolidate for three sessions and, indeed, fought as hard as it could to hold up before giving way. Consider the fact that it is giving way on good earnings reports and good economic data. That shows that this is a market that just wants to sell for whatever reason. We will see what positions hold. We have cleared off a lot and do not have many upside positions left. What we do have are at some kind of support or there is another reason, like we think they could hold this level. They may not. If this is an ugly selloff, it could give way and there could be no leaders left standing. We have also moved into several downside positions. We picked up more on Friday given that the selling was hard in the afternoon. There was a late bounce that allowed us to take some positions to the downside, but we took partial positions because we do not know what Monday will bring. I felt good enough about the way it was closing for the second week in a row to the downside on Friday to take some downside positions.

We will continue to look for downside positions, mindful of the fact that there may be an upside bounce at some point to test this. This could be an all-out, butt-kicking selloff that takes SP500 down to near 1000 in short order. Or it can hold in the range of 1050 and bounce back up and test the lows, and then come back down again. That is the more ordinary correction from going too far too fast. The other kind is that there is something bad out in the world that we are unsure of, and then it sells off hard without any rebound. You do get a rebound off that, but it does not come up anywhere near the old highs. It makes a lower high at a lower resistance point and turns back down. We will continue to look for downside. That is the play that seems to have the most in it, but there will be people who are looking to put some of the liquidity to work to the upside. There is still money out there, so there will be plays like CELG and some of the restaurants holding up in spite of the market selling. Right now, we do not put a ton of money to work on any one particular position, especially upside. We can put more to work downside because the market is showing which way it wants to go. There is no attempt to bounce, and it is selling off again, so we can be more aggressive to the downside. Remember, downside comes fast and it can leave fast. Move in, take your position, and take gain when it is there at least partial profits. If you get a bounce, then you will not be killed on it. Just exercise good stop-loss control, and as opportunities set up, you should take advantage of them. The market is selling on high volume, so you have to go with the flow. Many people do not like that, but it is the same as when it is going upside. You make your money and take it off the table when the play dissipates.

It has been a tough couple of weeks for the bulls. Again, we took a lot of money off the table on the way up. We made a lot of gain in the last several months on the way upside. We were light going into earnings, and that is the way you want to be . We are now seeing how earnings are shaking out and taking positions based on that. We will be looking for gaps to play both upside and downside because we love to play gaps off earnings. We will see how they hold, what sets up, and then take advantage of it. You should not get bent out of shape when the market sells just like you do not get bent out of shape when it rallies. Take what the market gives you and be smart about it. Have a great weekend and stay warm it will be a cold one for a lot of the nation.

Support and Resistance

NASDAQ: Closed at 2147.35
Resistance:
2155 is the March 2008 intraday low
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2191 is the October 2009 peak
2205 is the November 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2218 is the August 2005 peak
The 50 day EMA at 2233
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows
2292 is a low from January 2008
2319 from the September 2008 peak
2326.28 is the January high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak

Support:
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low

S&P 500: Closed at 1073.87
Resistance:
1078 is the October range low
1084 to 1080 (September 2009 peak)
1101 is the October high
1106 is the September 2008 low
The 50 day EMA at 1108
1114 is the November 2009 peak
1119 is the early December intraday high
1133 from a September 2008 intraday low
1150 is the January 2010 peak
1156 is the Sept 2008 low
1185 from late September 2008
1200 from the July 2008 low

Support:
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The 200 day SMA at 1013
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low

Dow: Closed at 10,067.33
Resistance:
10,120 is the October 2009 peak
10,365 is the late September 2008 low
The 50 day EMA at 10,363
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
The 200 day SMA at 9427
9387 is the mid-October peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

January 29 - Friday
GDP-Adv., Q4 (08:30): 5.7% actual versus 4.7% expected, 2.2% prior
Chain Deflator-Adv., Q4 (08:30): 0.6% actual versus 1.3% expected, 0.4% prior
Employment Cost Index, Q4 (08:30): 0.5% actual versus 0.4% expected, 0.4% prior
Chicago PMI, January (09:45): 61.5 actual versus 57.2 expected, 58.7 prior
University of Michigan, January (09:55): 74.4 actual versus 73.0 expected, 72.8 prior

February 01 - Monday
Personal Income, December (08:30): 0.3% expected, 0.4% prior
Personal Spending, December (08:30): 0.3% expected, 0.5% prior
Construction Spending, December (10:00): -0.5% expected, -0.6% prior
ISM Index, January (10:00): 55.2 expected, 55.9 prior

February 02 - Tuesday
Pending Home Sales, December (10:00): 1.1% expected, -16.0% prior
Auto Sales, January (14:00): 4.14M prior
Truck Sales, January (14:00): 4.49M prior

February 03 - Wednesday
Challenger Job Cuts, January (07:30): -72.9% prior
ADP Employment Change, January (08:15): -40K expected, -84K prior
ISM Services, January (10:00): 50.9 expected, 50.1 prior
Crude Inventories, 1/29 (10:30): -3.89M prior

February 04 - Thursday
Initial Claims, 01/30 (08:30): 454K expected, 470K prior
Continuing Claims, 01/30 (08:30): 4600K expected, 4602K prior
Productivity-Prel, Q4 (08:30): 6.0% expected, 8.1% prior
Unit Labor Costs - P, Q4 (08:30): -2.5% expected, -2.5% prior
Factory Orders, December (10:00): 0.6% expected, 1.1% prior

February 05 - Friday
Nonfarm Payrolls, January (08:30): 13K expected, -85K prior
Unemployment Rate, January (08:30): 10.0% expected, 10.0% prior
Average Workweek, January (08:30): 33.2 expected, 33.2 prior
Hourly Earnings, January (08:30): 0.2% expected, 0.2% prior
Consumer Credit, December (15:00): -$9.5B expected, -$17.5B prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Indices at Key Support

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 25 Jan 2010 14:22:00 +0000

Summary:
Earnings were not necessarily stupendous, but there were not a lot of terrible misses. There were good beats on the top line and bottom line, but that was no salve with respect to what the future holds. Earnings are about looking in the rearview mirror. When there are worries about a double dip in Europe, worries about China overreacting, and then the US overreacting to an election that went against the party in power, then that creates a lot of worry and fear. You can hear it time after time on the financial and news stations. Very intelligent economists and market analysts said what the administration is doing is extremely dangerous. It took a loss, it cannot handle the loss, and it is afraid of losing its agenda. It is now pandering to populism where people are upset that the banks made a lot of money. I am upset that banks made a lot of money as well: they are getting free money and able to turn it into 4-5% gains in overseas investments. That bugs me as a taxpayer. I am never going to see that money come back, but I will not let that cloud my judgment and say we should regulate them out of business. We are trying to help them recover, so the regulations make no sense. The incongruous actions being taken will lead to serious problems.

TECHNICAL

INTERNALS

The VIX surged 23% on Friday, and this is a massive move. A one-week move from the 17 level up to 28 is huge. That does not mean that volatility is a problem, and it does not mean the market is oversold. When you get in the 40 and 50 range, it is majorly oversold. This was an aberration because the world financial systems almost collapsed. I was getting calls late at night to put all my money in a safe deposit box and these were smart, sane arbitrage players telling me this. You understand how difficult and crazy it was back then and why volatility was so high. This is a high level, and we are at 28. 28 used to be considered high in the range from 20-30; that was normal. I hate to use the term "new normal," but that is what this essentially is. The new normal is not 20-30. The new normal is anywhere from 15-50. Seriously, you can have low readings of volatility for a long time and not be in trouble. It does not necessarily mean anything other than it could be due for a selloff. You can have volatility decreasing down to 11 or 10 levels and still have the market in long-term rallies. The thing to worry about is when volatility spikes as the market rallies. That is when a serious market rollover is coming.

The breadth was again quite negative at -2.7:1 on NASDAQ versus -2.9:1 on Wednesday. There was not much improvement. Note that I said breadth was starting to show big swings over the last week and a half. That was a precursor. It was showing its own internal volatility, and now volatility picks up in a number and it does not matter what it is. It does not have to be the VIX it can be in any kind of measure. Then you can anticipate trouble ahead or a change coming. On the NYSE, it was massively negative at -4.2:1 after -3.5:1 on Thursday. Really negative action.

The volume shows that there was another serious selloff. This is the second day of very high volume on the NYSE. After very low volume in late December and most of January when NASDAQ volume was spiking, the NYSE finally took off to the downside. Indeed, the three big spikes were on the downside. There was similar action with the NASDAQ. There was higher volume, but the big downside was related to the big volume spikes. There were four out of five days with big volume to the downside. That means lots of distribution, and that tells you they are simply dumping stocks. Distribution begets more selling or it has selling, maybe a pause, and more selling afterwards.

CHARTS

All the large cap indices are already at or below the next important support level I talked about on Wednesday and Thursday. SP500 is already inside in November-December range. It blew through the tops of that level, and now we are looking at the bottom of that range and the September peak around 1085-1080. That is the range of key support. You could extend that down to 1075 if you wanted to because that is the closing point. It is in a range of support. It could sell a day or two more and find the bottom. The move down has been so sharp, and the question is what it will do when it gets there.

NASDAQ has had high-volume selling, and it is right at its level of support at roughly 2015-2000. It has an entire range it could sell off to down to 2165. It will try too hold at the top of this range or at least it touched it and bounced back a bit on Friday. I do not know if it will try to hold yet, but it is at a level. We could see some slowing in selling over the next couple of sessions if it is going to try to hold. It is a key level, and you would expect it to show a bounce attempt. It may try to undercut it and then reverse; it comes in many forms. Sometimes they bounce off the level, and sometimes they undercut it and reverse. We will have to see how it plays out. We can expect some kind of bounce in this range, whether from the Friday close or a bit deeper into the range.

As noted earlier, the SOX was a horrible disappointment. It turned tail and fled, and it has crashed all the way down to the bottom range of the next support level. SOX and semiconductors go into everything we make these days, and if the economies of the world will struggle, the chips are out the door quickly. The interesting indices were the small and mid caps. They sold, but they are holding the 50 day EMA. That is the start of a range of support down to 325 from the September peak. It also held in mid-December. They look decent because they are not selling as hard, although that is a dubious honor given the size of the selloff.

The SP400 had similar action. It is holding the 50 day EMA and is above the October peak. It is an awfully sharp fall, and it is not planing out at all. They can turn on a dime as we saw on the trendline in November. We will have to see how it plays out. They are holding up, but are not that strong. I am not yet convinced that they can turn on a dime.

There were very sharp drops, and there is no sign of slowing yet. We will have to wait and see whether they can make a sharp turn at the support levels (such as on NASDAQ), or if they need to plane out a bit more or test and make smaller drops before making the turn. This is almost too fast of a decline to get a real feel for when exactly they will turn. We will talk more about what we can expect come Monday, and what we will be looking for in order to get that turn.

LEADERSHIP

BUCY gapped down and held similar to a small cap. There is interest there. TEX had the same type of action, showing a hammer doji at the 50 day EMA. There are possibilities there, especially when you juxtapose them with others such as JOYG or DE that look as if they are in freefall. Energy had a rough session, and these two tough days cast them down. They looked like they were trying to hold. APA was down hard. HAL is at its 50 day, but it was selling hard.

Metals were mostly down. FCX had a very tough week and gapped below support on Friday, but it did manage to hold. MTL showed a hammer doji at support, so not everything was down and out. I am trying to point out some positives in a market that was down overall.

Techs were a virtual wasteland on Friday. The selling got ugly on stocks such as AAPL, CSCO, INTC, and MSFT. Those are sharp selloffs and the very definition of trouble patterns. Biotechs are stable right now. DNDN came off the 50 day EMA with above-average volume. It could not hold the move, but it shows it was not selling. CELG was also trying to hold its end up and still make a new breakout.

Airlines were surprisingly strong. CAL was not up, but it held up well. LUV was not up on the session either, but it held up very well. TKC, a foreign telecom we sometimes look at, is not selling off sharply. It is holding above the prior peak in October. It is not all doom and gloom, but there are not a lot of pretty pictures out there right now. Nearly all sectors were lower. There were pockets of strength, but most sectors were beaten up severely because investors are uncertain about the future.

THE MARKET

MARKET SENTIMENT

VIX: 27.31; +5.04
VXN: 28.37; +5.18
VXO: 26.05; +4.86

Put/Call Ratio (CBOE): 1.07; +0.14

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 48.3%. Once again bulls have peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Thus for now this is more of the same as bulls get a bit pessimistic as the indices rise again and VIX falls. Hit 52.2% three weeks back, the highest level on this run. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 16.9%. Virtually in a flat line the past 6 weeks, down from 28% in mid-November. No sign of real worry based on this reading. This is the lowest level of the entire rally and is at a bearish level. Peaked near 28% on this round, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: -60.41 points (-2.67%) to close at 2205.29
Volume: 2.764B (-3.06%)

Up Volume: 448.265M (-479.888M)
Down Volume: 2.367B (+411.212M)

A/D and Hi/Lo: Decliners led 2.7 to 1
Previous Session: Decliners led 2.89 to 1

New Highs: 44 (+44)
New Lows: 16 (+14)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: -24.72 points (-2.21%) to close at 1091.76
NYSE Volume: 1.472B (-1.91%)

Up Volume: 161.408M (-33.84M)
Down Volume: 1.299B (-80K)

A/D and Hi/Lo: Decliners led 4.19 to 1
Previous Session: Decliners led 3.49 to 1

New Highs: 115 (-79)
New Lows: 47 (+4)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: -216.9 points (-2.09%) to close at 10172.98
Volume DJ30: 323M shares Friday versus 304M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

The market should not have sold as hard as it did based on the earnings and economic data, but there is the regulation fear and uncertainty driving the selling. With such a hard selloff into the close on Friday, Monday can be ugly. Tuesday can be ugly after that. Historically, a very negative Friday close during serious selling can bleed over into Monday and Tuesday. With that in mind, we were closing positions late in the day even though there is a chance for a bounce. The ones we closed had given up support and were not coming back. We did not want to see them get in any worse shape if the selling continued on Monday. That is why we took a lot of gains off the table on the way into earnings. We typically do that, but in all honesty, I did not anticipate such a violent pullback, primarily because we did not anticipate the government coming in and re-upping more regulation. That took the market down in a spiral lower.

I am concerned about the two hard days of selling, as well as the potential for more hard selling on Monday and possibly Tuesday. As a result we are not in a hurry to buy any upside positions, but that does not mean we will not be looking. There are good stocks holding up quite well in leadership areas they are out of step with the rest of the market and are showing the kind of strength you like to see. We will be looking at those and seeing if they can hold. The selling, too, may end sooner than later, and they would be good purchases as they would be in excellent shape to rebound.

We are in the middle of earnings season, and one would hope earnings would have more of an impact. Generally, if stocks are up ahead of earnings, they typically sell off when earnings first come out. If they are down when going into earnings, they tend to rally as earnings start. Then, a couple of weeks into earnings when everyone knows the gist of the story line, the earnings start running out of their mojo and the market quits rising on every result. Then the selloff starts.

Since stocks are down at the start of this earnings season, you would expect the good results could catch up eventually and send stocks higher. Maybe that will be the case with earnings providing the catalyst to turn things back up. That is often the pattern, but investors are going to have to resolve and digest the eco-political news that is upsetting the market for now. Maybe Barney Frank will speak out again to help calm things down after the President ruffled everyone's feathers. On the other hand, maybe something worse will come out the state of the union address is ahead this week and stocks continue lower.

Regardless, the market will probably sell more and further test the support. These are serious times and some new serious issues have arisen. This is, however, the market we have to work with right now. We will be patient and pick up positions when they present themselves, but I do not want to jump in on the first show of a turn because it likely will not be the case.

As I said in the Friday post-market alert, I am going to go in the cellar this weekend to find a nice bottle of wine. I am going to open it up, let it breathe, and I am going to sip it a lot. These kinds of days are why we took a lot of gain off the table on the way up. You cannot stop playing the game. You just close out positions when you get in trouble, and that is what we were doing. While the market can sell at any time, this type of selloff was rather unanticipated as the new war against financial institutions was more than anticipated as well. This too shall pass, however, and we will recover. Then we will have more opportunities. For now, we should stay in the bunker for a bit and see how the market reacts to the sharp Thursday and Friday decline. If a bounce higher that fails, we will play some downside off that. If there is a real turn that shows some buying, and the earnings are good and supporting the move, we can pick up some upside as well. Make moves in increments, not loading the boat all at once; we can always add more when the move tests and confirms itself.

Support and Resistance

NASDAQ: Closed at 2205.29
Resistance:
2210 (from September 2008) to 2212 (the July 2009 closing low)
2218 is the August 2005 peak
The 50 day EMA at 2276
2245 from July 2008 through 2260 from late 2005.
The July/November/December 2009 up trendline at 2274
2275 - 2278 from the February 2008 and April 2008 lows
2292 is a low from January 2008
2319 from the September 2008 peak
2326.28 is the January high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak

Support:
2205 is the November 2009 peak
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low

S&P 500: Closed at 1091.76
Resistance:
1101 is the October high
1106 is the September 2008 low
The 50 day EMA at 1112
1114 is the November 2009 peak
The July/November/December 2009 up trendline at 1116
1119 is the early December intraday high
1133 from a September 2008 intraday low
1150 is the January 2010 peak
1156 is the Sept 2008 low
1185 from late September 2008
1200 from the July 2008 low

Support:
1080 is the September 2009 peak
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
The 200 day SMA at 1007
992 is the August 2009 consolidation low

Dow: Closed at 10,172.98
Resistance:
10,365 is the late September 2008 low
The 50 day EMA at 10,394
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
10,120 is the October 2009 peak
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
The 200 day SMA at 9373

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

January 25 - Monday
Existing Home Sales, December (10:00): 5.90M expected, 6.54M prior

January 26 - Tuesday
Case-Shiller 20-city, November (09:00): -5.00% expected, -7.28% prior
Consumer Confidence, January (10:00): 53.5 expected, 53.3 prior
FHFA Home Price Index, November (10:00): 0.1% expected, 0.6% prior

January 27 - Wednesday
New Home Sales, December (10:00): 370K expected, 355K prior
Crude Inventories, 1/22 (10:30): -0.471M prior
FOMC Rate Decision, 1/27 (14:15): 0.25% expected, 0.25% prior

January 28 - Thursday
Initial Claims, 01/23 (08:30): 450K expected, 482K prior
Continuing Claims, 01/16 (08:30): 4600K expected, 4599K prior
Durable Orders, December (08:30): 2.0% expected, 0.2% prior

January 29 - Friday
GDP-Adv., Q4 (08:30): 4.6% expected, 2.2% prior
Chain Deflator-Adv., Q4 (08:30): 1.3% expected, 0.4% prior
Employment Cost Index, Q4 (08:30): 0.4% expected, 0.4% prior
Chicago PMI, January (09:45): 57.4 expected, 58.7 prior
University of Michigan, January (09:55): 73.0 expected, 72.8 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Earnings Are Good, but Market Responds Negatively

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 18 Jan 2010 16:27:00 +0000

SUMMARY:
- News is not bad, earnings are good, but market responds negatively.
- SP500 rallies 8 out of 10 sessions and the financial stations act as if it was down 8 out of 10 sessions.
- Despite the chop on NASDAQ and being down two of three sessions, bigger picture the indices hold near support
- Economic data in line and improving, but it is not that great an improvement.
- With indices at next resistance market needs a bit of consolidation or a big catalyst to break them higher. Thus far earnings have not done the trick
- Time to be patient and let the good stocks test and set up entry points.

Intel earnings, decent economic data cannot drive stocks ahead of long weekend, earnings.

I did not feel the market would make a breakout on Friday, and it definitely did not. It is not that the news was bad. CPI was a bit better on the headline than expected, and the core was right in line at the 0.1% gain. Industrial production was in line at 0.6. Capacity was actually ahead at 72 versus 7 1.8 expected, and the New York PMI came in at a solid 15.92. That beat the 12 expected, and was much better than the 2.55 originally reported in December. Even that was revised up to 4.5.

It was just the fact that the market, SP500 namely, was up eight out of nine days moving into this session. It is also expiration, and there will be position shuffling. To top it off, the market is almost at the heart of earnings season. There is a lot coming out. Even with INTC's earnings on Thursday night - where it beat on both the bottom and top line and said it will expand operations - the market was not very pleased with it. You would think that would be good for all of the semiconductors (particularly the chip equipment makers), but they were down as well. The market was not ready to break higher. It is notable that it could not move on such good news with INTC.

The market has been up eight out of nine days on the SP500. The NASDAQ was still holding its gains, but had become a bit choppy. That may be telling more of the story. SP500 with its dollar-related or overseas-related stocks is moving higher, while some of the NASDAQ got up ahead of itself. Looking at the SOX chart, the small caps - particularly semiconductors - were ready to come back.

The indices may look heavy and are definitely getting choppier with the semiconductors and NASDAQ, but we have to look at the bigger picture. Do not get too tied up in the day-to-day, up and down movements. After all, on Friday, all the journalism majors that tried to pass themselves off as financial news anchors were very glum about the action. The market has gone down two out of the last three days, regardless of the fact that it broke out in late December and rallied up through mid-January. That did not matter; it was what happened Friday. A bunch of long faces, and many questions from the analysts: Is this going to be the start of a selloff? Is this the end of the run? Well, it may be, but I seriously doubt it. The liquidity is still out there pumping things up. Markets will still correct and test no matter what the uptrend is, and maybe that is what we are due for right now. It certainly looks as if the SOX is making a correction near term. The question is whether it will be a leader or just typically more volatile than the rest of the indices as it always is.

When you look at the macro picture, you have to note that NASDAQ tapped at the 18 day EMA once more and it held, despite all the chop and its loss of over 1% on the session. The SP500 also tapped at the 18 day EMA and held. The SP600 held at the 18 day EMA on the low and bounced back. It was not a total selloff it was not the kind of gutting you would imagine if you'd just stepped in from being gone a month or two and listened to the journalism majors on the financial channels.

The indices did lose over 1% across the board. That is except for the Dow, but it lost 0.94% itself, so it was not far away. Nonetheless, they are holding their trends. It was a tough day, but it was also the end of expiration. The market has rallied almost straight up for two weeks on SP500, and there is a long weekend ahead. There will be some profit taking after such a run. There will be positions shuffled thanks to expiration, and some people will want to take cash off the table with earnings coming up. I think we saw a bit of all of that on Friday.

OTHER MARKETS

The dollar was up on the day. It continues in a flag pattern it has formed after it reversed its trend and rallied off the late-November low. It has sold back all the way to the 50 day EMA. There is a bit of support there, and it is trying to bounce again but has not made it yet. It got some traction on Friday and managed to close higher (1.4378 Euros versus 1.4499 Thursday), and that colored the other markets.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Oil traded lower again. It broke through the 18 day EMA it was trying to hold, and now it is down at the 50 day EMA in the meat of the consolidation from mid-October through November. Oil bounced up, hit the top of its range, and it is selling back. It did not help on Friday that the IEA lowered its 2010 expected oil demand. The IEA apparently does not think the world economies will recover as much as the other pundits out there do. That may have had an effect on oil, but oil is in a technical move right now, bouncing down from its prior peak. If it holds and can bounce up, that will be of real interest. It will then likely break through and out of the top of its range. If oil breaks out over $85.00 and rallies again, that would be a game-changer for many of the forecasts for 2010. That would be serious for the world economies.

http://investmenthouse.com/ihmedia/xoil.jpeg

With the dollar up, gold struggled again. It was up two days, Wednesday and Thursday, and it gave it back on Friday. We are still in the move higher. There was a higher low, and then it has come back and is testing right now. It is still making a higher low overall, so the pattern is still positive. It is much more sluggish than it has been in the past. It had a big run and is digesting the gains, but it is edging out something of a cup with handle. We will see if it can make the breakout and run up to the prior peak.

http://investmenthouse.com/ihmedia/xgld.jpeg

Bonds have been rallying, and interest rates are going down. If the economy is getting better as many people think it will, why are bonds rallying again? They had good demand on the auctions this week, but then again, that means bonds are rallying and people are concerned about being in stocks. That may be the case. Economic data was a bit worrisome, and it all started with AA. That got things off on the wrong foot with earnings season, and the market has been gun shy ever since. Bonds have been rallying and interest rates have been falling. The 10 year closed lower (3.68% versus 3.73% the prior session.) Even the short end at the 2 year was down (0.87% versus 0.92% Thursday). It was at 1% just over a week ago. Bonds are definitely rallying, and that often means discontent with respect to the economic future. I do not want to worry too much about that right now. I would just like to see bonds stabilize and avoid any sudden spikes in the 10 year that might indicate there is inflation. It is somewhat doing that with this move. As investors moved out of stocks a bit, they moved toward Treasuries, and that is normal.

http://investmenthouse.com/ihmedia/tip.jpeg

TECHNICAL

INTERNALS

The breadth is getting more volatile (as it was before the past few weeks). There has been +1.4:1 or -1.4:1; that seems to be the comfort zone for the indices. The breadth is now starting to expand on days that are decidedly stronger or decidedly weaker. On Friday breadth was - 2.75:1 on NASDAQ and -2.3:1 on NYSE. The last time there was breadth that strong was on Wednesday when the market was up. There is still capability to have strong breadth both ways, but it is something that has not happened in awhile. Does this mean volatility is moving back into the market? We are seeing some day-to-day. Looking at the NASDAQ chart, it has been bouncing around in this range, and it is not a tight range. It is very volatile. There are big moves up, gaps down, and then moves back up and down. There is volatility returning to the market, and that means breadth expands.

Volume surged. It was well above average on NASDAQ the strongest of the year. The NYSE volume was up as well. It moved back above average and had the strongest volume of the year. It is only the third time it has been above average in 2010, but that does not mean anything because it is expiration Friday. I will not attribute anything to this volume. Volume has been elevated on NASDAQ the entire year while it has not been on the NYSE. NASDAQ is considered more of a growth area with its technology, medical stocks, and smaller stocks (it is not just limited to the SP600). That makes the higher volume interesting because that indicates that investors are interested in growth stocks to start the new year. The index is still trending higher despite being choppy this year. You have to view that as a positive overall, but also take it with a grain of salt because there is a lot of volatility day-to-day coupled with a lot of volume on NASDAQ. That is typically not a great scenario when there has been a long run. Keep that in mind as earnings unfold and we see how stocks react. The earnings reaction to INTC was not great on Friday. It blew it out on the top and bottom line and had nothing but good things to say. Margins were at a record, yet it was down on the session; indeed, most of the chips and techs were down. With all of this chop and volatility coupled with above average volume on every session but one in 2010, that warrants being careful as we move forward in earnings season.

CHARTS

On Thursday, I talked about how the main indices have bumped into a resistance level, and that is still in play at this point. Selling back from that level is obviously a sign of weakness of a certain degree. NASDAQ is at its September 2008 peak that jumped up there in the middle of the month. The SP500 is at the mid-month low from September 2008. It has not quite made that level, but it is bouncing back. There is choppier trade on NASDAQ, and there is more volatile and choppy trade on SP500. There is some chop coming back into the market as they hit resistance. The sellers are there and the buyers are there, and they are fighting it out. Overall, however, the large indices held their 18 day EMAs. They have also held this near-term trendline. This is not a bad one because there are three points on it on NASDAQ. This is a solid trendline at 2255.

SP500 still has a trendline it is holding, and it tapped it on Friday. We have three points on this as well; if it holds, there will be a fourth point, and that would make a solid trendline. It is trying to hold this level, and that would be a good point for it to do so and continue on this breakout of rally and testing. It would be due to rally now, but it has to have a catalyst. SOX is already in correction mode. Will it be followed by NASDAQ and the other indices, or is it just being its usual volatile self and coming down to test? There is a potential for an ABCD pattern, but it is ragged. You want them to be clean and neat to be their most powerful. The question is whether it is leading the market into a deeper correction or just getting it out of its system first.

LEADERSHIP

Most of leadership is in modest pullbacks. The industrials, commodities, and materials are all in pullbacks. This all started on Tuesday when China said that it was going to raise the reserve limits for its banks. That typically leads to this kind of selling. It does not last that long, but it gets investors nervous about their positions in industrials, energy, and metals and they succumb to profit taking.

CMI was back. There was a big breakout, and then Tuesday knocked it back. It is still testing, and it is in a great pullback. BUCY gapped down on Tuesday and is now testing. We might get a nice play out of it in a few days. TEX was not affected. It had a nice break higher and a nice test. It could be ready for a new buy. CAT is struggling. It had a great pullback but a bad Friday, and it gapped down and then sold off. It is at the bottom of its range marked by the November and December peaks. It can find support there, continue higher, and salvage itself. Most of them are in pullbacks, but that is after good runs as well.

Oil was down, but energy stocks held their ground. SLB is moving laterally at its peak. APA is also moving laterally and consolidating its gains. BTU had a nice pullback, and we might get a buy out of that. CVX is not bad either. VLO is showing great volume as it breaks higher. It is still a sloppy pattern, so it is hard to get into that one. There are some good stocks holding their own even though oil is falling.

The chips are struggling. INTC had great earnings, it was hammered, but of course, it rose from $20 to all of $21.50 over the prior four weeks and got knocked back. It is not like the old days, back in the 80's and 90's, is it? It was knocked back 3% on high volume. They were not impressed with the earnings, but it did not destroy the pattern. AAPL took a hit as well. It has been trying to set up nicely over the October-November peaks, and it came back. It is trying to hold the lower part of the range right now. QCOM has been having a good run, and it just took it in stride. It is in an easy pullback and is still in good shape, but it will be hard to make money on QCOM. It has to move a long way, and it is not that big of a mover anymore. It went up for three weeks straight, and it was only a 10% move. QLGC has a nice pullback under way. Low volume, gapped higher. It is filling the gap. That is a very interesting play setting up.

The financials are having trouble right now. JPM came out with earnings and it just plain missed. It was having problems on its revenues with losses in mortgages and commercial loans. It had to increase its loan-loss reserve, and it just went down. The good thing about JPM is that it did not go down that much --- only 2.25%. It is still in consolidation, and we might get an ABCD pattern out of it and watch it head upside. Do not ever give up on them just because they do not do something you want them to do on one day. GS is having its issues, but an ABCD pattern had set up. It is at support at 165. Are we looking to bail? If it does not perform, yes. However, with an ABCD pattern, it could get back up to the November peak at 180 fairly easily, and that would make a great play to the upside. Going from 165 up to 180 --- playing some options, I would take that any day. MS is very similar. It sold off, but it is not bad. WFC sold back, but it is also holding in its recent range and could set up an ABCD pattern if it steps down a bit lower.

There are stocks that are pulling back, but they are not destroying themselves, and that is always a positive. You like to see stocks pull back, give you opportunities to move in, and then actually bounce. Then you can enjoy the ride back up. I really like it when the pundits on the financial stations are so negative. They are going to get a chance to buy these stocks at a better price and they are just so glum about it. I like when they get negative when there is a two-day pullback after an eight-day run. I will take that any day.

THE ECONOMY

Please see the ECONOMY video at the following link:

http://investmenthouse1.com/ihmedia/Economy.wmv

THE MARKET

MARKET SENTIMENT

VIX: 17.91; +0.28
VXN: 18.73; +0.53
VXO: 17.11; +0.53

Put/Call Ratio (CBOE): 0.82; +0.06

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 48.3%. Once again bulls have peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. Thus for now this is more of the same as bulls get a bit pessimistic as the indices rise again and VIX falls. Hit 52.2% three weeks back, the highest level on this run. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 16.9%. Virtually in a flat line the past 6 weeks, down from 28% in mid-November. No sign of real worry based on this reading. This is the lowest level of the entire rally and is at a bearish level. Peaked near 28% on this round, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: -28.75 points (-1.24%) to close at 2287.99
Volume: 2.556B (+16.49%)

Up Volume: 569.157M (-743.322M)
Down Volume: 2.07B (+1.123B)

A/D and Hi/Lo: Decliners led 2.75 to 1
Previous Session: Advancers led 1.42 to 1

New Highs: 106 (-49)
New Lows: 8 (+6)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: -12.43 points (-1.08%) to close at 1136.03
NYSE Volume: 1.408B (+58.49%)

Up Volume: 246.422M (-239.793M)
Down Volume: 1.154B (+763.827M)

A/D and Hi/Lo: Decliners led 2.32 to 1
Previous Session: Advancers led 1.43 to 1

New Highs: 236 (-167)
New Lows: 34 (-12)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: -100.9 points (-0.94%) to close at 10609.65
Volume DJ30: 362M shares Friday versus 201M shares Thursday. Expiration trade in full gear.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

TUESDAY

Monday is a holiday. Maybe things will finally get back to "normal" after that. There will not be any expiration, after all it will just be earnings season kicking off in full swing. The market is bumping up against that resistance. The September low at about 1152 is the next resistance. It is up there and having a bit of trouble. The same thing on NASDAQ: it is having problems at its resistance from that September peak as well. The small caps are having issues from way back in 2008 when there were 1,2, 3 lows. It is at that point now and bumping its head. The market needs a catalyst to get it to move through this resistance. It is acting tired. NASDAQ is volatile and choppy, moving laterally. INTC gave a good earnings report and went down. We will have to see what the other earnings are and how the companies are treated after they report. If it is similar treatment, you know that the market is tired and will need consolidation or a big catalyst to send it higher.

Our game plan is to look for more testing. There will be more chop and testing by stocks. Some of these are in excellent shape to move back up, and they may be early leaders. It may take a couple more days of moving laterally at support before the market is ready to let them go, but we will be ready when they do. Be patient and watch the test. We want to look for good stocks in good pullbacks that we can take advantage of. We will get good positions just as other people are wringing their hands worrying about them. Do not get overly excited when you see a stock dip and bounce. Let us make sure we can get a close to the upside that looks strong and that the rest of the market is gelling as well.

Do not feel bad about closing some positions now. We are in earnings season, and there has been a good run higher. We have taken a lot of gain and continued to take gain on Friday, but do not feel bad if you want to close a position. Do not feel bad about closing it, raising some cash, and being patient and picking new opportunities. If you can get out without too bad of a loss and you see others, such as CMI, setting up well for a break higher, then close one out and put it to work where you think it will make you some money. If CMI makes a break higher off this pullback, maybe you will go in, make some green, and feel good about the recovery after the first pullback of the new year.

There is nothing showing there will be a major correction. There is a lot more chop, but we have to mind our current positions. We have taken a lot of gain already. Remember that earnings are out there, and do not feel like you have to buy stocks just because earnings are coming. Indeed, it is a good time to wait and let stocks gap up or down, and then set up for much higher percentage plays. We are taking positions out that have earnings in February so we do not have to make squeeze plays on them. That is also why we are foregoing some if they do not show us exactly what we want to see. We can be patient, and we have the luxury to do that after a good gain after a good rally. We are going to pick our shots when they are available, then move in and feel good about it. We will get good entry points. If they turn against us, we will just close them out and will not have lost much of anything. If we hit them right, we let them run and we make great gains. Have a wonderful weekend.

Support and Resistance

NASDAQ: Closed at 2287.99
Resistance:
2292 is a low from January 2008
2319 from the September 2008 peak
2326.28 is the January high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak

Support:
The 18 day EMA at 2282
2275 - 2278 from the February 2008 and April 2008 lows
2245 from July 2008 through 2260 from late 2005.
The 50 day EMA at 2224
2218 is the August 2005 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2205 is the November 2009 peak
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
2016 is the early August peak
1984 from late September
The 200 day SM A at 1980
1962 is the bottom of the August 2009 range.
1947 is the October gap down point

S&P 500: Closed at 1136.03
Resistance:
1150 is the January 2010 peak
1156 is the Sept 2008 low
1185 from late September 2008
1200 from the July 2008 low

Support:
1133 from a September 2008 intraday low
The 18 day EMA at 1132
1119 is the early December intraday high
1114 is the November 2009 peak
The 50 day EMA at 1110
1106 is the September 2008 low
1101 is the October high
1080 is the September 2009 peak
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
The 200 day SMA at 1001
992 is the August 2009 consolidation low

Dow: Closed at 10,609.65
Resistance:
10,963 is the July 2008 low

Support:
10,609 from the Mid-September 2008 interim low
The 18 day EMA at 10,571
10,496 is the November 2009 high
The 50 day EMA at 10,382
10,365 is the late September 2008 low
10,120 is the October 2009 peak
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
The 200 day SMA at 9322

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

January 15 - Friday
Core CPI, December (08:30): 0.1% actual versus 0.1% expected, 0.0% prior
CPI, December (08:30): 0.1% actual versus 0.2% expected, 0.4% prior
Empire Manufacturing, January (08:30): 15.92 actual versus 12.00 expected, 4.50 prior (revised from 2.55)
Capacity Utilization, December (09:15): 72.0% actual versus 71.8% expected, 71.5% prior (revised from 71.3%)
Industrial Production, December (09:15): 0.6% actual versus 0.6% expected, 0.6% prior (revised from 0.8%)
Michigan Sentiment, January (09:55): 72.8 actual versus 74.0 expected, 72.5 prior

January 19 - Tuesday
Net Long-Term TIC Fl, November (09:00): $27.5B expected, $20.7B prior

January 20 - Wednesday
Building Permits, December (08:30): 580K expected, 584K prior
Housing Starts, December (08:30): 575K expected, 574K prior
Core PPI, December (08:30): 0.1% expected, 0.5% prior
PPI, December (08:30): 0.0% expected, 1.8% prior

January 21 - Thursday
Initial Claims, 1/16 (08:30): 440K expected, 444K prior
Continuing Claims, 1/09 (08:30): 4600K expected, 4596K prior
Leading Indicators, December (10:00): 0.7% expected, 0.9% prior
Philadelphia Fed, January (10:00): 18.8 expected, 20.4 prior
Crude Inventories, 1/15 (11:00): 3.70M prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Market Focuses on Earnings

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 11 Jan 2010 01:45:00 +0000

SUMMARY:
- Market absorbs the jobs report, rallies as it focuses on earnings, liquidity.
- Unemployment figures are much worse than the headline and will get worse even if non-farm jobs turn positive.
- Bottom line: layoffs may be over, but jobs are not in the offing.
- M3 money supply starting to contract in the US as it starts to follow the EU.
- Stocks already moving higher into earnings, and there are still some earnings runs setting up.
- What to hold into earnings: managing your money.

No upside surprise to send the market higher on the open, but it shakes off the news and recovers nonetheless.

Despite the cold weather, the market is staying hot. We are enjoying continued gains and taking more position as stocks continue their run into earnings season. This was the first Friday of the month, which means the jobs report was released. It looked like there might be a positive read because President Obama scheduled an afternoon press conference on Thursday night, but that was not the case. November was positive, turning in a 4K jobs gain, but that was offset by revisions to October. There was the wet blanket of the 85K jobs lost in December, a month that usually sees hiring in retail. There was no bailout for the jobs (so to speak), although the trend continued to improve and the unemployment rate remained at 10%. That is a loaded headline, however.

The Obama press conference dealing with the economy turned out to be the announcement of tax credits for green products such as solar panels etc. I love tax credits, but the problem is that these are so limited. Not many businesses particularly small businesses will be able to take advantage of it. It will not help the group that is struggling the most and the group that creates the most jobs in the United States. This administration has a very difficult time understanding how the economy works. They have some brilliant people, but they subscribe to the Phillips curve economic theory. Other than roughly six years in the history of mankind, that theory has not worked.

The jobs were negative, but that was not enough to seriously impact futures. They were modestly lower after the numbers, but they did not reverse much. I did not think it could keep a good market down, and it did not. Stocks started lower, but they recovered all session. NASDAQ led, but it eventually brought the others with it. A late, last-half-hour bid came into the market and pushed all of the indices positive, closing NASDAQ at about 0.73% and SP500 and the Dow with a modest gain.

The jobs report did impact the dollar, and it was up. It had a nice move higher on Thursday, and when the numbers came out, the dollar turned down (1.4414 Euros versus 1.4316 Thursday). Gold was not a huge mover on the session, but that reversal did turn it from negative to positive. It was somewhat positive ($1,137, +3.30), but it closed upside, and this is a great pattern in gold. If it eases out a day or two laterally, we will pick up more positions on the GLD and play the run up to the prior high.

Bonds were interesting because the 10 year stayed the same. It did not have a lot of movement (3.82% versus 3.83% Thursday). Bonds did rally and drive the yield down to 3.78% early, but then the 10 year faded back. The 2 year maintained its gains, moving 10BP. This is because the Fed will keep its stranglehold on the short end since it does not want rates to rise. It will do whatever it can to keep the short end down, so yields on the 2 year turned sharply lower. A 10BP move any day in bonds is a sharp move. Once again, the yield curve is getting very steep and the spread between the short and long end is getting very wide. That is not good because they can become detached from each other, and that means serious inflation issues. That is why I think gold is getting ready to make another run higher.

The industrials and techs were leaders. It is ironic that the industrials were leading because SP500 was lagging a bit. The dollar going down helped them along, as did UPS raising its guidance in an earnings preannouncement that was much better than expected. That pushed a lot of shippers and transports up higher and helped the SP industrials move up. It was a market weary of the jobs report, but the trends held. There was nothing to upset the market, and all of the indices turned and recovered after their slow start. It was not a bad day overall, and not a bad week either. The indices were up most of the week, and that is not a bad way to start the year. I always hear that the first three days in January tell how the month will go, and then how that month goes will tell how the year will go. It could be another very good year according to that old adage, although it is not always accurate. The market will forecast what the economy will do, but right now, it is forecasting the amount of liquidity that will remain in the system and not necessarily what the economy is going to do. The Fed is going to keep liquidity in the system as this job number shows.

TECHNICAL

INTERNALS

NASDAQ was the volume leader all week, and every day except Monday was above-average trade. Even though it was lower on Friday as the index moved higher, it was still a solid session. The volume stayed high as it moved laterally, and that was something of a concern. It showed a bit of churn, but you have to realize there was no volume and this is the start of a new year. Money is being put to work and positions are being shuffled, so the volume picks up. There are more players in the market doing more things. It held up and started to break higher. Overall, that is a good volume week for the NASDAQ. It is nice because it resolved the pullback with an upside break.

The SP500 was below average, only spending two days above average on the week. That is better than what it was, but is still not a lot of participation. That is important because the SP600 and SP400, the small and mid-caps, drive a lot of the volume as well. If they are not moving, then there is a worry about what the rest of the market will do. They were up however, so while this is a concern, it was not as big a deal. At least there were a couple of days above average.

Advancers led 1.7:1 on NASDAQ and 1.7:1 on the NYSE as well. The day before it was 1.45:1 on the NYSE and 1.4:1 on NASDAQ. They are matching their moves, but notice how the breadth has been tame of late versus in the fall when it was not uncommon to have days where breadth was 3:1, 4:1, or 5:1. The volatility has calmed down a bit. There is rotation in the market, and this is typical of the first of the year and this kind of action. Different sectors are getting money as it comes out of other sectors. There are not huge moves to the upside or huge breadth reads because money is just being moved around.

CHARTS

NASDAQ had the big volume and a better day being in leadership. There was a breakout from the ascending triangle. It was a nice breakout and a test to the 10 day EMA. That was right before the end of the year, so there was some selling ahead of the year. Then there was a break higher and a nice test starting back up on Friday.

The NASDAQ 100 had a nice day as well. It was leading the tech market at 0.85% gain. It helped that GOOG turned around, and AAPL looks good as well. There was general strength in the NASDAQ 100 helping to bring things higher. I like the pattern here, and it mirrors the NASDAQ. That is very healthy action that is building toward the future, and the future looks upside right now.

The SP500 had a jumbled pattern. It was moving higher, it narrowed into a tight trading range, but it made a breakout as well. It was not as neat and clean a pattern as the NASDAQ, but it did make a breakout. It rallied up, sold and then it bounced up this week led by the industrials and energy. They were moving higher every day of the week while NASDAQ struggled a bit on the way up. Note it was the same theme: a breakout, test, and another breakout. We will probably get some kind of test after this move. It could also still go up a few days. We will let it run, and I have no issues with that. That is important because it shows the stair-stepping pattern that you like to see as the indices move up. These are not huge moves as the market gets ready for earnings season, but it is still healthy action.

The small caps were not as neat and pretty, but they were breaking to a new high as well. They broke out of a sloppy range, tested, came up, and then tested again. They are now breaking higher once more. It is the same idea, just not as clean as NASDAQ. The semiconductor sector looks the same, stair stepping its way higher.

LEADERSHIP

TEX did not have a huge move after the nice Thursday run, but it continues its move higher. You have to like that break. BUCY is going to the moon. There is the same action breakout, test, rally and there is a lot of momentum there. ITW has not been moving as fast as the others have, but it looks like it might start to. MACD is turning up, there is an upside volume day as it broke up off a lateral consolidation above the 50 day EMA. ITW might be a play for us. You have to see how far it can move on these runs.

CSX was running because of the UPS news. It had a triangle and breakout, and it got moving on this news today. UPS you cannot play that. It looks like it just made it over a resistance point, so you want to see it move laterally and hold the gap. If it does hold the gap and does not fill it, you can buy it on the move higher. We will be watching UPS.

JBHT had a strong day upside, although the pattern is not showing anything we want to buy into. FDX could be a trade for us; it has volume and it is testing the 50 day EMA.

Energy took a pause and later it did not. APC paused, moving laterally. BTU has been moving well and is now taking some sideways action, but HAL is blasting off to the moon.

AAPL is setting up nicely. It had a breakout and has come back to test. It reaches down and bounces back each day. AAPL likes to run ahead of earnings, and we might get another squeeze play for a decent trade. We made great money with GOOG on a downside play. Today it sold down and started to reverse in the midst of this consolidation range. Buys are starting to come back in, so we took the rest of the gain of our downside play off the table. That was a sweet play, taking advantage that the stock was overbought and was ready for a correction.

Financials have been important all week and have been taking a pause. GS paused after a nice resumption of the move on Thursday. The entire section had its outlook lowered by an analyst who said they would not make as much trading this year, and that impacted the session on the day. This is not a bad move for GS. It can move laterally for a couple more days, and if it holds and starts to bounce, we can add a few more positions. It is the same with JPM: it just paused on the day. WFC had a nice rally and is taking a pause on lower volume.

The semiconductors have some interesting action going on. They broke higher, and some of them are testing while others are not. MCHP is coming down and testing, and it is holding over some old peaks. We will watch as it may develop into a play for us. CY bolted higher on the news of possible tax credits for solar panels. MXIM had a breakout, but then it reached down and turned back up in an ABCD pattern. The problem is that you have to see how much movement you get out of this. It had a lot of work to do to move 10%. You can trade it, but it will not give a huge amount of return.

CELG is in a six-month trading range, but note that it made a higher low at the 50 day EMA. It looks like it could break out, and that could make an interesting play because there will be some room to run. There is some resistance at 60-65, and that would give a nice trade if it can rally to that level.

THE ECONOMY

Non-Farm jobs ready to turn positive, but not employment. Only in government figures could that be.

The jobs report came in at -85K. That was worse than the -25K to 0 that was expected, but November was revised up to 4K from -11K. There was a net loss of 1K jobs between the revisions to October and November because October was written down heavily. The workweek held steady at 33.2 hours. Unemployment rate held steady at 10%. That seems like things are not too negative. First of all, you typically see the workweek rise before you see job creation. If employees are not working more, there is no need to hire anyone new.

The real key to the jobs number is the unemployment rate. The non-farms' payrolls could very well turn positive next month again if not then, definitely by the end of the first quarter in March. That does not show that the economy is improving, however. Despite what Greenspan used to say, the unemployment report is the one that tells the true story when the economy is coming out of recession. The non-farm payrolls are just the big companies. It does not pick up the small businesses that were lost. It does not pick up any of the people who are no longer in the workforce. Only the unemployment report does that. It asks if people are working, if they are looking or have given up. They ask those questions, and that is how to figure out what the unemployment rate really is. That is where a lot of the small businesses are. There has not been the surge in S corporations, limited liability corporations, or limited partnerships that came out of the 2000-2001 recession. We know that small businesses are not doing much, and when you look deeper in the numbers, you can really see they are not doing much.

That 10% hides the truth because 1K people left the jobs pool and are not looking anymore. We just leave them out, but that is not correct. If we factor in all the people who want to work but cannot get work, then the rate ticks up close to 11%. Then there is the other category called disgruntled workers who are unemployed or underemployed. They want a job but cannot get one. There were 929K of them in December, and if you add them back in, the unemployment rate spikes up to 17%. We are only utilizing 64.6% of our workforce now, the lowest since 1985. 25M Americans are out of work and 929K disgruntled workers is a record. The unemployment rate (even the inaccurate number reported by the government) will rise. People will try to seek jobs again when they think the economy is improving, but there are never enough jobs to absorb them all. The government's number will rise to at least 10.5%, and the overall unemployment rate will be 20%. That is the highest since the Great Depression.

Is UPS a good sign? It raised its guidance, but it also announced it was cutting 1800 jobs. One of the things you can conclude from the jobs report is that the layoffs may be over but there are no jobs being created. UPS is laying off 1800, and then other companies announced they would be laying people off as well. That is one of the reasons that UPS cited it would be able to increase its earnings expectations because it will not have 1800 management salaries to pay. That is not the kind of top line revenue growth we are looking for; that is bottom line growth. We saw a lot of that in 2008 and 2009. In 2009, the earnings rallied mainly because of that. It is not necessarily a great sign that UPS raised its guidance. We need to see the other companies saying they are growing their top line and are anticipating hiring people, but the jobs report indicates that is not the case. We have to produce 3K jobs a month for over a year to replace everyone that lost a job during this depression. The big companies will not do that. You can give GE all the green contracts you want, and it will still lay people off or not hire anyone because it will use automation and build these products with as few people as possible. They are not expanding; they are just trying to keep their cash flow going. Small businesses expand and hire people. Remember MSFT, AAPL, and CSCO. They started as 3-5 people and then grew to create all the jobs in the 80's and 90's.

Money Supply Following the EU?

There was also news on our money supply. The M3 includes everything, even non-bank deposits such as savings and loan and longer-term deposits. That is starting to contract, and that is a bad sign. That means consumers have less money. In Europe, it is negative for the first time in history. That is a concerning scenario because that indicates things will slow again and we might get the double dip that everyone discounts because the stock market is up. They are erroneously assuming that the stock market is rising because it is predicting a rising economy, but it is rising because of all the money in the system not being put to work. The jobs report shows that. Small businesses are nowhere to be found. They cannot get loans. Banks are saying they are lending, but the big banks are not they are investing money overseas. They are lending it to somebody overseas, getting paid interest for it, and getting free money. Over here, the regional banks are getting clocked because they are not getting any money. They are the ones who often lend to small businesses. The jobs market is down as a result and does not look like it will recover any time soon.

THE MARKET

MARKET SENTIMENT

VIX: 18.13; -0.93
VXN: 18.92; -1.07
VXO: 17.01; -0.88

Put/Call Ratio (CBOE): 0.65; -0.07

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 52.2%. Rising again after a slight dip the prior week. This is the highest level on this run. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 16.7%. Holding basically steady for the past three weeks, down from a 17.6% reading. Bears are down but still skeptical as the lateral slide indicates. This is the lowest level of the entire rally and is at a bearish level. Peaked near 28% on this round, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +17.12 points (+0.74%) to close at 2317.17
Volume: 2.085B (-5.34%)

Up Volume: 1.531B (+241.028M)
Down Volume: 560.308M (-476.511M)

A/D and Hi/Lo: Advancers led 1.69 to 1
Previous Session: Advancers led 1.4 to 1

New Highs: 179 (+52)
New Lows: 10 (+4)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +3.29 points (+0.29%) to close at 1144.98
NYSE Volume: 994.866M (-16.67%)

Up Volume: 511.975M (-299.971M)
Down Volume: 474.638M (+99.303M)

A/D and Hi/Lo: Advancers led 1.68 to 1
Previous Session: Advancers led 1.45 to 1

New Highs: 520 (+60)
New Lows: 71 (+13)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +11.33 points (+0.11%) to close at 10618.19
Volume DJ30: 172M shares Friday versus 217M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

The market is preparing for earnings, and there will be preannouncements. They are already coming in with UPS, and there has been nothing bad thus far. Very few negative announcements are a good thing. Very few announcements at all are good because they will come out and be in line or better. The market has been anticipating this and is up along with a January effect move. It can still run into earnings. There are stocks that like to run into earnings like GS and AAPL. Others like to pop when earnings come out such as RIMM. We will look at the plays that like to run into earnings. If GS moves laterally a couple more days, we might take more positions in it. I have no problem focusing assets in great stocks that are ready to make a run higher. AAPL looks like it wants to make a run into earnings, and we are going to play those that like to make those moves. The moves will not be as big on these, but they are still very lucrative. The prices on GS and AAPL are not chicken feed, and these stocks can move. We can play options on those, run them into earnings, and make a lot of money. If you get a good run, you take the gain. If you want to, if it is in your character, you can let part of it run into earnings. If you get a good run into earnings, you better take some money off the table. You like to go into earnings a bit light. We still have a lot of positions, but we have taken a lot of gain off the table and so those positions are smaller. As they move up and move toward earnings, our positions in them and our exposure gets lower while our bank accounts are growing. We may miss out on some big moves, but if a stock has run into earnings, what are the odds that it will give up some of that after the earnings are reported, unless it is just stupendous numbers? We have seen stupendous numbers, do not get me wrong. BBBY was great, but it did not run into earnings it based ahead of earnings and gapped. If you are playing a pre-earnings run and you have the gain, then take it. When we do let them run, it is because our exposure is low at that point.

We have taken a lot of gain and anticipate getting more of a run higher toward earnings. We will use it to take more off the table. We are down to a third or quarter position on a lot of stocks because we have taken gain on some of them twice. Others we have taken one time and will take some more (or all) of it as we move toward earnings. The decision is yours, whether you like to hold them through earnings or fold them and take the money ahead of time. It is a matter of your risk tolerance, your money management, and how much money you have in the play. Our plan is take it off as it goes up so exposure is minimized by the time earnings come out. We will miss huge moves at times, but we will participant in it because we still have some options in play.

Upside surprises are always possible, but the market looks to be building in a potential surprise ahead of time. Look at your stocks to see if they are moving higher or not into earnings. That will tell you whether you want to chance holding some through the earnings report.

It was a nice week, it was good upside for the bulls, and we still anticipate more coming with the earnings run and a January effect move. After that, who knows what will happen. The liquidity is staying in the market. That is positive, but the market will see the writing on the wall at some point, start to take some gains, and then it will come back. We will take what the market gives us regardless of what we think will happen. We are not smarter than the market. When the market says to buy, we buy. If it shows us reason to sell, we sell. We stick to what the market gives and stick by good money management moves. We make a lot of money that way. 2009 was a great year, and 2010 is starting out great as well. Have a good weekend and stay warm.

Support and Resistance

NASDAQ: Closed at 2317.17
Resistance:
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak

Support:
2292 is a low from January 2008
The 10 day EMA at 2290
2275 - 2278 from the February 2008 and April 2008 lows
The 18 day EMA at 2268
2245 from July 2008 through 2260 from late 2005.
2218 is the August 2005 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
The 50 day EMA at 2207
2205 is the November 2009 peak
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
The 200 day SM A at 19561
1947 is the October gap down point

S&P 500: Closed at 1144.98
Resistance:
1185 from late September 2008
1200 from the July 2008 low

Support:
1133 from a September 2008 intraday low
The 18 day EMA at 1125
1119 is the early December intraday high
1114 is the November 2009 peak
1106 is the September 2008 low
The 50 day EMA at 1103
1101 is the October high
1080 is the September 2009 peak
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
The 200 day SMA at 993
992 is the August 2009 consolidation low

Dow: Closed at 10,618.19
Resistance:
10,609 from the Mid-September 2008 interim low is being tested.
10,963 is the July 2008 low

Support:
The 18 day EMA at 10,508
10,496 is the November 2009 high
10,365 is the late September 2008 low
The 50 day EMA at 10,321
10,120 is the October 2009 peak
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
The 200 day SMA at 9249

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

January 08 - Friday
Average Workweek, December (08:30): 33.2 actual versus 33.2 expected, 33.2 prior (no revisions)
Hourly Earnings, December (08:30): 0.2% actual versus 0.2% expected, 0.1% prior (no revisions)
Nonfarm Payrolls, December (08:30): -85K actual versus 0K expected, 4K prior (revised from -11K)
Unemployment Rate, December (08:30): 10.0% actual versus 10.0% expected, 10.0% prior (no revisions)
Wholesale Inventorie, November (10:00): 1.5% actual versus -0.3% expected, 0.6% prior (revised from 0.3%)
Consumer Credit, November (15:00): -$17.5B actual versus -$5.0B expected, -$4.2B prior (revised from -$3.5B)

January 12 - Tuesday
Trade Balance, November (08:30): -$34.5B expected, -$32.9B prior

January 13 - Wednesday
Crude Inventories, 1/08 (10:30): 1.33M prior
Treasury Budget, December (14:00): -$92.0B expected, -$120.3B prior

January 14 - Thursday
Initial Claims, 01/09 (08:30): 433K expected, 434K prior
Continuing Claims, 1/2 (08:30): 4800K expected, 4802K prior
Retail Sales, December (08:30): 0.5% expected, 1.3% prior
Retail Sales ex-auto, December (08:30): 0.3% expected, 1.2% prior
Export Prices ex-ag., December (08:30): 0.7% prior
Import Prices ex-oil, December (08:30): 0.4% prior
Business Inventories, November (10:00): 0.2% expected, 0.2% prior

January 15 - Friday
Core CPI, December (08:30): 0.1% expected, 0.0% prior
CPI, December (08:30): 0.2% expected, 0.4% prior
Empire Manufacturing, January (08:30): 11.25 expected, 2.55 prior
Capacity Utilization, December (09:15): 71.8% expected, 71.3% prior
Industrial Production, December (09:15): 0.6% expected, 0.8% prior
Michigan Sentiment, January (09:55): 73.8 expected, 72.5 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Market Looks for Santa Claus Rally

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 21 Dec 2009 16:46:00 +0000

SUMMARY:
- Expiration, S&P rebalance drive volume, but overall market themes remain.
- Dollar, oil close out a strong week.
- Indices bumping at breakouts, but to this juncture unable to close the deal.
- Growth continues to lead as market looks for a Santa Claus rally.

Lots of movement but all markets continue their trends.

It is difficult to get a read on a session that contains both quadruple expiration and an S&P Index rebalance. There will be the normal issues associated with expiration, particularly at year-end following a solid rally. Positions and options will be rolled out, some will be canceled and closed. On top of that, there is an S&P rebalance where all the S&P indices are reconfigured to move some stocks in and some out. Therefore, the index funds have to reshuffle their lineup, which leads to a lot of buying and selling, so the volume or breadth cannot be trusted. In other words, the internals mean nothing and that casts doubt on whether the entire session meant anything. Something that you can always look for is whether the underlying themes behind the market remain. It is easy to say in this case that they did. Not only the stock market, but the other markets (the dollar, gold, commodities, etc.) all maintained their relative trends as well. There was no real impact overall on the market. It is just a session that is hard to read, and we will take it for what it was.

Oil initially spiked higher on news that Iran made an incursion into Iraq and surrounded an oil well or an oil field (the reports were varied and many). Iran is coveting some of Iraq's oil fields, and it is concerned that Iraq may be able to put more oil onto the line soon, to 1M+ barrels a day. That could affect world price, and Iran wants to keep prices higher because it needs to fund its terrorist activities and fight off the insurgency in its own country that the youth are posing to it. That news raised oil, spiking it up well over $1.00 as oil continued its run. It could not hold onto the gains to the close though; indeed, it was just up a few cents ($73.02, +0.37). Nonetheless, this was a best week for oil in about a year. It made a tremendous move, up 4% on the week.

The ORCL and RIMM earnings out Thursday evening drove a lot of the action with techs. There was strong action with those two stocks, and they set the pace for NASDAQ. RIMM gapped higher and NASDAQ was clearly in the lead, and ORCL gapped to a new rally high as well. They lead techs higher, but it did not change anything in the market. It maintained the trends, but it did not cause any serious breaks (NASDAQ is threatening, however).

Late in the day, there was a Copenhagen climate agreement. They heralded this as a great accomplishment as some of the developing countries of the world were involved, but no one had to sign anything as they did with Kyoto. They pushed off a meeting in Mexico next year where they were supposed to sign a formal agreement to instead discuss in another meeting what they should do in 2016. This great accomplishment that put untold millions of tons of carbon pollutants into the air the very thing they are worried about accomplished nothing. That is good for the United States because we would otherwise be sending our money away to countries that are our competitors and are rising faster than we are in manufacturing. It is a plus for the United States that we got out of there with an agreement that was just another paper tiger.

The dollar was up fractionally (1.4336 Euros versus 1.4342 Thursday), but the action on the chart was equivocal. It finished strong and ran higher, and now there is a doji on the session. With all the expirations, that probably does not mean anything. There have been interim dojis along the way that were just that: continuation dojis. The DXY0 has now moved into a key range of resistance, from 77.25 up to 78, and it bumped there on Thursday and faded back. It broke over it on Friday and faded back. You would expect it to sidestep laterally before it tries to continue higher, as it did at 76 when it ran into the September low as well as two consolidation ranges in October. This is a key level. This is the 78-79 range with a descending 200 day EMA on top of it that will start exerting some influence on the index. It could run out of gas. I still view this as a relief bounce. This has been a sharp move, but when a market or stock becomes deeply oversold, it tends to have very sharp snapback rallies. When a stock market is in a recession or bear market, it tends to have sharp snapback rallies that are vicious because they are short covering. The snowball starts rolling, more and more people have to cover, it shoots higher, but then it burns itself out and comes back down. This is going to be a key area over the next two weeks as the dollar tries to move higher. We will see if it does. I think it is an oversold bounce on the dollar. There is no real substance here because the Fed has okayed the continuation of free money to the banks and the printing of trillions of dollars. That has not changed the picture overall economically other than some belief that there is going to be an economic recovery. This is a short squeeze, and I anticipate it will end and come back down. It could very well end up in the 79 range after a lateral move and another attempt to break higher. This has been a great move for the dollar. It needed to come back, and now it has made a sizable bounce and will have to prove if it has the mettle to continue the rally.

Gold was up modestly ($113, +5.60) and has been very volatile the last few sessions. There was a sharp selloff, and that happens after strong moves. We moved in after the sharp selloff, and it gapped higher looking solid. It gapped lower on Thursday as the dollar exploded higher, but it came back on Friday and it is holding this range. It may try to hold or it may come back. We will buy into more positions as it hits support levels and makes higher lows. Gold had a tough week. It will likely struggle a bit more based on the Thursday action, but there are still buyers out there and it will find its way back up. I am still looking for gold to go to $1,500 over the next six to nine months.

Bonds faded somewhat (10 year closing 3.54% versus 3.48% Thursday). There are some big swings in bond yields, and they are still moving higher after the selloff. We will have to see how bonds end up performing. Remember bonds were flashing a very solid "Economic Trouble Ahead" sign earlier in the year, and then they had a selloff as some of the economic data became better and the dollar started to rebound. Everything rallies and tests. The dollar became oversold and it is bouncing. Gold became overbought and it is selling and correcting. Bonds were a bit too strong and negative on the economy, and they have been correcting. No matter what you are trading, every market will have these sharp corrections in an overall trend when too many people crowd into the trade. Overall, the trends have not changed whether you look at the stock market, the bond market, the dollar, gold, or commodities. They have only gone through a correction to each of their trends of late, and Friday did nothing to change that.

TECHNICAL

INTERNALS

The internals did not mean a thing. Volume exploded, up 25% on the NYSE to 2.1B, and up 48% on NASDAQ to 2.7B. That is impressive volume, but it is all related to rebalances, triple, and quadruple witching.

CHARTS

NASDAQ was able to match its prior closing high, and that keeps it in the upper echelon of its ascending triangle and still trying to make the break higher. The interesting thing is that it has been unable to do that. It has had the reasons to make the break: the Fed keeping the money supply free and easy, ORCL and RIMM producing great earnings, and generally improving views with respect to technology. It has a great pattern and one would presume it will make the break, but it just has not done it yet. That will be key moving ahead. There is the Santa Claus rally next week, and it should break out and rally up into the end of the year. The question is whether it will make the move and if it can hold it.

We gave the NASDAQ top billing because it truly was the leader with its 1% + gain on Friday. That knocked SP500 off its perch, but it was no slouch. It is back up mid-range in its range. There was big volume due to expiration on Thursday, and then expiration and the SP rebalance on Friday. It makes sense that there was a lot of volume and horse trading going on with respect to this index. It is in the mid-range and it is somewhat struggling. It is up and down, could not make the break, and it sold off. This is with energy having a very good week. The oil services ETF had a great two-week run, but SP500 was still lackluster and stuck in the middle of its range. Financials were down. The XLF has trended lower since December. The financials were not helping SP500 any (it is heavily weighted with financials), but even with a positive energy sector and other areas that were improving, SP500 still could not make a significant move. That leaves us asking the same question we did with NASDAQ: Can SP500 make the breakout? It has every reason to do so, but it cannot make the move. There is rotation out of some of these stocks, and that is hamstringing the SP500 somewhat. That makes it a less interesting case than NASDAQ, which has every reason to rally. Nonetheless, if SP500 moves, its weight is on the rest of the market as well.

The real star of the week was SP600. It broke over its November peak, tested and held it (even on Thursday), bouncing off the low. Friday it moved up and put in a new closing high over the November peak. That puts it right at a September peak, another key resistance level; indeed, it is just entering a new range of resistance, from the September peak up to the October peak. The small caps are looking very strong. There is money moving into those stocks as it moves out of some of the commodities, financials, and industrials over the past two weeks. They are showing good buying, they still have good patterns, but they also have an issue trying to make the breakout. No one wants to be the rabbit to run for the rest of the market and drag everyone else with them after making the breakout. That is part of what I was discussing earlier with some fund managers happy with where things are and wanting to sit on their gains. Then, as more than one reader has suggested, there are others that want to keep the status quo and take some gains after the year is over. They will take some gains on rallies, and that has been undermining attempts to make breakouts. Others would like to run it higher and put more gains on the books for their year-end prospectus.

The mid-cap SP400 is another rebalance index and is in a great position, similar to NASDAQ. It is holding up beautifully. It is in the upper quarter of its range, holding over the November peak, ascending triangle, and ready to make the breakout. There is money rotating into smaller stocks and setting up a nice move.

The SOX was the leader in December. It broke out and continued to move higher, and it lost many of its spectacular attributes late in the move. It is nonetheless putting in new closing highs and continuing higher as the growth area of semiconductors is improving. ORCL and RIMM are moving higher. They make devices and have the software to run devices that technology produces, so the entire technology sector is performing pretty well. The charts are still in great shape.

There were some hiccups toward the end of the week, but that has a lot to do with quadruple expiration causing volatility. At the end of the session on Friday, there was classic volatility after a selloff. There was a rally back and then the surge late on the SPYders as many of the SP stocks were shuffled. After the close, they were trying to sort out all of the market on close orders as the indices and ETFs put in their orders to sell and buy the various SP stocks. There are so many SP indices that had to be reshuffled; it will take until Monday to figure out what happened.
LEADERSHIP

One of the maligned areas this week was financials. We took gain on GS. It is trying to bottom and we will see what happens here. It looks like it could be doing that because other financial stocks look the same way. JPM has come down to a support line just over 40 and is trying to put in a bounce. It looks like it could do that. MS is also the same it had the snot knocked out of it over the past month, but it has come down and showed a hammer doji that happened on the 200 day EMA on the low. It is holding right at support at 29, and we could get a bounce out of MS. We could get a bounce out of many of these. If you like bounce plays, these are setting up to do that, but whether they will have a lot of strength behind them is the another question. You might be able to make a play up to 32 off 29 on MS. That is not a huge move, but it is very solid on a bounce play.

AAPL is still holding the triangle it is trying to form up, and it is not bad. It recovered from the Thursday dump. There are many other good stocks in technology that are holding up well. QCOM is one that could be a bounce play. It was trying to set up something of an ABCD pattern, but it carried on and lost a lot of that luster. Overall, it has formed something of a triangle. If it could make a break higher, it could be interesting. It is not on the top of my list, but I am looking at it. I like is QLGC, but this is a dangerous pattern even though it does not look dangerous. This is not necessarily a bad thing in a bull market, but you should watch for these if there is a transition going on (I am not saying there is one, other than NASDAQ has been unable to make the breakout from a good pattern). They can run out of gas. It is trying to set up a triangle, but then it gets extended and cannot figure out what to do. If MACD is running out, it has lost momentum. Be careful of these. It can make the break higher but could just as easily make the break lower. Know your market and where you are in the life cycle. That tells you a lot about whether you want to step into a pattern.

The chips still look good. We have a position in CY. It has made a nice rally and come back to a nice test. It is in an excellent position to run higher, and you see this a lot in semiconductors. KLAC has an interesting pattern, and it could make the break higher. MACD is rising note how in QLGC it was heading lower. We have rising MACD, so this could be an interesting play. A similar play in CYMI: a double bottom, bounce, handle, rising MACD, and showing good upside volume. It showed a doji on Friday. I do not know if this volume means anything since it was expiration and SP rebalancing, but it has that same look. I like this one a bit better than KLAC. MFLX is another I have been looking at. It has the pullback, kind of a handle, a break higher. Nice rally into it and trying to form something of an ABCD, but there are a bit too many letters in the alphabet here as well. It fell apart, but there is something of a cup with handle, and it is trying to make the break higher with rising MACD. There are some positives there.

Energy had a better week. APA is always a good one to watch. It had a nice rally, is moving laterally, and it set up another one of the cup with handle patterns. APC rallied back and is testing the 50 day EMA. It is not the same clear, nice pattern, but it could make a bounce up as well. It is not in great shape or in terrible shape. HAL rallied all week, gapped higher, and reversed on Friday. I do not know what that means because of the expiration, but it had a great recovery. It is not a great pattern at all. There is the double top and lower MACD, but it did rally and had volume as it came back up. Energy is mixed, but it had a good week overall. There are some good setups there.

FCX, in metals, is trying to hold. It started to sell hard on Thursday, was trying to hold on Friday, and I still think it is coming lower. BHP is the same type of scenario, but it has more support. Metals, like commodities, are varied. Some are performing better than others.

Healthcare still looks good, and money is still moving in. CNMD has been setting up and trying to make the break. It IS making the break as a matter of fact, we bought some of this on Friday. BABY is one I like, and it is very interesting. It could give a neat run from the 14 range up to 17, the prior high. It is a cool pattern. It is not perfect, but even a perfect pattern can fall apart on you.

Retail had a good day. PZZA had nice volume, a break higher, a nice test, and then a new break back up over the downtrend. I like those kinds of patterns. DBRN had a test and is moving back up and getting some volume. It is not all candy and roses, however. BBY is all of a sudden having a hard time. You thought it might want to hold up after it gapped down and touched a support level, but it is giving it up and going down big time. That is not good. It had decent earnings, but apparently, they were not good enough. This is a concern about the holiday season, but more about what comes after the holidays. It seems like investors feel that retailers may be using up their bullets on this holiday season similar to how the Fed has used up all of its bullets. If a major upheaval comes along, the Fed has no bullets left, and you get that sense looking at the way some of the retailers are acting. That is not all of retail, and a lot of them performing just fine.

Leadership is fine, and there is still a rotation ongoing. Medical is improving, retail stocks are decent, and there is the business software and business services starting to perform. On top of that, the semiconductors are moving higher, and technology is looking solid. There is plenty of leadership even though there are prior leaders being recycled right now. They are going down and being sold off, but then they will base and set back up. As the dollar dies out on its rally, then we could see these stocks make a comeback. Again, the next two weeks on the dollar will be important as it hits the 78-79.50 level. There is resistance there after a good corrective snapback rally. That will be one of the main drivers in the week ahead.

THE MARKET

MARKET SENTIMENT

VIX: 21.68; -0.83
VXN: 21.78; -1.06
VXO: 20.53; -1.31

Put/Call Ratio (CBOE): 0.98; +0.07

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 52.2%. Rising again after a slight dip the prior week. This is the highest level on this run. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 16.7%. Holding basically steady for the past three weeks, down from a 17.6% reading. Bears are down but still skeptical as the lateral slide indicates. This is the lowest level of the entire rally and is at a bearish level. Peaked near 28% on this round, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +31.64 points (+1.45%) to close at 2211.69
Volume: 2.755B (+48.96%)

Up Volume: 2.174B (+1.76B)
Down Volume: 664.846M (-804.493M)

A/D and Hi/Lo: Advancers led 1.5 to 1
Previous Session: Decliners led 2.73 to 1

New Highs: 115 (+45)
New Lows: 42 (+1)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +6.39 points (+0.58%) to close at 1102.47
NYSE Volume: 2.147B (+25.26%)

Up Volume: 1.833B (+1.644B)
Down Volume: 800.856M (-701.04M)

A/D and Hi/Lo: Advancers led 1.37 to 1
Previous Session: Decliners led 2.63 to 1

New Highs: 225 (+65)
New Lows: 36 (-3)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +20.63 points (+0.2%) to close at 10328.89
Volume DJ30: 480M shares Friday versus 198M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

It is a short week with Christmas on Friday, which means the market will close early on Thursday. The indices are well positioned to make a Santa Claus rally. Even NASDAQ is in a great pattern and should make a nice Santa Claus rally. It is perfectly positioned to lead higher, and it can move along with SP600 and SP400 and plow into new rally ground into Christmas. The question is if it will do it. I think it might, and it could have a holdover toward January. This time of year tends to move with the trend, and the trend is solidly in place and solidly higher. You would expect it to continue higher. What we want to do is let our positions ride and move in toward the end of the year and see just how much they move up. We can consider whether to take gains or not and wait until January, but if I have a gain in hand and it looks as if it could be topping out on that move, I am not going to wait a few days until the next year. The options could dry up some if the move dissipates, and then if it starts to turn against you and go back down, you are losing all the money you would have made. I would rather have the money in hand and pay some taxes on it then have a good play go back down and not make as much money. I still have to pay tax on it, it is just whether I pay it this year or the next. A 50-70% gain on an option play now is much better than a 30% gain taken early next year. The tax considerations are not going to have as much of an impact on my trading scheme as they would in hedge funds or in the mutual funds that are managing billions of dollars those managers have to watch out for their clients.

We will let our positions run. If we get one that is topping out or hits a target and we want to take some gain, we are going to act as usual. We will take partial gain and let the rest of it run. On the other hand, if it has made a tremendous move and we do not think it will go any further, then we can take the whole thing off the table. We will continue to look for upside because I still think one of the themes, even going into early 2010, is going to be the small and mid-caps still rising and having a good January effect move. I do not think there will be a lot of selling to start the year that will send every sector tumbling down. There may be selling in those that moved up in the SP that are struggling now. We may see that rotation continue, but that would not affect the stocks that we are moving into versus those that have made their run and are selling back. We will basically keep the same strategy because we see the same events unfolding where we can take advantage of the smaller caps rising. It may be a different story after January, but we will watch and see how it plays out. Right now, I am seeing good stocks making good moves and giving the "buy me" signal, so that is what we are doing.

Have an excellent weekend. We will play the shortened holiday weekend for what it gives us, but not get too wrapped up in it because there are other things more important this time of year.

Support and Resistance

NASDAQ: Closed at 2211.69
Resistance:
2210 (from September 2008) to 2212 (the July 2009 closing low)
2218 is the August 2005 peak
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows

Support:
2205 is the November 2009 peak
2191 is the October 2009 peak
The 18 day EMA at 2185
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
The 50 day EMA at 2150
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
The 200 day SM A at 1906
1897 is the October post gap intraday high.
1880 is the June peak
1862 is the July peak

S&P 500: Closed at 1102.47
Resistance:
1101 is the October high
The 18 day EMA at 1103
1106 is the September 2008 low
1114 is the November 2009 peak
The March/July up trendline at 1137
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low

Support:
The 50 day EMA at 1085
1083 is the 2007 down trendline
1080 is the September 2009 peak
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
The 200 day SMA at 969
956 is the June intraday peak

Dow: Closed at 10,328.98
Resistance:
10,365 is the late September 2008 low
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
The 50 day EMA at 10,173
10,120 is the October 2009 peak
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
9116 is the August low
9088 is the January 2009 peak
The 200 day SMA at 9038
8985 is the closing low in the mid-2003 consolidation
8934 is the December closing high
8878 is the June peak
8829 is the late November 2008 peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

December 22 - Tuesday
GDP - Third Estimate, Q3 (08:30): 2.8% expected, 2.8% prior
GDP Prices - Third E, Q3 (08:30): 0.5% expected, 0.5% prior
Existing Home Sales, November (10:00): 6.25M expected, 6.10M prior

December 23 - Wednesday
Personal Income, November (08:30): 0.5% expected, 0.2% prior
Personal Spending, November (08:30): 0.7% expected, 0.7% prior
PCE Prices, November (08:30): 1.6% expected, 0.2% prior
PCE Prices - Core, November (08:30): 0.1% expected, 0.2% prior
Michigan Sentiment-Rev, December (09:55): 73.7 expected, 73.4 prior
New Home Sales, November (10:00): 439K expected, 430K prior
Crude Inventories, 12/18 (10:30): -3.69M prior

December 24 - Thursday
Initial Claims, 12/19 (08:30): 470K expected, 480K prior
Continuing Claims, 12/12 (08:30): 5175K expected, 5186K prior
Durable Goods Orders, November (08:30): 0.5% expected, -0.6% prior
Durable Goods Orders, November (08:30): 1.0% expected, -1.3% prior

By: Jon Johnson, Editor
Copyright 2009 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Maybe No Rally to Year End

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 14 Dec 2009 01:41:00 +0000

SUMMARY:
- Rotation and stocks rising with a rising dollar: two new themes.
- Retail sales post second month of gains.
- Import prices are rising.
- Jobs are growing . . . in the federal government (along with salaries).
- Commodities dipping, small and mid-caps under accumulation.
- Maybe no rally to year end, but small caps look to be setting up for a good January effect.

Market actually starting to act like a market anticipating economic growth.

This week epitomized the changes taking place in the market, even though they may have just solidified this week. It behooves us as investors to take note of what is happening in the stock market and the markets surrounding it. One of the main changes I discussed on Thursday was rotation. There has been a move out of commodities. Gold had a rough week ($1,115.10, -10.00) after hitting $1,226 just over a week ago. There is a current rotation out of gold, but we have a play on the GLD because it could be trying to bottom and could make a knifepoint turn.

Oil was down sharply ($69.66, -0.88). It may be in a position to bounce as it is reaching important EMAs, but the rotation has been out of these and into medical, business services, and semiconductors. A lot of these are in small cap areas, and the small caps have been consolidating with perhaps some accumulation ready to break them higher for the January effect.

There is a second change in the market that started showing itself on Friday: the dollar is rising. It was just consolidating on Thursday along the 50 day EMA, and now it has broken sharply higher. At the same time, the stock market rose slightly and the small caps gained a bit of ground. The Dow industrials gained ground, and SP500 gained as well. There were no breakouts of the range, but the dollar was up, stocks were up, and bonds were down. The 10 year treasury was strong (3.55%). It surged back up and broke through a key level at 3.5%. Whether it will hold the move remains to be seen, but stocks and the dollar are higher, and the bonds are lower. They are acting as they "should" act if the economy is trying to improve.

The market was mixed overall at the close with NASDAQ down and the NYSE up. Stocks mostly moved higher, however, and moved higher in the small cap area. That is important because they are a growth area, and if the economy were improving, one would expect to see it move higher. SP600 rose 0.95%. Those are key points with respect to the market. There is rotation and it is acting as if there will be economic improvement. You would expect to see improvement in small caps and other growth areas such as semiconductors. Semiconductors had an excellent move over the past two weeks. There is a growth trade and now more of a positive economic trade.

Looking at the SP futures in the morning, there was a huge pop on the retail sales data (1.3% for October, 0.6% expected). October was revised a bit lower (1.1% from 1.4%), but November was quite solid. If you take out autos, it was not much worse (1.2% versus 0.4%). October was revised a bit lower again to flat from 0.2%. There is some downside revision, but not bad overall. Two months of positive retail sales growth had people excited. The futures jumped up, but they did not stay there. They came back and closed the gap. By the time the market got underway, they closed, bounced, and then were back down. It took an afternoon recovery to get SP500 back up to speed.

We tend to import more of what makes our economy go (such as petroleum), so import prices are important. They were supposedly tame at 0.4%, and that matched the prior month. That leads some to say there is no inflation there is not massive inflation, but there is inflation underway. Some financial stations were arguing that if you take out petroleum, then things are better because petroleum is falling in price. They will be better, and they are falling just in time to give consumers a Christmas present that may hold over into the New Year. Oil prices are falling, but they look to be reaching a support level now. It bounced to $80, and now it has gone down to $70. That is the range oil tends to trade in, so it could bounce back up. If you look at the ex-petroleum numbers for import prices, they are up 1.4% on the month and up 3.6% year-over-year. That is inflation. We are not as much of an export nation as we would like to think (although the Obama administration wants to make us an export nation). Imports are still important because we import more when US consumers do well. The problem is that prices are rising, and there is that pesky oil. However, even if you strip out oil, prices are still rising above what the Fed would consider its speed limit. There is inflation out there, and it is not helped by the dollar. If the dollar rallies, it will be better in December, just as oil falling will be better for us in December. That will help things out, but thus far it has not changed the trend, and the import prices were somewhat looked past.

NSM beat the street on the top and bottom, and UTX substantially raised its guidance and shot higher. There is good news with the forecast for 2010, and it benefited the market. Initial job claims come out on Thursday and then they reverberate through Friday. As you know, they were higher on Thursday (474K versus 455K expected), but it was still below 500K. Continuing claims fell (5.1M versus 5.46M the week prior). Everyone thinks things are great, but there are problems with jobs when you look beyond the headline numbers. There is a category posted called emergency continuing claims, and they rose 430K for the week. They are six times where they were this time last year. Continuing claims are not getting any better; people are just falling off the rolls of standard claims and going elsewhere. Every time Congress extends unemployment benefits, they have to go back to the small businesses and ask them for more money. It is a double whammy: Not only do they not have money to hire people, but they also have to pay for the people they have already laid off. They would probably love to hire them back, but if there is no work, that is not going to happen.

Congress does not have an issue because there are plenty of jobs there. USA Today reported that the fastest growing segment of jobs in the country is in the federal government. They are adding 10K jobs per month during a recession. The average public sector job earner makes $40,331 per year, while the average federal government employee makes $71,206. It is a rapidly growing area, and they are paying top dollar. The Department of Transportation had one employee making more than $170K before the stimulus package was passed; after the stimulus package was passed, there are 1,690 transportation department employees making more than $170K. The FAA chief got a $100K + raise thanks to the stimulus package. That money is not being used to create jobs; it is being used to pad the pockets of federal workers. When the FAA chief got 100K + raise, how many other federal government employees got such raises? 1,700. In the middle of a recession when millions of people are losing their jobs, federal employees are not only getting more jobs, but they are getting massive pay raises. This should be bothering people. It certainly bothers me as a taxpayer.

There is a proposal with the healthcare bill to cut the Medicare age requirement down to 55. How can they cut $500B + from Medicare, then lower it to the age of 55 and add approximately 30M people onto the Medicare rolls? It does not seem like the plan is to make it work at all. The new Senate bill has been measured by a non-partisan group, and they found it will cost a lot more and is going to put more people out of coverage than in it. With that kind of logic going on in Washington, it is hard to believe the economy will turn around. The economy tries to do what it wants without Washington it can help or hurt, and Washington has not helped. The economy will try to make a recovery out of it anyway, although it is going to be a slow, pathetic recovery by past standards. It will try to pull it together for 2010 and at least get it going through the summer. After that, there may be a double dip, but that is in the future, and lord knows our Senators and Congressmen cannot look that far into the future.

Gold was down, the dollar was up, and bonds were down. Things are at least looking right in the world of the stock market.

TECHNICAL

INTERNALS

The internals were not much to crow about for the session. The small caps tend to represent what the advance/decline line is going to be. NASDAQ 1.4:1 advancers, NYSE 1.9:1 advancers. Those are the small caps helping kick in with their nearly 1% gain on the session. Looking at SP500 and the representation of the NYSE volume, you see it was a week of declining volume. It was the same story with NASDAQ. There was an upside day on Thursday, but it was still in a very low range of below-average volume. Again, they are range trading, and that is the kind of volume to expect in a range trade. It is not necessarily a bad thing.

CHARTS

The SP500 had an up and down week. It was down at the beginning, held the bottom of the range, bounced back up, and was trading in the top half of the range to end the week. No relative change. There have been five weeks now of trading laterally. Some of the SP500 stocks are being sold, and some other stocks in the NYSE are being accumulated.

NASDAQ is an interesting play because it gapped higher on the session up toward the top of the range and then reversed. It closed off its lows and closed basically flat. It is still trading in the top half of the range, but it is trying to make that higher low and is not able to get the breakout of the ascending triangle it has formed. It has been banging around in a narrowing range, and the breakout will occur over the next week or two. It is going to be interesting because it will be a catalyst coming for the rest of the market. It is a growth area --- semiconductors and small caps have been performing better. If there is growth coming, it should break out to the upside. The market is going to tell what the economy will do, and we are seeing some of this in the small caps. I think they are under accumulation because when looking at leadership, there are many small caps in good shape. I think they are under accumulation and, if you look at the SOX, you see it had a super two weeks. It leveled out this week and is consolidating, but it is holding over the peaks that it broke through, looking very strong.

NASDAQ has its ascending triangle, the SOX is breaking to a new high, and there are the small caps consolidating laterally and trying to set up a move. We will see many good small caps positions when we look at leadership. There are the mid-caps, similar to NASDAQ, setting up an ascending triangle. The SP400 is setting up an ascending triangle and trying to make a higher low right now. Those are growth areas, and they are improving. If the economy is going to pick up, these indices are going to break out ahead of that.

LEADERSHIP

The USO is lower and oil fell. During the week, some of the energy stocks that had rebounded after falling were showing signs of heading back over. HAL rebounded up to the resistance point at 28 and is struggling. It is showing a doji at resistance on a light-volume rebound after heavy-volume selling. It will roll back over. You can see the same thing in general in the OIH. It sold off early in the week, rebound Wednesday and Thursday, and a hangman doji at resistance on Friday it looks like it will head lower as well. BTU is showing some wear and tear, but it has not broken down completely. It did recover at the end of the week, but it was a low-volume recovery and it could head back lower. As it made a high in November, MACD was unable to make a high, rolling over at a lower level. That shows a weakness, and there was a selloff. We will see how this bounces. It has tried to come up to the 78% Fibonacci, and if it comes back up there again and stalls, it is definitely a downside play.

They say economic recoveries have a copper roof to them. FCX is somewhat of the bellwether of copper, and it is rolling over. Similar to other stocks, there was a high with MACD, there was a new high, and MACD failed to make a new high. There was a crash lower on volume, an attempt to hold near the 50 day EMA and some support, but the downside volume was stronger. It looks like it is ready to roll over and make a serious drop, possibly down to the 65 range. We will be looking at that as a short play for the weekend. It is the same story if you look at PCU. There is a double top --- I would have loved for this to hold down at the 78% Fibonacci, but it did not. It does not matter because the weakening MACD gapped lower on volume, there was a weak test, and it is ready to roll over as well.

Steel is still looking solid, and even AA had a good day because it upped its guidance. You would think that commodities would be moving higher given a better economic outlook for the US, but some are and some are not. Some have had great runs and are victims of their own success and of the strengthening dollar. Bear in mind that they do not necessarily cut against the idea that the economy will be improving in 2010.

GS bounced up Wednesday and Thursday, and it looks like it will try to roll back over. Some of the banks that were down Thursday tried to rebound. WFC gapped lower and recovered a bit of ground, and BAC recovered some ground as well. The financials are trying to bounce back. LM had two very difficult days on Wednesday and Thursday, but it recovered a bit of ground on Friday. Somewhat of a snap back in the financials, but they still are not great-looking patterns.

DOX has had a great run and is coming back and testing. It looks like that could be a play. It traded below the breakout point on the low Thursday and snapped back. Buyers picked it back up and it held up on Friday. It could give a buy. FALC has a trend reversal ongoing, and it is trying to set up and make a break. INFA is trying to make a breakout of an ascending triangle. SNIC had a nice breakout, and now it is testing and holding over very orderly pullback. A lot of these are in the business software area, and they cater to small businesses and increasing productivity. LFT is performing well, had a nice break higher, and has a nice flag in progress. I am looking for ABCD patterns this week and for flag pullbacks on the small caps. I am also looking for rollovers from some of the big caps and the sectors in energy and metals that rallied back a bit after breaking lower but are not able to consummate the recovery through resistance. That is going to give us some excellent opportunity.

FLOW had a break higher and a nice pullback a great flag. We have seen a lot of this catalog and retail stuff (such as VVTV) doing well. XING has a nice base, a break higher, and it is testing. It is volatile but just an example of what is going on. There is rotation. Money is coming into these and you can see the volume moving up.

There is ongoing accumulation as the overall market moves laterally. Big volume is coming in, and there are nice, long, low-lying consolidations where you see they have been buying all along. Then there is big volume moving in as they make the break. There is a lot of money flowing into small caps, and that is what happens in rotation. That is why the growth areas are moving higher.

THE MARKET

MARKET SENTIMENT

VIX: 21.59; -0.73
VXN: 22.38; -0.75
VXO: 20.53; -0.44

Put/Call Ratio (CBOE): 0.9; -0.01

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 50.6% Up from 44.4%. Moving to a high on this last run, matching the levels from September and October. Hitting highs again just as SP500 bumps prior peaks yet again. Believers may have waned but the liquidity did not. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 17.6%. Bears are leaving the building the past three weeks, falling sharply from 26.7%. This is the lowest level of the entire rally and is at a bearish level. Just in time for the SP500 testing the prior peak. Peaked near 28% on this round, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: -0.55 points (-0.03%) to close at 2190.31
Volume: 1.698B (-10.44%)

Up Volume: 901.543M (-134.906M)
Down Volume: 841.681M (-41.915M)

A/D and Hi/Lo: Advancers led 1.43 to 1
Previous Session: Decliners led 1.57 to 1

New Highs: 59 (-36)
New Lows: 24 (+2)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +4.06 points (+0.37%) to close at 1106.41
NYSE Volume: 1.003B (-4.7%)

Up Volume: 677.677M (+24.696M)
Down Volume: 319.151M (-63.611M)

A/D and Hi/Lo: Advancers led 1.89 to 1
Previous Session: Advancers led 1.55 to 1

New Highs: 290 (+53)
New Lows: 42 (+9)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +65.67 points (+0.63%) to close at 10471.5
Volume DJ30: 189M shares Friday versus 195M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

It is another week closer to Christmas without a sign of real movement in the indices. Whether you are talking about the SP500 or SP600, they have been moving laterally for five weeks. There are two forces at work, particularly in the big cap areas: the managers wanting the market to go upward to the end of the year, and those that want to keep the status quo and are being defensive and selling into rallies. They are canceling each other out right now, and we are moving laterally in the range. Then there is the rotation into other areas. Commodities are heading lower and many industrials are struggling. Areas that led the market higher are struggling as the dollar strengthens, but they had a healthy run. Money is rotating and moving into many of the smaller areas. The small caps and mid caps are harbingers of economic growth, so we are setting up for the January effect and a run higher by the small caps. In January, mutual fund managers traditionally buy the smaller caps where they have more chance of big gains through the year. You can get better percentage gains on stocks that are smaller in price. Smaller cap can move versus a lot of the big names that have run higher and move slowly when they do make moves because their growth is not as big as the small caps. Their percentages cannot be the same, so we can see bigger multiples built into the small caps. They can make big runs, and then they are sold off after they make those runs and fund managers look elsewhere for the rest of the year. They try to get their growth stocks bought in December and January, then let them run higher and then sell them off by the summertime. That is the way it typically works, and then they look for consumer stocks at that point. This is the rotation that fund managers go through.

Things are playing by the standard rulebook right now. That shows NASDAQ setting up with an ascending triangle that could make the breakout because it is a growth area. The mid-caps are setting up an ascending triangle because it is a growth area. The SOX already broke into a new high out of a ragged, ugly pattern because it is a growth area, and now we are waiting for the small caps to do the same and confirm what is going on. It may take until early January when they start moving, but they are definitely under accumulation, and we have definitely been putting them on the report and will continue to do so. We will also continue to take advantage of the stocks that have rallied but have run out of buyers (e.g., in commodities and some of the metals).

We are taking what the market gives. Right now, it is going to give upside on small cap and growth plays, and it will give downside on the plays that have run hard and are rolling over near term. It is going to give us plays like on PCU or FCX that have made their runs and are ready to make a fall. That is how we take what the market gives and make some more Christmas money ahead. Have an excellent weekend, and we will try to do the same.

Support and Resistance

NASDAQ: Closed at 2190.31
Resistance:
2191 is the October 2009 peak
2205 is the November 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows

Support:
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2143 is the October 2009 range low
The 50 day EMA at 2139
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
1897 is the October post gap intraday high.
The 200 day SM A at 1884
1880 is the June peak
1862 is the July peak

S&P 500: Closed at 1106.41
Resistance:
1106 is the September 2008 low
1114 is the November 2009 peak
The March/July up trendline at 1128
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low

Support:
1101 is the October high
The 18 day EMA at 1098
1085 is the 2007 down trendline
1080 is the September 2009 peak
The 50 day EMA at 1081
1078 is the October range low
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
The 200 day SMA at 959
956 is the June intraday peak

Dow: Closed at 10,471.50
Resistance:
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
10,365 is the late September 2008 low
The 50 day EMA at 10,122
10,120 is the October 2009 peak
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
9116 is the August low
9088 is the January 2009 peak
8985 is the closing low in the mid-2003 consolidation
The 200 day SMA at 8946
8934 is the December closing high
8878 is the June peak
8829 is the late November 2008 peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

December 15 - Tuesday
Core PPI, November (08:30): 0.2% expected, -0.6% prior
PPI, November (08:30): 0.8% expected, 0.3% prior
Empire Manufacturing, December (08:30): 24.00 expected, 23.51 prior
Net Long-term TIC Fl, October (09:00): $42.3B expected, $40.7B prior
Capacity Utilization, November (09:15): 71.1% expected, 70.7% prior
Industrial Production, November (09:15): 0.5% expected, 0.1% prior

December 16 - Wednesday
Building Permits, November (08:30): 570K expected, 552K prior
Housing Starts, November (08:30): 578K expected, 529K prior
CPI, November (08:30): 0.4% expected, 0.2% prior
Core CPI, November (08:30): 0.1% expected, 0.3% prior
Crude Inventories, 12/11 (10:30): -3.82M prior
FOMC Rate Decision, December 16 (14:15): 0.25% expected, 0.25% prior

December 17 - Thursday
Initial Claims, 12/12 (08:30): 465K expected, 474K prior
Continuing Claims, 12/5 (08:30): 5170K expected, 5157K prior
Leading Indicators, November (10:00): 0.7% expected, 0.3% prior
Philadelphia Fed, December (10:00): 16.0 expected, 16.7 prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Dollar Explodes Higher

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 07 Dec 2009 16:37:00 +0000

SUMMARY:
- Jobs report surprises with some positives but is not out of the woods yet.
- Dollar explodes higher and the related trades take a hit.
- Stocks and bonds acting as they should with a better economic outlook: growth is growing, bonds are selling.
- Leadership may be starting to rotate away from dollar trades to growth trades.
- Despite the rally on good news, the indices remain in their ranges: watching the small and mid-caps for the true direction.

Jobs report shows some tantalizing progress.

All the action was related to the jobs report on Friday. It was much better than expected (-11K non-farm payrolls versus -125K expected). There was a sharply reduced number for October
(-111K versus original -190K) and September, with a net of 159K fewer lost jobs than originally anticipated. The unemployment rate fell to 10.0% from 10.2% on top of that. It was expected to clone that for the month, so there was a significant gain. Those positives gapped futures higher; indeed, it gapped it over the midday action on Thursday. The SP futures topped out over the Thursday peak and then fell off. There were fewer losses, the revisions were positive, and the most important factor (for us) was the average workweek. It went up to 30.2 hours from 30.0. This is not just a one tenth bump as usual, so that shows significant action. Temporary employees were up. There have not been any temporaries hired of late, and those are where the full-time employees usually come from. It is good to see temps being picked up.

It was not all candy and roses, however. The work force fell by 100K. Those people have given up. It now stands at 861K, and that is significant. They say 65% of the workforce is disgruntled that is something to consider. When people start seeing the good job numbers, they will come back out in the labor force and the unemployment rate will likely rise even more. The administration was hinting at that today because that is the way it works. People hear that things are better and they go looking for jobs, but there are no real jobs yet. They will have rejoined the pool and not found a job, so the unemployment rate will tick higher. For people putting a lot of stock in 10% versus 10.2%: Remember there was a drop from 9.5% to 9.4% in September, and Robert Gibbs said this was a sign that the economy had pulled back from the brink and everything would be okay. It then immediately ran up to 10% and 10.2%, so you cannot put too much stock in one month. It could be a rogue month. The good news is the 10.2% may have been overly negative. There will be a move back up to 10.1-10.3 (or even higher) as the months unfold because more people will be looking for work given the "good news" shown on Friday.

Emergency benefits were up 265K even though the job market is supposedly getting better. They have been extended repeatedly. Someone can effectively have been on unemployment for two years now, and it is the small businesses paying that. The government keeps coming back to extort more money from them for people who are no longer working. It is a tough racket when you are a small business and your business is down. You cannot afford to have the employees anymore, yet you still have to pay for them.

Another thing to consider is the non-farm jobs versus the unemployment rate. Coming out of recessions, the unemployment rate is more important. The big companies do not create jobs. They have been net job losers for 20 years. The startups create the jobs, and that is what makes the job summit such a joke in the eyes of many: the large companies were there, and they do not do much of the hiring or innovation. They are getting handouts from the government stimulus package (GE and the like) but are not creating any jobs. The unions were there, and they are not going to create any jobs in and of themselves. 11K non-farm jobs lost does not mean a lot; you have to look at is what the unemployment rate is. It did come down, and that is positive, but it will not stay down yet. The jobs report was not the perfect news I would like to see, but I am not going to deny that it was good news.

The jobs report set the stage, and stocks opened much higher. The DXY0 had a massive surge all the way back to the EMA that held it in check in early November. This is a big move. It cleared some resistance, and it is approaching some other serious price resistance, but it was a big move. If the US economy will recover (as the data seemed to suggest), then the dollar will strengthen. That is the reason for the move. The Fed will raise rates and it makes the currency worth more as the economy recovers. There was short covering in the dollar, of course, and an unwinding of the dollar carry trades that contributed to the move in the dollar. You have to get out of those if it looks like the economy (and thus the dollar) will be stronger. If you do not move out, you can be in a word of hurt. You have to unwind those trades, and that gets the snowball rolling faster down the hill.

Gold dove lower ($1,162.50, -55.70). It was down $60, and pushing $70 at one point. We took nice gain over 200% on our GLD options, but gold took quite a hickey. That will happen with worry about money printing the Fed being incessantly lax. When there is an indication that something else may be afoot, the knee-jerk reaction was to sell off hard. The dollar closed well off yesterday's close (1.4846 Euros, versus 1.5069 Thursday). Oil did not sell off tremendously ($75.74, -0.72), but many energy stocks were hit hard. They have been under pressure the last few days, which is why we took several off the table and looked at downside plays in energy. We entered a bonus play on Friday with DUG.

Oil and gold were both under pressure. Bonds sold hard. The TIPS gapped lower indeed, the 10 year closed at 3.47%, up 10 basis points from 3.37 the day before. Bonds have been selling and yields have been rallying. Over the last week, it seems like the bond market, after looking for trouble, anticipated a better jobs report. Rates have been swinging violently over the last week: It was at 3.19% just over a week ago.

The SP500 and the Dow both surged to new highs but were unable to hold them. The small caps and NASDAQ surged and held most of their gains. The semiconductors had an explosive move -- like bonds, it looked like they anticipated this news. They rallied and closed at a new high for 2009. There was a lot of strength in growth areas, and that is what we like to see. Stronger growth stocks are an indication of a stronger economy, and that is why I have been watching SP600 so closely over the last few weeks to see if it could rally.

The sum total was positive action. It is the right kind of action. The dollar is up, and the stock market is up; they are anticipating a stronger economy in the future. The growth areas were moving while those that have been tied to the dollar and exports (and a second-rate US economy) were down. The NYSE large caps, the SP500, and the Dow were unable to hold their moves and showed much less relative strength than the other indices. Where SOX gained 2%, the SP500 gained 0.5%. The Dow gained 2%. NASDAQ posted a solid 1% gain and was at 1.5% at one point. Things are moving in the right direction, but the big question is whether it can last.

TECHNICAL

INTERNALS

The advance/decline line was not bad on NASDAQ at 2.8:1, but it was not huge. It was not the 3:1 or 4:1 one could expect on great news about jobs. NYSE was 2.1, which was also not great considering that decliners led nearly 2:1 on Thursday.

The volume was key. It rose 14% on NASDAQ and 22% on the NYSE, pushing both of them above average. That is not bad. We want to see the growth indices like NASDAQ rise on strong, above-average volume. The NYSE rallied to a new high but gave it back. As a matter of fact, it gave back 14 points off the high more than two times what it gained on the session and it kept it in this range. The high volume indicates that a lot of the stocks tied to the dollar were selling back. Commodities and energy were taking it on the chin, and industrials were not performing well either. They have been feeding off the weak dollar in the export market. They were knocked around a little, and that will keep happening if things continue this way.

The small caps posted a 2.3% gain. They have not moved over the November peak, but they are challenging it, and this will be a very important move. They are trying to make a higher low, and if they can make a higher high, they may keep the whole upside trend moving even after a lower low. As the small caps and mid-caps moved higher, the strong NYSE volume shows that the action was mixed. There was buying in the growth areas, while there may have been some higher volume selling in dollar-related areas. That shows that the action was mixed but still positive given the news on the day.

There is obviously short covering going on, some dollar selling, and some selling to the dollar-related stocks. That had to happen because they have had such a good rally. When things appear to change, they are quick to bail. There were positive developments related to growth areas.

CHARTS

SP500 moved to a new rally high, but could not hold it and traded in the same range. There was great news out there, but it could not hold onto the move. That is a negative for SP500 because many of the financial stocks were up on the news, but not substantially. The Dow did the same thing: It rallied to a new high and turned back unable to hold that new high on tremendous volume. There are still issues with the large cap stocks tied to the dollar. NASDAQ did not finish at its high and did not finish were it gapped open. It did hold a very solid gain and is trying to push out of this range, but it could not quite do it. It moved to a new high but could not close there. It is in the same position it was before, even though it is showing more strength. Until it clears that range, it is still in the same boat. The small caps held almost all of their gains, but they are still below the November peak. This is a good move. It has held its gain, but still has to make the break, and that is what we want to see. How it moves from here will be the key. It was not able to clear that high on a very good news day, and this is a concern.

The SOX moved to a new closing high, but just by a hair after a strong week of gains as if it was anticipating the news as well. It gapped to a doji, and that may show it needs a pullback, but the semiconductors have been on fire and they came out of nowhere to do it. This is an important growth area, so it is another example that feeds into the idea that things are improving and looking better down the road. Then again, the small caps and mid-caps still need to break out. Growth definitely led the market and led the gains on Friday, while the dollar-related stocks suffered that is how it should be. When looking at the overall picture, there was no real change in any of these indices (other than SP500) even with what many were saying was excellent news. This is a problem. Maybe they were too far down in their range to make the break on Friday. We will find out next week.

LEADERSHIP

The chips were in the lead and have been doing very well. NVLS gapped higher and continued its run. RMBS continued its run with a gap higher. They are running and getting a lot of money on a lot of volume. It was trading in that range, made a higher low, and made a big breakout. We are lamenting that one because we were trying to get in and play it.

Tech was not doing badly at all. GLW has been running higher. AAPL was off again, but it looks like it has made a test of support and may be ready to run. Net stocks were doing fine. AKAM was having a good day. NTGR had a nice day; it was not runaway, but it moved up out of a good pullback. Many good stocks were making moves, but others (such as energy) were struggling. We are playing HAL to the downside. OII is heading lower. BTU hit its 50 day EMA and it has bounced off it many times before. It has some serious downside volume. The metals were also in trouble. AKS is a good indication, and it has had two tough days. It is not totally broken down, but it is struggling. If the idea holds that the economy is recovering and the dollar continues to gain, there could be more of this.

Agriculture has been leading up, and it is still okay after the breakouts. MOS sold back hard, and that is how it was across the agricultural sector, just as it was with energy and metals. There is a bifurcation here as in the major indices. Growth areas were moving higher, and areas tied to the rest of the world and the weaker dollar moved lower. There is still a plethora of leadership out there, but it is rotating. Rotation is not only good for the tires on your car, but it is good for the stock market. New money has to move into other areas when stocks become overextended as many of these have. It is healthy for the stock market when they pull back as others move higher. This change in leadership is not bad at all.

THE MARKET

MARKET SENTIMENT

VIX: 21.25; -1.21
VXN: 23.1; -0.9
VXO: 20.53; -1.13

Put/Call Ratio (CBOE): 0.85; +0.17

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 50.6% Up from 44.4%. Moving to a high on this last run, matching the levels from September and October. Hitting highs again just as SP500 bumps prior peaks yet again. Believers may have waned but the liquidity did not. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 17.6%. Bears are leaving the building the past three weeks, falling sharply from 26.7%. This is the lowest level of the entire rally and is at a bearish level. Just in time for the SP500 testing the prior peak. Peaked near 28% on this round, falling short of the 35.6% hit in July 2009. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +21.21 points (+0.98%) to close at 2194.35
Volume: 2.247B (+14.34%)

Up Volume: 1.722B (+1.011B)
Down Volume: 547.684M (-711.032M)

A/D and Hi/Lo: Advancers led 2.81 to 1
Previous Session: Decliners led 2.1 to 1

New Highs: 142 (+38)
New Lows: 34 (+4)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +6.06 points (+0.55%) to close at 1105.98
NYSE Volume: 1.383B (+22.04%)

Up Volume: 974.742M (+652.839M)
Down Volume: 382.883M (-415.125M)

A/D and Hi/Lo: Advancers led 2.01 to 1
Previous Session: Decliners led 1.78 to 1

New Highs: 387 (+39)
New Lows: 68 (+7)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +22.75 points (+0.22%) to close at 10388.9
Volume DJ30: 460M shares Friday versus 243M shares Thursday. Some unwinding of the dollar related trades led to some massive volume.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

If SP600 can break over the November peak, then maybe the rally to the end of the year is coming early. We can get a nice run, kick started by the jobs report, after the indices have traded for a month in a lateral range. However, the action shows that there was no relative change in the position of any of the indices other than the SOX. They could not make the breakout even with the good news. You have to take the jobs claims with a grain of salt. There was good news, but it has not been able to break the market free and rally into the end of the year. It is very possible it could do it next week; I am only saying it was not able to do it on Friday despite all the good news.

That does not mean there are not good stocks out there. We picked up several on Friday that were in good position and making moves higher. I am definitely going to keep looking for those. The chips have rallied. They are a bit overextended and we may still find buys there, but there may be pullbacks over the next week as they come back and test. That will give us good entry points. There are small techs looking good and some business services looking good. These are all areas that you want to see do well if the economy is going to improve because they will tend to lead the way up. Remember, in late 2008 and early 2009, small business stocks started to move higher. They tend to lead out if things are going to recover. That was a false lead, but it happens. We got the stimulus package passed and optimism was higher, so those stocks built in some gains in anticipation of economic recovery. That has obviously taken longer than many hoped, and some have fallen to the wayside. We should see growth stocks and small and mid-cap stocks start to perform again (as they seem to be doing now) if there is going to be economic recovery.

What to look for over the next week: stocks that are moving up those smaller ones doing well and ready to make the breaks higher as we watch how SP600 plays off the prior November peak. I sound like a broken record, but it touched that level and pulled back on Friday. This is going to be important. It needs to make a higher high, and then take on the two levels at 325 and up to the October peak. If it makes a breakout, things look good for a January effect rally with the small caps leading the way. That could be positive for the economy, but we will see. It looked good earlier in the year as well. The small caps were trying to lead higher, it looked positive, but then things waffled. They still went higher but lost their leadership move in August. It was overtaken by SP500 and the Dow the dollar-related stocks. That will have to change to avoid the double dip recession. If the unemployment rate can be brought down to where it is no longer a leading indicator of trouble, but falls in line with some of the economic data, then that is a huge positive. The small and mid-caps should rally in that case. We will be right in there with them because they will be on the reports. As they make the move, we will move into them.

Have a great weekend. I will see you Monday, and we will see how the SP600 fairs with respect to that November peak.

Support and Resistance

NASDAQ: Closed at 2194.35
Resistance:
2205 is the November 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows

Support:
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
The 18 day EMA at 2163
2155 is the March 2008 intraday low
2143 is the October 2009 range low
The 50 day EMA at 2128
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
1897 is the October post gap intraday high.
1880 is the June peak
The 200 day SM A at 1865
1862 is the July peak

S&P 500: Closed at 1105.98
Resistance:
1106 is the September 2008 low
1114 is the November 2009 peak
The March/July up trendline at 1121
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low

Support:
1101 is the October high
The 18 day EMA at 1097
1090 is the 2007 down trendline
1080 is the September 2009 peak
1078 is the October range low
The 50 day EMA at 1077
1070 is the late September 2009 peak
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
956 is the June intraday peak
The 200 day SMA at 950

Dow: Closed at 10,388.90
Resistance:
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
10,365 is the late September 2008 low
The 18 day EMA at 10,324
10,120 is the October 2009 peak
The 50 day EMA at 10,065
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
9116 is the August low
9088 is the January 2009 peak
8985 is the closing low in the mid-2003 consolidation
8934 is the December closing high
8878 is the June peak
The 200 day SMA at 8866
8829 is the late November 2008 peak

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

December 04 - Friday
Nonfarm Payrolls, November (08:30): -11K actual versus -125K expected, -111K prior (revised from -190K)
Unemployment Rate, November (08:30): 10.0% actual versus 10.2% expected, 10.2% prior
Average Workweek, November (08:30): 33.2 actual versus 33.1 expected, 33.0 prior
Hourly Earnings, November (08:30): 0.1% actual versus 0.2% expected, 0.3% prior
Factory Orders, October (10:00): 0.6% actual versus 0.0% expected, 1.6% prior (revised from 0.9%)

December 07 - Monday
Consumer Credit, October (14:00): -$9.3B expected, -$14.8B prior

December 09 - Wednesday
Wholesale Inventories, October (10:00): -0.5% expected, -0.9% prior
Crude Inventories, 12/04 (10:30): 2.09M prior

December 10 - Thursday
Initial Claims, 12/05 (08:30): 465K expected, 457K prior
Continuing Claims, 12/04 (08:30): 5435K expected, 5465K prior
Trade Balance, October (08:30): -$37.0B expected, -$36.5B prior
Treasury Budget, November (14:00): -$134.1B expected, -$176.4B prior

December 11 - Friday
Export Prices ex-ag., November (08:30): 0.3% prior
Import Prices ex-oil, November (08:30): 0.4% prior
Retail Sales, November (08:30): 0.7% expected, 1.4% prior
Retail Sales ex-auto, November (08:30): 0.4% expected, 0.2% prior
Michigan Sentiment-Preliminary, December (09:55): 68.5 expected, 67.4 prior
Business Inventories, October (10:00): -0.3% expected, -0.4% prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

SP500 Bumps Resistance

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 23 Nov 2009 00:01:00 +0000

SUMMARY:
- Quiet expiration Friday, quiet expiration week as SP500 bumps resistance.
- Dollar's gain pushes stocks modestly lower on the week.
- SP500 works at resistance while NASDAQ, SP600 struggle to hold on.
- Dell earnings not a worry for the consumer, but what about businesses many are relying on to lead us out of recession?
- If more stimulus is to come, at least make it stimulus that works.
- Whether a correction or more weakness on a stronger dollar, liquidity keeps an underlying bid in the market.

Expiration is a sleeper.

It was a quiet expiration Friday for a relatively quiet expiration week. There were a few fireworks, however. SP500 and the NASDAQ broke above resistance on Monday, but by the end of the week (on Thursday in particular), they broke back below that level and gave it up. The break higher was not that strong and neither was the break back down. The indices are sparring a bit and feeling out the key resistance. That resistance is the 2007 downtrend line and the 2004 lateral consolidation on SP500, with the NASDAQ bumping up against the 2008 lows. You would expect that the indices would need to feel their way along and try to get over that level (SP500 in particular), especially when you consider how far they have run off the March lows. When a market slams or bumps into key resistance levels, it takes time either to get through them or to turn back down; markets rarely turn on a day or two. An extraordinary event can cause that, but usually it is more like the seasonal changes in weather. There is steady movement in the heart of the season, and then things get more volatile on the fringes of the season. The indices may be at a seasonal change given the bump up against key resistance.

The leading factor driving the market is the dollar. If the dollar is weaker, the stock market is up, and vice versa. The dollar ended the week stronger (1.4861 Euros versus 1.4920 Thursday).
It was at 1.4839 Euros earlier in the day, so it did lose strength as the day went on. The indices came back late in the session and finished down, but with modest losses. The losses were well below 1%, and much less than the levels on Thursday when there was sharper selling. The dollar is driving and there is an overlaying theme of liquidity. The word's central banks still have a lot of money circulating, and this past week they said that would not change. On Friday, Mr. Trichet of the ECB said that when the central banks pulled back the easy money, it would have to be done gradually. That was not an earth-shattering statement, but the fact that he even mentioned pulling back the stimulus rattled the market and led to some strengthening in the dollar. The dollar finished stronger and the market finished weaker, but there was not much change at the end of the session.

NASDAQ and SP500 are bumping up against the resistance and working their way along, waiting for the next bout of liquidity to push them higher. Alternately, if the dollar rebound continues to the upside, they may pull back some more and correct, and then move higher with the next liquidity bout. This is not going to be a serious pullback (if there is one at all). The liquidity is still putting a bid under the market. It will keep driving it up until the liquidity is pulled or until something so horrendous happens that it overwhelms the fact that money has been made cheap and available.

The other markets were impacted by the dollar being stronger for yet another day, trying to make the oversold bounce off the double bottom. Oil was down as a result ($76.72, -0.74). It was over $80 during the week, so it did fall back. Gold finished positively ($1,150.60, + 8.7 0), and it is not paying attention to the dollar right now. Gold is concerned with inflation, and there is hoarding with worry about what may happen in 2010. Many people are starting to see this as a liquidity-related financial rally. When the liquidity is over, I wonder where it will be left. Someone on the Fed said they might have to leave rates low until 2012. The dollar will be worth nothing at that point, but we will see what happens. We are feeling our way along in managing economic crisis, just as the market is feeling its way along at resistance.

TECHNICAL

INTRADAY

The market showed the same action it did on Thursday, just not as severe. There was a gap lower, an early selloff, the lateral move, and then a rebound back to the close. It was a very sleepy day on the market overall.

INTERNALS

The internals were very modest and flat (NASDAQ -1.2:1, NYSE -1.4:1). There are still laggards in the SP600, and when they lag the breadth lags in NYSE overall. The volume was mixed, but it remained well below average. The volume rose on SP500 and gained about 4%. It was at 1.1B - up, but still quite low.

Volume was lower on NASDAQ, and that is more interesting. When it gapped lower off the island reversal on Thursday, it was up near average. The prior Thursday when it struggled and was down, it was above-average. NASDAQ is showing distribution, but only a little bit. If you look back over the week, there was the breakout in NASDAQ and it was on no shakes on good volume. Then there was the breakdown. It was higher, and that may mean something, but it was no big move and there was no follow through on Friday.

It was the same situation on SP500. It broke out, but the volume was no great shakes and not approaching average at all. It was a bit higher when it broke back down on Thursday, but it was still nothing. There was below-average "blah" which is not showing much. That is interesting in itself because SP500 is hitting a new rally high, but is not going to break through the downtrend or the 2004 resistance level with that low volume. On the other hand, it is not batting it back down like a fly either. It is hanging in there.

CHARTS

There was a modest pullback on Friday, and it tapped the 18 day EMA on the low. That keeps SP500 below its 2007 downtrend line, below the March uptrend line, and below the 2004 trading range. It was no major break down, only sag back. It broke higher on low volume; it tried the water a bit and did not like it. It broke back down on low volume and it is sitting there. It will either make a pullback and trade down into this range following NASDAQ and SP600, or it will hold and make a breakout if the liquidity decides to come back in.

The dollar will play a factor. If the dollar continues to rally, then the dollar-sensitive stocks that make up the SP500 will have to come back and take some gain off the table while the dollar does its thing. It could stand for a consolidation - all the stocks in energy, steel, and industrials could use the breather to set up some better buy positions. I will not complain about that if it happens.

The SP500 has not tipped its hand at all, but we do know it has the liquidity underneath it that has helped keep a bid in that market. NASDAQ was a little more interesting with the gap higher on slightly higher volume, and then it tested the water as well. It then gapped lower on higher volume on Thursday - that was the island reversal, but there was no follow through on Friday (that does not mean there will not be one). Near term, this is a bearish signal, but it is not a bearish breakdown. We are just taking about a trade down to 2100 or to the bottom of the range. That is what I anticipate will happen if the liquidity does not take over and surge things back up. That would mean the dollar would stay stronger, which would help NASDAQ make the test. That certainly would not upset us. We have calls out on AAPL that we could ride down and then buy back when they go down and NASDAQ tests this level and holds. Then we can prepare for upside positions. I have no issues with what is going on so far; nothing has changed and nothing is too scary at this point.

The SP600 is the one that is a little bit scarier because it made the lower low, came back up, made a higher low, and then broke higher. It looked positive and got up to the resistance range, and then it fell back somewhat sharply on Thursday. It held the line on Friday and is going to try to hold up at the late-August peak. I am worried about the small caps. There is a head and shoulders that can be trouble. You can look at buying into the IWM. The problem with these patterns is that they set up but rarely consummate. We all saw that happen in June and July, and it got some people's feet slammed in the door. If the small caps break down, that is not a good portent for the economy moving into 2010 - but that is another story. We are worried about what will happen right now, toward the end of the year.

The SOX is similarly ugly. It has a double top. It broke down, made new lows, and rallied back, but then it gapped down. It gapped up, then gapped down, and made an island reversal. That could bring it back down to this 300 range (even to 290), and that is not that far. There is too much liquidity for a major correction, selloff, or rollover. There will be corrections, but they will be viewed as a buying opportunity as long as the central banks have the money out there. The central banks will not take the bid out of the market right now when talking about withdrawing liquidity in 2012.

The dollar-sensitive indices (SP500, Dow) are holding up the best because the dollar has been slammed. They have been performing well and leading the market. Now that the dollar is picking up steam, they are fading back, but it is not a massive selloff. The DXY0 has moved up off its low and it is trying to break up toward the 50 day EMA, but it has slammed the door shut on it in early November. That is the big test coming up next week. The dollar-sensitive indices have been leading. They are pulling back a bit now, but so are the other indices that have been lagging. It always works out that way: Leaders pull back some, laggards pull back more. That is why NASDAQ and SP600 are struggling more.

The dollar may bounce up to 76.50, perhaps to 77. That is good resistance. If it does that, we will get the pullback that we want and can then cash out of our downside plays and buy some more upside. You can add to what you have if you road some of these out and they held up during the downturn. Then you can buy some new positions to catch them as they move up.

LEADERSHIP

Leadership is still extended and showing some trouble, but there are some that have already pulled back and are try trying to regroup. It does not look pretty, but it is interesting. There was the trend higher, and it has broken lower. This is not an ABCD pattern because it is not a strong move, but there is an interesting feature of a gap, a consolidation, a gap, and then another consolidation. It looks like AKS may try to break higher. If it does, it is a nice trade up to 22-23. That is not 100% gain on a stocks position, but when the market is working through these issues with resistance, that is not too bad. STLD has a nice pattern as well; something of a double bottom with handle has formed. I can live with that. If it pulls back to the rising 10 day EMA and pops higher, we could make nice scratch on that as well.

Retail had some tough earnings this week that were not exactly pleasing, but the stocks held up well. PLCE has a nice ascending triangle. It traded in a wild range on the day it reported earnings, but it held its pattern. When a stock can do that in the face of less-than-great news, it shows it has sold out and is ready to break higher. ANN does not have a great pattern. I was looking at it as a downside play, but then it started to move laterally and hold its position, so I lost interest in that. It showed today that earnings were not as great as hoped. It was light on revenues and said its Q4 sales could be less than Q3, yet the selloff and the gap down to oblivion did not happen. As with PLCE, ANN may be sold out at this point, and that may be the case with other retailers as well. Why would BBY be moving up when California may ban flat screens? It must not be that bad (and that liquidity sure helps).

In energy, APA is holding the 50 day EMA and has come back to test it. It is down but not out. Others are having bigger pullbacks, such as HAL. It needs some work, but a pullback would not hurt it at all. RIG was selling off, and broke through its trendline on volume. That was not good, but if the market pulls back, maybe it will set a base, a double bottom, or an ABCD pattern. We have to remember that we cannot turn completely negative on the market just because it is in a correction. We have to look for the opportunities setting up and not forgot that these patterns formed during a lot of this market chop that gets everyone running scared.

DE looks great. It had a gap up, a nice test, and there could be a new entry point there. There are also some question marks. CAT is hanging in there, but we will see how many lives it has left on this move. TEX is trying to set up, but we will see. It is holding some support. The industrials have been the leaders and are now struggling as the dollar moves up a bit, but they are not giving up completely.

AAPL gapped higher and made somewhat of a double top. MACD sold off hard on Thursday on higher volume, and it could easily come down to the 190 level. You can still sell calls on this if it bounces up to the 10 day EMA on Monday and stalls. Buy them back when it hits 190 and holds.

Leadership could use more of a pullback, but some are already getting there. Steel is looking interesting again, and others will look interesting with more of a pullback. There are different waves of leadership, so different groups will move up. I have been looking for healthcare to make a move, and some stocks are, but they do not look great as a group. You have to pick and choose right now. When the dollar finishes making its rally, then the dollar-sensitive stocks should be coming back. We can then load up the boat in that direction once again.'

THE ECONOMY

DELL results a worry for a business led recovery?

There was no economic report out on Friday, but there were interesting economic developments. DELL announced its earnings on Thursday night, and they were terrible. That was a major drag on the NASDAQ because Dell has so many outstanding shares. It is heavily weighted, and it gapped lower and dragged NASDAQ down with it. It closed down 0.5%, down just over 10 points.

A lot of pundits said that HPQ is the consumer-related PC company, so we cannot worry about DELL having poor earnings. That is fine if we are only looking to the consumer to pull us out of this. HPQ's earnings were not that bad. As you recall from the 2000-2001 recession, the businesses play a huge role in whether or not the economy prospers. Consumers continued to buy houses and that sort of thing all through that recession, but businesses collapsed and their inventories killed them. The economy suffered greatly, and we are still feeling the repercussions for that because we gave away our technological advantage over that period. That is another story, but an important one because it ties into our problems today. We gave away a lead there and are paying the price today when we struggle even more with massive debt.

DELL is not doing well consumer-wise, and it was not doing well in business because most of its business IS with businesses, and its earnings were very weak. That does not bode well for the pundits who say that the business side is going to carry us out of the recession - you have to have consumers with you. I will agree that the business aspect is very important in getting any country out of a recession. They have to invest and create more jobs, and that helps pull it out. Unfortunately, we are not investing in the kind of businesses that pull us out of recessions. In the past, we have had nice booms that turn the economy around and produce the kind of growth that pays our deficits down and gets them to manageable levels (or, dare I say, even surpluses). Those are the kind of booms where small businesses create new technologies and create millions of jobs as they grow. MSFT, DELL, CSCO all started to dorm rooms, garages, and motel rooms, but went on to become huge companies that created millions of jobs. Once they get to a certain size however, they are no longer growing. AAPL is not creating the same kind of jobs it did in the past, and neither is MSFT or DELL. They are not growing the way they were, and they cannot. It is incumbent upon the next round of small businesses that start in garages and dorm rooms to become the next growth companies that produce the job machine.

We have a real problem. DELL's numbers give a look into what is happening with small business: They are not buying anything. We have seen in other pieces of economic data that there are no new orders coming out even though production is up. Regional manufacturing is improving, but there are no new orders are coming. It is all going to curtail unless something triggers some buying among the nuts and bolts of the US economy - that is small business. Something has to spark the entrepreneurial spirit to get the new businesses started so we can create new technologies and thus the new jobs that drive our economy and our standard of living higher.

New stimulus talk, but same old results? Tax credits for jobs or for businesses?

There is talk about there being another round of stimulus. The Democrats in charge say that is not going to be necessary because of all the jobs that have been "saved," but those jobs are bogus (and they cost $303K per job). Those jobs are not going to produce what we need in the US to make us a strong economic power once more. They are creating teacher, police, and firefighter jobs - they are all in the public sector. I have nothing against any of those jobs, but they do not produce new technologies and they are not going to bring us to the level where we need to be. The problem is jobs, so there is talk that we need to pass incentives to get small businesses to hire people. That always sounds great and it is something we have tried for many in years. If the economy is going well and you want to bring on some people, it is great to give an incentive, but right now, the economy is slack. It is not expanding, the numbers are not as strong as in other recoveries, and the data is showing that there is not a lot of momentum building to the upside.

Small businesses are struggling, and if there is a tax credit for hiring, it is usually a one-time credit. It offsets the cost of training a new hire, and that is expensive. When you hire someone, you have to train them in many things. They may have a certain level of experience, and they may not, but you have to tailor it to your job and it costs a lot of money to do that. It is nice to have that cost offset by a credit. Then next month, you have the salary - and the month after that, and the month after that. A one-time credit is not going to help. You have to have enough business to keep that person employed to pay their salary and to make a profit on your own. With the new healthcare bill, you will have to be able to either pay extra for the healthcare or pay a tax or penalty. On the other hand, there are one-off tax credit incentives that work. They are the "use it or lose it" type, where if you buy equipment for your business or engage in R&D, you get a credit that comes right off the bottom of your taxes. If you owe $5K in taxes, and you get a $5K credit, you owe no taxes. Then you take the $5K that you would have paid in taxes and you spend it on whatever you need to help grow your business. That is an order coming in. If enough businesses do that, that creates a snowball effect. It creates more demand and you are investing in your business and trying to grow. You are unleashing the entrepreneurial spirit, and that is what always takes us out of these recessions. It is a one-time credit, but you use it because if you do not, it becomes money sent to the government while you get nothing. It is a no-brainer. It worked and set off a boom in the 1960's. It set off a boom in the 1980's. It also set off booms in Russia and other Eastern Bloc countries. Ireland was the same. It is proven to work, but we are unfortunately not going that route.

When you invest in one-offs that people will take advantage of, then they invest in their business and you will generate new technology and businesses that create new jobs. If you just say "hire someone," and throw some money in that direction, that is not creating anything. Many people in Washington have never run a business. They have never had to figure out what works and what does not, how to make a payroll, and how to keep a business running. That is a big disconnect, and it is why you have ideas like a credit to hire. Unless that person comes on board and generates revenue in excess of their salary, they are not going to be worth it. That is especially the case with the healthcare bill that is going to be passed this weekend. There are all those expenses saddled on the small businesses, and then there is cap and trade in early 2010 that will add more expenses - and they do not even know what they are yet. Small business is not going to invest in anything or spend any money when the economy is this bad and they see more taxes and costs eating away at their business down the road. They are going to hoard their money versus spending it. The government the fighting very serious headwinds of its own creation in trying to get the economy back on its feet.

We have some problems and the solutions we hear are not up to the task, but we will muddle through it. It will be painful, but we may have liquidity in the market until 2012. That could keep things rolling despite the fact that we would lose the middle class and the small business base in the US.

THE MARKET

MARKET SENTIMENT

VIX: 22.19; -0.44
VXN: 22.49; -0.81
VXO: 21.12; -1.29

Put/Call Ratio (CBOE): 0.92; -0.08

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 44.4%. Finally cracking some from the recent spike (48.3% last week, 49.5% prior). Of course this is just in time for SP500 to break key resistance. Believers may have waned but the liquidity did not. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 26.7%. Bounced up on the selling in conjunction with the decline in bulls. Up from 24.7% and 22.5% before that. Rebounding from the big drop 31.1% and 35.6%. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: -10.78 points (-0.5%) to close at 2146.04
Volume: 1.98B (-7.29%)

Up Volume: 621.67M (+331.592M)
Down Volume: 1.355B (-549.203M)

A/D and Hi/Lo: Decliners led 1.17 to 1
Previous Session: Decliners led 3.78 to 1

New Highs: 47 (+14)
New Lows: 31 (+1)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: -3.52 points (-0.32%) to close at 1091.38
NYSE Volume: 1.128B (+4.1%)

Up Volume: 405.464M (+285.65M)
Down Volume: 685.156M (-269.385M)

A/D and Hi/Lo: Decliners led 1.42 to 1
Previous Session: Decliners led 4.05 to 1

New Highs: 83 (+7)
New Lows: 37 (-4)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: -14.28 points (-0.14%) to close at 10318.16
Volume DJ30: 230M shares Friday versus 196M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

SP500 is bumping up against key resistance, and the big question is whether (and how much) it will consolidate. Will it move laterally for a few days with the liquidity shoving it higher, or will the dollar go higher while SPP500 kicks back a bit and corrects more? There are plays setting up both ways, and we have seen some already pulling back. The steel stocks have pulled back ahead of others, and energy is pulling back. After a bit more consolidation, it may be ready to move upside again. There are also downside plays that continue to set up. We have to ride the fence while the market goes through this. We do not want to get too involved in any case because the market is in the process of working through serious resistance. With the liquidity out there, the presumption is that it will ultimately break higher off this. When you start assuming that, the problem is that there could be a deeper correction than anticipated.

NASDAQ had the island reversal. It did not do anything on Friday, but that does not mean it is not going to do anything with it on Monday. We took positions with respect to that pattern on Friday, and we have been taking others here and there and setting ourselves up for the moves. We will have to play the dollar factor and the liquidity factor against one another and mind our positions. As long as the upside is holding support, we can let them ride out because they are relying on liquidity coming back in. On the other hand, if there is a correction near term, many of the other stocks that have rallied up are going to come back. It does not mean they will break down and crash, it just means they will come back and test the moves they made. We can take advantage of that and make some money to the downside; indeed, we have some downside positions accordingly.

Support and Resistance

NASDAQ: Closed at 2146.04
Resistance:
2155 is the March 2008 intraday low
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2191 is the October 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows

Support:
The 18 day EMA at 2147
2143 is the October 2009 range low
The 50 day EMA at 2110
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
1897 is the October post gap intraday high.
1880 is the June peak
1862 is the July peak
The 200 day SM A at 1835

S&P 500: Closed at 1091.38
Resistance:
1100 is the 2007 down trendline
1101 is the October high
The March/July up trendline at 1104
1106 is the September 2008 low
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low

Support:
The 18 day EMA at 1086
1080 is the September 2009 peak
1078 is the October range low
1070 is the late September 2009 peak
The 50 day EMA at 1065
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
956 is the June intraday peak
944 is the January 2009 high
The 200 day SMA at 937
935 is the January closing high

Dow: Closed at 10,318.16
Resistance:
10,365 is the late September 2008 low
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
The 18 day EMA at 10,183
10,120 is the October 2009 peak
9918 is the September 2008 peak
The 50 day EMA at 9916
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
9116 is the August low
9088 is the January 2009 peak
8985 is the closing low in the mid-2003 consolidation
8934 is the December closing high
8878 is the June peak
8829 is the late November 2008 peak
The 200 day SMA at 8747

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

December 01 - Tuesday
Construction Spending, October (10:00): 0.8% prior
ISM Index, November (10:00): 55.7 prior
Pending Home Sales, October (10:00): 19.8% prior
Auto Sales, November (14:00)
Truck Sales, November (14:00)

December 02 - Wednesday
Challenger Job Cuts, November (07:30)
ADP Employment Report, November (08:15): -203K prior
Crude Inventories, 11/27 (10:30)
Fed Beige Book, (2:00)

December 03 - Thursday
Initial Claims, 11/28 (08:30)
Continuing Claims, 11/21 (08:30)
Productivity-Rev., Q3 (08:30): 9.5% prior
Employment Cost Index, Q4 (08:30)
ISM Services, November (10:00): 50.6 prior

December 04 - Friday
Nonfarm Payrolls, November (08:30): -190K prior
Unemployment Rate, November (08:30): 10.2% prior
Average Workweek, November (08:30): 33.0 prior
Hourly Earnings, November (08:30): 0.3% prior
Factory Orders, October (10:00): 0.9% prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Dollar Falls, Market Bounces

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 16 Nov 2009 18:08:00 +0000

SUMMARY:
- Dollar falls, market bounces, but no change in relative position as market waits to see if liquidity comes back or the technical weakness prevails near term.
- EU emerges from recession, just not as strong as it wanted.
- Trade deficit jumps on imports, but they are not good imports.
- Return the TARP repayments to the taxpayers versus throwing it down the whole of federal debt retirement.
- Michigan a bit gloomier as jobs become a leading indicator
- Market is technically ready to trade back in its range, but it all depends first upon the liquidity and second upon the dollar.

Market rebounds from the Thursday loss but no relative change.

The market went nowhere on Friday. It was higher, but it only recaptured some of the ground it lost on Thursday when it sold back from resistance.

The market was banging its head against the next key resistance for the entire week. SP500 has its 2007 downtrend, the bottom of the 2004 lateral consolidation, and the October highs. NASDAQ has very important lows from the past three years that it is banging up against. There is that resistance met after a technically weak bounce on the one hand, and there is the liquidity held by all the financial institutions in the world on the other hand. Those are the dollars that the rest of the central banks have printed up that they are not lending out to anyone. That is what is going to determine the next move. In other words, when are the financial institutions going to push the "buy" button and move back into the market? Do they want the indices to test back inside their range over the next few weeks, or do they want to break things out now ahead of the Thanksgiving holiday and send the markets racing to new highs? That will be the determining factor as to whether the market moves higher.

On Friday, with the liquidity not coming into the market, the next most important factor was the dollar. The dollar was weaker, and it sold off after bouncing higher on Thursday (1.4915 Euros versus 1.4839 Thursday). The market sold on Thursday, but Friday when the dollar lost some strength, the market recovered and bounced back up. That did not change anything; it is still in the same position it was on Thursday and the entire week. It is bumping up against the next key resistance after a low-volume rally following higher-volume selling from the same resistance level back in mid-October. No change, only the dollar made the difference.

As the dollar goes up in price, usually you can bet that all the inverse indices - metals, energy, etc. - would go down. That was not the case. Even though the dollar did weaken on Friday, oil was down ($76.43, -0.51 versus $80 on the last bounce). It ran out of steam there again and pulled back. Gold surged ($1,119.40, +12.80).

The bond market was somewhat interesting. The 10 year closed lower (3.42%. versus 3.48% earlier in the week). There was some movement back to bonds late in the week. That shows there may be weakness ongoing in the stock market as the bond market anticipates some more selling. Stocks were higher on Friday, and bonds were higher as well. Money was moving into bonds and that usually is an inverse relationship - that could be foretelling. There may be that pullback next week starting down into the range, and that would not be such a bad thing. All it would do is put some extended stocks back into a better buy position and give the market a good breather for a move higher toward the end of the year - indeed, a move higher onto the January area where we get a January effect (or what I will call a "liquidity effect" this year).

The worst news out on Friday was that the EU GDP grew at 0.4%. It pulled out of recession, and some of its components had already done that. The gain was not as big as anticipated. Germany gained 0.7%, France 0.3%, and Italy 0.6%. Fashion and fast cars in Italy are doing the trick. On the other hand, the UK lost -0.4% and Spain was down -0.3%. There were not huge changes in the GDP, but enough to keep the overall level lower than anticipated. It was good news overall, just not quite as good as hoped. That was the case with the Michigan Sentiment report. It was lower than expected. After the market started higher, that gapped it lower, but it did not keep things down.

It was a Friday, and even though the sellers have been in the market, they are still leery of all the liquidity out there. Even though they tried to sell it off in mid-afternoon, they were not able to close the deal simply because there is a weekend coming. Liquidity is still out there, and sellers lost their nerve. The market was able to bounce back and close with gains across the board.

TECHNICAL

INTRADAY

The SP500 gapped higher at the open and continued higher. When the Michigan Sentiment came out it gapped lower, recovered, and then moved higher for the entire session only to fade back in the afternoon. Then the market bounced back in the last hour to recoup some of the mid-afternoon losses. That closed out the indices with decent gains. NASDAQ 0.88%, Dow 0.72%, SP500, 0.57%, SP600 0.9%.

It looked like a pretty strong, up session. The Friday high was at about 1097. If you go back to Thursday, there was a high hit in the morning, and then it trended lower for the rest of the session. There was a high early in the session on Wednesday, and then a trade down all day long. That tells us that we have had a series of progressively lower highs. Even though SP500 finished up for the week, it still finished below key resistance in the form of the October peaks as well as the 2004 trading range and the 2007 downtrend line. It made a series of lower highs to end the week. While that does not look too bad on a daily chart, there are issues at work on SP500. It is not necessarily as strong as the week shows, and looking at the intraday action is one way to tell that.

INTERNALS

SP400 is one of the reasons the internals were not bad on Friday at 2:1 advancers on NASDAQ and 2.7:1 advancers on the NYSE. The mid-caps held up well. Even though they made a lower low in early November, they have not sold off as hard and have not been lagging as bad as the small caps. They are very similar to NASDAQ's pattern, though they are still below key resistance in September that they never got through. The small caps were up almost 1% on the session. When that happens, it helps push the breadth higher. There was an improvement in the breadth, but on Thursday when the SP600 sold off, the NYSE breadth was -4:1. It was significantly stronger to the downside.

Volume on the NYSE was low once more, and it continued a string of lower session. It was slightly higher on the Thursday selling, but not significantly so. It was flatline and it is low trade, so not showing much of anything at this level. That does not necessarily mean it will hold and continue to move higher because when there is lower and lower volume as a market moves higher, it is running out of buyers. There are three levels of key resistance that it is butting up against. With the lower volume, it could simply have no buyers. It had plenty of sellers on the way down from this level in October, but there are not a lot of buyers on the way up. There can be low-volume deaths of indices. On the NASDAQ, trade was lower as well, dropping 13% and back below average as NASDAQ bounced up and hit the September peak and the middle of the October range. Thursday volume was higher as it sold back, touching average. That was the highest volume since the first day of the month, and it occurred on the downside. Once again, we see an overall lack of volume on the buy side, and plenty of volume on the downside. On the one session that it was down, the volume spiked up. We could be having the same type of issue here - a low volume (lack of buyers) death on the NASDAQ.

CHARTS

There are two key factors at loggerheads. There is resistance on both NASDAQ (long term resistance line) and on the SP500 with its three levels of resistance: one near term at the October peak, one longer term at the bottom of the 2004 consolidation range (where it spent a year moving laterally), and there is also the downtrend line from 2007. Three layers of ice all running together - that is a thick layer to break through. That resistance is opposed by the continuing liquidity in the market, gratis the US Fed and the other central banks in the world that have indicated that there will be no near term reduction in the amount of easy money and credit that is circulating the globe. There are two opposing forces right now, and the indices are at yet another inflection point where they will decide what they will do near term. They were at an inflection point in early November, and the liquidity won out. The volume has faded considerably as the buyers have been fewer on the rebound back up to this resistance level.

Friday's action left no relative change in the indices. They were up across the board, but after selling back on Thursday, that left them in the same place right below key resistance. SP500 is not showing any kind of major rollover. It has moved up to the resistance level, and that is important. It sold off on Thursday, but there was no real volume. It bounced up on Friday. The internals continued to be weak, and the action on the rebound was weak. It is not a strong move back up, but none of these moves have failed. Over this entire rally since March, the only moves that started to fail were in the June-July consolidation. It may very well get something like that with a low volume move higher. With all the resistance, certainly the market will need something to push it through. It would not hurt if SP500 came back and moved laterally for 2-4 weeks, consolidated and then rebounded back up. There is no major rollover, but the liquidity has not been able to drive it through the key resistance level.

As for NASDAQ, it has a clearer weakness than the SP500 as the sellers showed their hand on Thursday when volume spiked up as the index sold lower. That showed that the sellers were still a bit stronger than the buyers overall. The stronger selling volume is still outperforming the upside move, and the inability to move through that October peak and the higher volume on Thursday again shows the sellers were trying to assert their hand. There is still no definitive break down. There is a lower low and then a rebound. It is definitely not a strong technical position, and not as strong as it was in the move from July to October, but it is not a breakdown yet. It is showing indications that that may be the case, but there are still a lot of leaders on NASDAQ holding up just fine. It could come back down if it fails, and trade in the range to the 2,025 level. That would be fine. It would set up many more positive patterns for another move higher when the liquidity comes back in the market.

SP600 has been a focus because it has been lagging, and because it is the canary for the rest of the economy. Many people are saying (particularly the government) that the economy is improving while the small caps have been lagging. Indeed all of the growth indices have been lagging somewhat, and that is a concern. SP600 moved up as well this week, but it came nowhere near its prior highs, the prior peak in October, and not even the lower peak in September. It has made the lower low and is struggling at a resistance level. It sold off on Thursday, tried to recover on Friday after a selloff, but was not able to break back through that level; indeed, it closed right at the 50 day EMA.

It did rebound off the low, so there were buyers coming in and trying to push it back up, but it is still a very weak pattern. I still believe that this may be the lead for the rest of the market and it could trade down to the 290 level. That could send NASDAQ and SP500 down as well, but again they would just be in their trading range - down toward the bottom of their trading range, or even half or three quarters of the way down versus a complete selloff. I do not think the liquidity will allow a complete selloff. It will allow trading inside the range and then a move higher when buyers feel the time is right, i.e., after some of the extended leaders pull back to support or consolidate or form new bases and are ready to break higher once more. That will be a boon for a new buying opportunity if that occurs. I would like to see a pullback. We have taken some downside positions in anticipation of a potential pullback, and we now have to see how it plays out.

In sum, we have a technical setup for a failure. If it were not for the liquidity, this would be ripe for a rollover, and a serious one at that. Given the liquidity, if the buyers decide to come back in ahead of the end of the year, they could push the market higher even from these resistance levels at the October peaks. They can still push it higher from here. I am anticipating more of a pullback, but that means the buyers are willing to wait a bit.

The two forces at loggerheads are a weak technical position versus the liquidity that has been pushing the market higher. I think the liquidity will win out, but now I am leaning toward a test lower in the range. We have positions to the downside, and if they do not hold and it breaks higher over the peaks, we will close them out and will be in decent shape because we are in a very good risk/reward point.

LEADERSHIP

The dollar was down on the session. There was no change in the leadership other than bouncing back somewhat after being boxed around Thursday as the dollar rebounded.

The dollar's double bottom is still holding right now. It is trying to hold at a key level back in late 2007 and 2008. If you look at the weekly chart, you see a reach down to the same lower support level and a sharp recovery. There was buying of the dollar as it reached lower. Then, as you go back to a daily chart, there was a nice surge up. It was down on Friday, and early next week will be an important time for the dollar. We will see if the 1.5-Euro level still holds and if it can make a break higher up to the 77.25-78 level. If that is the case, we will get the pullback in the indices that will take them back down toward the bottom of their trading range. Again, that is not a terrible outcome at all. It sets up some good upside buys for when it is over, and it gives great downside gains on the positions we have taken.

With that, you know that energy was higher on the session. HAL, which was in a bit of trouble, sold off early but came back. SLB looks just fine, bouncing higher on rising trade. The oil stocks are not in any serious trouble. RIG is holding up above a support level as well. There is no issue here.

Looking at metals, you see the same thing. We have a position in CLF, and it is going to town. It broke to a new rally high on higher volume, clearing the October peaks and doing so with panache as volume moved above average. Of course, there is copper and FCX. The two go hand and hand, and you cannot look at metals without looking at copper. It is making a pullback, but it is holding at support nicely. I would not be surprised if it holds the gap, continues higher, and breaks to a new high. There is nothing wrong with this chart pattern. No lower lows and nothing of the sort - just continuing strength all the way up.

While we are looking at metals, let us look at GLD, the gold ETF. We sold some gold positions on Wednesday when it gapped higher to a hanging man doji. It sold off on Thursday and it looked like that was a prescient move, but gold recaptured all of that loss on Friday and is back at a rally high. We are looking for more of a pullback - down to 106 or 105 would be an excellent opportunity to add to positions. We did not sell our entire position. We will let our current position run higher and then look for opportunities to step in as they present themselves.

Industrials were fine on the session. CAT showed a nice, tight doji at the 10 day EMA. There was a modest pullback, low volume, no lower lows, and no issues here. You can look at this and say it is a potential double top, but there is no sign of trouble at all with the rising lows. Looking across the board, most industrials are in the same position.

Retail is good and it is also not so good. ANF announced decent results and guidance, and it was rewarded. We have a play on BBY. What a nice pullback it has to test the breakout of the ascending triangle. A great pullback and low volume. It tapped near that peak, bounced up, and continues its move higher; it is going to be a buy as well. Retail is not in bad shape.

There is no change in leadership overall, but it has pulled back modestly. A lot of leadership is extended and could use a 2-3 week consolidation in the overall market to set up better positions to buy into. The question is whether the liquidity will allow the market to pull back at the end of the year. There is extension in leadership, and it would be great to have a consolidation for entry. The technical pattern looks as if the market is ripe to pull back. The question is whether the investors - the big money banks and financial institutions - are going to put that money into the financial markets before the end of the year, or if they will wait for a pullback. If they decide to pull the trigger, and the money goes into the market, it is going to trump because there is plenty of money to go into the market. There has been no removal of any liquidity around the globe. That is what we are watching and waiting for. We are playing what the market tells us to play while we wait to see what the money does. It adds that element that is not usually in the market where you can look at technicals and make decisions based on that. You look at the technical position, realize what the stocks and indices can do short term, and then overlay the liquidity on that and take your positions accordingly. That is why we are taking downside positions up against the resistance on SP500 and the NASDAQ. If it works out, we make great money to the downside. On the other hand, if the liquidity runs into the market, we have near term stops so we do not get hurt. We can have one of the scenarios where the market gaps higher or races higher and then reverses. If it does, it will usually show its hand relatively quickly. We will likely get stopped out of some positions - maybe not all of them. If we do and the market does reverse, we will get right back into it. In other words, if SP500 makes the breakout over the resistance levels and we are stopped out, when it tests this, we see whether it reverses and closes back in this range on higher volume. That would show that there has been a reversal in the move and it is going to trade lower. It could also hold and bounce up. If so, we have an upside play, and we will take it whatever way the market goes. A lot of that is dependent on when the big financial institutions want to pull the trigger with respect to putting more money to work in the markets.

THE ECONOMY

Trade deficit jumps sharply as imports surge.

Trade deficit numbers were out on Friday. Without going into specifics, I will note that it was much larger than expected and the fastest-rated growth in over a decade. Imports were up much more than expected, swamping exports that were still relatively high. The dollar is low, and the administration wants to promote exports as our way out of this mess (versus helping small business), so there are more exports as the dollar was being crushed. That tends to help our GDP number. The problem is that imports totally outstripped that number, so there is legitimate concern that the GDP will be revised to something like 3.1% growth from the 3.5% originally reported. That is usually not a bad thing. History shows that when the economy is good in the United States, imports go up. When the consumer feels good, they buy a lot of domestic and foreign goods, and that typically means the dollar is stronger and we can buy more with our money. That is not the case right now, so there is to wonder how the consumer is driving the imports that high with a weak dollar. The consumer is NOT buying that much. Do not be fooled. Oil imports cost a lot more because the dollar is so much weaker, and as we come out of the zero growth from Q4 of 2008, we are using more oil than we were using then. Remember, it is not just the amount used, but how much it costs. We have to pay more as the dollar is crushed, and that drives up the deficit.

We are importing more than oil. We are importing autos and auto parts, but we are not buying a bunch of BMWs, Ferraris, and Porsches. If you look deeper than the headlines of the less-than-reputable news agencies, you see that the imports are from Canada and Mexico. That is where we get all of our auto parts. Cash for Clunkers depleted some of the inventory of cars and auto parts, so that was the gain in imports. We were not buying a bunch of foreign cars. These are domestic parts for domestic cars for our government motors, GM and Chrysler. This is no surge in consumer consumption that would indicate a healthy market. We are getting the double whammy of inflated oil prices through the dollar's decline as well as having to restock domestic parts and autos after the Cash for Clunkers program. That program cost the taxpayers over $20K per vehicle sold through the program. That sounds like the $303K-per-job saved or created through the stimulus package. What a deal for the American taxpayers. I prefer they give me the $20K and let me buy a car than to have this nonsensical government giveaway.

I had to get on my soapbox because it has been that kind of week. It has been one thing after another that just makes you shake your head and sigh. There is to laugh to keep from crying when you see what is happening in our government.

TARP to taxpayers versus to debt.

There was news that the banks are paying back their TARP funds with interest. That is nice, but Treasury Secretary Giethner says we are going to use that to pay down the deficit. What good will it do to pay it down if we do not get any growth in the economy? Even though it does sound good, it will only take money out of the economy. History has shown that the best way to pay down our deficit is for the economy to surge in a massive recovery. That has cured all deficits in the past, and it is how we got the surpluses of the 1990s. There was huge growth in R&D and a tech revolution that started in the 1980s - it has its roots there from those tax cuts that invested money in the United States. We then paid down our debt with the surplus.

We had a surplus because President Clinton raised taxes to pay our debts, and it brought in more money than anticipated because the economy boomed more than anticipated. There was only a slowdown in 1991-1992 rather than a serious recession. The economy was still throwing off billions, even trillions of dollars in revenues, so there was a huge surplus. Did the government return the excess money back to the citizens after saying it had to raise taxes in order to pay our debts? They paid them, and kept the rest of the money that would have been pumped back into the economy through the businesses, in R&D, and through the citizens consuming more. Instead of keeping the economy going, that became one of the factors (along with Greenspan's blunders) that contributed to the crash in 2000. Earned money is the lifeblood of the economy, and that taxation threw it down the hole of retiring our debt. The growth had already retired our debt and we were in surplus territory, so we should have pumped it back into the economy. That is what a good business does. It keeps some money for a rainy day, but it pumps the rest of it into growth - getting the business bigger and stronger, getting more employees, and funding more R&D. There is to do that to be a leader. That is not what we did, and it is one of the reasons we crashed.

We are getting some money back on our investment in these companies through TARP, and we are going to throw it down a rat hole of retiring debt instead of trying to revitalize small business, which is the engine of the United States (and the world) economy. Be sure to look at my video from Thursday. It was posted incorrectly because my computer played a trick on me and renamed the one from Wednesday for Thursday. We are going to keep it on so you can take a look, and in it I talk about the death of the small business in the United States. We are not going to give money and stimulate the small businesses through incentives, we are instead going to retire debt. As I said, history shows the way we get out of debt and retire our debt is to grow our economy, but they are choosing to take more money out of the system. We have taken it out of the system in these giveaways, and the money they are paying back is not going to come back to those who footed the bill. It is going to go to retiring debts that our government has accumulated and is going to continue to accumulate. I dare say it will have the same effect. We are not going to have a strong recovery. All of the metrics that gauge the strength of recovery say this is a weak recovery at best. It does not take a think tank to figure that out. You need only look at how poor the jobs are [8:56] and the prediction that the unemployment rate is going to be over 10% through mid-2010 at least. The administration is finding out that its great stimulus plan that was going to peak unemployment at 8% and create all these jobs has not done that, and it is not going to do that. History has a nasty way of repeating itself.

Today in a small business I was visiting, they were saying that we have a Jimmy Carter times two in the White House now. That is the joke among the small businesses that were almost killed off entirely in the 1970s. I got on the soapbox again, but it helps to rail at the government sometimes, right?

Michigan sentiment shows jobs are now a leading indicator.

Michigan Sentiment came in on Friday (66 versus 70.6 prior and 71.0 expected). That was a three-month low, and it was the unemployment rate that brought it down. That is what is weighing on the respondents (maybe we should call them "despondents" instead). With the new expectations of a 10% + unemployment rate through at least mid-2010, that has respondents worried about their future and spending less. Those planning to make a major purchase over the next six months fell almost 10%. It is a very difficult situation for consumers and the small businesses out there. Just to put this in perspective, the 66 level is a recession level. From the recovery in late 2001, the Sentiment recovered and averaged 89 from late 2001 to the peak in December 2007. We are nowhere near that level. 66 is a tad lower than 89. Suffice to say that when we were in late 2001 and starting to come out of that recession, Sentiment was rising rapidly because people sensed a recovery coming. Right now, it is heading the other way again - a double dip. They are despondent, and they are worried about jobs.

Jobs are a lagging indicator and are generally the last thing to turn, but when the numbers get this bad, it becomes a leading indicator because small businesses are crushed and have no money to invest. They are also getting no loans. It is an out-and-out lie when you hear the financial institutions that were bailed out by the government say that they are loaning to anybody. I had lunch with some Wells Fargo and other bankers, and we talked candidly about loans to small businesses. They said small businesses cannot have enough collateral and they cannot have a good enough balance sheet to get a loan right now. They are making more money in the stock market than they would lending it to small businesses, so they are not doing it. With small business despondency and consumer despondency over jobs, we have a serious problem creating this leading effect that the jobs report is showing. We are not recovering as rapidly as we could be. The administration is pushing exports and depressing the dollar so we can buy less here. We are hurting our small businesses because energy is purchased with dollars, so every time the dollar goes lower it costs them more to do their business when they cannot get the money they need.

WMT recognizes the problem and is cosigning with its apparel manufacturers that supply it so they can get the money they need to make the goods that WMT sells. It sees the problem and is taking proactive steps to help it. The problem is that the company that usually does this, CIT Group, was allowed to go bankrupt without one iota of concern from the administration. It is the primary lender for small businesses so they can make their payrolls and put the money down to get their goods manufactured. This administration says it is for the small guy, but every policy that it is promulgating only helps the big boys. It is pushing the strongest driver of US economy - the small businesses -out of business. When they go, it is going to be left with the big companies it is in bed with through the stimulus package such as GE and others that have made deals with the administration to get the money. It is not a good situation for the US economy, so do not be beguiled by what is going on.

THE MARKET

MARKET SENTIMENT

VIX: 23.36; -0.88
VXN: 22.92; -1.13
VXO: 22.27; -0.95

Put/Call Ratio (CBOE): 1.01; +0.16. More bets that the market is going to fall nearer term. Not enough closes over 1.0 to mean anything at this point.

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 48.3%. Surprisingly holding steady for the second week after a drop from 49.5% two weeks back. Still a lot of believers in the rally, and that may be to investors' detriment near term as the market consolidates a bit more. Bulls have held in the 48% to 50% range for several weeks now though that will start changing some now, and that is for the better in terms of a renewed upside move. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 24.7%. A rise as expected, but not a surge despite the rather sharp, high volume selling to end October. Bears remains relatively low, hardly in excess numbers but not so low to start looking for a reversal. Last week 22.5%, and hanging around in the 23% range before that. Hit a low of 21.3% on this leg. Rebounding some from the big drop 31.1% and 35.6%. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +18.86 points (+0.88%) to close at 2167.88
Volume: 1.833B (-13.18%)

Up Volume: 1.407B (+553.779M)
Down Volume: 477.105M (-952.991M)

A/D and Hi/Lo: Advancers led 2.01 to 1
Previous Session: Decliners led 3.13 to 1

New Highs: 59 (-10)
New Lows: 41 (-6)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +6.24 points (+0.57%) to close at 1093.48
NYSE Volume: 971.403M (-7.52%)

Up Volume: 681.453M (+534.117M)
Down Volume: 273.51M (-603.846M)

A/D and Hi/Lo: Advancers led 2.73 to 1
Previous Session: Decliners led 3.93 to 1

New Highs: 157 (-49)
New Lows: 34 (-3)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +73 points (+0.72%) to close at 10270.47
Volume DJ30: 167M shares Friday versus 183M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

There are the loggerheads of a weak technical picture versus the liquidity. When are the big financial institutions going to put that money back in the market? It is like Hamlet: To invest or not to invest? That is the question for the guys with all the money. If they hold off, the dollar could continue with its double bottom bounce higher. That would send the market lower, and it would be something of a blessing for investors because it would come down, and we would make money on our downside positions. It would put many extended leaders in new position to buy. When they are ripe, when they base out a bit and consolidate, they will be ready to buy and we could move in because you can bet that the big boys holding the money will see that as an opportunity as well and push the button. We can hope that that is what they do. If they hold off, then we get a nice rally on into Christmas and into January with the liquidity effect for early 2010. We will have to see how it plays out.

We have downside positions in play, and we were not taking any new positions on Friday. We have upside positions that we are letting run higher as well. We can see which way the market goes. If it goes higher and makes the breakout, then we will close our downside positions because we picked them up at a good place right at the resistance level. We will not lose much on it, but it is a good bet for a rollover because the technical picture certainly indicates that that is what the market wants to do (but for that liquidity hanging out there). The liquidity is the wildcard rolling around on the deck, and we have to play ball with it. When it comes in, it is the 800-pound gorilla in the room - can I string together enough metaphors? In any event, when the liquidity comes in, we have to make note of it and play accordingly.

We will look for the pullback. The market is ripe for that technically, and we will see if we get it. If we do, it will be a nice payday that sets up new buys, and we will go forward. We will have upside plays and downside plays for the start of next week, so we can take it whichever way it goes. We still have the three scenarios in effect. There could still be the breakout and the reversal. There could be a stall out as it has been doing thus far. We could also get the breakout, then it comes back, tests, holds, and then moves higher. We will play whichever one the market wants to give us. I will see you next week.

Support and Resistance

NASDAQ: Closed at 2167.88
Resistance:
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2191 is the October 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows

Support:
2155 is the March 2008 intraday low
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
The 50 day EMA at 2095
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
1897 is the October post gap intraday high.
1880 is the June peak
1862 is the July peak
The 200 day SM A at 1818

S&P 500: Closed at 1093.48
Resistance:
The March/July up trendline at 1094
1101 is the October high
1105 is the 2007 down trendline
1106 is the September 2008 low
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low

Support:
1080 is the September 2009 peak
1078 is the October range low
The 18 day EMA at 1075
1070 is the late September 2009 peak
The 50 day EMA at 1056
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
956 is the June intraday peak
944 is the January 2009 high
935 is the January closing high
932 is the July peak
The 200 day SMA at 931
930 is the May peak
919 is the early December peak is bending

Dow: Closed at 10,270.47
Resistance:
10,365 is the late September 2008 low
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
10,120 is the October 2009 peak
The 18 day EMA at 10,019
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
The 50 day EMA at 9813
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
9116 is the August low
9088 is the January 2009 peak
8985 is the closing low in the mid-2003 consolidation
8934 is the December closing high
8878 is the June peak
8829 is the late November 2008 peak
The 200 day SMA at 8689

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

November 16 - Monday
Retail Sales, October (08:30): 0.9% expected, -1.5% prior
Retail Sales ex-auto, October (08:30): 0.4% expected, 0.5% prior
Empire Manufacturing, November (08:30): 30.00 expected, 34.57 prior
Business Inventories, September (10:00): -0.7% expected, -1.5% prior

November 17 - Tuesday
Core PPI, October (08:30): 0.1% expected, -0.1% prior
PPI, October (08:30): 0.5% expected, -0.6% prior
Net Long-term TIC Fl, Sep (09:00): $35.0B expected, $28.6B prior
Capacity Utilization, October (09:15): 70.8% expected, 70.5% prior
Industrial Production, October (09:15): 0.4% expected, 0.7% prior

November 18 - Wednesday
Housing Starts, October (08:30): 600K expected, 590K prior
Building Permits, October (08:30): 580K expected, 573K prior
CPI, October (08:30): 0.2% expected, 0.2% prior
Core CPI, October (08:30): 0.1% expected, 0.2% prior
Crude Inventories, 11/13 (10:30): 1.76M prior

November 19 - Thursday
Initial Claims, 11/14 (08:30): 504K expected, 502K prior
Continuing Claims, 11/13 (08:30): 5600K expected, 5631K prior
Leading Indicators, October (10:00): 0.4% expected, 1.0% prior
Philadelphia Fed, November (10:00): 12.0 expected, 11.5 prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Recovery Not Strong By Historical Standards

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 08 Nov 2009 22:41:00 +0000

SUMMARY:
- Investors mull jobs report in a volatile first hour then punt and leave for the weekend.
- Dollar/Stocks/Oil relationship may be waning.
- Non-farm jobs versus household survey: which is supreme?
- Recovery yes, but it is not a strong one by historical standards
- Stock market not predicting the economy this time around.
- Rebound quality not that great as stocks may opt for a consolidation before a new rally.

Jobs report dominates but investors decide to leave it for next week.

Friday was all about the monthly jobs report. They came in a bit heavier than expected (-190K versus -175K expected) but investors could handle that. The problem was that the unemployment aspect of the household survey came in at 10.2%, leapfrogging expectations of 9.9% and topping that 10% level that everyone feared could get here. That is the worst showing since 1983.

There was good and there was bad in the report for the market. The good, on top of the decent non-farm payrolls, were their revisions from August and September. There were some other bad areas that I will discuss later. Suffice to say, the market was a bit confused after the report came out, and the futures turned lower. They were up a bit, but turned lower after the number. The market opened lower as well, but it was not a tanking. The market almost immediately rebounded and went up to a session high, turning positive within an hour. It then turned back down and was negative once more. It was a volatile open because investors had to chew on the numbers and decide whether the good outweighed the bad or vice versa. By the end of the day, the investors went out and the market flat-lined for the rest of the session and went out with virtually no gains. The big indices posted modest gains, while the small caps and semiconductors posted modest losses. Investors punted and did not tell us anything about what they were going to do with respect to the overall patterns in the indices that I will talk about in the technical section.

With that "nothing happening" action, we did not do a lot either. The market was not conducive to great buys. There were stocks that were moving higher and continuing a move from earlier in the week. There were some moving lower, continuing what they had been doing and setting up some downside patterns. We have a split market right now. Some stocks are setting up downside such as semiconductors, while others (most of the same leaders we have seen all along) continue to hold up very well.

The market has run a long way and is running into some important resistance levels, so it has decided to consolidate somewhat. This was seen in June and July, and seems more likely versus a major, massive rollover given all the liquidity that is out in the world. If that were the case, you would think that the same forces that have been driving the market higher are still in place. If the market decides to consolidate as opposed to running into the end of the year as I was looking for it to do, that is fine because then the money is still out there. There will be consolidation, and maybe another run higher just as there was after the June and July consolidation. There has been a little change here, just the fact that it has run further now having put in another 30%. In addition, there was some heavy-volume selling over the past two weeks, and that has to be factored into the equation. When you look at the picture, there was not a lot of change, and that is how the market seems to have viewed it on Friday.

The dollar closed slightly stronger (1.4849 versus 1.4877 Euros on Thursday). That bit of strengthening took its toll on oil ($77.70, -1.92). Gold was up again to a new high ($1,095.90,
+ 6.60). The 10 year bond was down (3.5% from 3.53% on Thursday). Bonds rallied a bit after the jobs report, but there were not a lot of issues overall. One of the interesting things this week was that the dollar was stronger, only by fractions of a cent, yet oil lost almost $2.00. That seems disproportionate, and that is very interesting. There was this relationship between the dollar and oil and the market. If the dollar went up, then the market went down (and consequently energy went down as well) and vice versa. There was a bit of a break in that relationship this past week. On Thursday, the market rallied and the dollar was moving up, but it was not hurting the market. There is a cutting of the link between the two. It may or may not stay that way, but this is the first significant change that has happened in this relationship. It did not completely do away with it, but it is something to watch as the market moves forward because it was definitely working last week. Friday was another example. Energy was killed, but the dollar was just slightly higher. Maybe it will take more pounding of the dollar in order to make the same impact on energy and the market overall. Maybe not. Maybe the link is getting broken. Maybe the dollar is going to try to rally and the market will say that that trade is over and will look at something else (like a liquidity trade). We will see how it plays out.

That does not change the game a lot for us. We may redefine the parameters somewhat and maybe also the sectors that we are going to be playing in more, but we look at good stocks and good patterns. We look for stocks that have broken down, have hit resistance, and will roll back over. We have been hitting the industrials, energy, metals, and that type quite hard over the past six months. That may change if the relationship between the dollar and the market and energy changes. I will keep an eye on that.

TECHNICAL

INTRADAY

The market started quite volatile. The jobs report was somewhat of a mixed quantity with positive and negative aspects, and investors took their time to digest exactly what it meant. The market opened lower and SP500 gapped down. It quickly recovered to positive only to return to negative just as quickly, but the market was able to bounce after that. Though it whittled away the gains for most of the day, the indices held positive in the end by a slim margin. It was not a great day as far as the market was concerned. The best you can say is it did not sell off early on as one might have expected given the jobs report.

INTERNALS

The internals were not too impressive. There were small gains on each of the indices, and losses on the SOX and SP600. Breadth was slightly negative on NASDAQ at -1.1:1. On the NYSE, advancers led 1.1:1. After some hefty days of 4:1 advancers on the NYSE on Thursday, things calmed down to end the week.

Volume was terrible. Volume fell below average for the fourth day in a row on NASDAQ. This was all during gains, so it was not the best volume week as far as price/volume action. I like to see buyers coming in quantity and pushing stocks higher. When that is not the case, two things can happen. It can continue to work its way up with these kinds of gains if there is no selling impetus, or what goes up on light volume typically comes down on heavier volume, like what we saw in late October.

The volume on SP500 was down 16%. It turned just over $1B shares, but that pushed the trade well below average. The NYSE ended the week with two days of below-average volume preceded by two days of average to slightly above-average trade. There is higher volume selling in late October, and then there is a rebound with volume declining. Price is going one direction and volume is going the other, and that is not good price/volume action. It does not show that buyers are stepping in with any kind of force, and that means these kinds of moves are more subject to upset in the event that more investors show up in the market deciding to be sellers.

CHARTS

I have been saying that it would be the quality of the bounce after the October selling that would determine whether the market would continue rallying or run into trouble. Thus far, the quality is so-so. The indices are bouncing and they moved up the entire week; SP500 was up for the week and those gains are great. That may have been a good feat given the amount of data and some of the negative data that was out this week. There was lower volume, however, so the quality was not beautiful. That being said, is the SP500 in a lot of trouble? It looks like it will be up to SP500 to do a lot of the leading if the market is going to continue the rally. As it turns out, SP500 sold off hard to end October, but made a higher low again. Even though it did break its trendline from March, it nonetheless made the higher low and the overall upside bias remains. It held above some key support levels in August and the early-October low, so you cannot complain. Nothing will keep SP500 from moving higher as long as the liquidity comes back in and pushes it that way. SP500 is very much can continue the run higher and lead the market. It looks like there will have to be some leadership when you look at the other markets.

The NASDAQ is not in terrible shape either, but it did break its trendline a long time ago and made a lower low. It has recovered, but it did so on declining volume. It is not as severe a decline as on the NYSE because there were a couple of days of upside pop, but it was below-average and, indeed, much lower than the downside trade to end October. There is a bounce from NASDAQ. It held above some support in the August peaks as well, and it did manage to break some resistance in the 2,100 area. It is now in that band of resistance that takes it up to the September peak. The September peak is key because that is where the market bottomed three times in 2008. There is some serious resistance there, and that is why it turned back and will need a hand (perhaps from SP500) to get through that resistance next week. It is not in terrible shape, but is also not showing a lot of pop. This is not a slam-dunk roll over. It looks like a June and July type of correction. What has happened to NASDAQ over the past three weeks is not necessarily the kiss of death. Even though this bounce was not great, it held where it needed to hold.

The small caps are not so cheery. They made the higher high but also a lower low, and it broke through the August levels that the other two indices held. That put it below the early-October low. It made a lower low, it has rebounded on the lower NYSE volume, and it is now at a lower peak in August and is having an issue. There is a doji on the candlestick chart. It is not definitive, but given the fact that it has bumped resistance, it suggests that it is going to face trouble. The SP600 is a growth index, so you have to be concerned when it starts to show signs of rollover.

The SOX is really in trouble. There was a double top, and it broke below a key support level in the July and August peaks as well as the early October low. It managed to bounce at some support in the June peaks and August low. It has rebounded but gone back up to resistance, and (similar to SP600) it is showing doji. There is something of a tombstone doji, and that could suggest that it is not going to have a lot of upside unless it gets help from some of the other indices. When you look at the individual semiconductor stocks, you see that they are mirroring this type of action. This is not just a couple of stocks in the SOX index that are showing this kind of action, but semiconductors in general that look to be in trouble.

The SP500 has to do the lion's share of work in order to get the rest of the indices moving higher toward the end of the year. It can do it. The overall bias remains intact to the upside because it did not make the lower low; in fact, it bounced off of that level and just above it. I do not want to say that it is heading down for sure because it has not broken its overall trend. As I talked about earlier in the week, there are some serious issues that the index has to face. The first issue is the trendline from late 2007. That trendline is at the 1,100 level, and that is what SP500 has started to bunch up against. Looking at the 1,100 area where the trendline is rapidly approaching, that is the bottom of the 2004 consolidation. That is where market moved laterally for nearly a year after the 2002-2003 run higher. There are other lows and price points at that level as well from back in 2001 and 2002. It is a significant level. There are two important pieces of resistance coming together at the point where SP500 is approaching, and that is at the October peaks. It failed there once, and it did not turn over and drop dead, but it is a serious level. There has been a huge run off of the lows, similar to 2003. After the end of this year, there could very easily be a lateral move in 2010 similar to 2004. Keep that in mind as we move into next week.

We can still get more upside out of the indices because there is still room to move to the upside. SP500 closed at just about 1,070. If it moves up to 1,100, that gives it some leeway to work higher toward Thanksgiving. The real test is going to be after it gets there. 1,075 is going to be interesting in and of itself because this pattern might be trying to develop a little head and shoulders. We have seen that before back in May, June, and July. That did not pan out too well as it sprinted from 875 up to 1,100. You have to take this pattern with a grain of salt, but it is worth watching and seeing how SP500 behaves at 1,075.

Looking at NASDAQ again, it is setting up a looping top as well. Its peak is at 2,150, and it is not even close to it having closed at 2,112. There is still some work ahead, and there is a definite neckline formed. If it breaks down or stalls out in the 2,150 level, then that makes it interesting, particularly if SP500 stalls out at 1,075.

In summary, there are issues, but that is always the case after a big run. Stocks cannot go up forever in a straight line. This correction is similar to June and July, where the initial trend off the March low was broken, and then it formed a new trend off the July low. That is the one that has held up to this point, and now it has been broken. What is going to happen? You cannot keep the steep, 45-degree angle of attack indefinitely; it has to break off, consolidate, and then move higher. The only thing different right now versus back in June and July is the gain. That is a big difference, no doubt, but there is all that money flowing through the world with not much of it being used to get the economies going. If it is not going to be used by the economy, it will be used by the financial markets. After the market gets a consolidation, maybe there will not be that sprint to the end of the year that I am anticipating. The markets are a bit weary, and some of the funds that have made good money might not want to blow it all in the last month of the year. They may sit on it and let other funds do the driving if they can. If that is the case and the liquidity is still out there, we could have a nice consolidation into the end of the year. Then with the liquidity hitting, we could see a good January effect, so to speak. This January effect would be a liquidity effect as money runs into the market and pushes stocks higher once more.

LEADERSHIP

Leadership has not changed a lot, although there is an interesting addition recently with the regional airlines. Oil has gone down as the dollar has strengthened over the last couple of weeks, and some of the regional airlines are performing better and setting up nice patterns. JBLU has an ABCD pattern, and it broke higher on stronger volume on Friday. RJET did not fare as well on the day, but it has an interesting pattern. It has an ABCD pattern as well, with a big reach down on the Friday intraday low and a reversal with a hammer doji. That could be a very interesting race higher from this point.

Things might turn a bit defensive, so drugs might be more interesting. AUXL has a set up an ABCD pattern as well and is bouncing up. There is no volume, but you cannot argue with the pattern and what it is doing right now.

Retail is still holding up quite well. BBY has formed something of a triangle that you can see rather clearly. It has resistance levels, but is banging back and forth and making a series of higher lows. It would be very interesting if it comes back up to the 41 level, pulls back down, and holds. You would then look for a play off of the bottom trendline because it is in the last part of the triangle and the odds of a breakout are much improved. You can get a good risk/reward point off of that lower uptrend line. That is not ready yet, but it will be if it keeps doing what it is doing. TJX is a leader. It is not in great shape as far as a buy right now, but shows its continuing uptrend. There is no issue with the trend higher, but it is just putting in a lateral consolidation. We will see in it shapes up better. Retail is still looking good despite the worries about the consumer.

Even with the dollar rising and oil falling, there is a good uptrend in energy. HAL had a good day. APC has a bit of a triangle trying to form which makes it interesting. There is a higher low and there could be a breakout. There are patterns setting up in these leaders even though a lot of them are tired.

In industrials, CAT is still trending higher, and is still in its channel and looking solid. TEX, even though it sold down, has an interesting pattern itself. It is almost an ABCD, and is consolidating at a nice support level. If it sets up a triangle, it might be a good break higher.

Leadership is still there. Some of it is winded, but that does not mean there is not good money going into other stocks. The neat thing that keeps happening is that leadership groups pull back, consolidate, and then money hits them fresh again and pushes them back higher. We have that going for us, and the liquidity trade is basically all there is out there. There are issues with there being some wear and tear on the indices. They look like they want to consolidate. If they do get a big boost of money at the end of the year, that could trump all patterns altogether and push them higher. If you are looking at them just from a technical perspective, that does not look like the case. It looks like they want to consolidate, and we could use that to play some downside and set up good upside for when the money does hit. If it does not hit before the end of the year, and it has a nice, long consolidation, we can bet that it will come in to start the new year. There could be quite a rush higher in January. It may be a rally deferred, but there is nothing confirmed in that respect as of Friday.

THE ECONOMY

Jobs report has some good and some bad, but the bad is much more worrisome.

The jobs report was the big news on Friday. It was one of the most important jobs reports in quite some time because the non-farm payrolls have been trending lower and everyone is looking to when they actually get to zero. It is the same with the weekly claims - right now, we just want it to get below 500K. Not much luck with that. It did not make it on Friday either, but there were interesting parts to feed the people who feel there are positives in the job market.

Jobs were down more than expected (-190K. Revised -154K from -201K in August; -219K from
-263K in September). The revisions more than made up for the miss on the non-farm payrolls number, and that heartened people. They said they are seeing the improvement. Indeed some are saying that the rate of change in the trend shows positive job creation sometime in the spring, probably toward the end of Q1. That is, if everything stays the same and the trend remains. That is a positive.

The non-farm payrolls are interesting because it is mostly the large companies that they survey. They try to factor in the smaller companies and small businesses, but it is very difficult for the government to get that information accurately and quickly enough. That was a positive and they are saying things are looking good for the future. On the other hand, there is a 10.2% unemployment rate, and that is the highest since 1983. There is an argument about whether the non-farm payrolls or the household survey is more important. Greenspan always said the non-farms payroll was more important, but as we saw coming out of the recession in 2001, the household survey was more accurate. We saw that it was improving, and it was showing the right kind of improvement because there were many small businesses that were created thanks to tax incentives. We saw S corporations proliferate. The filings for those proliferated and small partnerships also surged. We are not seeing that this time, however. There is not a surge of any kind of small businesses as the non-farm payrolls number improved, and the household number is getting worse and worse. It is my view, and the view of many smart economists, that household is more important when you come out of recession because many of the jobs are gone. JNJ and GE and those places are not going to be hiring people because they are still laying people off. The jobs are going to come from the smaller businesses, and if the smaller ones are still saying things are bad, then things are bad.

There was a 10.2 unemployment rate, but there were interesting figures with respect to the headlines below the headlines. 17.5% of the work force is either unemployed or underemployed. Underemployed means they would like to work more but cannot get the jobs. That is why we are seeing the temporary jobs growing. That is a key factor, and it has been up for two months in a row. People want to work but they cannot. Some of the protagonists are saying that more people came into the market looking for jobs, and that is why the number rose to 10.2%. I saw people tonight taking about that, but they are wrong. They did not go back, look at the figures, and figure out what was going on. The job pool actually decreased by 500K workers. At the same time, the new unemployed increased by 1M. It was not just a factor of more people entering into the jobs market and thus pumping up the number of people out there unemployed. The number of new employed rose, so we have a serious problem. The headlines under the headlines are showing that things are not improving in employment, but they are worsening. Some of the anecdotal data from Challenger says that the layoffs are fewer, but those are only the big companies. They do not cover the small ones as closely and cannot cover them as accurately. Some of the anecdotal evidence that that things are improving is belied under the actual jobs report and what it is showing underneath the headline numbers.

More than that, the average workweek is critical. It has to increase before there will be new hires. It stayed flat at 33.0, and that is after declining from 33.3 to 33.2, to 33.1 and now holding at 33.0 for two months in a row. We have a serious problem because it has to get up to 3.5 - 3.6 before they get to the point of thinking about adding even temporary workers. All the productivity we saw and talked about on Thursday does not mean a lot does it? You can have a lot of productivity, but if companies do not feel things will get better, they are not going to hire anyway. They are just going to reap the benefits of having higher productivity and then stockpile the cash. That is good for earnings, but we are looking for jobs and getting the economy back on track. If companies are worried that jobs are going to be bad in 2010, so much so that they are not spending any of their cash on new employees, then that is a serious problem.

They are not spending money because there is a lot of uncertainty out there. There is cap and trade, and though no one knows exactly how that will impact them, they know it will not be good. There is the healthcare bill that, if it passes, will place taxes on the businesses that provide the healthcare for their employees. Either they have to pay the tax, or they are going to jettison the program altogether. That is uncertainty, and that leads to indecision. They are not going to act on it because it is always the case when the governments are considering promulgates serious legislation. Everyone waits to see how it will affect them. If they think interest rates will go down or if they think tax cuts will be passed, they are going to wait and see if they pass so they can take advantage of them. On the other hand, they may be inclined to spend if things get worse, but if they do not know what to spend it on, that could be foolish admission, so they sit back and do nothing. I am afraid that is what we are seeing now. There is a lot of stockpiling of cash that is being reaped by the increase in productivity without the usual hiring of new employees. That is not a great scenario for the rest of the country.

One to have things I heard today was comparisons to 1983. This was the worst unemployment since 1983 when there was a bad recession coming out of the long 1970's malaise. People are saying that we have the kind of issues there were back then, but that we knocked the cover off the ball coming out of that recession. That is true, but we had already gone through the 70's and then had to break the back of inflation and rally higher.

We may be going into the 70's all over again. What made the 1980's special were the policies put in place that propelled us out of that long, terrible recession. It was called the Emergency Economic Recovery Act of 1981, and it created tax incentives, it slashed marginal rates, it gave tax credits, and it gave accelerated depreciation. It gave all kinds of incentives to invest once more in the United States. All the money had been put in tax shelters because it was too expensive to do business or to live in the US. That money came crawling out of the woodwork because it became cheaper to invest in the US and make a return and pay a lower tax than to have exotic tax shelters. The tax shelters tied up your money and kept it from being taxed, but they were expensive to create and run, so the incentives brought it all out. Russia had the same thing when it slashed its flat tax to 11%. Billions upon billions of dollars came flying out that they did not know they had, and it set off an economic boom. Of course, they mismanaged it and had problems, but nonetheless, you see where I am going.

We do not have the same policies that there were in the 1980's; indeed, we are going in the exact opposite direction. Ronald Reagan said the solution was less government, not more government. The new administration says the solution the more government, not less. We are having more regulation, there are massive bills being contemplated and passed, and it is creating uncertainty, creating regulation, and is going to stifle out the entrepreneurship in the US. You can say that as bad as it was, in 1983 we were coming out big time. I have a bad feeling that in 2009 we are going back in 2010. 2009 and the liquidity rally there was in the stock market may go back in and hibernate if the Fed has to eventually (and it will) have to raise interest rates and stop its 0% interest rate policy that Japan did. It did not get it anywhere, right? It is going to have to do that, and if there are no policies to invest in the United States, then we have serious problems. We heard today that we might need another stimulus package. We are talking about more infrastructure, maybe some job incentives - but no one is going to hire anyone for a job if you do not know if you will have to provide insurance for them or how costly it will be - if you are going to be taxed another $8,000 or 40% on what you provide if you do. I am not going to do that, and I know many small businesses who feel the same way. There is just too much uncertainty, and you cannot bet the company on just a tax credit when there is something much more serious that could take away many of your revenue streams or what you have already made. You cannot risk it, and it is not the right kind of incentive. You want to invest in your business and in America, not just do busy work and try to put band-aids on things. That is the way we have to do it, however, and what we have to live with for now.

This recovery is not a 1980's style recovery.

You cannot deny that we are having a recovery, but it is relative. If you came from zero, it is different from coming from another output. This was one of the worst shutdowns since the Great Depression. Even though the percentages may be impressive and comparable to other eras and recoveries, it is where we came from that makes the difference. Even though we are recovering, that makes this not a very strong recovery. The output factors we showed from Thursday were not that great, and they are not nearly what they were in the 2001 recovery. There has been analysis done of the 1980's recovery, and this is, at best, half the strength of that recovery.

There are many issues to deal with. This recovery is no doubt a recovery, but it is not the best we can do. As history has shown, we can try other tactics that get people to invest in the United States. I am very concerned that we are going to have this 10.2% rate go up to unprecedented levels in early 2010, maybe touching 10.8 or 11%. That seems totally off-the-wall, and some people could be howling with dismay. Even the people who think this is a bogus recovery just do not want to contemplate that kind of unemployment. I hate to be a downer, but we have to prepare for what may come. The key right now, and one of the things that is throwing everyone a curve, is the stock market and the reason it is up.

The stock market typically forecasts economic expansion. I believe in that, but there are times when that is not the case, such as when there is a tremendous amount of liquidity driving the market. There have been other times, no doubt, that the Fed is lowered rates to practically nothing and they had a bunch of money printed. Why then was the stock market recovery not indicative of an economic recovery? This time the money is not being used because banks are not lending money. There are stats everywhere showing what is and is not being lent, and the money is not getting out there, so it is being pushed into the financial markets. That makes this a bogus rally in terms of economic forecasts. It is just not that strong. There were times where it looked good, but now we see serious issues with the small caps. They are in trouble and breaking down, and they are the canary with respect to the economy. Stocks that are doing well are the exporters - those that are tied overseas. That is not going to help the companies that make the US great, and those are the small businesses that generate all of the jobs. We are going to have serious issues coming this year because this recovery is nothing compared to the strong recoveries we have had in the past. Thus, comparisons to the 1980's are not just wrong, but are horribly wrong.

THE MARKET

MARKET SENTIMENT

VIX: 24.19; -1.24
VXN: 24.6; -1.24
VXO: 22.97; -1.57

Put/Call Ratio (CBOE): 1.02; +0.15. Not much downside but a big jump in put activity. Too quick on the trigger for the put buyers?

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 48.3%. Surprisingly holding steady for the second week after a drop from 49.5% two weeks back. Still a lot of believers in the rally, and that may be to investors' detriment near term as the market consolidates a bit more. Bulls have held in the 48% to 50% range for several weeks now though that will start changing some now, and that is for the better in terms of a renewed upside move. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 24.7%. A rise as expected, but not a surge despite the rather sharp, high volume selling to end October. Bears remains relatively low, hardly in excess numbers but not so low to start looking for a reversal. Last week 22.5%, and hanging around in the 23% range before that. Hit a low of 21.3% on this leg. Rebounding some from the big drop 31.1% and 35.6%. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

NASDAQ

Stats: +7.12 points (+0.34%) to close at 2112.44
Volume: 1.878B (-9.19%)

Up Volume: 1.134B (-867.977M)
Down Volume: 678.705M (+457.841M)

A/D and Hi/Lo: Decliners led 1.14 to 1
Previous Session: Advancers led 3.56 to 1

New Highs: 80 (+30)
New Lows: 21 (-4)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +2.67 points (+0.25%) to close at 1069.3
NYSE Volume: 1.08B (-16.39%)

Up Volume: 509.025M (-593.706M)
Down Volume: 498.584M (+325.522M)

A/D and Hi/Lo: Advancers led 1.09 to 1
Previous Session: Advancers led 4.07 to 1

New Highs: 127 (+15)
New Lows: 39 (+7)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +17.46 points (+0.17%) to close at 10023.42
Volume DJ30: 181M shares Friday versus 211M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

SP500 and NASDAQ may end up leading the market. It looks like there is a consolidation when you look at the semiconductor index and the small caps. Those are the growth areas and they are in trouble. They are not ready to roll over and give back the entire rally; I do not think that is the case at all. The liquidity has not gone away. It is going to keep supporting the rally unless something devastating happens where it will not matter what money is or is not out there.

I think the market may go into a June-like correction or consolidation. It has had every opportunity to move higher, but it has not done so. Indeed, it was shedding shares on high volume to end October. It looks like that was the start of a corrective move and now the volume has dried up. We have bounced up and now we see how hard it breaks to the downside. I am looking for it to hold in a range and start moving somewhat laterally as it did in June. That would mean this is not the end of the world and the liquidity is still out there to prop things up. It will be one of two things. I think we are going to go into a correction toward the end of the year where the big-money funds play it safe and do not make any new bets to end the year. They will not drive the market higher, but things will pick up in the new year.
For now, leadership is still in good shape, and I see some buys there. There are always some struggling areas that we can take advantage of to the downside. It looks like there is that kind of dichotomy where you can play upside and downside a bit as the market chops through this. I will be looking for trades in the range and looking for bouncing up and down. There will always be those that go up or down regardless of what everything else does, and I will be looking at those as well.

We have been pulling back, as you know. We have been taking a few buys here and there, but now we will be able to shift gears and play the moves in the range. We are going to play some downside as well, and we will take what the market gives. We will not be able toll look at huge runs right now unless it breaks to the downside big time. If it does that, we will let it run and take those as far as they can go. I think it will be more like June, however, so we will just play the moves back and forth and take what the market gives. We will not have as huge of gains, but we can pile them up and make good money there. I will see you on Monday.

Support and Resistance

NASDAQ: Closed at 2112.44
Resistance:
2143 is the October 2009 range low
2155 is the March 2008 intraday low
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2191 is the October 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows

Support:
2099 is the mid-September 2008 closing low
The 50 day EMA at 2081
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
1897 is the October post gap intraday high.
1880 is the June peak
1862 is the July peak
The 200 day SM A at 1802

S&P 500: Closed at 1069.30
Resistance:
1070 is the late September 2009 peak
The March/July up trendline at 1078
1078 is the October range low
1080 is the September 2009 peak
1101 is the October high
1106 is the September 2008 low
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low

Support:
The 50 day EMA at 1048
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
956 is the June intraday peak
944 is the January 2009 high
935 is the January closing high
932 is the July peak
930 is the May peak
The 200 day SMA at 925
919 is the early December peak is bending

Dow: Closed at 10,023.42
Resistance:
10,120 is the October 2009 peak
10,365 is the late September 2008 low
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

Support:
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
The 50 day EMA at 9717
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
9116 is the August low
9088 is the January 2009 peak
8985 is the closing low in the mid-2003 consolidation
8934 is the December closing high
8878 is the June peak
8829 is the late November 2008 peak
The 200 day SMA at 8637

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

November 06 - Friday
Nonfarm Payrolls, October (08:30): -190K versus -175K expected, -219K prior (revised from -263K)
Unemployment Rate, October (08:30): 10.2% actual versus 9.9% expected, 9.8% prior
Average Workweek, October (08:30): 33.0 actual versus 33.1 expected, 33.0 prior
Hourly Earnings, October (08:30): 0.3% actual versus 0.1% expected, 0.1% prior
Wholesale Inventories, September (10:00): -0.9% actual versus -1.0% expected, -1.3% prior
Consumer Credit, September (2:00): -$14.8B actual versus -$10.0B expected, -$12.0B prior

November 12 - Thursday
Initial Claims, 11/07 (08:30)
Continuing Claims, 10/31 (08:30)
Crude Inventories, 11/06 (11:00): -3.94M prior
Treasury Budget, October (14:00): -$150.0B expected, -$155.5B prior

November 13 - Friday
Export Prices ex-ag., October (08:30)
Import Prices ex-oil, October (08:30)
Trade Balance, September (08:30): -$31.9B expected, -$30.7B prior
Michigan Sentiment-Preliminary, November (09:55): 71.8 expected, 70.6 prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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