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money investment, financial investment
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7/26/08 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: IBB
Buy alerts: ADM; DIA; EEV; JBX; NLX
Trailing stops: RBN
Stop alerts: GS; SVNT
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertttr.html
SUMMARY:
- Buyers don't return from the weekend, leaving the market for the sellers.
- Relief bounce waives goodbye though volume remains light.
- MER the latest to eat its CEO's words, unloads debt, dilutes shareholder worth, all in a single, after hours bound.
- Leadership trying to hang on through another round of selling.
Friday was not any end to the selling.
After the Friday session some said that bounce was evidence the selling was over. Couldn't quite buy in on that: NASDAQ bounced to its 50 day EMA Wednesday and quickly recoiled, followed by a Thursday spanking. Monday the buyers seconded that downside move with a sharp 2%ish decline, dumping whatever gains Friday offered.
There was not a lot of news to drive stocks Monday. Earnings continued to pour forth, but they were less than inspiring. Kraft beat the street and raised guidance: the old whiskey and cheese play on the rise as consumers eat cheese instead of meat to cut costs and drink whiskey to kill the pain. What pain? Any pain. Tyson (chicken) missed; it usually does well in a recession as consumers avoid beef and switch to the other of the other white meats. Unfortunately, because our leaders decided to burn our corn as fuel, feed prices are outrageous and thus input costs for chicken are high and though prices for chicken is higher, it is not offsetting the production costs. Wrigley beat; maybe we are chewing our way out of recession. Hey, at least we will have fresh breath.
Earnings failed to impress so investors looked around for something else and came up with the usual: oil. After a two-week hammering, oil bounced about a buck and a half (124.71, +1.45). That was enough to stymie stocks. After getting hammered oil is ready to bounce. Just as stocks got bombed and bounced, oil is going to try the same, i.e. bounce after getting bombed. That is going to pressure stocks. Judging from the reaction of the market to the oil decline, $120/bbl is not low enough. It is going to take a break below $110 and heading toward $100 to make the difference that makes a difference. After this bounce we do expect oil to continue its fall. After all, the market is not surging on this oil drop; it wants more. If it gets more, combined with the economic data that is not in the toilet and a housing market that has bottomed, we could get that rather nice market surge in advance of an economic turn. Interesting indeed, but of course it is going to take time to get there.
TECHNICAL. Intraday action was bad. Stocks started lower, tried a 10 minute bounce, failed, and then slid lower and lower into the close. A steady, oppressive downtrend all session.
INTERNALS. Downside breadth turned to bad breadth with -2.7:1 on NYSE and an ugly -2.9:1 on NASDAQ. Volume was lighter from Fridays already light, below average trade. Thus there was no heavy dumping, just a lack of buyers as oil moved higher. Given the price losses it is hard to say that the light volume was a positive sign. Still, if volume does not ramp up as stocks sell off this time, and if oil rolls over after this relief bounce as we believe it will, then there is the increasing odds of a light volume wimpy bottom where the market sells off but volume stays low. Why does it stay low? Because no one cares anymore. Upside investors have been beaten so hard by that time that they are looking at buying Napa valley grapes versus Wall Street instruments. The sellers just follow the flow lower, but they are unable to ratchet up volume because there are not that many sellers. So, we look for lower volume as the market continues to sell. A low volume selloff is, in this instance, a good selloff. We will see.
CHARTS. After tapping the 50 day EMA on the Wednesday high last week NASDAQ has turned lower and the market is following. NASDAQ recouped just about 50% of the selloff. While the other indices didn't get there, NASDAQ did, beating them to the punch. That was enough; NASDAQ turned and the rest of the market followed. The rally, while not technically dead on NASDAQ, is on life support with respect to SP500 and DJ30. While they are not the market, they are not chopped liver either. Heading lower but on that lighter volume. The thinnest of silver linings.
LEADERSHIP. Last week we talked of thin leadership. Monday it was thinner. Transports and medical/healthcare pulled back but they just did so in normal tests and still look very good. The question is, will they hold up and continue building for new breakouts? Volume is weak so that favors them. In the last throes of a bear market, however, everything gets torn down. This is a real bear market. If they survive this round . . . and they still look good so we are still holding them. . . the bear market is not over. When they get trashed then it will be over. Thus we watch and see if they throw in the towel on this move or save it for another move. Make no doubt about it. We are in a real bear market and eventually everything should get torn down. We are still making money on these two sectors upside (e.g. IBB) so we are not bailing out of everything yet. If they start cracking (and we did sell SVNT in biotech today) we are out and we will then ride the last selling to the bottom. Then we look for the next bounce to see if it has strength. Wimpy bottom or nasty gut-punching, teeth gnashing selloff. Either one will do the trick. It just depends upon how the market wants to play it.
And one more thing to chew on: over the weekend we talked about Europe's woes. Remember the last US recession? Europeans were chuckling (laughing?) at our plight as their economies remained strong . . . for awhile. Oops. Now their economies are falling fast after ours. We rallied first, we peaked first, we will bottom first. Europe is a good leading economic indicator for us.
THE MARKET
MARKET SENTIMENT
VIX: 24.23; +1.32
VXN: 27.74; +1.11
VXO: 25.69; +1.59
Put/Call Ratio (CBOE): 1.08; +0.25. Back over 1.0, not surprising given the selling on the session. 13 weeks over 1.0, 5 weeks below 1.0. Now heading back up.
Bulls versus Bears:
For the second time this year bears are crossing above bulls, doing so basically where they did in March on their way to much more extreme readings just about the time the market made the March low and started the last rally. Positive for the market and if SP500 is going to hold the long term trendline is the place to do it.
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: 29.2%. The rally bumped up the bulls from 27.8% as they look for an end to the selling. Still very low and a lot of hope stirred from the bounce. A sharp plunge from 31.9% three weeks back, blowing past the 30.9% low hit in March and well below the 35% level considered bullish for stocks (gets so low there is plenty of money lying around to fund a rally if things turn). Steep drop from a rebound high at close to 50% on the run through May. In March the indicator did its job with the dive below 35% and the crossover with the bears. Now it is going above and beyond. Bulls and bears have crossed over again, doing so even before the prior lows are hit. The bulls and bears were eye to eye in mid-February and have crossed. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.
Bears: 49.4%. Bears, despite what the bulls are doing, continue to increase, up from 48.9% that was up from 47.3%, 44.7% and 39.3% before that. A steady, strong rise. Well above the bullish level and the highest since 1995. Again, that is one of the best indications that sentiment is getting extreme on the negative side. It is again past 35%, the level that historically indicates too much pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. Up sharply from a low of 19.6% on the last rally. 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). This is a huge turn, unlike any seen in recent history.
NASDAQ
Stats: -46.31 points (-2%) to close at 2264.22
Volume: 1.984B (-1.63%). Volume was lower and below average for the second session. No heavy downside trade just a lack of buyers. Not enough sellers to push it lower hard.
Up Volume: 284.087M (-1.072B)
Down Volume: 1.675B (+1.05B)
A/D and Hi/Lo: Decliners led 2.9 to 1. Pretty ugly. Not just the large caps selling off.
Previous Session: Advancers led 1.57 to 1
New Highs: 51 (-18)
New Lows: 118 (+8)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ didn't make much of an upside effort; it tried to rally in the first few minutes then slid into a session of selling. No major collapse, just a clear and clean break lower after a short head and shoulders. Looking for another move down to 2200. We see what the volume does on the way down and then see how it holds at that level.
NASDAQ 100 (-2.36%) turned lower. Still something of a rounded bottom, but(t) this drop doesn't do much for the aesthetics of the pattern. No heavy trade but not looking healthy at all.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -23.39 points (-1.86%) to close at 1234.37
NYSE Volume: 1.173B (-8.9%). Low, low volume on the selling. No sellers were really interested, but since the buyers did not show up, why not?
Up Volume: 228.185M (-440.037M)
Down Volume: 936.904M (+343.933M)
A/D and Hi/Lo: Decliners led 2.68 to 1
Previous Session: Advancers led 1.31 to 1
New Highs: 20 (-8)
New Lows: 120 (-3)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Fridays test of the 10 day EMA failed and SP500 turned down for a sharp selloff. No volume as noted, but that doesn't matter. The buyers are not willing to step in ahead of the diving financials. That is why SP500 fell Monday: more financial woes. After hours MER gave away a lot of its company and while it bounced late in the after hours session, that is not good for the financials because it only underscores how little is known about how shaky the financial balance sheets are.
SP600 (-2.36%) broke through some near support Monday. Still above some support at 362 down to 360. In better shape than the large caps but as with those indices, we are simply watching how they hold on this low volume selloff.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The blue chips were black and blue after the session as the financial components dropped it like a rock. It failed at the January and March lows then undercut near support and is heading back toward the July low. Not much of a bounce at all from the Dow. Remember. It led to the upside in March and April. It is now leading to the downside. Does that mean anything? No. Just threw that in. Low volume continues and as with the other indices we are just watching how the Dow sells and whether volume remains low as it does.
Stats: -239.61 points (-2.11%) to close at 11131.08
VOLUME: 197M shares Monday versus 190M shares Friday. Low volume selling but selling nonetheless, and that also can lead to a bottom.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Consumer confidence is out midmorning. Will it pull a Michigan and not be as awful as expected? Does it matter? No. Confidence at these levels indicates recession. We are already there. $4/gallon gasoline prices tend to do that to consumers. Tyson chicken at 25% higher prices tends to do that. Two presidential candidates that leave most people uninterested will do that as well. So, all we have to go is up. Housing is bottoming. The economic data is not all the way into the toilet. Ah, rays of sunshine. Robins on the yard.
Okay, maybe not exactly springtime for the economy, and with the market selling again gloom will be high. Okay. That is why we bought the downside on ADM, DIA, EEV, JBX, and NLC Monday in addition to our other downside. We will ride it lower on this low volume selloff and see where the market bottoms. It may catch the prior low and again try a double bottom. We will watch the other indicators to see how they shape up as well; many of the sentiment indicators are 'there' while others are still looking to ratchet up some to join the party. We are watching for all the planets to align and when they do and when the floor traders are saying the indicators don't work anymore and that the selling will never stop we will look for what leaders are in shape to breakout and move higher and be ready to buy them when they start to do just that.
Sounds pretty Armageddon-like but we are in a bear market and stocks are, on the whole, selling. There are still some great looking upside stocks and sectors. Why, for instance, should transports be in such great patterns? Oil is lower and that is helping. If oil goes low enough, transports will benefit greatly and they are a harbinger of better economic times. There is some sense there. Healthcare? Well we are a bunch of old fogies now so there is reason for that. Of course that has been the case for 15 years when everyone was saying buy healthcare because we are all old fogies now. No, that is more of a safety play. When it craps out then we can also take that as an indication that the market is firming for a bottom.
For now we ride the downside and take more if the opportunity presents. We won't give up on the leaders; they are still solid even with the market selling. As noted, until the entire market cracks they will do well. So given that the market can languish on for several more weeks, we will look for what the market is giving and take it. There are still a lot of good patterns out there that can make us money as the market goes through the process of finally giving up and bottoming. Happens every time.
Support and Resistance
NASDAQ: Closed at 2264.22
Resistance:
2286 is the first April 2008 gap up point.
The 18 day EMA at 2294
2340 from the March 2007 low
2342 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 50 day EMA at 2343
2358 is a 50% retracement of the June to July selloff.
2370 from the April 2006 peak
2378 is the mid-February peak; 2379 from the October 2006 peak
The 90 day SMA at 2383
2386 is the August 2007 intraday low
2388 is the June 2008 low
2392 is the April 2008 peak
2419 is the January 2008 peak and the early February peak
2451 is the August closing low
The 200 day SMA at 2459
2500 from interim August lows.
Support:
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1234.37
Resistance:
1244 is an August 2005 peak
1257 is the March low
1270 is the January low
The 50 day EMA at 1302
1317 from the February low
1320 is a 50% retracement of the May to July selloff
1324 is the April low
1331 is the June low
1344 is an ancient trendline
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
1387 is the April 2008 intraday high
The 200 day SMA at 1387
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
Support:
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1224 is the June 2006 low
1176 from the Q4 2005 lows
1167 is the January 2005 low
1154 from the May 2005 lows
1142 is the 2005 closing low
Dow: Closed at 11,131.08
Resistance:
11,317 from March 2006
11,634 is the 2004/2005 up trendline
11,634 is the January intraday low
11,670 is the May 2006 intraday high; 11,642 closing
11,731 is the March 2008 low
The 50 day EMA at 11,768
11,982 is a 50% retracement of the May to July selloff
12,050 from the March 2007
12,070 from the early February 2008 lows
The 90 day SMA at 12,245
12,250 from late March 2007 lows
12,518 is the August intraday low
12,573 is the mid-February high
The 200 day SMA at 12,618
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
13,092 is the December 2007 intraday low
13,133 is the May 2008 high
Support:
11,061 from February 2006
10,912 peak from March 2005
10,854 from December 2004
10,701-10,705 from July 2006, July 2005
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 29 - Tuesday
Consumer confidence, July (10:00): 50.0 expected, 50.4 prior
July 30 - Wednesday
ADP employment, July (8:15): -50K expected, -79K prior
Crude oil inventories (10:30): -1.5M prior
July 31 - Thursday
GDP, Q2 advanced (8:30): 2.3% expected, 1.0% prior
Deflator, Q2 (8:30): 2.3% expected, 2.7% prior
Employment cost index, Q2 (8:30): 0.7% expected, 0.7% prior
Initial jobless claims (8:30): 395K expected, 406K prior
Chicago PMI, July (9:45): 49.0 expected, 49.6 prior
August 1 - Friday
Non-farm payrolls, July (8:30): -75K expected, -62K prior
Unemployment rate, July (8:30): 5.6% expected, 5.5% prior
Average workweek, July: 33.7 expected, 33.7 prior
Hourly Earnings, July: 0.3% expected, 0.3% prior
Construction spending, June (10:00): -0.3% expected, -0.4% prior
ISM Index, July (10:00): 49.2 prior
End part 1 of 3
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money investment
financial investment
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