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7/29/08 Stock Split Report
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MARKET ALERTS
Targets hit alerts: ALXN; DUG; PVA
Buy alerts: BKE; ODFL; UNP
Trailing stops: ABMD
Stop alerts: None issued
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/alertssr.html
SUMMARY:
- Oil cannot rally, MER takes its trash out and someone buys it, and the market takes heart.
- Schiller housing price index hits a record low, again. But that is good news.
- Consumer confidence (or lack thereof) unexpectedly rises but does it matter at this point?
- Rally tries to resume and notches up the intensity with some backing from the dollar.
Oil toys with the next key support, market turns back from the selling.
Stocks sold Monday and were on the brink of a renewed all out fire sale. Then two things happened. First, oil could not muster a rally. It tried to bounce Monday and that was trouble for stocks. Tuesday it started lower and only weakened. The OPEC minister said that oil, even at $125/bbl, was unsupported by economic forces and that it should be back down in the $70 range where it was before Hezbollah started lobbing rockets into Israel last year and started this run that doubled a barrel's price. Powerful statements. Enough that even with a 5.4 earthquake near Los Angeles and its oil refineries could not rattle prices much. Oil was down at a key support area at 122, breaking it during the day and toying with breaking 120. It rebounded to close just over 122 (traded at 121.84, -2.89 after hours), still flirting with that support. Oil's weakness impacted gold (918.40, -9.30), bonds (they sold modestly pushing yields a bit higher (2.63% 2 year, 4.06% 10 year), and allowed the dollar to soar to a 5 week high, making a key higher low.
Second, MER, another one of the major investment brokerages, made major moves with its assets. It dumped $30B of assets for $0.22 on the dollar and announced a large common stock issuance to raise capital. Heard all of this before. The key: there were actually buyers for MER's junk. The big problem for the market and the financials in particular is valuing just how much damage the credit and mortgage issues caused. The result: a continuing spiral lower in the financial sector. Tuesday there were buyers for Merrill's trash and that was a milestone as it means some believe it is fairly valued or that they are getting a steal. That is a start to achieving a bottom. The market took it that way and a lot of covering in the financials renewed.
That one-two punch surged the market, putting in a bottom, at least for the day. The NYSE indices are still facing a lot of overhead though they made a higher low. NASDAQ 100 continued its exercises, rounding out its bottom, looking for an upside break.
TECHNICAL. With oil lower and the market taking a liking to the MER trash pickup, stocks started higher and rallied all day to close at session highs. High to higher is never bad action.
INTERNALS. Solid across the board with fresh breadth (3.3:1 NYSE, 2.4:1 NASDAQ) and stronger volume, above average on NASDAQ. NYSE trade was stronger, but even with all of the surge in the financials and the buying of the garbage, it was still below average. A nice price surge but below average trade; not the sign of a strong surge, but then again, the selling was on below average volume. Buyers are stronger right now and that is what drives markets.
CHARTS. From the edge of selling (heck, from downright selling on NYSE) back to a higher volume rally. Rallied starting a couple of weeks back, sold off with substantial point losses Thursday to Monday, then another rebound on some better volume . . . but NOT better volume than the last hard downside session last Thursday. The buyers were in charge Tuesday for sure, and that helped, lower relative volume or not, try some higher lows on the NYSE indices as they were turning down hard. Okay. NASDAQ rebounded to recover 2300, a moderate level of import. NASDAQ 100 continued in its range from 1775ish to 1875ish, doing its exercises and working on its rounded bottom. Those are good for the market as in many other things. The 50 day EMA at 1877 on up to 1900 is important resistance for the large cap techs when they try to rally, and with this move they looks as if they are going to give it a try.
LEADERSHIP. Transports feasted on the lower oil prices that saw wholesale gasoline move close to the $3/gallon level. That means lower fuel prices across the board. Yes airlines were up, but they are not leaders. Those are in the rails and trucks, and they were moving well, rails or wheels. Medical/biotech/health services struggled as money moved into other areas such as the snap back in financials, but they held up very well nonetheless, showing they will remain leaders. Financials surged, and while many are not leaders, some are actually looking good, e.g. WFC. I did have to laugh today when one NASDAQ reporter enthusiastically reported the 'strong session' for the chip stocks. While some are not dog meat, many are, and a few pennies to the upside after a massive selloff is not a strong session. Whatever.
SUMMARY. After chiding the pundits calling Friday a bottom of course the market surges with some strength on Tuesday, showing rising volume and some good breadth. Maybe the session changed the vector and the market is going to bottom and rally to new heights or maybe just to the 50% retracement level. We are not going to be so arrogant to believe this cannot be a bottom, but at the same time not all of the factors are in place. Tuesday itself was no showing of power by NYSE, though it can move higher in a continuation of the rebound toward the retracement level, power or not. If it does we are playing it with some good stocks, and we have taken some nice gain the past week as well, Tuesday included. Despite the back and forth action we are getting some good upside action as well as some good downside action producing bankable gains. We are skeptical it will mark this last selling as the bottom and we will still look for plays both ways. If it does we will roll out of the downside plays and let our upside run. Again, skeptical it can pull off a serious bottom, but if oil breaks below 120 that will hearten investors further. Oil did not bounce as expected, truncating the market pullback, and likely keeping the market from really setting a bottom on some more selling.
THE ECONOMY
Schiller index hits a record low yet again.
Seems every month the S&P/Schiller housing price index hits a new record low. June was no exception as prices fell across 20 major metropolitan areas an average of 15.8%. Pretty grim. Of course that was better than the 16% drop expected. Ah, the silver lining.
Actually -16% would be better. Low housing prices are a key to turning the housing market around. We believe the housing market has bottomed. Speculated it had for a few months as the data started to firm and turn, and declared it to be the case last weekend (earth shaking declaration, eh?). Starts are down to levels historically indicating a turn. Sales are slow but the rate of decline is well, well off the lows. Pricing is a key element coming into line along with the other indicators. A pickup in the economy aided by a stronger dollar and falling oil, and then you have people starting to buy.
Or at least ready to start to buy. Very similar to the back end of the 2000 recession, banks are reluctant to lend. Back then the Fed had so many banks on restrictive status and had the money supply so dry, even if businesses wanted funds they had a very, very, very (did I say very?) hard time getting loans. The Fed spoke with a forked tongue: it said it wanted banks to lend yet obstructed them at every turn. Thus the collapse into recession and the inability, despite seemingly unending rate cuts to reduce loan rates, to get the funds to pull out of it.
Right now the Fed is making the money available, but all of the talk in Congress about going after 'predatory' lenders and presidential candidates talking about lenders and financiers as 'villains,' lenders have jacked up lending requirements to the point that the majority of applicants fail to qualify. The Fed wants them to lend, and soon prices and confidence are going to be such that consumers want to buy, but the funds may not be available. Threat of regulation can have as negative an impact on an industry than actual regulation. More than once economic recovery languished long beyond the natural desire to recover because regulators came in after the cows left the barn and fixed a problem the market had already fixed.
Consumer Confidence Soars.
51.9 topped 50.0 expected, and that was the first rise in confidence since January, but confidence is not like the ISM where a reading above 50 indicates recovery. Readings in the 50's indicate recession. When the consumer is this despondent historically we are in recession. Whether there are two quarters of negative growth or not, when the consumer, housing, the stock market are in their current condition, we have recession.
Thus we are not going to parse the number and try to glean further insight. The number and indeed the prior reading of 51.0 (a sharp decline from 58.1 in May) show a consumer worried enough (and after paying $4.45/gallon for gas in California) to cut back on spending enough to slow the economy. Indeed, businesses are still spending as seen in the durable goods report last week, but the consumer, the important other half of the economy, is not there right now. A notion that housing prices are bottoming, lower fuel costs, and a stronger dollar (you would be surprised how many people are worried about this) go a long way helping the consumer. The bottom line most important item, however, is the job: if the job is secure then the consumer is secure. That is the wildcard that has yet to turn the corner.
THE MARKET
MARKET SENTIMENT
VIX: 22.03; -2.2. Still the holdout and a very visible one as this last round of selling barely took it over 30.
VXN: 26.15; -1.59
VXO: 23.2; -2.49
Put/Call Ratio (CBOE): 0.84; -0.24
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: +55.4 points (+2.45%) to close at 2319.62
Volume: 2.35B (+18.47%). Volume moved up above average after two sessions of below average trade, one being the sharp point losses Monday. Not as strong as the prior selling volume last week, but the buyers took charge.
Up Volume: 1.733B (+1.449B)
Down Volume: 11.772M (-1.664B)
A/D and Hi/Lo: Advancers led 2.38 to 1
Previous Session: Decliners led 2.9 to 1
New Highs: 51 (0)
New Lows: 101 (-17)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Trying to make a higher low here along with the other indices, moving through a point of some significance at 2300 (but not much). NASDAQ maybe working on a big double bottom here or it may be working on the right shoulder of a 5 month head and shoulders pattern. As NASDAQ tries to work higher to again test the 50 day EMA (2342) and toward the 50% retracement level at 2358, we watch how NASDAQ trades on volume and breadth. Not convinced NASDAQ has the strength to pull it off yet but it is going through a bigger process of trying to set a bottom.
NASDAQ 100 (+2.36%) moved higher on stronger volume as well, continuing in its range form 1775 to 1875, right at 1850 and looking to move higher similar to NASDAQ. It could be putting in a bottoming pattern here with its four week rounded bottom or it could be forming the right shoulder to a 4 month head and shoulders of its own. Like how it is shaping up overall.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +9.35 points (+2.57%) to close at 1263.2
NYSE Volume: 1.406B (+19.84%). Volume was up but still not average . . . as it has been every session this month but for three other sessions.
Up Volume: 1.152B (+923.824M)
Down Volume: 242.66M (-694.244M)
A/D and Hi/Lo: Advancers led 3.31 to 1. Very strong.
Previous Session: Decliners led 2.68 to 1
New Highs: 29 (+9)
New Lows: 132 (+12)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
After a bad end to the past week, the large caps are trying to put in a higher low above the early July low. Moved just past the March intraday low on the close, making it to the 18 day EMA. Higher low, better volume, now it gets interesting as SP500 pushes toward resistance once more from the January and March lows as well as the recent July peak at 1291. Financials are taking some heart from the MER garbage sale (one man's garbage is another man's . . . treasure?); maybe they can thus shake off the Citi additional write-downs to come (along with others) and continue higher. Will nee some more trade to seriously show it can put in a serious bottom.
SP600 (+2.57%) rallied off a higher low as well, starting from a superior position. Once more it will take on the resistance at 380 to 383ish. If it blows past that, then you can say it is making a solid move.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
As with the other indices, attempting to make a higher low here in July, rallying to the 18 day EMA on the close. Higher volume, but it was still well, well, below average. It failed at an old trendline a week back that also matched the January intraday lows. That, again, will be the test for the Dow.
Stats: +266.48 points (+2.39%) to close at 11397.56
VOLUME: 206M shares Tuesday versus 197M shares Monday. Up but still so far below average and close to Monday it really doesn't matter: sold on low trade, rose on low trade.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
ADP employment before the open and crude oil at 10:30. One will matter. The one that does is expected to come in 1.3M bbl lower while gasoline inventories are expected to rise 400K. Oil as always is key for the market, but right now, the financials' ability to keep the faith that MER's junkyard sale marked a turning point is also a key factor. If the S&P loses the financials again, it is going down again.
Monday we bought some downside and we are not ready to move out of that just yet though Tuesday we did buy into some upside leadership. If oil holds here at the early June lows and gives that relief bounce, then the market will find the Tuesday gains harder to hold down. In that regard, inventories will be important for the near term.
As for earnings and financials, MET missed earnings after hours and lowered its guidance. It was rocked by 10%. Losses were due to investments that make up its loss coverage. More importantly, it forecast it and others would have write-downs in the quarters ahead due to mortgage related investments and assets, meaning that the specter of write-downs may not have ended with the MER actions. After a lot of gyration in the post market, the financial stocks calmed down and held their gains in the after hours session.
Given the reversal on better trade you have to look for the market to try and continue the gains Wednesday ahead of the oil inventory data. Oil and how the financials trade will be the driving force again, and how oil fares will ultimately drive the market's move. That said, oil tried to break below 122, the next key support level, and it rebounded. It won't fall in a straight line forever and it is trying to bit here at that prior support. If inventories give it reason to hold then a bounce will undermine some of the renewed stock vigor. We wish it would go ahead and do it and get all of the indicators in line with a bottom. Right now it is not there and a further bounce works to prolong the bottoming process.
Support and Resistance
NASDAQ: Closed at 2318.62
Resistance:
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 2342
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 2457
2500 from interim August lows.
Support:
The 18 day EMA at 2296
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1263.20
Resistance:
1270 is the January low
The 50 day EMA at 1301
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
The 200 day SMA at 1386
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
Support:
1257 is the March low
1244 is an August 2005 peak
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 11,397.56
Resistance:
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 11,753
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 12,235
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 12,605
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:
11,317 from March 2006
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): 51.9 actual versus 50.0 expected, 51.0 prior (revised from 50.4)
July 30 - Wednesday
ADP employment, July (8:15): -60K expected, -79K prior
Crude oil inventories (10:30): -1.3M expected, -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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