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world stock market, us stock market
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8/05/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: ADM; AGU; DD
Buy alerts: CMED; JBHT; JNJ; MCD; NSC; USM; UTHR
Trailing stops: None issued
Stop alerts: DIA; HEW; JBX; QID
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:
- Market bounces off pullback ahead of FOMC and continues post-Fed.
- FOMC splits the baby, holding rates steady as it talks of economic problems while expanding its inflation commentary.
- Massive moves back and forth moves are typically a sign of a market indecision, but higher lows, higher highs, a bit more leadership, and key earnings are pushing it higher near term.
Market was ready, got the go ahead.
After that three-day rather modest low volume pullback the market was ready to bounce and make another higher low in this rebound off the July lows. Whether it needed a catalyst or not, it got it. PG was out before the open with its results, saying it saw no evidence of an overseas slowdown, offering a counter to the views that Europe and Asia are indeed slowing from torrid growth rates. Of course torrid has to be put in context; China's 10+% growth is high by any standard while Europe's 2% to 3% is indeed strong for that framework. Add to that oil was lower again, this time breaking the key 120 level on the close (119.17, -2.24) and was down even more in the late session (118.50, -2.91), and you had enough tender to ignite the rebound from the recent pullback.
This news started stocks higher and they kept on going, getting a boost from a not as bad as thought July ISM Services report (49.5 actual versus 48.7 expected and 48.2 prior) that took it higher into the FOMC policy announcement. The market surged on the FOMC non-action but tougher inflation talk, thought about that move for 45 minutes, decided it was okay, and then kept on rallying higher into the close. That day long upsurge closed the indices 2% to 3.6% higher, the largest gain in 4 months or something to that effect. Again, with oil going down and then the FOMC on indefinite hold, stocks that were primed to move after this pullback took the news and used it.
TECHNICAL. Intraday the action was up to higher, holding the gains on intraday tests, then sprinting higher into the close. Hard to complain about that but with 3% gains on the indices you can expect positive intraday action.
INTERNALS. Solid upside breadth with NYSE sporting almost 3:1 gains and NASDAQ not bad at 2:1. Volume rallied nicely on NASDAQ, moving back above average on a solid upside move. NYSE trade advanced as well, but disappointingly it failed to make it even to average. NYSE continues to show a lack of buying strength as the financials rebound from their selling, a shortcoming that keeps this move in the realm of a relief bounce off the prior lows versus a new and powerful surge higher in anticipation of improving economic conditions. Yes NASDAQ is showing good strength, but for a serious turn off a bottom you want to see strength moves by all indices. They are still not there.
CHARTS: A third higher low on this rebound. Why are higher lows important? Because it shows buyers stepping in on each pullback, showing there is increasing demand for stocks versus just a one and out bounce. A strong move off this last pullback shows the buyers were a bit more eager to pick up shares after the test. There were also some higher highs, also a very good indication of improving strength. NASDAQ cleared the 50 day EMA for the first time on a closing basis, and combined with the higher lows and stronger upside volume that is more building strength. It did not top the July intraday peak, but the highest close on this rebound is important. It is closing in on that 50% retracement, and it is good to see strong volume as it moves toward that level. SP500 made it to the July peaks but could push on through. Obviously a key level given it is near the March 2008 lows and is where SP500 failed the last two runs higher. It needs to clear it this time or its three strikes and you are out, having to test lower once more and rebound again. DJ30 cleared the late July peak, still leaving it below the mid-July apex and other key resistance (11,750), but as with NASDAQ, a higher low and a decent higher high. Notably, SP600 and the small caps made a new rebound closing high, setting the stage for a showdown with resistance that stymied it late in July.
LEADERSHIP. Some of the leaders that took up the torch when the commodities crapped out were at it again, e.g. the trucking and rail portion of the transports. Unlike airlines that some tout investing in during the oil decline, these are solid, money making enterprises with good bases. The airlines will crash again even if oil continues to fall; it is in their nature to destroy themselves outside of Southwest, but energy hedges at low prices cannot go on forever. Medical and health services were up again, and there is new strength in the sector from drugs. Chinese stocks, despite pundits downgrading China, continue to set up in good patterns. Pundits say one thing, charts say another. Who do you follow? Rhetorical question. Some retail is doing well, but it is a select group. Financials on the whole are not showing great patterns, but some have formed up quick bases and have reversed their downtrends, e.g. WFC. Most financials are not, but the more the market bases, the depth of leadership increases, and that is a positive we see in this move. Still needs more work but it is making the initial moves.
THE ECONOMY
FOMC talks tough, holds steady: it doesn't have to move because financial markets say other central banks are going to move for it.
There is no point in dissecting the Fed's every word. It recognized the issues facing the economy in tight credit, softening labor markets, and declining housing and also recognized the upside risks of inflation what with high energy and commodity prices. There was more talk about inflation as a 'significant concern' and other 'inflation is bad and needs to be watched' language. Instead of three dissenters there was just Fisher from Dallas, the reformed 'in the ninth inning of rate hikes' Fisher from his first few months on the FOMC. A reformed anything is fairly insufferable, and after getting emasculated following those early comments, Fisher has swung so far to the other side of the spectrum he is trite. Of course no one would have minded another FOMC member or two joining him.
Stocks didn't mind and indeed acted if that is what they wanted to hear: no rate hikes for the next decade. As noted, they rallied after, paused, then rallied some more. In addition, gold sold below 900 (881.70, -26.20), continuing its ugly slump and indeed breakdown. The dollar rallied to its highest close since the mid-June peak, the high point of this dollar rally off the low hit in March.
Is the Fed that good?
The action in the financial markets (rising stocks, falling gold, leaping dollar, and flat bonds) made the Fed's statement look very artful indeed. I am sure they were all patting themselves on the back, giving group hugs, or whatever they do in the FOMC club. Cause and effect right?
Maybe it is that good, but if you look a bit deeper, there are other factors at play. PG may have said it sees no global slowdown, but in all honesty and quite surprisingly, companies tend to miss major turns in economies. If not, why were so many destroyed in the 2000 'slowdown' with massive inventory overhangs, totally failing to see the downturn? Why when the economy was turning up did they not see the turns that we saw? The market saw that ahead of them. Ah, the markets.
Let's look at those. Gold down. Dollar up. Currencies are shifting, something that started in March but struggled to get underway. Now that the rest of the world is slowing, currencies are readjusting to account for this slowing. More than that, they are adjusting to price in rate cuts by foreign central banks. BOE, Bank of Australia, and even the EU are going to have to cut rates as their economies tank. Maybe they will copy the Fed and its lending facilities, but their systems are not the same. Thus gold is down and the dollar is up not just based upon the Fed's action (or inaction) Tuesday, but in anticipation of these big changes in central bank policy around the world as their economies slow down. The Fed has done most of its work and with the facilities in place it can leave rates where they are. It can even hike rates if it feels the yen, so to speak. Other central banks don't have that luxury right now, and the dollar is rallying in anticipation of their rate cuts.
Whatever the reason, a stronger dollar is better for us here in the US despite what the Bush administration erroneously thinks. Oil becomes cheaper as we have seen. Everything becomes cheaper and we stop importing inflation. It is amazing how a strong dollar quickly improves our standard of living. It is even more amazing how the Bush administrations (all three of them) fail to grasp this concept. As the old cigarette commercial said, 'like father, like son? Think about it.' Doesn't matter now. Bush has served the maximum and dad is too old to care. Of course there is Jeb . . .
THE MARKET
MARKET SENTIMENT
VIX: 21.14; -2.35
VXN: 25.65; -1.91
VXO: 22.05; -2.8
Put/Call Ratio (CBOE): 0.76; -0.21
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: 30.0%. Up modestly from 29.2%. On a rise, but still below the 35% level, below which is considered bullish. Up from 27.8% on the low this round, moving back up toward the 31.9% a month back and the 30.9% low hit in March. 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: 50.0%. Still rising as bears remain worried, up from 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 and still going. 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: +64.27 points (+2.81%) to close at 2349.83
Volume: 2.428B (+23.78%). Rising, above average volume, the best in two weeks as NASDAQ posed a new post-July closing high.
Up Volume: 2.015B (+1.472B)
Down Volume: 347.621M (-1.008B)
A/D and Hi/Lo: Advancers led 2.15 to 1
Previous Session: Decliners led 2 to 1
New Highs: 61 (+10)
New Lows: 115 (-25)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ moved to a new closing high following the July low. It is still below the end of July high by a few points but it closed above the 50 day EMA for the first time on this move after two prior failed attempts. Approaching the 50% retracement point at 2358; that is not hard barrier, just a point of reference where rallies in a continuing selloff run into resistance. NASDAQ is moving on stronger volume as it breaks higher, a good indication it may try to go for more up toward 2400ish.
NASDAQ 100 (+3.60%) broke to a new closing high in this 5 week rounded bottom, ending the session right at the 50 day EMA. It needs to clear the early April high at 1886 to break up any potential head and shoulders pattern.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +35.87 points (+2.87%) to close at 1284.88
NYSE Volume: 1.416B (+15.32%). Rising volume but below average. As noted above, disappointing lack of trade as SP500 challenges the twin July peaks.
Up Volume: 1.151B (+746.919M)
Down Volume: 259.987M (-554.56M)
A/D and Hi/Lo: Advancers led 2.93 to 1. Very solid breadth, the kind you want to see on a strong surge as a rally resumes its move.
Previous Session: Decliners led 2.02 to 1
New Highs: 56 (+23)
New Lows: 114 (-25)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 moved to the July closing peaks on rising but below average volume. Great breadth, however. It is showing attributes of strength, but needs the most important, volume. Financials are bouncing but they are showing characteristics of relief bounces, i.e. bouncing from selling on lower volume. Not real accumulation, just a relief move. Other sectors are showing good accumulation and strength, but if financials cannot base out during this move then it is going to have to test back once more.
SP600 (2.97%) rallied to a new post July closing high. Heading toward the 200 day SMA at 380 and other resistance at 383, and that will be the key test for the small caps on this move. Looking good heading into that test though NYSE could show some more volume.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The Dow cleared the late July peak (11,587) though it still has to deal with the 50 day EMA (11,696) and 11,750, the March closing low. Made a higher low this week and is now challenging a higher break to continue the rally off the July low.
Stats: +331.62 points (+2.94%) to close at 11615.77
VOLUME: 234M shares Tuesday versus 170M shares Monday. Better trade on the upside but still below average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Once more the market put in a big point swing. Over the past two weeks and even before that prices swing wildly from up massively one session to down massively the next with the Dow posting triple digit moves in opposite directions day to day. That shows an indecisive market or a market in transition. The key from our point of view is that the indices faded back Thursday through Monday, but volume backed off and they held for a higher low then raced ahead. That is different action, positive action. The next key move is SP500 and DJ30 moving through their July peaks, testing that move, and holding the line then continuing the move higher.
That endeavor will receive aid from CSCO's earnings after hours. It beat and while its outlook was for some slowing, it was still palatable to the market. After hours tech stocks rose nicely along with CSCO. If the techs can get their game back that will go a long way to helping the market continue this rebound and maybe convert it into a new rally. Well now, that is some mighty optimistic talk given the state of the economy and the fade in foreign economies. Yet, their fade and the anticipated rate cuts by foreign central banks and the fact that we entered recession first somewhat plays into our hands. The US will benefit from those rate cuts vis- -vis a stronger dollar, lower oil, and lower inflation. That improves our economic position immediately and spurs our recovery.
For now we see more leadership trying to form up, and as strong stocks break higher we will participate in the moves. We don't want to chase overextended stocks, but a stock in a good base that breaks higher is a better bet than a rebounding stock that has already run a few sessions. If this rally has legs, we will continually see new leaders form up and breakout to join the move higher, giving it strength and breadth. Thus we stick with stocks in good accumulation patterns that breakout; that shows buyers and not just rebound momentum players, indicating the stocks have better staying power. If they make these moves the indices will continue the break higher, and of course we will be watching for how they handle the July peaks and NASDAQ the 50% retracement level.
Support and Resistance
NASDAQ: Closed at 2349.83
Resistance:
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 2384
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
The 200 day SMA at 2444
2451 is the August closing low
2500 from interim August lows.
Support:
2341 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
The 50 day EMA at 2337
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 1284.88
Resistance:
1285 is the recent July peak
The 50 day EMA at 1295
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
1347 is an ancient trendline
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 200 day SMA at 1378
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
Support:
1270 is the January low
1257 is the March low
1244 is an August 2005 peak
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1234 is the late July 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 11,615.77
Resistance:
11,634 is the January intraday low
11,637 is the 2004/2005 up trendline
11,670 is the May 2006 intraday high; 11,642 closing
The 50 day EMA at 11,696
11,731 is the March 2008 low
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 12,181
12,250 from late March 2007 lows
12,518 is the August intraday low
The 200 day SMA at 12,542
12,573 is the mid-February high
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
11,131 is the late July 2008 low
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.
August 4 - Monday
Personal income, June (8:30): 0.1% actual -0.1% expected, 1.8% prior (revised from 1.9%)
Personal spending, June (8:30): 0.6% actual versus 0.5% expected, 0.8% prior
Factory orders, June (10:00): 1.7% actual 0.7% expected, 0.9% prior (revised from 0.6%)
August 5 - Tuesday
ISM Services, July, (10:00): 49.5 actual versus 48.7 expected, 48.2 prior
FOMC policy statement (2:15): Left Fed Funds rate at 2.00%, weighted inflation more than last statement, still just 1 dissenter
August 6 - Wednesday
Crude oil inventories (10:35): -81K prior
August 7 - Thursday
Initial jobless claims (8:30): 420K expected, 448K prior
Pending home sales, June (10:00): -1.0% expected, -4.7% prior
Consumer credit, June (3:00): $6.4B expected, $7.8B prior
August 8 - Friday
Q2 Productivity, preliminary (8:30): 2.5% expected
Wholesale inventories, June (10:00): 0.6% expected, 0.8% prior
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