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money investment, financial investment
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8/07/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: PWR
Trailing stops: ALXN; ALTH; CYBX; IDIX
Stop alerts: CXW
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's nascent show of character can't handle the truth from the financial sector, retail
- Weekly jobless claims continue their big jump to levels reached the last time the economy bottomed or at least was trying to.
- Same store sales up, but starting to wane as the stimulus checks run dry
- ECB talks semi-tough on inflation, dollar strengthens further.
- Up 300, down 200, here we go again?
Up to resistance, a little negative news, and back down big time.
Wednesday we said it would be up to the indices as to what they did at resistance. Thursday they had to deal with a plate of bad news. Same store sales rose with the usual beats and misses along the way, but they rose at the slowest pace in four months and WMT, the erroneously labeled bellwether of the retail sector, had a rather gloomy outlook, stating that the stimulus checks had run their course and that its customers were back living paycheck to paycheck. Hard to be happy after that.
Then there were the AIG earnings that were off by factors of 10 versus pennies. Major miss. So much for the financials' bounce. Jobless claims failed to instill confidence, rising to 445K, well in excess of expectations and moving to almost a 6.5 year high. Hmmm. That puts it back to early 2002. The US was in trouble at that point as well and the market was in the throes of a bear market. It bottomed, however, in October that year. These higher numbers are not pleasant for anyone, particularly those seeking work, but they are approaching those levels where the economy starts putting in a bottom. With housing at a bottom (pending home sales rose 5.3% in June), the pieces of the bottom in the rest of the economy are trying to fall into place. It will be several months to put it in; the market didn't bottom until 8 months later. Nothing to warm up the jukebox for, but we can add that to the basket of facts as to what the big picture tells us. The ECB was also waffling on its inflation talk and the dollar, after falling early, jumped right back up to another high on this run.
Still, stocks didn't like the mix of data and started lower. Not unusual given the strong surge Tuesday, and we were watching to see if the indices could rebound off that slower start. They did. Oil was lower for awhile and that helped. NASDAQ, the relative strength leader on the session, turned positive over lunch. Nice recovery in progress, similar to Wednesday and the character lessons the market was taking that day. Then Moody's issued a statement about AXP being under review, and that chopped off the rebound at the knees. Didn't helped that oil reversed to positive (119.88, +1.30) though, significantly, it closed below 120. The financials collapsed as the 'A' financials (AIG, AXP) made F's. That tipped the rest of the market over and even NASDAQ could not withstand the return of the selling.
In the end the indices lost on the low end 1% to 2% on the uglier end though both are wallflowers. Back to the days of massive reversals day to day. It looked as if the market was putting these days behind it after that more orderly decline preceding the Tuesday surge higher. Not the case. Now you have to see if the indices can keep the string of higher lows alive.
TECHNICAL. Intraday action tried to put in another more bullish session with a lower start and then a recovery . . . but then it collapsed. The character ran and hid under the bed in the fetal position.
INTERNALS. Ugly downside in breadth at -3:1 on the NYSE but not even getting to -2:1 on NASDAQ. NASDAQ was the leader . . . Volume rose on the NYSE but remained well below average. Just not the kind of trade seen in July both on the downside and the upside. The volume has trailed off the past two weeks, however, though the upside sessions are stronger and are in the average or better (just barely) range. NASDAQ volume was flat, holding at average. As with NYSE, the upside has enjoyed stronger volume the past two weeks though lower than in the first three weeks in July. Nicely above average but lower. Have to watch that volume, but it is late summer and thus volume fades as the last vacations are left.
CHARTS. Again we said it was up the indices as to how they handled the resistance the rallied to this week, and they showed a definite lack of resolve Thursday. NASDAQ tried to keep a stiff upper lip or a stiff something, but it went limp as the pressure mounted. NASDAQ hit the 90 day SMA again and it failed there again. SP500 rolled back from the 50 day EMA after it came within sight of that level Wednesday. It closed below near support but it is still above the last low. Same story on DJ30. SP500 is a breath of fresh bull air. That doesn't sound right but no time to change it. Yes it again tapped the 200 day SMA and could not take it out, but it faded modestly, tapped the 50 day SMA on the low and rebounded. It is not a beauty queen, but it held up well. Now on the other hand this is le critical level for the small caps: They hit up at this 380 to 383 level in February and failed. As it turns out that is the left shoulder of a 6 month head and shoulders top trying to form. Thus the small caps have to break up through this level to turn a negative into a positive. That it what strong markets do and the small caps, economically sensitive a they are, will be a good index to watch over the next couple of weeks. By the way, NASDAQ has a very similar pattern as well. So we may want to keep an eye on that as well.
LEADERSHIP. There were hits in the medical/health services sectors and some of these leaders broke below near support. Transports (trucks, rails) were off some, but just some. They are not in trouble. China took some big hits in some areas after looking very good the past week. Bush's comments about human rights? Of course financials caved and took SP500 with them, but they are not at the point of leadership, just working on it. All in all it was not a rout of leaders, but it was not just a simply orderly pullback as some were tossed over the rail. At the end of the session there was a very real 'throw them all out' mania hitting the market as solid stocks were shaken (e.g. CELG) after the ball got rolling with other stocks. Most pulled back in a fairly orderly fashion, and indeed, if they hold near support we are looking at them as new buys. If the market recovers from this selling, making another higher low, this is just some more good old base building action though as noted above, some leaders were tossed and it was a return to the more volatile times.
THE ECONOMY
World economies show more signs of slowing.
Thursday Trichet was talking economies and inflation. The past year it has been 'inflation blah blah blah bad blah blah blah raise rates blah blah blah inflation . . . ' (repeat as needed). Thursday it an admission that Q2 and Q3 growth would be 'particularly weak'. Trichet said the ECB had 'no bias' on rates. Of course that kind of mitigation of past statements could not go unchecked, and he concluded that the ECB was still nonetheless focused on inflation.
No surprise there. The economies could be crumbling and if the ECB thought inflation was up it would be ready to raise rates to find it. It has a one-sided mandate that focuses on inflation where the US has to maintain price stability while maximizing growth. Thus it is hard to really carp about Trichet because he sticks to his mandate and doesn't worry about the economy. If he was a Phillips Curve kind of guy he would take comfort in the weakening economies as that theory believes slower economic activity leads to lower inflation. It doesn't. Slower economic activity historically precedes and occurs in conjunction with higher inflation. Thus Trichet's continued griping about inflation is justified.
How so? Because ECB economies are in trouble, following the US issues. Three weeks back we talked about Germany's issues. Two weeks back, the UK and its housing and credit issues reared up again. Germany reported industrial production rose 0.2%, positive, but when you expect a 0.8% gain the advance loses its luster. Allianz lowered its forecast due to . . . subprime issues. The evidence of German slowing continues to mount along with the UK on the subprime issues. At the same time they slow, prices are jumping in Europe. Slower economies, rising inflation. Europe, as with the US, needs to implement policies to encourage investment and growth and that would pinch off inflation as supply rises, jobs are created, etc.
THE MARKET
MARKET SENTIMENT
VIX: 21.15; +0.92. Back down to mid-June levels. Volatility remains in a narrow range, indicating the market is not pricing in big moves either way, just range trading. What is that? Base building. What does the market need? Base building. Takes time but that is a necessary part of the process.
VXN: 24.75; +0.4
VXO: 22.63; +1.67
Put/Call Ratio (CBOE): 1.05; +0.1. Back over 1.0 on the close after about a week below 1.0. Pretty much as expected.
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: 34.0%. Jumped up from 30.0% closing in on that 35% level, below which is bullish. Still bullish though a long way up from the 27.8% on the low this round. Hit 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: 43.6%. Steep drop from the 50.0% peak on this move hit last week. Still well above the 35% threshold so still a LOT of bearishness out there. This bounce off the July lows is instilling some confidence, however. A steady rise to 50% on this move: 48.9%, 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: -22.64 points (-0.95%) to close at 2355.73
Volume: 2.279B (+0.73%)
Up Volume: 764.653M (-826.612M)
Down Volume: 1.455B (+798.824M)
A/D and Hi/Lo: Decliners led 1.91 to 1
Previous Session: Advancers led 1.42 to 1
New Highs: 55 (-11)
New Lows: 103 (-2)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ tapped at the 90 day SMA for the second straight session and then rolled back as the market rolled over in the afternoon. Closed on the 50 day EMA and still in solid shape but just below the 50% retracement at 2358. This is the range it should find resistance given the hard selling and the bear market look. It is indeed finding it here. It is over the 50 day EMA and the old up trendline while just below the February and April peaks that represent the left shoulder of a potential head and shoulders base. Thus after a test here this is a key point for it to make the next break higher and break up this pattern. Critical stage for the techs that are, as shown Thursday, trying to assert some leadership.
NASDAQ 100 (-0.80%) faded but is holding over the early April peak, a potential left shoulder to a head and shoulders top. It is just over the 50 day EMA, still in good shape, and a pullback or more accurately a lateral move above the 50 day EMA for a few sessions sets up a higher low to make the higher break.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -23.12 points (-1.79%) to close at 1266.07
NYSE Volume: 1.283B (+6.92%). Volume rose as SP500 faded from resistance, but it was still well below average.
Up Volume: 234.175M (-455.447M)
Down Volume: 1.044B (+537.699M)
A/D and Hi/Lo: Decliners led 3.2 to 1. Pretty ugly though the small caps did not lose a lot of ground as a group so this is a bit deceiving.
Previous Session: Advancers led 1.25 to 1
New Highs: 20 (-23)
New Lows: 113 (+31)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Fell back from the tap toward the 50 day EMA, undercutting the 18 day EMA and the early 2008 lows on the close. Higher high following a higher low to start August. Now the large caps need to hold and make a higher low again by holding at 1250 or better. With the financials in trouble it is going to have to its hands full.
SP600 (-1.30%) was no rose on the session but its pullback was modest in context. It has to get over 383 without a lot more pullback, however.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The blue chips once again led the laggards but of course it had to deal with AIG and AXP getting clobbered. Volume was up thanks to them as DJ30 failed at the 50 day EMA and the early 2008 lows. Very similar to SP500 it is near the 10 and 18 day EMA and trying to hold on and keep the string of higher lows on this bounce alive.
Stats: -224.64 points (-1.93%) to close at 11431.33
VOLUME: 229M shares Thursday versus 180M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Productivity is out ahead of the open as the market gets ready to close the book on the first week of August. Good week up to Thursday. Friday will tell if it is a really good week or just another week of struggle. As noted above, it is all part of trying to base and let stocks set up and try to move toward leadership roles.
The indices have cut into the May to July losses, NASDAQ recovering more than half that loss. As discussed for the past month, historically that is how much an index will recover in a continuing bear market before it turns back down to resume the selling. That makes this next move by the indices quite important in gauging just where the market is in the lifespan of this bear market. The recovery off the low has been hard fought and there are some solid leaders to this point, and as noted, others are in the process of forming bases, but there is still weeks to go. Thus leadership remains thin and the gains remain hard fought, and again, this test starting now is going to be important in gauging this bounce.
Thus we are watching how the indices hold above the last higher low and at the same time watching leaders that are pulling back on modest trade and in an orderly fashion. They have done well despite the overall market's struggles, and if they fade back to test and rest in a normal, leader-like fashion we will look for opportunities to buy into them as they rebound off of support, just as we have been doing. Recoveries are tough but you keep looking at leaders and you keep watching for downside as well, taking what the market is giving while most of the stocks struggle through trying to find and put in a bottom.
Support and Resistance
NASDAQ: Closed at 2355.73
Resistance:
2370 from the April 2006 peak
2378 is the mid-February peak; 2379 from the October 2006 peak
The 90 day SMA at 2385
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 2441
2451 is the August closing low
2500 from interim August lows.
Support:
2342 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
The 50 day EMA at 2340
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 1266.06
Resistance:
1270 is the January low
1285 is the recent July peak
The 50 day EMA at 1294
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
1348 is an ancient trendline
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 200 day SMA at 1376
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
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 11,431.43
Resistance:
11,634 is the January intraday low
11,639 is the 2004/2005 up trendline
11,670 is the May 2006 intraday high; 11,642 closing
The 50 day EMA at 11,684
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 12,160
12,250 from late March 2007 lows
12,518 is the August intraday low
The 200 day SMA at 12,522
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): +1.6M actual versus -200K expected, -81K prior
August 7 - Thursday
Initial jobless claims (8:30): 455K actual versus 420K expected, 448K prior
Pending home sales, June (10:00): +5.3% actual versus -1.0% expected, -4.7% prior
Consumer credit, June (3:00): $14.3B actual versus $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
End part 1 of 3
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money investment
financial investment
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