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money investment, investment help
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8/14/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: NTES; QLD; QLGC; SOHU
Trailing stops: MNTA
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/alertttr.html
SUMMARY:
- Inflation, jobless claims flatten futures, but stocks fight back to score gains.
- CPI is hot as inflation rises but inflation pressures are falling.
- Weekly jobless claims holding near prior recession peaks.
- Stocks melt higher demonstrating an upside bias, but the internal strength flags: trying to rebound too soon?
Another weak open, solid finish for stocks, at least price-wise.
The early economic data definitely impacted futures as they went from flat to quite negative on the jumping CPI (0.8% versus 0.4% expected) and again high weekly jobless claims (450K versus 436K expected). After a nice rally and a couple of rest days stocks looked ready to continue the pullback. They did that as the bell opened, but almost from the get-go NASDAQ started backup. SP500 floundered around for a half hour, but NASDAQ's rise was irresistible, and it dragged the large caps higher right up into the afternoon session.
Volume ran low and that left the move open to some afternoon selling potential. The indices did lose ground but the overcame an attempt to sell more seriously and bounced some in the last half hour. The pecking order was the same as it has been all week: NASDAQ, chips, and small caps led the move though on Thursday DJ30 made a cameo appearance, almost matching the small cap's advance.
Thus far it is a very quiet expiration week. We were expecting more volume midweek similar to July when trade jumped higher during expiration. This week trade has fallen steadily since Monday. That means it can fall into category two of expiration, the old style crazy Fridays characteristic of expirations prior to the past two years. Thus Friday could be quite a bit more lively as the rally will cause some more positions to be rolled by those looking to the downside.
TECHNICAL. Intraday the action showed the low to high action characteristic of a more bullish climate, and the market is definitely showing the propensity to drift higher in the absence of any contrary news. Indeed, it moved up Thursday in spite of rising inflation and continued high jobless claims. Earlier in the week it ignored a jump in oil as crude rebounded off its sharp selling. Some backbone for sure, but it needs the other areas to buck up as well.
INTERNALS. Speaking of other areas, one would be upside volume. It was AWOL Thursday as the indices bounced off a couple of days of selling. The low volume was fine on the pullback, but with renewed upside you want to see more trade. Of course, if there was more trade I would say that it was due to expiration week so it was not that reliable, etc. So, for now just sit back and enjoy the upside.
CHARTS. NASDAQ broke over the 200 day SMA once again and NASDAQ 100 cleared some minor resistance at 1950. SP600 bounced back up to where it closed Tuesday, the high of this recovery off the July low. Nice quick test and within striking distance of 402 and the June peak, but it looks as if this move was a bit too soon. Another couple of testing days would have been better, even perfect, but waiting on perfection in the market would keep you waiting a long time and doing nothing.
LEADERSHIP. Techs are still pushing the action along with the chip stocks and pretty much any small cap stock. Drugs and healthcare are hanging in just fine, trucking is okay, while the rails are trying to hang on but these early leaders are struggling for the moment. More stocks continue to set up nice little bases, using the down and up action the past 10 weeks to their advantage. Many are up to the point of breakout after the market has run a ways. That is why we wanted to see more rest from the overall indices before trying to move higher once more so that the breakouts would not start and then be undercut if the overall market faltered. That is why next week some good upside volume would be quite positive.
THE ECONOMY
Inflation versus inflation pressures.
You get sick before you spike a fever. The fever is the bodies reaction to the sickness, it is what results after you catch the bug or virus. Inflation is the reaction to economic forces that precede it, forces called inflation pressure. Thus inflation is somewhat a lagging symptom of what has gone before. What does it take for inflation to leave the building? Inflation pressures need to abate. They start to fade and ultimately inflation follows. Makes sense: the pressure releases, inflation abates.
The Economic Cycle Research Institute puts out the best man-made inflation and growth indicators. They are typically quite accurate in flagging changes in economic tides. Its Future Inflation Gauge (FIG) is on the downturn, and if it continues, inflation should peak and start to fade. In August the FIG read 112.4, down from 114.9 in July. A year ago it stood at 121.7. This tells you inflation pressures are waning, and as noted, if they continue the higher inflation seen now will subside.
What helps inflation subside the most? Growth. Don't tell that to the ECB or others following the old and flawed (read useless) Phillips Curve who think that inflation falls when economic activity falls. If that was the case why would inflation be on the rise in Europe given the startling declines in ECB economic activity? Yes there is a lag, but inflation is ramping as economic activity is falling. Stagnant economies create less supply. First there is an inventory overhang, but nothing is manufactured because businesses don't see good market demand and don't want to spend more. Supply goes stagnant and the money floating around the economy causes inflation. Then central banks usually compound the problem by cutting rates and printing more money when what really works are incentives to get businesses to spend and invest in equipment and get back to making their businesses stronger and more efficient.
Right now we have inflation in the US. Overall CPI rose 5.6% year over year, the highest growth rate since 1991, the last time we were in recession. See: recessionary times yet spiking inflation. That topped the 5.1% expected and the 5.0% from June. Core is up as well, rising 2.5% annually, well above the Fed's comfort level at 2.0%.
The FIG, however, shows that inflation pressures are abating. It showed inflation pressures turn from their downtrend that started in October 2005 and start rising in late 2006. Sure enough we got to the point where pressures turned into inflation. It was accelerated by the very sharp dollar decline. Now we see the dollar has bottomed and surged, and before that move took off FIG was showing the inflation pressures abating. With the dollar rising inflation pressures should continue to decline and at a more rapid pace. Thus we can look for inflation to peak just as the FIG has, and then it starts its decline. A silver lining out there, but it is tough getting to that point.
Growth would really help the picture. The US is not in a textbook recession but growth tumbled and with high energy prices it certainly feels like a recession to most, and to us it is a recession given the drop off in economic activity from high levels to low. Not the government GDP numbers; we discussed how they are skewed and thus hardly worth following. We are talking about the real activity measured by business and consumer activity.
The ECRI weekly leading economic indicator is still heading lower, clocking in at 127.5 in August after 128.1 in July. A year ago it was 141.5. Economic activity 'pressures', similar to inflation pressures, are fading. That slows the decline of inflation and of course it slows the recovery timing. The Fed's Kern was out Thursday talking about a slow recovery, and he must be reading ECRI as he was pretty much on the mark according to ECRI. Of course you have to balance that with what the market is telling us. Small caps and other growth areas are on the rise with a solid move. They are leading economic indicators as well. With the drop in oil prices and the rise in the dollar they are picking up steam and if they can make a serious breakout to a higher high on this current move they start writing their own recovery story.
THE MARKET
MARKET SENTIMENT
VIX: 20.34; -1.21
VXN: 22.6; -1.97
VXO: 22.11; -1.82
Put/Call Ratio (CBOE): 0.87; -0.17. Back below 1.0 on a resumption of the upside. Of course it is expiration and thus this reading gets skewed.
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%. Looks as if it held even for the week, but we will have to verify this data further. If so it is still below the 35% level and thus bullish though moving up well off the lows. 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%. Holding flat as well, making the new data suspicious given the market rise. A steep drop the prior week from the 50.0% peak on this move 2 weeks back. 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: +25.05 points (+1.03%) to close at 2453.67
Volume: 1.89B (-8.73%)
Up Volume: 1.426B (+546.317M)
Down Volume: 370.835M (-763.434M)
A/D and Hi/Lo: Advancers led 1.56 to 1
Previous Session: Advancers led 1.14 to 1
New Highs: 80 (-1)
New Lows: 87 (-2)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ moved up through the 200 day SMA (2357) on the close Thursday, the first definitive close over that level since June. Of course it reversed right after that. Still resistance ahead at 2475 and 2500 before it gets up to the May and June peaks at 2550. May have moved too soon with just a two day pullback. Light volume so no real power. Will have to wait for next week to see what kind of trade comes into this. The price/volume action is okay but it is also light summertime volume. It has good attributes, but leadership is still rather thin and you keep thinking 'summer rally' on each low volume climb.
NASDAQ 100 (+1.15%) made a nice breakout over the handle highs in its 10 week cup with handle pattern. Would be nice to see volume, but as noted above, next week will tell more about the pedigree of this move.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +7.1 points (+0.55%) to close at 1292.93
NYSE Volume: 1.008B (-16.68%).
Up Volume: 666.598M (+152.851M)
Down Volume: 333.823M (-354.966M)
A/D and Hi/Lo: Advancers led 1.73 to 1
Previous Session: Decliners led 1.32 to 1
New Highs: 30 (-6)
New Lows: 85 (-23)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 rallied through the 50 day EMA (1294) up to 1300 and stalled there to close at the 50 day EMA. Still using the 18 day EMA as support, bouncing off of that on the low for the second straight session. Building pressure from the lows, trying to break it through 1300 and the August high at 1313.
SP600 (+0.75%) bounced off the Wednesday reversal and added a nice gain though it was not the market leader as it has been on the move to this point. A bit of rest is okay, but it needed a bit more pullback to take on the 402 June high on this move.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Held support again at 11,450 and rebounded, but after crossing the 50 day EMA (11,680) intraday it faded and gave it up along with the old trendline. That 11,750 remains a key level as it marks the March low and stalled the Dow just on Monday.
Stats: +82.97 points (+0.72%) to close at 11615.93
VOLUME: 159M shares Thursday versus 182M shares Wednesday. More extremely low volume. It was low on the pullback and low on the recovery. What is new for the Dow the past four weeks?
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Expiration Friday as well as industrial production, New York PMI, and Michigan sentiment. Plenty of important data along with oil and its daily influence. Oil is working laterally over support, and it still looks as if it is going break higher in a relief bounce. With the indices still below next resistance a crude bounce will pressure the indices and they may test further once more.
Expiration Friday is a tough session to buy into, particularly given that volume was low all week and thus if volume spikes you attribute it to expiration. Nonetheless you do what the market says. You don't go in and buy beaten up stocks in bad or no patterns. You look for those that used the up and down action the past 10 to 12 weeks to form good accumulation bases, and if they breakout they do so because they had buyers all along and they are continuing to push the stock. We did not see a lot of volume Thursday and while we picked up some positions we held off on many. Friday we will be doing the same thing. A big rally to end the week will likely be the result of position shuffling for the new expiration and we will look at that as an opportunity to take some gain and close some positions that are not moving as well as we want.
Now if the sellers get the upper hand after this low volume bounce we will do the same, watching how the leaders hold up and watching for holds at support that we can be ready to buy into next week if they launch. This move Thursday was too soon and that is always a worry because historically these kind of quick, low volume bounces before they are fully developed get slapped around. It is mid-August and that is the entre into September, the worst month for the market. If this light volume move gets turned over on stronger volume, and most importantly leaders such as medical, healthcare, trucking, get thrown back hard, then we have to start thinking summer rally in mid-August.
As you can see we like the string of higher and higher lows as well as higher highs, and we like that leadership has spread out giving a solid increase in good bases (e.g. RIMM, NTES, ASIA, ESRX, ATHR), but we need to stay on the planet and keep our bearings as to internal strength and time of year. If things go awry to the upside we close them and move one. That is one reason if we get another solid upside move Friday or one that gets to the prior highs and cannot punch through (e.g. volume stays light), then the rally will likely be over. Going to use that move to take gain off the table and close laggards, though we won't turn away from strong moves from strong stocks in good bases.
Support and Resistance
NASDAQ: Closed at 2453.67
Resistance:
2483 is the mid-June interim peak
2500 from interim August 2007 lows and early May 2008 interim peak
2551.50 is the May peak; 2550 is the June peak
2603 is the early January gap down point
Support:
2451 is the August closing low
The 200 day SMA at 2432
2419 is the January 2008 peak and the early February peak
2392 is the April 2008 peak
The 90 day SMA at 2389
2388 is the June 2008 low
2386 is the August 2007 intraday low
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
The 50 day EMA at 2357
2346 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
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 1292.93
Resistance:
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
1349 is an ancient trendline
1370 is the August 2007 intraday low
The 200 day SMA at 1370
1374 is the March 2007 closing low
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
Support:
The 50 day EMA at 1294
1285 is the recent July peak
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 11,615.93
Resistance:
11,634 is the January intraday low
11,640 is the 2004/2005 up trendline
11,670 is the May 2006 intraday high; 11,642 closing
The 50 day EMA at 11,680
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 12,108
12,250 from late March 2007 lows
The 200 day SMA at 12,470
12,518 is the August intraday low
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:
11,388 is the prior August low
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 12 - Tuesday
Trade Balance, June (8:30): -$56.8B actual versus -$61.9B expected, -$59.2B prior (revised from -$59.8B)
Treasury budget, July (2:00): -102.8B actual versus -$86.8B expected, -36.4B prior
August 13 - Wednesday
Import prices ex-oil, July (8:30): 0.8% actual versus 0.9% prior.
Retail sales, July (8:30): -0.1% actual versus -0.1% expected, 0.1% prior
Retail sales ex-auto (8:30): 0.4% actual versus 0.5% expected, 0.8% prior
Business inventories, June (10:00): 0.7% actual versus 0.6% expected, 0.3% prior (revised from 0.4)
Crude oil inventories (10:35): +1.6M prior
August 14 - Thursday
CPI, July (8:30): 0.8% actual versus 0.4% expected, 1.1% prior
Core CPI (8:30): 0.3% actual versus 0.2% expected, 0.3% prior
Initial jobless claims (8:30): 450K actual versus 436K expected, 460K prior (revised from 455K)
August 15 - Friday
New York Empire State PMI, August (8:30): -5.0 expected, -4.9 prior
Net foreign purchases, June (9:00): $57.5B expected, $67.0B prior
Capacity utilization, July (9:15): 79.8% expected, 79.9% prior
Industrial Production, July (9:15): 0.0% expected, 0.5% prior
Michigan sentiment, August preliminary (10:00): 62.0 expected, 61.2 prior
End part 1 of 3
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