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us stock market, trade stock
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8/18/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: None issued
Stop alerts issued: NSC
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SUMMARY:
- New week renews the too short pullback from last week.
- Dollar loses some ground as it takes a break from its gains as the trade from late last week reverses some.
- Rally gets more of the test it needs. Likely needs a bit more but needs to slow the decline.
Tape looks ugly but the technical action in the leading indices looks like a good pullback.
Stocks tried to start the new week positive, riding a couple of earnings reports from BHP (metals) and LOW (home building supplies). Futures were up, but calling LOW's numbers anything positive was a hard sell given it was the fourth straight quarter of declining results for the retailer. The dollar was lower as it retraced some of its big surge from the past two weeks, and that sparked a rebound in the commodities that were slaughtered late last week. The trends reversed from late last week and after a quick early pop in stock prices, they reversed and started a session-long slide.
Oil closed lower despite the dollar decline (113.06, -0.71), unable to find any traction at all. Gold jumped back over $800 (801.80, +13.40) and other commodities rebounded as well. That was enough to stymie the equities advance that saw SP600 reach near resistance Friday and stall.
The tape was not pretty at all with 1.5% losses on the indices. Trade was low, however, and the leading indices on this rally held near support at the 10 day EMA. SP500 and particularly DJ30 lagged once more but the stocks that led the rally, while down, held support. Given the technical action, despite the price losses overall, we ere disinclined to change much with our positions, and look to use this continued test from last week as an opportunity to look for good stocks testing and holding support. Indeed, that is how we viewed Monday: a continuation of last week's truncated test that bounced before it was ready. If NASDAQ and SP600 continue this kind of action, they will then have the foundation they need to take the next resistance and that is the June high for SP600.
TECHNICAL. Intraday the action was the old high to low, typical of downside sessions. Most of the intraday action the past week, however, was the more bullish low to high with the indices melting higher in the absence of any news. That is positive, but not determinative.
INTERNALS. Breadth was not pretty at -2.5:1 NYSE, -2.2:1 NASDAQ. As noted above, the tape was negative as the breadth shows, but volume was extremely light. No volume last week, less this week. Light volume is not necessarily a savior, but with the indices resuming their pullback/test, you want to see light trade as it shows big investors not moving in to dump stocks.
CHARTS. As noted, NASDAQ, SP600, and NASDAQ 100 all held up well, testing near support at the 10 day EMA on very low trade. No problem with these moves at all as they show no dumping of shares from the market leading indices. The NYSE large caps, however, once again struggled as a result of more financial woes. There are still a lot of unknowns with respect to these stocks and thus the ball and chain on these indices and that is hampering the moves of the growth indices. SP500 and DJ30 are cracking last week's lows but still in the uptrend off of the July low. A tale of two directions. For now the growth indices have carried the day, but this is a key test for the rally as the indices try to finish last week's consolidation.
LEADERSHIP. Financials were down again. They are not leaders in the sense they are trying to lead this rally, but they are leaders in the sense the market ultimately has to have them rally to sustain upside moves. Monday they were down and as the leaders were down, the market was down. As for tech and small caps, they pulled back on light trade holding support both on the indices and the individual strong stocks. They were down, but that does not mean out. They have to hold this test and resume the move; this market is a 'what have you done for me lately' market, and that means each move has to be viewed anew, particularly given the low volume move higher the overall indices showed last week. Still holding but this is where they prove their mettle in this rally.
SUMMARY. It looked ugly on the tape with the financials failing and then the leading indices (NASDAQ, NASDAQ 100, and SP600) resuming the test from last week they never finished. Even with the overall losses these indices held near support at the 10 day EMA on light trade. We are watching to see if this move holds and thus gives more upside opportunity. There will be more softness Tuesday and could be Wednesday as well. If NASDAQ and SP600 hold support, however, that is a positive for the rally.
THE ECONOMY
Very slow economic session. Housing sales in California were up to a 16 week high but sales were down 31% from last year. More of the same: the numbers are bad but they are not getting horribly worse, particularly when you look at the housing market overall. Big inventory backlogs as well, but we did not say there was recovery, jut a bottom put in. Bottoms do not equal rebounds, they just have to occur first. The market still needs to finish working off inventory and then it can start the recovery.
THE MARKET
MARKET SENTIMENT
VIX: 20.98; +1.4
VXN: 23.59; +1.07
VXO: 22.38; +0.88
Put/Call Ratio (CBOE): 1.05; +0.05
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: -35.54 points (-1.45%) to close at 2416.98
Volume: 1.666B (-6.22%)
Up Volume: 281.162M (-565.199M)
Down Volume: 1.368B (+454.588M)
A/D and Hi/Lo: Decliners led 2.2 to 1
Previous Session: Decliners led 1.1 to 1
New Highs: 47 (-45)
New Lows: 88 (+12)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Sold back through the 200 day SMA, but the break over that level Thursday was premature and now NASDAQ is testing as it should have, holding the 10 day EMA (2408) on the low and rebounding off that level in the close. Nice low volume test to near support though a lot of points lost. A bit more consolidation over the next couple of sessions holding near the 10 day EMA or even down to the 90 day SMA at 2391 would be a normal pullback. That would but it in the range of the February and April peaks that represent a left shoulder to a potential head and shoulders top this year. Thus need to see NASDAQ hold in this general range.
NASDAQ 100 (-1.27%) showed similar action, tapping the 10 day EMA on the low and bouncing modestly. Light trade, still working on the handle to a nicely formed 10 week cup with handle base. Very positive for the market overall.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -19.6 points (-1.51%) to close at 1278.6
NYSE Volume: 985.302M (-16.2%)
Up Volume: 159.65M (-578.144M)
Down Volume: 817.708M (+388.957M)
A/D and Hi/Lo: Decliners led 2.54 to 1
Previous Session: Advancers led 1.1 to 1
New Highs: 37 (-15)
New Lows: 106 (+12)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Those poor financial patterns bit SP500 on the butt Monday as FNM and FRE government takeover worries again brought financials lower, taking the NYSE indices with them. Slightly undercut last week's intraday low then rebounded. Sagging under the weight of the financials, but still holding the up trendline off the July low. That is relative, however. It ahs about 8 points to play with to still hold that trendline. It is not strong and it looks as if it will need NASDAQ and SP600 to pull it.
SP600 (-1.52%) sold back from the Friday tap near the June peak but is in the lateral range etched out over the past week. Tapped the 10 day EMA on the low and bounced modestly to the close. As with NASDAQ, solid action and how it holds here tells the story of this rally and once more as in June will give more insight as to the outlook for the economic recovery.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Dipped below last week's lows managing to recover late. Has the look it is not going to hold the line after making a lower high last week and tapping the up trendline Monday on the low and managing a modest bounce ahead of the close. Not promising as the financial issues and the worries about industrials still selling overseas with those economies heading toward recession weighing on the Dow stocks. It is heading to the licklog for this move over the next session or so.
Stats: -180.51 points (-1.55%) to close at 11479.39
VOLUME: 156M shares Monday versus 215M shares Friday. No trade at all but ha to hold its support nonetheless.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Some economic data with housing starts and PPI on Tuesday. Interesting but not definitive. The dollar will likely continue its retrenchment after its gain and that means more of the same dollar related action in commodities. As with the pullback on NASDAQ, NASDAQ 100, and SP600, however, it is just a retrenchment. Nothing has changed for the dollar as estimates for foreign economic growth continue to slide. China was written down to below 7% for its quarter, and that is a huge drop. A totalitarian shutdown of industry for the Olympics will do that.
For the US the focus has to shift away from that weak dollar overseas export trade that kept the economy going and more toward whether and when the US will recover while the other economies flag. Right now for us it is a question of what NASDAQ and SP600 do.
Economic data includes PPI, housing starts, and the Philly Fed as the high points. Commodities, oil and the dollar will continue to have their influence as a major dynamic. Financials are going to direct SP500's move. Then there is the action on SP600 and NASDAQ, the leaders in this rally. They held up well Monday despite the selling, holding near support on low volume. Most leading stocks did the same thing. That is a positive as long as it holds. There was a lot of gloom Monday; there always is when there is a point loss, and of course the low volume off the July low still has everyone on edge. We are not 100% confident of this move continuing from here: the financials continue to undermine upside moves as they cannot get on track themselves.
Tuesday we will continue to watch the leading indices in their pullbacks and whether the positive attributes remain and if they can get some help from the financials. We are not expecting any bounce soon from them that leads to permanent upside, but they too are working through a basing process that many of the current leaders had to go through. Thus a pullback here can once more lead to a bounce and give the rest of the market a boost off the support. It is a tough process rebuilding; tests your nerves. Just going to watch the leaders and the leading indices to see how they hold and what they can give us in terms of opportunity while at the same time watching for potential downside action if it develops further. Such is the nature of this market.
Support and Resistance
NASDAQ: Closed at 2416.98
Resistance:
2419 is the January 2008 peak and the early February peak
The 200 day SMA at 2428
2451 is the August closing low
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:
2392 is the April 2008 peak
The 90 day SMA at 2391
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 2363
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 1278.60
Resistance:
1285 is the recent July peak
The 50 day EMA at 1293
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
1350 is an ancient trendline
The 200 day SMA at 1368
1370 is the August 2007 intraday low
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:
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 11,479.39
Resistance:
11,634 is the January intraday low
11,644 is the 2004/2005 up trendline
11,670 is the May 2006 intraday high; 11,642 closing
The 50 day EMA at 11,671
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 12,086
12,250 from late March 2007 lows
The 200 day SMA at 12,447
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:
11,425 is the up trendline off the July low
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 19 - Tuesday
Building Permits, July (8:30): 949K expected, 1.091M prior
Housing starts, July (8:30): 963K expected, 1.066M prior
PPI, July (8:30): 0.6% expected, 1.8% prior
Core PPI (8:30): 0.2% expected, 0.2% prior
August 20 - Wednesday
Crude oil inventories (10:35): -316K prior
August 21 - Thursday
Initial jobless claims (8:30): 450K prior
Leading Economic Indicators, July (10:00): -0.2% expected, -0.1% prior
Philly Fed, August (10:00): 62.0 expected, 61.2 prior
End part 1 of 3
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