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money investment, investment help
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8/19/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: BAC
Trailing stops: CELG; MYGN
Stop alerts issued: JBHT; MPWR; WFC
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SUMMARY:
- Market sells again with growth/leading indices holding near support as the dollar rally, commodities selloff retrench after big moves.
- PPI ratcheting up to prior recession levels, trying to push consumer prices.
- Housing starts fall to the lowest in 17 years: more good news
- HPQ earnings try to rally the troops, bounce NASDAQ and SP600 off support.
Dollar trade continues to backtrack, keeping the pressure on stocks
Tuesday's economic data was good reason for stocks to continue the Monday selling, and they did that quite well. PPI hit levels not seen since prior recessions. Housing starts did the same. The few positive earnings (HD beat and affirmed guidance, TGT beat) were no match, and stocks had a reason to sell some more. Of course the major assist they received on the last part of the rally continued to retrench some as the dollar pulls back from its rally and commodities recover from their selling. A confluence of factors helped keep stocks under pressure along with the usual problems in the financial sector.
Stocks tried to bounce back after the early selling, moving up before lunch but they failed. Tried to bounce again in the last hour and moved off the lows, but ran out of time. Oil recovered (114.53, +1.66), gold as well (816.80, +11.10) along with commodities in general for the second straight session. As noted, they are retrenching the last sharp rally; normal to reverse and backfill a bit after sharp rallies or sharp selloffs. The pressure hampered stocks along with the continued weakness in financials that dragged SP500 and DJ30 lower, the latter below its July up trendline.
TECHNICAL. Intraday the action was bearish once more with the low to lower trade. Tried to bounce intraday but that move failed. A late bounce took back some of the losses, but it was a lot too little and whether it would have held up is questionable.
INTERNALS. Negative as you would expect with breadth at -2.6:1. Volume rose on both NASDAQ and NYSE, but it was still laughably low, well below average. Hardly heavy volume selling, but the result is the same with the large, though a bit less, price losses. Buyers are on strike thus far this week, allowing the indices to fade with the growth leaders at near support.
CHARTS. The growth indices (NASDAQ, NASDAQ 100, SP600) sold but held support at the 18 day EMA. On the other hand, SP500 and DJ30 are not with DJ30 selling below its up trendline off the July low. Growth down but holding support. NYSE large caps with the financial contingent, down and breaking support. Once more the two sides are at odds and this test of support by NASDAQ and SP600 will tell the tale.
LEADERSHIP. Similar to the growth indices, leadership is testing, but it is not breaking down. Our plays on the report are testing but most are holding up well at support. Retrenching with the indices is normal. If this is going to be a successful test and a resumption of the rally they will have to hold support on the close and then continue the move.
SUMMARY. There is a dichotomy once more between growth stocks in a normal pullback and the large cap NYSE indices beleaguered by financials. The test by the growth indices remains orderly and contained but it does try the nerves and intestinal fortitude. Leaders in those indices as well as the indices are holding up, but they need to continue doing so on a closing basis, and with this selling that is where things get a bit unnerving.
THE ECONOMY
PPI scorches higher again.
The 1.2% monthly gain faded from June's 1.8% jump, but that did not mitigate the inflation picture for the year. Indeed, year over year inflation rose 9.8%, the highest level since 1981. Core PPI burned higher by 0.7%, crushing the 0.2% expected and registered in June. That pushed annual core inflation to 3.5%, the highest since 1991.
Okay, what do those dates mean? They are both recession years. As discussed last week, inflation rises as the economy slows. These two years were at the peak of their corresponding recessions. In other words they showed what inflation does when the economy has slowed: they rise to peaks and then when the economy slows they fall.
Right now the US inflation reflects the slowing of the past year. The question is whether it is peaking or still on the rise. As also discussed last week, ECRI shows that inflation pressures are falling. That gives us a pretty good indication that inflation is peaking right now as it is a lagging indicator. Housing has bottomed as discussed the past month, and while that does not mean the economy surges, it does indicate that the inflation, while jumping as a result of the economic slowing, is reaching a peak.
Housing starts fall 11%, matching another recession period.
Housing starts fell 11% but there were higher than expected (965K versus 960K). Once again housing starts slip below 1M annualized. Historically that indicates a bottom in housing. All of the other factors of late suggest a bottom has occurred and that is what we called a few weeks back. That doesn't mean recovery is imminent, just a bottom.
Okay, why else is this good? Because there is too much inventory. While there is a bottom, as noted, a recovery is not imminent just because a bottom is hit. Now prices have to fall as they are, and starts have to fall as they are so that inventory can get worked off and the market can recover. With foreclosures still running higher and higher, however, inventories will remain soft for awhile.
The sad irony of all this is what usually happens when there is a bust in a sector. Greenspan pushed rates low, low and lower after 9-11 and kept them there more or less, with a few hikes but more cuts. That allowed a lot of people to qualify for home loans that could not have done so without the low rates. That was touted by our President and congressmen as a fulfillment of the American dream. No issue with that; it is great that more people can afford housing. Or should I say 'could' afford housing. When interest rates rose as they had to ultimately do and the economy slowed again as it eventually would, affordability declined.
Now that the worm has turned and people are losing their homes our congressmen are out looking for the culprits. They tout and foster policies that promote home ownership beyond the means of many who historically could not afford housing, and then when the economic conditions change they look for a scapegoat, hauling the mortgage lending CEO' in for hearings to find out who is responsible when they should be taking a good look in the mirror. The Fed had its fingers in the pie but Congress, through the policies it promotes and promulgates, had its fists in there. The Fed tries to make policy with what it is given by Congress, and that is often similar to brain surgery with a mat cleaver.
THE MARKET
MARKET SENTIMENT
VIX: 21.28; +0.3
VXN: 24.21; +0.62
VXO: 23.22; +0.84
Put/Call Ratio (CBOE): 1.13; +0.08. Second day over 1.0 on the close once more. Adding to the prior backlog of several weeks. There is still a lot of downside anticipation as measured by the options market, and that is a contrary indicator.
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: -32.62 points (-1.35%) to close at 2384.36
Volume: 1.749B (+4.97%)
Up Volume: 326.663M (+45.501M)
Down Volume: 1.407B (+38.445M)
A/D and Hi/Lo: Decliners led 2.65 to 1
Previous Session: Decliners led 2.2 to 1
New Highs: 29 (-18)
New Lows: 110 (+22)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ sold again but after undercutting the 18 day EMA on the low it rebounded to close just over that level. Now it is in the level where it needs to find some support and resume the move. We will see if the HPQ earnings announced after hours will help.
Same action on NASDAQ 100 (-1.24%), gapping lower but tapping at the 18 day EMA on the low and bouncing up modestly to close. This is where it needs to hold the line as well. HPQ might help large cap stocks such as INTC move higher, and we note that AAPL is in a very nice pullback as well.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -11.91 points (-0.93%) to close at 1266.69
NYSE Volume: 1.013B (+2.79%)
Up Volume: 252.57M (+92.92M)
Down Volume: 745.044M (-72.664M)
A/D and Hi/Lo: Decliners led 2.57 to 1
Previous Session: Decliners led 2.54 to 1
New Highs: 14 (-23)
New Lows: 176 (+70)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Holding just over the last dip in early August by a point (1262.11) as the large caps just crack the up trendline off the July low. This is the lick log where the large caps need to hold the line. Will need the financials to turn it around.
SP600 (-1.61%) sold similar to NASDAQ, gapping and selling down to the 18 day EMA, undercutting it intraday but rebounding to close just over that level. This roughly matches the mid-June dip lower, and it is a good point for SP600 to hold and rebound, forming the right shoulder to an 11 week reverse head and shoulders pattern, a bullish accumulation pattern.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
DJ30 remains the anchor chain, breaking below its July up trendline as well as the interim lows in the second week of August, making a lower low after the lower high last week just below the 50 day EMA. The Dow just cannot shake the drag of its financials. It is heading lower and the question is whether the small caps and NASDAQ can ignore this one for now.
Stats: -130.84 points (-1.14%) to close at 11348.55
VOLUME: 171M shares Tuesday versus 156M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Now is the time for all growth stocks to hold the line and set up for a bounce higher. As noted, many leaders have matched the NASDAQ and SP600 indices more or less, holding up at near support on this pullback, still holding their moves higher and their patterns. They look nice; now they have to make good on the pullback and hold the line at the minimum and move higher after the hold.
HPQ gave techs a high note after hours. It likely is not enough by itself, but if oil inventories come in sharply lower that would not hurt at all. Oil still looks as if it wants to bounce a bit more and the dollar still looks as if it needs to come back and test a bit more, however, so that likely won't be where a near term catalyst comes. Still, all SP600 and NASDAQ need to do near term is hold this support again and continue the set up for a new bounce. That is what we are watching for but at the same time recognizing that the financials continue to act as an anchor chain on the rest of the market. If they pull the leading indices below near support on the close we have to anticipate more downside.
Support and Resistance
NASDAQ: Closed at 2384.36
Resistance:
2386 is the August 2007 intraday low
2388 is the June 2008 low
The 90 day SMA at 2392
2392 is the April 2008 peak
2419 is the January 2008 peak and the early February peak
The 200 day SMA at 2426
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:
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
The 50 day EMA at 2364
2347 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 1266.69
Resistance:
1270 is the January low
1285 is the recent July peak
The 50 day EMA at 1292
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 1367
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:
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 11,348.55
Resistance:
11,388 is the prior August low
11,425 is the up trendline off the July low
11,634 is the January intraday low
11,644 is the 2004/2005 up trendline
The 50 day EMA at 11,658
11,670 is the May 2006 intraday high; 11,642 closing
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 12,075
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:
11,317 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): 937K actual versus 959K expected, 1.138 prior (revised from 1.091M)
Housing starts, July (8:30): 965K actual versus 960K expected, 1.084 prior (revised from 1.066M)
PPI, July (8:30): 1.2% actual versus 0.6% expected, 1.8% prior
Core PPI (8:30): 0.7% actual versus 0.2% expected, 0.2% prior
August 20 - Wednesday
Crude oil inventories (10:35): -316K prior
August 21 - Thursday
Initial jobless claims (8:30): 438K actual, 450K prior
Leading Economic Indicators, July (10:00): -0.3% expected, -0.1% prior
Philly Fed, August (10:00): -13.4 expected, -16.3 prior
End part 1 of 3
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