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8/21/08 Investment House Daily
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MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: ADBE; XTO
Trailing stops: None issued
Stop alerts issued: None issued
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SUMMARY:
- Enough gloom to torpedo the market, yet it doesn't.
- Oil finally rebounds from its harsh selloff: a new 'American oil crisis?'
- Leading economic indicators leading lower, but regional manufacturing shows overall improvement.
- Still sluggish as can be, but holding up in the face of very gloomy news.
Plenty of gloom but market bounces back after early weakness.
Oil surged back from its selloff over the past month, an overdue move after falling from 147 to 112. Tensions between the US and Russia over deploying a missile defense system in Poland is the supposed trigger. Of course to some Russia's invasion of Georgia to make it a satellite in Russia's new gambit at re-establishing old Soviet-style domination has nothing to do with the rise in oil prices. They both were triggers: markets never like it when two countries square off, but putting a missile defense system in Poland sure seems to make sense if Russia is going to pull these kind of stunts. As soon as the tanks rolled into Georgia NATO should have sent a few hundred Abrahams tanks in and called the bluff just as we should have knocked down the Berlin wall the day after it was erected. But as usual, I digress.
These tensions helped trigger an overdue surge in oil prices after that hard selloff. They held at support for over a week, and it took this kind of intrigue to finally send them higher. Overdue, the bounce really popped when it finally found firm footing. Is it a new run higher for oil? Not likely. Oil sold 35 points in a month. A rebound to 121.48 (+5.92) is less than 10 points, not even a 50% retracement that is normal after such a beating. This is what we expected to happen at some point, and it finally started though the delay made the run all that more powerful as it started. A new run? Not likely. It is a rebound from some extremely hard selling. Perfectly normal. You would think the journalists on CNBC would figure out that what falls hard has to rebound at some point even just in relief. No, they put back up the 'America's Oil Crisis' banner on the ticker again with oil rising over $120.
There was more than just oil Thursday. More worries about a possible FRE, FNM bailout plagued the early trade and lowered the dollar's worth. That aided the continuing commodities bounce. Indeed, if commodities hold these gains through Friday it will be the largest weekly gain for the overall sector in 33 years. Ironically, FRE and FNM didn't sell off on the session, though they are hardly in a position to stage dramatic comebacks. Nonetheless, even with the added worries about them, financials are still setting up for an interim bounce.
The gloom these double worries brought about Thursday morning was impressive. For the second session pundits graced the financial stations assuring us that the market was only heading lower thanks to the financial weakness. All of that gloom, yet the market, though it started lower, did not tank. Indeed, it rebounded. In July the Dow would have dropped 300 points on this news and gloom. As it is, stocks sold back a bit more and then rebounded, with the NYSE large caps leading the way back up. NASDAQ and SP600 did not hold the nearest support, but they did rebound off of key support. Don't want to be Polly Anna about this, but again, this kind of gloom would have rocked the market in July. It basically shook it off Thursday and continued to work on its consolidation.
TECHNICAL. The intraday action showed a bit of upside tenacity. Stocks started lower on the bad news but then rebounded. Another attempt to sell midmorning failed to tank the market and stocks rebounded nicely into the close. A bit of character.
INTERNALS. Breadth remained negative despite SP500 posting a gain. Seems the smaller caps were just not quite making a run back up to support the large caps. Volume was impressively low, failing to even make 1B on NYSE. No heavy selling in the gloom.
CHARTS. NASDAQ and SP600 did not hold the 18 day EMA on the session, but that was not definitive. NASDAQ gapped lower but held the 50 day EMA. SP600 gapped lower but held the 200 day SMA on the low and bounced modestly. Not the nearest support but important support. SP500 bounced again, something it needed to do, but it made little upside headway; needs to make a bolder upside move to show returning strength, and it can do it with a higher low here.
LEADERSHIP. More of the same with the leaders holding support, some bouncing, others still setting up for the next bounce. Solid in medical/healthcare, some good looking techs. Energy continued to bounce along with commodities on the dollar trade and oversold nature of these stocks. Retail was very interesting as some retail broke higher while others held up well and continued to base. Why are financials moving up with the stimulus checks disbursed and a worried consumer? Leading signs from the market again. Financials? They still need work, but this very up and down action of late is how bases are formed.
SUMMARY. The indices were no great upside performers Thursday, but they again swallowed some bad news and managed to recover when this news would have sent them to the toilet a few weeks back. Not a hands down affirmation of the rebound off the July lows but showing some backbone once more.
THE ECONOMY
Economic data still shows nothing overly promising.
Leading economic indicators for July posted an impressively weak 0.7% showing versus the -0.3% expected. While the Conference Board's LEI is historically wrong or at least misleading, it is in line right now with the ECRI leading indicators that show nothing major happening in terms of an economic recovery.
The Philly Fed was a bit more interesting though it was not a strength move itself. August posted a -12.7 reading versus -13.4 expected and -16.3 in July. Wow. Improvement. Prices paid helped a lot with a drop to 57.5 from 75.6; the drop in oil prices showed its power in influencing the data. Lower energy prices are key, but it will take more to get the manufacturing sector into recovery mode.
THE MARKET
MARKET SENTIMENT
VIX: 19.82; -0.6
VXN: 23.15; -0.38
VXO: 21.26; -0.44
Put/Call Ratio (CBOE): 0.96; -0.01
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: 40.7%. Still moving up, rising from 34.0%. After this week, however, bulls should post another decline. Topped the 35% level that is considered the demarcation between bullish and bearish indications. Above 35% is not as bullish. A long way up from the 27.8% on the low this round. Hit 31.9% two months 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: 38.4%. Dropping hard from 43.6% and down from 50.0% a month back, the high on this move. Still above the 35% threshold so still a bearish indication. 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: -8.7 points (-0.36%) to close at 2380.38
Volume: 1.558B (-12.55%)
Up Volume: 467.183M (-456.837M)
Down Volume: 1.048B (+225.717M)
A/D and Hi/Lo: Decliners led 1.64 to 1
Previous Session: Decliners led 1.02 to 1
New Highs: 40 (+9)
New Lows: 106 (+4)
Gapped lower but held the 50 day EMA on the lows and rebounding, coming close to a gain on the session before a last minute slump scuttled that plan. Didn't hold the 18 day EMA, but that was not a disaster. Low volume test and still, after this decline, can till deliver us a good upside move.
Same action on NASDAQ 100 (-0.33%), tapping the 50 day EMA and then rebounding to hold the 18 day EMA on the close. It will do.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +3.18 points (+0.25%) to close at 1277.72
NYSE Volume: 912.306M (-14.62%)
Up Volume: 464.608M (-168.512M)
Down Volume: 432.65M (+18.545M)
A/D and Hi/Lo: Decliners led 1.23 to 1
Previous Session: Advancers led 1.17 to 1
New Highs: 9 (-3)
New Lows: 136 (+18)
Gapped lower as well but held above the Wednesday low and posted a gain on the close. No major new ground recovered, but holding the July up trendline and can make another higher low here.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 (-0.79%) was a Thursday laggard, but it too found bottom at important support above the 200 day SMA and rebounded to cut the losses and sill keep alive a higher low off of this test. Hit key support and held, a good indication at this point.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The Dow still could not get it together, posting a gain but again closing below the July up trendline. Lagging still; needs the others to pull it along.
Stats: +12.78 points (+0.11%) to close at 11430.21
VOLUME: 130M shares Thursday versus 144M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Tough week for equities draws to a close. Dollar fell, spurring a rise in oil and other commodities . . . along with potential issues with Russia. More financial issues dogged that sector. Hard to make headway with this hanging over stocks.
Would just as soon stocks did not make a major move Friday to the upside, but we will take what comes. The NYSE large cap indices are still weak and in need of help from financials. Not expecting them to lead, but after the selling this week they are in position to bounce and continue work on their bases.
Other leaders will need to continue higher after this test to provide the real market leadership once more and bounce the indices higher again off of this week's test. As noted above, the news was bad enough to tank stocks, but it did not. After this round of selling on worry runs its course, leadership needs to ramp up a new climb and pull the market along with it. Leaders are set up to do so once more, but they have to follow through with the move.
Support and Resistance
NASDAQ: Closed at 2380.38
Resistance:
2386 is the August 2007 intraday low
2388 is the June 2008 low
The 90 day SMA at 2395
2392 is the April 2008 peak
2419 is the January 2008 peak and the early February peak
The 200 day SMA at 2422
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 2365
2348 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 1277.72
Resistance:
1285 is the recent July peak
The 50 day EMA at 1291
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 1364
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 11,430.21
Resistance:
11,438 is the up trendline off the July low
11,634 is the January intraday low
The 50 day EMA at 11,640
11,644 is the 2004/2005 up trendline
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
The 90 day SMA at 12,055
12,070 from the early February 2008 lows
12,250 from late March 2007 lows
The 200 day SMA at 12,415
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 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): +9.39M bbl versus -316K prior
August 21 - Thursday
Initial jobless claims (8:30): 432K actual versus 438K expected, 445K prior (revised from 450K)
Leading Economic Indicators, July (10:00): -0.7% actual versus -0.3% expected, 0.0% prior (revised from -0.1%)
Philly Fed, August (10:00): -12.7 actual versus -13.4 expected, -16.3 prior
End part 1 of 3
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