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money investment, financial investment
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8/25/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: ABI
Stop alerts: DTSI; ODFL; MR; WMGI
SUMMARY:
- Monday takes back what Friday gained.
- Existing home sales rise, but so does the inventory.
- Back to hanging on at support, but the large cap NYSE are again an anchor chain.
Buyers head back to vacation, stocks slide back as well.
Over the weekend we detailed how the indices pulled back on the week with the growth indices holding key support levels, reversed Thursday and then posted nice price gains Friday. Volume was light, but it was still a solid picture with stocks in economically sensitive areas showing surprising strength (e.g. retail, rails). The dollar, gold and oil reversed their relief moves along with stocks, and on Friday they all resumed their more recent trends.
Monday there was no real change in any oil, the dollar or gold. Oil tanked 6+ clicks Friday after rising 6+ on Thursday. Monday it was basically flat (115.15, +0.56). Gold fell modestly (825.80, -7.70). The dollar tried to move higher but faded back from its intraday move through the Q4 2005/Q4 2006 down trendline but just couldn't quite hang onto it at the close. No real moves by these players.
Stocks were not so fortunate. There was just a lack of buyers and without any bids the market slid lower. It started lower, tried a bounce on the better than expected existing home sales (+3.1%) for about a half hour as some shorts covered and some buyers moved in, but that didn't last and stocks tumbled. They hit bottom at lunch, moving laterally for four, count 'em four, hours into the close. NASDAQ and SP600 held some support that held last week. That was a modest positive; hey, it stopped the intraday fall.
TECHNICAL. Intraday action was low to lower. Not surprising as it matched the bad tape. The interesting point is that the indices held laterally for four hours, not giving up any more ground. Much rejoicing.
INTERNALS. Breadth was terrible at -3.5:1 on both NYSE and NASDAQ. Volume turned in a mixed showing, rising on NASDAQ, falling on NYSE. Of course, they were both so pathetically weak, so far below average, that they really meant nothing as far as distribution. What they did show: buyers are on strike, out of town, or some combination of the two.
CHARTS. Stocks sold and all indices were impacted to the tune of 2% give or take a few hundredths here or there. NASDAQ returned to the 50 day EMA it held Wednesday; quick return and you don't like seeing such a quick fade after a nice, easy pullback. SP600 plunked back to the 200 day SMA in one move as well, just after testing and bouncing off that support last week. Those quick tests are typically indicate eroding strength. At least they will have a chance to try and hold it again as the SP600 is forming a reverse head and shoulders, a bullish pattern. It will, of course, need to find support here or darn close to here. SP500 broke the July up trendline again though you can say it is still above last week's lows. Reassuring no doubt. Lower high at the 50 day EMA and looking top-heavy and a drag on the growth indices.
LEADERSHIP. A lot of leaders simply held near support on another downside day for the indices. They look fine. On the other hand, there are some areas struggling and suddenly hanging on in healthcare/medical, and truckers blew a flat on downgrade for half the sector. Once more the leaders are getting tested along with the growth indices and how both hold will tell more about the rally . . . that is hanging on for life right now. Interestingly, some oil and gas stocks are trying to make a higher low after plopping on Thursday, and that could provide some support for the overall market. Financials are, as usual, ugly but some are trying to show some backbone. A ways to go before we get too excited or for that matter, any bit excited.
THE ECONOMY
Existing home sales rise but they cannot dent inventories.
The 3.1% gain topped the -2.8% June decline and topped expectations by 100K. Up and down for the past several months, but edging every slightly lower. Basically no real change. Bottom? Part of the whole bottoming process, but of course, that does not mean a recovery is imminent.
Just look at inventories. At 11.2 months houses on the market matched the April level and over the past four months have averaged 11.07 months. Not much worse there either. Not any better, but not any worse. Again, that indicates a bottom though no recovery coming around the corner.
Prices, after to months of 'recovery' where they averaged a 6.2% decline, fell 7.1%. This is one area you want to see falling harder and harder. They are down but they are not diving at an accelerated rate.
To sum up, and you already know the conclusion, the data bolster other housing data that indicates housing has bottomed. It also supports the conclusion that housing is not turning up anytime soon.
LIBOR spreads not telling a positive story.
That is the good and the bad. The ugly? LIBOR credit issues. Spreads are widening despite the Fed's credit facilities designed to inject liquidity and continue thawing the credit market. With spreads widening that means lenders are associating greater and greater risk with lending, putting the freeze back in the credit freeze.
This is not just a US issue, and indeed it is exacerbated by the troubles Europe is now experiencing. The US fell back from economic growth, and now Europe is threatening the same. Thus LIBOR spreads and indeed spreads in many places, are widening once more.
Thus while some economically sensitive stocks in the US are posting up well, yield spreads are injecting uncertainty once more into the picture. You cannot ignore bond yields. The yield curve is in good shape, but spreads are getting quite wide, on the order of 3 times as wide as say in the 1990's. There is still great concern with credit, thus less loans, and that typically leads to less economic activity.
THE MARKET
MARKET SENTIMENT
VIX: 20.97; +2.16
VXN: 24.28; +1.9
VXO: 22.32; +1.85
Put/Call Ratio (CBOE): 1.12; +0.25. Jumped quickly back above 1.0 on the close, indicating still a lot of anxiety about the downside. In the sentiment world that is a contrary indicator and leans toward the indices trying a bounce again, but it is not definitive. No sentiment indicator is.
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: -49.12 points (-2.03%) to close at 2365.59
Volume: 1.455B (+4.27%)
Up Volume: 168.529M (-940.847M)
Down Volume: 1.281B (+1.032B)
A/D and Hi/Lo: Decliners led 3.56 to 1
Previous Session: Advancers led 2.44 to 1
New Highs: 41 (-1)
New Lows: 109 (+17)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Bounced nicely Friday, plunked back to the 50 day EMA (28.30) Monday, a quick return visit. As noted that is typically not a great indication, but with volume low at least there was no gutting of tech stocks. A lower high at the 200 day SMA (2418) so now it has to hold at the 50 day EMA and bounce anew. Not making it easy on itself.
NASDAQ 100 (-2.16%) is showing similar action though it gave up its 200 day SMA and closed just below its 50 day EMA. Tougher day for the large cap techs, and as with NASDAQ overall it needs to hold here.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -25.36 points (-1.96%) to close at 1266.84
NYSE Volume: 865.19M (-2.58%)
Up Volume: 99.669M (-549.811M)
Down Volume: 761.697M (+528.587M)
A/D and Hi/Lo: Decliners led 3.43 to 1
Previous Session: Advancers led 2.54 to 1
New Highs: 12 (-5)
New Lows: 103 (+42)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Not a pretty picture as the large caps stalled at the 50 day EMA (1290) then rolled back down through the July up trendline. Managed to hold above the Tuesday through Thursday intraday lows (1261), but a lower high, even with low volume, is not great action. As noted above, SP500 with its financial contingent looks top heavy and is and remains a drag on the rest of the market.
SP600 (-2.21%) turned tail as well and plopped back down to the merging 200 day SMA and 50 day EMA. By virtue of its market leading gains on the move higher it remains in much better technical position, but as with the other indices, it is at a point it needs to hold the line given this key support and what is forming up to be a reverse head and shoulders. That pattern spans early June through present, with SP600 working on the right shoulder. A hold here is a positive for the index and NASDAQ as well.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Very similar to its partner in lagging, SP500, the Dow turned lower at the 50 day EMA (11,630) and sold back through its July uptrend. Still above last week's lows (11,290) but stalling at the mid-July peak. DJ30 is trying to form a short head and shoulders spanning the past 6 weeks, the opposite of the SP600 pattern. Once more it is breaking down between the growth indices on the one hand and the large cap NYSE on the other.
Stats: -241.81 points (-2.08%) to close at 11386.25
VOLUME: Rose to 146M versus the 138M shares Friday, but still well, well below average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Now the indices have to do it again. After testing and holding support last week they are at it again. Well, at least NASDAQ and SP600. SP500 and DJ30 are at least above last week's lows but that is about all you can say for them now. They look top heavy and are thus a drag on NASDAQ and SP600 as they try to brace up at near support.
Still plenty of stocks making up those indices holding at support as well as the market is in a classic test of the upside move versus the downside trying to reassert itself. Low volume upside move after it initially started suggests it won't hold, but with the many good, solid growth based stocks holding up in nice patterns, we don't want to just wash our hands and say it is over.
We will play the field so to speak, looking for downside from large cap NYSE and related stocks in weak patterns. We will continue looking at the upside as well with the leadership stocks that remain in good patterns even as stocks suffered a downside day Monday. Pessimism remains high and with the Monday sag back to support along with the time of the year, there is reason for the pessimism. We have our doubts as well, but the market will decide that.
Support and Resistance
NASDAQ: Closed at 2365.59
Resistance:
2370 from the April 2006 peak
2378 is the mid-February peak; 2379 from the October 2006 peak
2386 is the August 2007 intraday low
2388 is the June 2008 low
The 90 day SMA at 2396
2392 is the April 2008 peak
2419 is the January 2008 peak and the early February peak
The 200 day SMA at 2418
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:
The 50 day EMA at 2367 is trying to hold
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 1266.84
Resistance:
1285 is the recent July peak
1270 is the January low
The 50 day EMA at 1290
1317 from the February low
1320 is a 50% retracement of the May to July selloff
1324 is the April low
The 90 day SMA at 1330
1331 is the June low
1351 is an ancient trendline
The 200 day SMA at 1362
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 11,386.25
Resistance:
11,388 is the prior August low
11,500 is the up trendline off the July low
11,634 is the January intraday low
The 50 day EMA at 11,630
11,645 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
The 90 day SMA at 12,030
12,050 from the March 2007
12,070 from the early February 2008 lows
12,250 from late March 2007 lows
The 200 day SMA at 12,395
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 25 - Monday
Existing home sales, July (10:00): 5.00M actual versus 4.90M expected, 4.85M prior
August 26 - Tuesday
Consumer confidence, August, (10:00): 53.0 expected, 51.9 prior
New home sales, July (10:00): 525K expected, 530K prior
FOMC minutes (2:00)
August 27 - Wednesday
Crude oil inventories (10:35): +9.39M prior
August 28 - Thursday
GDP, Q2 preliminary (8:30): 2.7% expected, 1.9% Q1
Chain deflator, Q2 (8:30): 1.1% prior
Initial jobless claims (8:30): 425K expected, 432K prior
August 29 - Friday
Personal income, July (8:30): -0.1% expected, +0.1% prior
Personal spending, July (8:30): 0.3% expected, 0.6% prior
Chicago PMI, August (10:00): 49.9 expected, 50.8 prior
Michigan sentiment, final August (10:00): 62.3 expected
End part 1 of 3
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money investment
financial investment
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