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us stock market, stock trading course
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8/26/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: SDS
Trailing stops: None issued
Stop alerts: QLGC
SUMMARY:
- Up and down action keeps the market range trading on low volume, but slowly eroding
- Consumer confidence rises as gas sputters
- New home sales rise modestly while prices fall slower, showing . . . a bottom?
- Dollar rises again, aided by EU data while oil blows higher on Gustav
- Dull market refuses to given in, waiting for more volume though that may not be good for the bullish side.
Dull market manages to hang onto its range with a late rebound.
After a left-footed start to the week (I can say that as I am left handed) stocks perked up pre-market Tuesday though it more a cessation of the Monday fade than a recovery. Oil was up on the Gustav storm advancing in tracks that could take it just about anywhere in the Gulf of Mexico. At the same time the dollar was higher as well. Seems the threat of Gustav was enough to overcome a dollar that advanced to a new post March dive high.
Stocks started higher and continued to advance as the morning's economic data came out. New home sales didn't top expectations (+2.4% versus 3.1% in June), but importantly more data showed evidence of a bottom in that the Case/Schiller index showed a 15.9% drop, but that was better than the -16.2% expected. It was termed 'stabilization' by Bloomberg, and we will give them that given they asked it as a question. Consumer confidence 'jumped' unexpectedly to 56.9 versus the 53.0 expected and 51.9 in July. Ah the power of cheese . . . I mean, lower gasoline prices. With prices down the better part of a dollar the consumer loosened up a bit. Of course that is just in time for Gustav to enter the Gulf, so the respite may be, at least in the short-term, short-lived.
That helped boost the market back up but after the early bloom stocks turned down and slid to negative by mid-afternoon with NASDAQ sliding 22 points and DJ30 100 points from high to low. Looked like the bears were going to win out as SP500 and DJ30 sagged again below support and NASDAQ broke well below the 50 day EMA. In the last hour, however, stocks showed their dogged determination at support and recovered to just about all positive outside SOX and NASDAQ 100. NASDAQ and NASDAQ 100 were a bit lower, however, as their strength eroded just a bit. No breakdown, but there is some slight erosion with NASDAQ starting to slide over next to SP500 as it sags at the 50 day EMA as well. Hanging on but the market is keeping to itself as to its intentions.
TECHNICAL. Somewhat higher to lower, but with the flare of that last hour rebound to take the sting out of the downside. It looked as if the indices were going to give it up, but then there was some life. They still have issues given the struggle higher in the late summer low volume bounce, but they were game for a recovery on Tuesday.
INTERNALS. 1.5:1 on NYSE, flat on NASDAQ, much better than Monday when the majority of SP500 was lower and nearly all of NASDAQ 100. Volume fell on the NYSE as those indices rose and rose on NASDAQ as techs faded. Volume was pathetically low once more, but low or not, it is shifting from positive yet low to negative yet low. Probably not enough to worry about given the 'how low can you go' volume, but when volume returns it may not help given the time of year: August bleeding into September, historically the worst month for the market.
CHARTS. NASDAQ slid a bit more on the close but it did come back from the lows that tested the old, old trendline and though it could not recapture the 50 day EMA on the close. Nice doji. SP600 fell below the 200 day SMA intraday and then bounced for a modest gain to hold that level. Good for the small caps as that keeps the reverse head and shoulders pattern alive. SP500 held on as well about last week's lows though it remains below its recent trendline and the key moving averages. It took that late rally to gin it up to positive and put a bit of shine on the session. Again, hanging on
LEADERSHIP. This lateral market, while not vaulting stocks higher, is helping along a lot of bases with many strong stocks holding nicely at support. There is a steady erosion, however, that is plaguing some leadership, e.g. medical and healthcare and some tech. There is always a change of the vanguard and some of this is just sympathetic pullback with the market overall, but there needs to be something taking its place. There are bases being built and some really nice patterns. Question is, will they complete their bases and lead higher from here or will the market need a test lower that allows SP500 and DJ30 to test the new lows hit in July. Odds are that financials will need to make that test to complete their bases, and the question for the rest of the leadership is whether it can hold on during that test. A bounce higher before that test would put them in better shape as they could then use the test as a pullback to support rather than being at support when it starts and . . . breaking down.
SUMMARY. The bottom line: there is still some good leadership with many solid stocks on the report holding up well. There is also some erosion in leadership, however, and the financials are not finished with basing; they will need at least another month, at least, to get that accomplished if everything goes well. What to expect? Likely a similar September and October that we are all familiar with, i.e. a rocky period with some serious selling that takes the NYSE indices back down to the July lows and works to set a more perfect bottom for the market to build upon.
THE ECONOMY
The dollar is on a run.
The dollar stalled at the down trendline from late 2005 last week and threatened to head lower at that level with a sharp drop on Thursday. It rebounded right back and Tuesday blasted through. The dollar is on a roll.
Why is that? It was oversold. The US economy was not, as the numbers show, in nearly as bad of shape as economists let on. It was off its feed for sure, but the credit issues, while bad, are not devastating. Sure the Bush administration tried to hamstring it, but it is ahrd to keep a good currency down.
Europe, on the other hand, is not as great and strong as it was made out to be. It is, after all, Europe, and with its choking regulations promulgated by the EU and the ECB's mandate to choke off any economic expansion before it can hit its prime, the expansion in Europe was doomed to fail, spurred on by the US weakness. Now the US, as indicated by the stock market and the bottom in housing, is showing nascent signs of emerging from the downslide. That does not mean a rebound, just a cessation of downside hostilities. That means there is still more work to do, but the financial markets lead the way. Hence, a stronger dollar.
As a continuation to a string of discouraging European news, German business sentiment tanked well below expectations. The euro fell to a six month low after the news. The slide in Europe and the twilight of the Bush administration and its weak dollar policy are helping the dollar recover beautifully. Long way to go, but it has set up a base, broke out, tested, and on Tuesday showed it is ready to continue the run.
THE MARKET
MARKET SENTIMENT
VIX: 20.49; -0.48
VXN: 24.03; -0.25
VXO: 21.72; -0.6
Put/Call Ratio (CBOE): 0.97; -0.15. After bumping over 1.0 on the Monday selling, it ran slightly cooler Tuesday, but still shows plenty of downside anxiety.
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: -3.62 points (-0.15%) to close at 2361.97
Volume: 1.468B (+0.9%). Up volume, but as noted above, it was on a down or churn session. Now it did bounce from the test lower, so there is an argument it was at least partially positive. We will give it that credit but also note there is a subtle turn to the darker side by volume. Nothing major, just a shift from what we have seen.
Up Volume: 612.474M (+443.945M)
Down Volume: 827.961M (-452.615M)
A/D and Hi/Lo: Advancers led 1.12 to 1
Previous Session: Decliners led 3.56 to 1
New Highs: 35 (-6)
New Lows: 103 (-6)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Edged lower on the close, trying to take out the 50 day EMA (2367) on the high, but failing to hold on. It tested lower as well, tapping at the 2004/2006 up trendline and then recovering to just about flat. Yen and yang. In the end NASDAQ gave up a bit but the rebound shows a bit of buying off the trendline. It is hanging on, trying to form a handle to a potential 8 month double bottom, but that is no sure bet at this stage. Showed a nice doji on the candlestick and after the Monday drop that can indicate a shift in momentum back up. Has to prove it, however.
NASDAQ 100 (-0.18%) tested the 50 day EMA on its low and rebounded, but it too failed to move back above the 50 day EMA. Another doji at support after a pullback. Nice, though it busted up a very neat, sweet cup with handle pattern. Now it has to scramble and prove it is worthy of gains. It sold but it did hold; that is a start.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +4.67 points (+0.37%) to close at 1271.51
NYSE Volume: 855.7M (-1.1%). Gained some ground but not volume. Tomato, tomato. It is so low it really doesn't make much difference.
Up Volume: 531.917M (+432.248M)
Down Volume: 310.378M (-451.319M)
A/D and Hi/Lo: Advancers led 1.54 to 1
Previous Session: Decliners led 3.43 to 1
New Highs: 17 (+5)
New Lows: 113 (+10)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tested lower, undercutting Monday but holding above last week's lows, then rebounding for a modest gain. Took back some of the Monday los, but stalled at the 50 day SMA on the high and faded. Still below the July up trendline, still below the moving averages, yet not out for the count. Hanging on like Bill Clinton at the end of his two terms, but has the look of inevitability that it has to leave the support and test the July low before this base is over.
SP600 (-0.18%) undercut the 200 day SMA again but it rebounded again, closing positive over that key level. The small caps are still forming up the bullish reverse head and shoulders pattern carved out the past 11 weeks. Holding support and looking for a break higher still.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Undercut the Monday low but as with SP500 it recovered for a gain and also held above last week's lows. It remains below the July trendline and it made that lower high. It remains in the short head and shoulders attempting to form. For the bulls it is critical that DJ30 hold here and break over the 50 day EMA at 11,621.
Stats: +26.62 points (+0.23%) to close at 11412.87
VOLUME: Fell to a rather incredibly low 119M shares compared to 146M shares on Monday. Again, well, well below average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Oil inventories are out midmorning, but with our friend Gustav out there, unless they rise by 20M or so, inventories won't impact prices much. This is a late summer, low volume, incredibly dull market. A market that, while struggling, thus far refuses to break down. There is still some leadership holding up well. Positive.
On the other hand it is late August and the NYSE large cap indices are sagging. Financials are the reason, still struggling in their own inferno, trying to base but still looking a long ways from ready to jump higher and give support to the rest of the market much more lead the market.
There are polar forces at work: growth indices and stocks at support with some good-looking, leadership caliber stocks in position to move higher. On the other hand there are the NYSE indices that are under stress during a historically bad time of the year for stocks. This is the time, as noted last week, that resolve is tested. While we are still looking at the solid upside leaders, we moved into some SP500 inverse options Tuesday given the S&P's pattern. Maybe I will get burned by shorting a dull market, but if it breaks it will break big and while we close some upside plays that cannot hold the line we will have some downside plays we are in and others we can get into.
Very mushy market, still high gloom, still patterns going in opposite directions. As noted above the market can bounce some off of this test of near support that NASDAQ and SP600 are holding onto, and that gives the leadership a cushion to test with while SP500 and DJ30 head back to the July lows to test. That is a pretty 'perfect scenario', and the market rarely gives us those. Nonetheless we think that is closer to what we will get so we will use a bounce to exit marginal positions, look at some really good and solid leaders to accumulate some, repeat some, positions, then look for a quick ride lower on the NYSE large caps as they test the July low and try to put in the final verse of the bottoming process.
Support and Resistance
NASDAQ: Closed at 2361.97
Resistance:
The 50 day EMA at 2367
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 2395
2392 is the April 2008 peak
The 200 day SMA at 2416
2419 is the January 2008 peak and the early February peak
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:
2350 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 1271.51
Resistance:
1285 is the recent July peak
The 50 day EMA at 1289
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 1327
1331 is the June low
1351 is an ancient trendline
The 200 day SMA at 1361
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 11,412.87
Resistance:
11,510 is the up trendline off the July low
The 50 day EMA at 11,621
11,634 is the January intraday low
11,650 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 12,015
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 12,386
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 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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