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us stock market, trade stock
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8/28/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: BRKR; CCC; FAST; SYMC
Trailing stops: None issued
Stop alerts issued: ATVI; PKI
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the Daily alert service you can sign up at the following link:
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SUMMARY:
- Ever-increasing Q2 GDP boosts stocks early, triggering a solid, steady run through the close.
- GDP spikes even higher than expected, and while the economy looks to be readying a turn, this data does not support that.
- Some classic range trading taking place as market buys time for stocks to form bases.
- Dell threatens to take what the market gained.
Kudos to those who identified the old Paul Masson commercial starring Orson Wells: 'As Paul Masson said over twenty years ago (of course that would now be over 50 years ago; damn time is going by), we will sell no wine before its time.' Well, in honor of that, tonight I am enjoying a glass of 2004 William Harrison cabernet franc. They are one of the few that know how to make a good cabernet franc. There is something in that Rutherford dust.
Economic gains held market recover the losses from early in the week, maybe a bit more.
Stocks were modestly higher pre-market, continuing the modest Wednesday rebound and ahead of the first revision of Q2 GDP. After the 3.3% reading futures jumped further. Didn't seem to matter that oil was tracking higher by 2 clicks early on, still riding the storm surge from Gustav; stocks liked what the economic data showed, and when the dollar started to turn as well, that only helped.
Stocks popped early but then settled into a sideways track for an hour. They never gave up the initial gain, however, and then oil started to erode despite Gustav's projected track (or maybe because of it given it is basically from Corpus Christi, Texas to the Florida Panhandle), eventually closing down more than it was up early on (115.65, -2.50). The dollar helped that as well as the greenback continued to hold its gains as it tests the last down trendline it broke Tuesday. The high to low swing in oil and the low to high move by the dollar gave the market the additional kick it needed and sent it on a steady advance to the close with the indices posting 1+% gains.
TECHNICAL. Intraday the action was low to high; you would expect that on an upside session. If it is not, i.e. a gap higher and a fade that still ends with a gain, then you have an issue. Otherwise it is pretty much as you would expect it. During this sideways action the intraday action matches the market direction: high to low on the down days, low to high on the up days. What was interesting about Thursday was the way the indices moved from low to high (or more accurately, high to higher). They showed classic strength moves, i.e. rising solidly off intraday support, testing back to the rising intraday support, then powering back up. That formed the series of small 'pyramids' that Darvis discussed in his book that changed a lot of thinking on stock market investing and trading. That shows a continued press from bids, something the market lacked this week. Each time there was a dip to support the bids came back in and pushed stocks higher. That is a noteworthy improvement in the intraday action.
INTERNALS. Another very impressive breadth session as the large caps joined the small and mid-caps in earnest. Whereas early this week the market closed with nearly every SP500 and NASDAQ 100 stock negative, Thursday nearly every SP500 stock was positive. NASDAQ 100 was the laggard as the only index posting a less than 1% gain, and that will likely remain the case Friday after Dell's earnings. The point, however, is that breadth the past two sessions is very strong as the economically sensitive stocks move higher. Yes the stronger dollar is helping, but they are also out in front of the economic data that is starting to firm up.
CHARTS. SP600 did not lead the market Thursday. That went to DJ30, the laggard on the rebound and the leader in the August selling. DJ30 broke over the July up trendline, the 50 day EMA, and the last two August peaks, making a higher low. What a resplendent list of accomplishments. Hey, in a single move, okay two moves, it reversed its rather pathetic pattern to something much prettier. On better volume as well; still low but much better. SP500 did likewise and is now just an off-tackle run to surpass the August peak and the high on the July recovery (had to use the football reference given the season starts tonight). SP600? Continuing its move off the 200 day SMA test though it, despite its market leading performance, has a ways to go to top its August peak, but it does look good. NASDAQ, sadly, is the laggard right now. It rallied to the 200 day SMA on better volume yet again, but it stalled there as it did last Friday. Dell won't help. Now we are on NASDAQ watch.
LEADERSHIP. Leaders and those aspiring to be leaders moved well. Volume was sporadic, however, with not all moves graced with strong volume. Indeed many good price moves lacked any serious volume. So, what we have here is not a failure to communicate, but a continued basing process where stocks are setting up nicely in anticipation of some volume that sends the market to a breakout. Some of the same old and also new leaders are breaking higher (e.g. FAST), but most are working on it. Hey, that is not bad at all. The financials are trying as well, but again, we are still pretty sure they will need to test
SUMMARY. To start the week there were no bids at all and the market just slid on lower volume. Thursday the intraday action showed that the bids kept coming back into the market. Still all the action is on low volume so it is not a complete package. It is, however, wending through the basing process, and unless there is a nice, high volume market breakout from these ranges there is still a high probability of a DJ30, SP500 test of the July low.
THE ECONOMY
GDP jumps on the back of forces that are not going to last.
So when does a 3.3% jump in GDP growth from a measly 0.9% showing the prior quarter not mean what many think it means? When it is bolstered almost totally by trade. Europe would love to have a 'recovery' quarter of 3.3%, but here in the states we are hard to please. That is what makes us great.
Okay, so why is 3.3% growth not an indication that happy days are here again? Because it is founded on a weak dollar and foreign economic strength, and both are in the process of ending. Consumption rose 1.7% in Q2, just a smidge higher than the first reading. Not bad, but of course there were those stimulus checks out there and the lure of the flat screen TV's.
But that was not the change from 1.9% to 3.3%. That is found in trade. Exports rose 13.2% while imports fell 1.4%. As we have noted, when the US experiences hard economic times we import less. When times are good we buy with abandon. Such is the luxury of the world's best economy. Unfortunately, that means that without the rest of the economy, i.e. just counting trade, GDP grew 3.1%. Add in the rest of the economy and it grew 3.3%. Put another way, take out trade and the economy grew 0.2%. Yulch (what children's book, set in Missouri in the 1950's about the adventures of two brothers, is that expression from?).
Now you can be an optimist and say 'thank goodness for the exports,' and indeed thank goodness. Yet that is not the reason anyone should be optimistic. Trade was up because the Bush administration used the dollar as a doormat. Indeed, the dollar started to bottom and base out from mid-March to mid-July because there is going to be an administration change. It broke out early this month and is on a tear. That means our goods are not so appealing anymore. There is still a long, long way to go, so this rise alone would not reverse all of the exporting gains.
On the other hand, foreign economies are heading lower, following the US. Ah, once again a leader. Europe is heading into if not already in, recession. Asia is suffering the Olympics effect where China forced a cessation to production for a month. I pity the fool who was waiting for a Chinese shipment of manufactured goods. That is why my manufacturing company manufactures here in the US. Costs more, but the likelihood of a government induced shutdown is massively reduced.
So we have a stronger dollar that will dampen foreign appetite for US goods combined with a recession forecast for Europe and likely Asia. Now it may not be a textbook recession in Asia, similar to here in the US, but the decline from lofty levels sure makes it feel like one.
So what is the silver lining?
Ah, you know me well. I can find a silver lining in a poorly constructed outhouse. While the export boom suffers due to falling foreign buying power (FFBP) because of currency exchange rates and economic cycles, the US is starting to recover. There you go; the tie in to my earlier statement that the US went down first so . . . it will emerge first. It is almost comical how this occurs. Remember back in 2000 how the US went down first and Europe was finally able to be smug as its economies were holding up? Well that lasted about six months and then they went down the toilet as well. We lead, the follow.
Okay. So they are swirling around, ready to head down to where the unwanted pet store turtles go. We, on the other hand, are on the cusp of turning back up. I say that with a pang of indecision given the indices are not making a powerful move higher. But . . . it is late August and the market can still test lower again before bottoming in late September or October, and with what we are hearing with our checks of retailers (even after the stimulus dies down), manufacturers, etc., it is hard to make a case we are heading lower. Just try and get an injection mold made right now. The wait is still impressively long; they are not begging for your business. The market is basing now, and even another test lower by the NYSE indices would not be devastating in terms of an economic recovery underway.
Thus even though this GDP revision shows those relying on this 'have nothing' as Al Capone said in 'The Untouchables,' that does not mean the US is recovering for other reasons. Indeed, because we have this circumstance, the numbers for the recession are quite good. As discussed several times this year, however, the good numbers benefit very few in the economy, e.g. those that gain from exports. Most US citizens don't benefit directly from that, only indirectly through stock ownership. While the investor class is large, the benefits are not the same for most. Thus a real recovery that appears to be gelling, will be most beneficial. Of course, if the democrats win they will take credit for it, and who can blame them? If it is there take it. Unlike 1992, this is not a direct continuation of the Reagan boom, just the remnants of the momentum from that boom. Unlike President Clinton, whoever is in the White House the next term will have to create any boom. No dis to Clinton; he did a good job of not mucking things up, smart enough to stay out of the way and let the 'peace dividend' due to the end of the Cold War work.
THE MARKET
MARKET SENTIMENT
VIX: 19.43; -0.33
VXN: 23.15; -0.19
VXO: 20.68; -1
Put/Call Ratio (CBOE): 0.82; 0
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: 39.3%. Bullish sentiment dissipated some with the fall to start the week, down from 40.7%, the high on this upside cycle since the July low. Last week it moved over the 35% level 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: 39.3%. Moving in sync with the bulls, gaining ground as pessimism rises, up from 38.4% the prior week. That is still well off the 43.6% the week before, 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: +29.18 points (+1.22%) to close at 2411.64
Volume: 1.61B (+2.55%). Volume was up again, rising for most of the last week. Still way below average so no real strength here, but it did fight off a reversion to more negative price/volume action.
Up Volume: 1.321B (+196.871M)
Down Volume: 274.342M (-149.796M)
A/D and Hi/Lo: Advancers led 2.73 to 1. Best in quite awhile.
Previous Session: Advancers led 1.85 to 1
New Highs: 60 (+18)
New Lows: 81 (-6)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
As noted, NASDAQ rallied to the 200 day SMA (2414) and closed for the session. It failed at this point last Friday. Thus it is an important next step for the techs to take this resistance out and proceed up to the August high at 2467. After the Dell earnings it will be challenging for it to do that Friday.
NASDAQ 100 (+0.78%) lagged all session, apparently realizing Dell was going to miss and complain of slowing IT spending in Asia and Europe. Reality is Lenovo kicked its tail in China. Anyway NASDAQ 100 recaptured the 200 day SMA but stalled at the 90 day. Still needs a big move to breakout from what was a very sweet little cup with handle base that is now still a cup with handle, but a long, bent handle.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +19.02 points (+1.48%) to close at 1300.68
NYSE Volume: 965.056M (+17.63%). 'Big' jump in volume, but from the lowest level in 2008 so it was not that big of an event. Kind of like scoring a touchdown when the other team is not on the field.
Up Volume: 775.054M (+136.13M)
Down Volume: 170.759M (-2.534M)
A/D and Hi/Lo: Advancers led 3.92 to 1. Impressive as the large cap NYSE stocks joined in the gains.
Previous Session: Advancers led 3.41 to 1
New Highs: 35 (+16)
New Lows: 45 (-20)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Cleared the July up trendline and the 50 day EMA in a single bound. Not testing the second high for August at 1300 and needs to take out that early August peak at 1313. Quite the reversal, changing a marginal pattern to a much more bullish one; that is what a lateral consolidation will do for you. Suddenly that marginal higher low last week looks pretty good, but no cigars until SP500 clears the August high, and then it is just a Tipparillo versus a Robusto. Still, a significant move for SP500, but a lot of its bread and butter, the financials, still have a lot to accomplish.
SP600 (+1.69%) posts another impressive gain as it continues its climb off the 200 day SMA, but it fell sharply from its market leading gains, and it has a long way to go on this run from the 200 day to get over the August high at 400 and then the June peak at 402. A 24 point move off the bottom of this pullback, and it will be winded when it gets there, not the best prognosis for a clean and strong breakout.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
After playing follow the SP500 (not nearly the same as follow the leader), DJ30 made a statement of sorts Thursday, leading the market in gains. It bond topped the recent August lower high, the July up trendline, and the 50 day EMA all in one session. Higher low and all of the sudden looking dashing. It has to take on 11,750 once again and then 12,000ish, but it suddenly has the look that it can make a run at it.
Stats: +212.67 points (+1.85%) to close at 11715.18
VOLUME: 149M shares Thursday versus 120M shares Wednesday. Nice bump but still less than two-thirds of average volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
The Friday before the 3-day Labor Day holiday and there is no shortage of economic data: personal income and spending, Chicago PMI, and Michigan sentiment. After the GDP things don't lighten up much. On top of that, Dell stunk up its earnings, missing the street and noting that Asia and Europe were cutting IT spending. Or, are the cutting IT spending on Dell? We hear that Lenovo tap-danced all over Dell in Asia. So . . . maybe the Dell news is not that bad. Unfortunately, the impact on QQQQ and many large cap techs was quite decidedly to the downside.
Thus once more just as the indices reach higher toward a breakout, they are at risk of being thrust back down. How they respond to this and how the market leaders respond will tell us quite a bit about the quality of this renewed rally strength that showed itself Thursday. There are a significant number of stocks breaking or ready to break higher, many from tech, and how they respond will be instructive.
The market has engaged in some classic range trading this month and on low volume. That is consolidation action and typically quite good. The time of year is a concern as noted all week. It would be an indication of strength if the market can shrug off Dell's results, though the Friday before a 3-day weekend is not the best time to take a barometer reading on market health. Labor Day holds a negative connotation in the market as many a decline has started post-holiday, the most famous of the last decade being in 2000.
We like the Thursday strength, and the Friday trade, especially if it is positive, will be a good indication but not definitive. If we get gains we will use them to close some positions that have lagged, using gains to cull. There will likely be a pullback to start things off Friday, and if the indices hold at support (the resistance they just took out), we will look to close the downside positions that turned as the market turned. Then we look to see what upside is in a good position to move into. If it doesn't hold, then we see what holds up and close what does not, and look at some more downside; we moved up the buy points on the downside plays just in case.
Support and Resistance
NASDAQ: Closed at 2411.64
Resistance:
The 200 day SMA at 2414
2419 is the January 2008 peak and the early February peak
2451 is the August closing low
2474 is the July 2008 peak
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 90 day SMA at 2395
2392 is the April 2008 peak
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 2369
2352 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 1300.68
Resistance:
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 1325
1331 is the June low
1352 is an ancient trendline
The 200 day SMA at 1360
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:
The 50 day EMA at 1289
1285 is the recent July peak
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 11,715.18
Resistance:
11,731 is the March 2008 low
11,982 is a 50% retracement of the May to July selloff
The 90 day SMA at 11,999
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 12,372
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:
11,670 is the May 2006 intraday high; 11,642 closing
11,660 is the 2004/2005 up trendline
11,634 is the January intraday low
The 50 day EMA at 11,620
11,550 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 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
Durable goods orders, July (8:30): 1.3% actual versus 0.0% expected, 1.3% prior (revised from 0.8%)
Crude oil inventories (10:35): -177K actual versus +1.4M expected, +9.39M prior
August 28 - Thursday
GDP, Q2 preliminary (8:30): 3.3% actual versus 2.7% expected, 1.9% Q1
Chain deflator, Q2 (8:30): 1.2% actual versus 1.1% expected, 1.1% prior
Initial jobless claims (8:30): 425K actual versus 425K expected, 435K prior (revised from 432K)
August 29 - Friday
Personal income, July (8:30): -0.2% expected, +0.1% prior
Personal spending, July (8:30): 0.2% expected, 0.6% prior
Chicago PMI, August (10:00): 50.0 expected, 50.8 prior
Michigan sentiment, final August (10:00): 62.0 expected, 61.7 prior
End part 1 of 3
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