|
|
world stock market, us stock market
* * * *
9/03/08 Investment House Alerts
* * *
*******
NEW: To view this report in HTML format, click the following link:
http://investmenthouse.com/ihmedia/alertssummary.htm
*******
IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: EEV, MOS
Buy alerts: AMAT, HLEX, QID, TSCO
Trailing stops: KSU, MCD, UNP, SYNA
Stop alerts: BAC
SUMMARY:
- Market struggles to another mixed close as techs continue to their turn as the laggards.
- A bifurcated market won't stay that way forever.
- Factory orders post a decent month, and again, we see upside revisions.
- The process continues as the large cap indices take turn lagging while the small caps quietly set up for more upside.
Techs do their job . . . as designated laggards.
From late July to mid-August the techs along with the small caps did the heavy lifting, indeed lifting the market up off the July lows. That changed mid-month as the techs tested the July to August move. That was fine, but then NASDAQ 100 broke support to end the month, and it has not made an upside effort since. In its stead, the large cap NYSE indices have picked up the pace, though that is something of an exaggeration. More precisely, they have managed to avoid selling off as they appeared ready to do pretty much all the way up from the bottom. Thus, there was something of a shift change in the market with the large cap NYSE indices taking over while NASDAQ fell behind.
Taking over what? A pretty weak-kneed rally at this point marked by relatively thin leadership and low volume. When volume came back in the past three sessions, it was to the downside. Right now the rally off the July lows is trying to hold with a lateral move by the large cap NYSE indices and a breakdown by the NASDAQ large caps. The only group unscathed is the small caps as they set up a nice upside pattern. They should lead an economic recovery. If they do manage a breakout, however, it will be one that likely occurs on top of or shortly after a test lower by all of the large cap indices.
Wednesday stocks started modestly lower, coming back from some pre-market weakness, but never really getting on track despite a nice soft start to tee things up. Stocks did try to rally off the open but that move failed as did an afternoon recovery attempt. It was not an across the board failure: DJ30, SP600 closed positive by a hair. At least they did not tank, outside of large cap technology, that is.
The news was not bad. Oil continued lower as several companies reported no damage to offshore facilities from Gustav and the feds released 250K bbl from the SPR. Home Depot's CEO said that housing was "awfully close" to a bottom. Earnings warnings were an issue, however; it is the season. LG reported a slowdown in LCD panel demand and thus lowered its output. QCOM said cell users were holding their phones longer. Ethan Allen guided lower. CAG (food) missed thanks to high input costs. SPLS profits declined. COST same store sales grew 9%; not bad except expectations put it at 10%. JOYG (heavy machinery) missed. It affirmed for the year, but it missed the quarter. Apparently its affirmation for the year was not good enough as it lost nearly 20%. Not much joy for Joy Global.
A lot of the fear talk centers around just what lower oil prices mean for the world economies. Everyone wanted lower oil and that is going to help the consumer and business margins; a lot. Problem is, now the dog has caught the car so to speak, and investors wonder what a 26% drop in oil prices in less than a month means. Did it finally break the camel's back at $147 and send all economies lower?
Maybe, but if it did, the US economy is sitting pretty nice. Credit spreads are still wide, indicating there is still a problem with the credit markets. That is not a pleasant situation, but the US economy is starting to throw off better numbers. Not the bogus GDP revision from last week, but stronger durables, stronger business investment, a fifth consecutive month of rising factory orders, four out of five months of ISM right at 50, on the upswing from a 2007 trough. Small caps have set up a great base. There are signs of positives here. As noted over the weekend, however, the market has to start showing it, and that means the NYSE and NASDAQ large caps have to get this consolidation/test over with so the market can start leading and showing there is indeed a change in the wind. That means financials are needed. A test would help them get the process over with as well.
TECHNICAL. Low to lower intraday action with a couple of failed rally attempts. Well, not totally failed; as noted, DJ30 and SP600 made it to positive while SP500 just missed. The failure was with large cap techs.
INTERNALS. Advancers actually led on both NYSE and NASDAQ. The downside was definitely attributable to the large cap techs. Volume was up again as fund managers come back from vacation. Trade was still below average on NYSE, but vastly above the levels hit the prior three weeks. NASDAQ volume moved up to average for the first time since the first 10 days of August. Great, except NASDAQ was lower, NASDAQ 100 closing almost a point lower. More dumping on the big techs. They certainly are not helping the rest of the market work through the consolidation.
CHARTS. NASDAQ broke below the 50 day EMA, but managed to close at that level, hanging on at the close. NASDAQ 100 could not hold 1850 support, moving lower toward the next level at 1800 to 1750 in July. Its nice pattern broke, unable to complete the handle. Now it is a matter of seeing how far it falls before it finds support. SP500 held above the August lows and snapped back to close above the 50 day SMA. Not great, but doing what it has to do, continue forming that base. DJ30 tested as well then recovered to positive, holding in the middle of the range. It too is doing what it has to, recovering from the volatility and making higher lows. SP600 is doing the same, moving laterally over the 10 day EMA, making a higher low and finishing up the right shoulder to a 15 week reverse head and shoulders base. Nice set up there, but the rest of the market has to get to that point as well. Nothing wrong with the small caps breaking out and leading while the rest do just that, however, and that is often how recoveries take shape as the economically sensitive stocks take the point. Of course, financials are usually there as well given they are economically sensitive, but the wide credit spreads are hurting them right now though they are forming bases and indeed are helping lead higher the past three sessions.
LEADERSHIP. What a great segue into this section. Yes financials are up the past few sessions, providing some backbone to the NYSE indices as they fight to hold the line against failing techs. Medical/healthcare had its dips the past couple of weeks but they are holding support and setting up for a new move higher. That will help as the transports, leaders into August, are having some 'dippage' as well. Retailers remains solid though they rested a bit Wednesday ahead of same store sales after a good run Tuesday. Financials are trying to set up, but they are not there yet. Some look good right now, but they have held up well all along; the majority have a few more weeks of work from the look of their patterns. Overall leadership has thinned its ranks somewhat given the choppy trade the past four weeks. Last week there were many good patterns and many more forming up. The past few sessions have rattled some of those. Nothing irrevocable in most cases, but they are now in the position of having to recover and set up once more. That means more basing.
SUMMARY. The market continues to work through its basing process and it has rotated somewhat though not in the usual sense we discuss. The rotation has not been to leadership but to laggard status. True NASDAQ was leading until it failed, but the NYSE large caps have not switched from laggard to leader, just laggard to trying to base. They are holding the line while large cap tech is breaking lower. Small caps are holding up in a solid pattern and that means their relative strength is jumping. Nothing new there. The new issue is a more pronounced bifurcation. Those don't last; the parts again join. The questions are when and where. Bifurcation can last for weeks or months. At some point, however, it merges, either catastrophically if the gulf becomes too wide, or one works toward the other and the join. We believe SP500 and DJ30 have to test the July low before a sustained, significant rally develops. With NASDAQ large caps breaking lower and the NYSE large caps managing only to hang on in lateral moves, we could see both sell lower to make that final test, giving the financials the time to finish basing out.
THE ECONOMY
Factory orders post another month of gains.
Revisions. That is the future: revisions. Last week durable goods orders were up. Great. In addition, June durables were revised higher to 1.3% from 0.8%. Even better. As noted at the time, you can tell things are changing economically when the expectations overshoot either to the upside or downside. When things are bad economists expect them to remain bad and they issue forecasts in line with those expectations. Thus they miss changes, and continue to miss them until convinced there is actually change. Accordingly their forecasts are too negative and get trumped by the data. Then when more data comes in, the data is revised further to the positive side. Those revisions are one of the first signs of change.
Wednesday that continued with factory orders posting a 1.3% gain versus a 1.0% gain. That makes five straight months of gains. In addition June was revised higher, up to 2.1% from 1.7%. Another upside revision and that bodes well for the economy as another key sector shows gains that are not only rising but are rising faster than expected.
THE MARKET
MARKET SENTIMENT
VIX: 21.43; -0.56
VXN: 25.74; -0.41
VXO: 23.15; -0.69
Put/Call Ratio (CBOE): 0.86; -0.1
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: -15.51 points (-0.66%) to close at 2333.73
Volume: 2.115B (+3.42%). Up to average for the first time in a month and of course it was on downside trade. Not a crushing to the downside, but it shows that the volume returning is selling volume.
Up Volume: 794.496M (+126.435M)
Down Volume: 1.288B (-14.841M)
A/D and Hi/Lo: Advancers led 1.13 to 1
Previous Session: Decliners led 1.02 to 1
New Highs: 71 (-7)
New Lows: 113 (+23)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Sold further below the 2004/2005 up trendline and the 50 day SMA (2223.50) as well then recovered to hold the latter. That takes NASDAQ below the recent lows and opens the door to 2300, but it is still well above the March and July lows below 2200. NASDAQ does not need to test these in order to move higher as it did not make a new low in July. A couple of lower highs in August have it under pressure, however.
NASDAQ 100 (-0.92%) undercut 1850 support and is closing in on 1800 on that rising, average trade. It was a good pattern but now it has fallen out of bed with that cup with handle and is heading to test 1800 and possible 1750. Similar to NASDAQ, it does not have to test lower, and indeed if it holds at 1800 it will put in a double bottom above the June and March lows. That would be bullish.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -2.6 points (-0.2%) to close at 1274.98
NYSE Volume: 1.209B (+5.47%)
Up Volume: 592.897M (-37.353M)
Down Volume: 604.516M (+96.291M)
A/D and Hi/Lo: Advancers led 1.04 to 1
Previous Session: Advancers led 1.12 to 1
New Highs: 36 (-23)
New Lows: 121 (+43)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 was basically flat, testing lower intraday but holding over the August lows and rebounding to close easily in its four week range. Rallied to the top of the range late last week, sold back the past three sessions to test the bottom and looks to have held. This continues the basing process, allowing financials and other large caps to form good patterns. That does not mean that SP500 does not go back down to the July low at 1200, and indeed it needs to get there and hold.
SP600 (+0.30%) continues its 15 week base and looks to be making a higher low at the 10 day EMA the past week after forming the bottom of the right shoulder at the 50 day EMA and 200 day SMA just over a week ago. The small caps are going about their business forming up their base, and this additional time they are taking helps make the breakout run an easier bridge versus a 20 point move all at once.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Reached lower again but easily held above the lows in the August range, using the 50 day SMA as support Wednesday and then rebounding to flat. Still making a series of higher lows after reviving its pattern to end August. Still in an ascending pattern and that is more bullish near term. Still looking for a test of the July low before a sustained upside move takes hold, but this nearer term pattern is trying to set up a move higher.
Stats: +15.96 points (+0.14%) to close at 11532.88
VOLUME: 130M shares Wednesday versus 177M shares Tuesday. Unlike the other indices volume fell off. No dumping.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Oil and natural gas inventories, ADP employment guess, ISM services are the economic reports of interest Thursday ahead of the Friday jobs report. That is all short term with respect to impact, however. As noted last night, the market should rally ahead of the data improvement and while the small caps are up and setting up to go higher, the financials are keeping the NYSE large caps down and the large techs are not showing much upside life right now either.
That split indicates that this action is still part of the overall bottoming process as stocks shift from selling to accumulation. Small caps are under accumulation while the large caps and now the large cap techs are still in the crossfire between buyers and sellers. That is part of the weeding out process, but the action indicates it is not over. SP500, DJ30 are still above that new low from July without testing it, and that typically means another dip before a rally sustaining bottom is in place.
That combination suggests that while the NYSE large caps look better over the near term and may make a break to the upside, any further upside rally would ultimately come back to test the July low. They have put in enough time to make a 4 week or so test of that low and have a broad enough 12 week span between the lows to support a good upside surge.
Given their potential to go upside before they sell further or just to give up the ghost here and test (a possibility if NASDAQ goes full monty toward the prior lows) you have to look at them one stock at a time, picking out the really strong stocks and leaving the indices to churn and work out their issues between the buyers and the sellers. We have some index plays we are and will use if we see a break lower and we can do so even with a break higher, but while they fight it out we look for a few good stocks in the large cap sector, if they show up.
Indeed, we do the same with the small caps, but there are more of those in better position than the large caps, and they are getting bought much more than the large caps. Thus that remains our focus for the upside while the large caps on NASDAQ and the NYSE get through this process. Migrate toward the stronger stocks in good patterns, and when things break upside they will take off. Some won't make it; they too go through a weeding out process, but a good pattern goes a long way.
Support and Resistance
NASDAQ: Closed at 2333.73
Resistance:
2340 from the March 2007 low
2355 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
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
2392 is the April 2008 peak
The 90 day SMA at 2393
The 200 day SMA at 2410
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:
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
2167 is the July 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1274.98
Resistance:
1285 is the recent July peak
The 50 day EMA at 1288
1313.15 is the August 2008 peak
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 1322
1331 is the June low
1353 is an ancient trendline
The 200 day SMA at 1357
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 11,532.88
Resistance:
11,600 is the up trendline off the July low
The 50 day EMA at 11,610
11,634 is the January intraday low
11,665 is the 2004/2005 up trendline
11,670 is the May 2006 intraday high; 11,642 closing
11,731 is the March 2008 low
11,867 is the August 2008 peak
The 90 day SMA at 11,945
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
12,250 from late March 2007 lows
The 200 day SMA at 12,346
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.
September 2 - Tuesday
Construction spending, July (10:00): -0.6% actual versus -0.4% expected, +0.3% prior (revised from -0.4%)
ISM Index, August (10:00): 49.9 actual versus 49.5 expected, 50.0 prior
September 3 - Wednesday
Factory Orders, July (10:00): 1.3% actual versus 1.0% expected, 2.1% prior (revised from 1.7%)
Federal Reserve Beige Book (2:00)
September 4 - Thursday
ADP Employment survey, August (8:15): -30K expected, 9K prior
jInitial jobless claims (8:30): 420K expected, 425K prior
Q2 Productivity, revised (8:30): 3.5% expected, 2.2% prior
ISM Services, August (10:00): 49.5 expected, 49.5 prior
Crude oil inventories (10:35): -177K prior
September 5 - Friday
Non-Farm payrolls, August (8:30): -75K expected, -51K prior
Unemployment rate, August (8:30): 5.7% expected, 5.7% prior
Hourly earnings, August (8:30): 0.3% expected, 0.3% prior
Average workweek, August (8:30): 33.6 expected, 33.6 prior
End part 1 of 3
|
world stock market
us stock market
|
