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money investment, financial investment
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9/04/08 Investment House Daily
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Investment House Daily Subscribers:
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MARKET ALERTS:
Targets hit alerts: APD
Buy alerts: None issued
Trailing stops: AUXL, AVAV, CCC
Stop alerts issued: IXYS, SYMC, TJX
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:
- Stocks break sharply lower, end the summer rally, start the July test.
- Economic data not bad, but fears of economic slowdown pervade the market.
- Volatility starts to run, but it has a long way to go.
- Jobs data cannot do much for this market.
Appears to be sooner than later.
Wednesday we were pondering the 'when' the drop toward the July lows would occur, not the 'will,' noting sooner would just go ahead and get it over with. Well, we are getting the sooner. Stocks started lower but didn't look to be entering the slaughterhouse doors. After the first hour, however, they were herded in and the carnage began.
There was no real difference in the news. The economic data continued to improve with solid productivity (4.3% versus 3.5% expected) and ISM services back above 50 (50.6 versus 49.5 prior). Same store sales were not great but they were not a meltdown even with stimulus checks long gone. Crude faded again (107.65, -1.70) even with inventories falling 1.9M.
Nonetheless stocks sold into midmorning, trying to recover into lunch. Then Bill Gross, a.k.a. the bond king, commented on the need for a financial bailout or else as well as his distaste for financial debt. The market, borrowing from 'Risky Business,' said a collective 'what the f--k,' and sold off into the close, breaking support and in full flight toward the July lows.
TECHNICAL. Of course the intraday action was weak with a bad to worse, low to lower, crappy to crappier tape. This is what you would expect. Moreover, if things did bounce a bit late would that mean much? No, that would be left to a complete reversal from the selloff and that just didn't quite happen Thursday.
INTERNALS. Pretty crappy. Breadth was impressively weak at -4.9:1 NYSE, -4:1 NASDAQ. Volume surged above average on NASDAQ, the strongest trade since mid-July. Interestingly and indeed positively, volume was higher on NYSE but it was still noticeably below average. While that does not impact the day's selling it does show that there was not wanton selling of NYSE stocks. They were sold and no one wanted to buy them in number, but they sellers didn't overrun the entire NYSE. What that means is watch how the indices act when they test the July lows: if the selling is not intense, there is a greater possibility that the prior lows will hold.
CHARTS. A very clear break of the lateral trading ranges on SP500 and DJ30, and NASDAQ added to its breach, screaming through weak support at 2300 on its way to 2200. SP600 sold off below its 50 day EMA and 200 day SMA, the latter by a small margin, just undercutting its August low. It is still okay but after a lower high is threatening to follow its cousins. Worrisome is the NYSE composite smashed its July low Thursday, already undercutting the level that undercut the January and March twin lows. SOX has undercut all of its 2008 lows as well. NYSE is of more concern; it is a broad measure and that indicates there is a lot of pressure on the other NYSE indices as they test.
LEADERSHIP. The financials and their 4-day rally ended. It was not an utter collapse, however, as many held up better than the indices. This is part of their basing process; they are not leadership material yet, but their reaction to this selling was an overall positive. There was some thinning overall. Medical and healthcare was not spared though it was not a downside rout thanks to their strong patterns. Whether they can withstand continued selling given the drops is getting a bit problematic. Retailers gave up some ground on the same store sales, some (e.g. TJX) more than others when they disappointed. Others such as JNY, RL, URBN and JAS did just fine, holding their position and maintaining good patterns. If the July lows are going to hold we will see some of this wheat hold on as the chaff is separated.
THE ECONOMY
Economic data continues to improve but the market is heading lower.
There was mostly good US economic data once more. Productivity jumped sharply by 4.3%. ISM Services moved back above 50 at 50.6. Same store sales were lower but not recessionary. Jobless claims bounced to 444K but they are still trending sideways now.
That is solid overall and with the other data improving you would expect the market to be leading higher. Yet it is not as the summer rally, never really that strong, rolled over. Bond yields are low and heading lower (2.18% 2 year, 3.63% 10 year on Thursday, dropping 5 basis points) even as economic data strengthened. Something has kept them low and heading lower after bouncing higher when the Fed looked to get the credit issues under control with its lending facilities. That has gone by the wayside now. Was this drop what they were pricing in or is there something else out there that is influencing this drop?
Bill Gross was giving his insight on that issue Thursday. He indicated that a big financial bailout was needed now or there would be, as GOP VP nominee often (too often?) says, a world of hurt. In other words a bailout was needed or there would be risk of a serious failure in the financial system. He also said the markets were deleveraging and thus all commodities, stocks and real estate was heading lower. He even said he was walking away from US financial debt offerings, including that from Wells Fargo, considered one of the 'safe' banks in the US.
Hard to be happy about that and indeed it wasn't. It is worrisome Gross is so worried about even such supposedly solid institutions. Is this the fear the bond market is showing, i.e. the surprise failure of some major financial institutions? Could very well be. The past few months the Fed has been deciding just which and how many banks could or should fail if things get bad. Now it is not saying they are that bad, but instead contingency planning.
Oil is also adding to the gloom in a bittersweet way. Prices are down to 107.65/bbl; never thought of calling that low, but compared to 147, a 27% drop seems almost palatable. It all again smacks of more liquidation in oil and other commodities. That is a big part of this selling, but the worry is it is not the main reason, i.e. that hidden problem out there.
Lower oil helps consumers, but if it is falling because world economies are falling does that help? Exports will be less: if economies are slowing as our dollar strengthens, foreigners will buy less US exports. Of course, how many of us directly benefit from that? We get the benefits of more US investment thanks to that influx of money, and it has definitely helped keep the economy afloat. Thus there is an indirect benefit, but not many small businesses sell overseas. Improving US economics helps them more and thus the small caps have enjoyed leadership status in the summer rally.
What evidence is there supporting this worry? The problems in Europe and other countries. It is no secret European countries are heading into or are in recession. Thursday the ECB and BOE central banks acknowledged things were slowing, but kept the same old line that the focus was on prices. That is their mandate: keep prices contained. Admitting that things were slow can be amplified by a factor of 10 to get it closer to reality. That along with the slumping oil price really spooked investors. Of course oil would need to get toward 70 to make that believable, but the market was ready to read bad things into all news.
If they can hold on, that shows us that the worry is about the world economies versus the US, and indeed the US could emerge from recession even as the other countries enter one. That is what happened early this decade. It will take more than the small caps to rally, however, and that means this test lower to the July lows by NASDAQ and the NYSE large caps has to hold. More than that it has to rebound after holding. Still a long way to go to prove that the US economy is emerging from a slowdown.
THE MARKET
MARKET SENTIMENT
VIX: 24.03; +2.6
Volatility posted a big move on the session, making it 3 of 4 sessions to the upside. Unlike some post-market commentators indicated, however, this move in itself was nothing. It is still way too low, 7 points off the July peak that was well off the March and January peak (37.50 for the latter). Now the move up was a good start; it can be the springboard for a real surge up to 40 or more, the level it needs to hit to really make some hay for the possibility of a serious bottom.
VXN: 27.56; +1.82
VXO: 26.73; +3.58
Put/Call Ratio (CBOE): 1.08; +0.22
Back over 1.0 on the close after a couple of weeks moving below, but not far below, that level.
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: -74.69 points (-3.2%) to close at 2259.04
Volume: 2.36B (+11.58%). Volume above average for the first time since early August and of course it was on a downside break. Techs are being dumped.
Up Volume: 197.017M (-597.479M)
Down Volume: 2.156B (+867.829M). Wow. Over 10:1 down to upside volume.
A/D and Hi/Lo: Decliners led 3.97 to 1. Dumping.
Previous Session: Advancers led 1.13 to 1
New Highs: 34 (-37)
New Lows: 157 (+44)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower after breaking its up trendline Tuesday and Wednesday, really collapsing after trying to stem the tide there. Moved below soft support at 2300 and heading toward 2200 and the July low at 2167. It did not have to make this test similar to SP500 and DJ30. Thus it is somewhat treacherous and there is something of an 8 month head and shoulders trying to form here. First things first; need to see how NASDAQ holds at the July and March levels.
NASDAQ 100 (-3.18%) is ready to head below the July low and indeed made a new closing low since March. Heading down hard after setting up a decent base. Until they breakout those are just pretty pictures. This one turned into a disaster. Some support at 1765. After that it is closer to 1700.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -38.15 points (-2.99%) to close at 1236.83
NYSE Volume: 1.302B (+7.67%). Volume was up on the selling but it was still below average. Didn't make any difference, but as noted, lighter volume on the selling indicates it has a better chance of holding the prior lows.
Up Volume: 94.866M (-498.031M)
Down Volume: 1.194B (+589.323M)
A/D and Hi/Lo: Decliners led 4.96 to 1. Everyone, small to large, was down.
Previous Session: Advancers led 1.04 to 1
New Highs: 20 (-16)
New Lows: 244 (+123)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The summer rally ended and in a big way. IN one move SP500 fell to the old 2002/2003 up trendline. It undercut the March and January lows and is just over the late July interim test and the July low (1200). It is going to get there, and one more move similar to Thursday does the trick. Too fast. Volume may be low but it is too fast a decline.
SP600 (-2.96%) was no leader Thursday but by virtue of its position as a leader the nasty dive lower kept it out of deep danger. It did undercut the 50 day EMA and just slightly undercut the 200 day SMA. Lower high, starting to crack some support. Of course it was hard to fend off the harsh market selling, but wish SP600 had done a bit better job.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The Dow exploded lower, giving up its trading rang with a sharp drop below the mid-August low and hanging near the early August intraday low. New closing low since July. On the way to the July low (closing at 10,962; intraday 10,827). Volume jumped up to above average for the first time in almost one and one-half months. It is heading to the July low and we see how it holds there.
Stats: -344.65 points (-2.99%) to close at 11188.23
VOLUME: 229M shares Thursday versus 130M shares Wednesday. There was dumping as the low volume turned suddenly to high volume selling.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Jobs report Friday and part of the worry Thursday centered around fears of 100K downside or more. So what? Again, so what? Jobs are so far lagging the real economic movements that they really don't matter in terms of forecasting. They matter big time to those losing or getting jobs, but again, for forecasting they don't help. With leading (or at least more so than jobs) economic reports looking stronger by the month, jobs can indeed still fall and not indicate any new problems for the economy.
Nonetheless with this current gloom in the market and the cache this report has, a low number only feeds the already burning downside fires. It is just 150 points from the July low on DJ30 and 36 points on SP500. In short, another day similar to Thursday on SP500 puts them there. That is a short distance to go in a short time to get to such an important level for the market. That means volatility has to spike 16 points on the next session or two to get to the level indicative of a bottom at this prior low. A bit of an undercut is okay; it shakes out all the sellers. A big undercut such as the July below the March lows is too much.
Thus we watch a few things. How SP500, DJ30, and NASDAQ test and maybe hold the lows is painfully important. How leadership manages to hold is important: many of these stocks sold off hard, bottomed, and have climbed back up, having gone through their own recession already. If they hold the line that is a sign the big indices will try to do the same. SP600 is also important. It was hammered Thursday and it needs to find some support quickly; it can even come after an intraday meltdown and then a reversal.
Indeed, with this kind of flight to the bottom started Thursday, if there is a bottom at the July lows it will be the shakeout kind, i.e. where it dives and scares the excrement out of many and then reverses. That means a pretty big intraday undercut and recovery along the way. With spiking volatility. With plenty of gloom. Not sure if the market is there yet. Financials certainly need the selling to get their bases closer to the point, but a lot of work has to be done in a pretty small range between the Thursday close and the July lows on SP500 and DJ30.
We are riding some downside plays on the indices and some individual stocks and trying to keep in some upside stocks that are exceptionally strong in that, despite all of the selling elsewhere, they are still holding near support or the 50 day EMA. The political scene is all abuzz about vetting candidates. A trial by fire is a good way though there rarely is a fire around when you need one. These leaders, however, are getting that trial by fire. If it doesn't kill them they come out strong and we buy more. Right now we are watching the important tests underway and looking around for what emerges if . . . the July lows hold and we get a bottom. There is still something out there lurking in the haze based upon what bonds and credit spreads are saying, and we just have see how this test plays out.
Support and Resistance
NASDAQ: Closed at 2259.04
Resistance:
2286 is the first April 2008 gap up point.
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 2363
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 2391
2392 is the April 2008 peak
The 200 day SMA at 2408
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:
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 1236.83
Resistance:
1244 is an August 2005 peak
1257 is the March low
1270 is the January low
1285 is the recent July peak
The 50 day EMA at 1286
1313.15 is the August 2008 peak
1317 from the February low
The 90 day SMA at 1320
1320 is a 50% retracement of the May to July selloff
1324 is the April low
1331 is the June low
1353 is an ancient trendline
The 200 day SMA at 1356
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:
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1234 is the late July low
1224 is the June 2006 low
1200 is the July 2008 intraday 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 11,188.23
Resistance:
11,317 from March 2006
11,388 is the prior August low
11,615 is the up trendline off the July low
The 50 day EMA at 11,594
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 11,926
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 12,336
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:
11,131 is the late July 2008 low
11,061 from February 2006
10,912 peak from March 2005
10,854 from December 2004
10,827 is the July 2008 intraday low
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): -33K actual versus -30K expected, 1K prior (revised from 9K)
Initial jobless claims (8:30): 444K actual versus 420K expected, 429K prior
Q2 Productivity, revised (8:30): 4.3% actual versus 3.5% expected, 2.2% prior
ISM Services, August (10:00): 50.6 actual versus 49.5 expected, 49.5 prior
Crude oil inventories (10:35): -1.9M actual, -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
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money investment
financial investment
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