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money investment, investment help
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9/10/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: ATVI; MDCO
Trailing stops: None issued
Stop alerts: CMED; OSG; PRE
SUMMARY:
- Stocks bounce and recover some losses but no relative change as market continues working on trying to put in a bottom.
- US mortgage applications rise even before the Treasury takeout decline.
- EU bites the bullet, admits slowing and recession.
- Still set for and needs a test of the lows but expect more volatility ahead.
- Unwinding of the Big 3 plays the last, maybe next to last, obstacle for the market.
Market bounces on some better news but no relative change.
After a sharp turn lower Tuesday and a close at session lows, some news from FDX and TXN helped slow the decline along with a 9.5% jump in mortgage applications, that even before the Treasury mortgage nationalization that forced rates down further. That helped slow the downside tide and futures were up. LEH then reported earnings, early as announced. It lost $3.9B, cut its dividend, and stated it is selling its investment management business. Okay, but the market wanted to know if it had a deal to sell it. Futures fell. It took a recovery ahead of the bell to get them back, and indeed they did.
Stocks opened modestly higher, rallied into oil inventories. They fell; no kidding given the shut-in of the Gulf production. Crude fell 5.8M, gasoline 6.5M, and distillates 1.25M. Down across the board. Stocks fell on the news. Oil, however, answered by falling to 101.
It closed at 102.99 (-0.27), but the action is telling. Inventories fall but so does price. A strong dollar and some falling demand (Europe is now predicting recession for its biggest economies). Gold fell as well, falling to a 12 month low at 758.20 (-33.70). What a tumble.
After this reaction in oil, stocks found support and rallied into mid-afternoon, moving to session highs. In the last 1.5 hours the sellers hit and took the luster off the day. The smaller caps and techs had a better day once again, though the NYSE large caps and those are trading off every couple of days. Overall there was no real change in position, no change in leadership, and no change in much of anything. Oh, volume was lower, of course on an upside session.
As noted in the final alert for the day, this market is a lot like watching a hurricane wobble and job back and forth, waiting to see where it finally makes landfall. You know it is going to hit in a certain area, but getting there, just where it goes along the way, and where it actually hits remains a question mark much of the time. You prepare by looking for good stocks to shelter in and that are ready to make the moves once the storm is over. You also take advantage of what the storm washes your way and ride the waves (e.g. the downside) while they are there. When it is over you go back in deeper and put more money to work.
TECHNICAL. Intraday action was volatile but overall on the positive side simply because the market posted gains. The action, however, was not all that great as it ended basically where it started the day. No big low to high move, just a nervous move higher after a hard day of selling Tuesday.
INTERNALS. Breadth was basically flat on the upside. No broad move as was the Tuesday downside. Volume was lower on the move higher. It was still above average, but the theme was higher volume on the downside, lower volume on the upside. No heavy buying or any buying of stocks.
CHARTS. The indices tapped and held the Tuesday lows when they sold off midmorning and then rebounded. You can call that bottoming and indeed all of this is part of the process. It just didn't form the bottom Wednesday. NASDAQ is in position to bounce. SP500 is on the same position but it is below that 2002/2003 up trendline and the downside Tuesday was very sharp compared to the Wednesday move. DJ30 tried to rally and tapped the 10 day EMA on the high, but then it gave just about all of the move back. Both SP500 and DJ30 still need a test of the July lows and they have a 95+% probability of doing that. The question is just how much basing they do along the way. They still look ready to test right here. SP600 held where it had to with a test of the 50 day SMA (and just a bit lower), then a rebound to the 50 day EMA. It is holding on where it has to, but that is not the same as making a breakout move. SP500 and DJ30 need to test the July lows in a sharp selloff while SP600 feints lower but then holds the line. That would allow both to rebound. Dream world? Maybe, but if the market is going to hold at the July lows and put in a bottom at that point, that is what will need to happen.
LEADERSHIP. There was little change in the leadership track. Retailers held up well as did medical/drugs/healthcare after a test lower. Consumer products have held up just fine as well. Homebuilders have pulled back and held. These are all early economic cycle stocks and they are the upside standouts. Standouts? Well they are moving up and in good bases. Some financials are okay as well, the early leaders such as WFC that gapped, tested, and held near support. Again we are looking at how these and small caps hold the line as SP500 and DJ30 make their tests of prior lows.
THE ECONOMY
Pending home sales fell but mortgage applications are on the rise.
Applications jumped 9.5% last week as buyers find the decline in prices a bit enticing. That was with 30 year fixed rates near 6.5%. After the Treasury nationalization of mortgages, rates plunged below 6% and heading toward 5.5% (5.79% on bankrate.com). This is going to entice more into the market and help eliminate that inventory.
Another interesting feature of the Treasury action is the impact on foreclosures. The lower rates will help reduce those adjustable rates lower and give those hard-pressed by rising rates some more breathing room. That reduces foreclosures and thus the available inventory. Indeed a new report shows that delinquencies are down over the summer.
All of this helps not only the bottom in housing but also getting it to turn back up as lower inventories eventually mean better pricing. Some positives trying to take housing off the bottom and into the recovery. Not there yet but things are shaping up.
ECB admits the European Union is facing recession so it may not panic so much over inflation.
Gold continued to dive Wednesday, closing at 758.30, down another 33.70. That put it at a 12 month low and over 30% below its high on this run. Gold is signaling inflation is not the issue it was a few months back.
The ECB and its single mandate had single-mindedly pursued inflation. That is what it is tasked to do. It has to sit and watch its economies stall out even as it fights inflation even though inflation lags the economy. Thus the ECB is tasked to slow every European economic expansion and then grind it into the dust with tough policies long after the economy has stalled and tanked. Why? Because inflation peaks after the economy peaks and hangs around as the economy tanks (remember, slowing growth causes inflation to spike up; we just went through that right?). By the time the ECB has inflation under control the economies should be taking off. Not so. It stymies recoveries by keeping tight money even when inflation pressures are gone and the economies would be ready to revive.
It is a real pisser having the Phillips Curve govern your actions and not have an out as does the US Fed with its requirement of maximizing sustainable growth in addition to keeping stable prices. Consequently the ECB has admitted now that recessions are coming for UK, Germany and Spain. News flash: they are already there. In addition the ECB stated Wednesday that growth forecasts had to be cut to 1.4% from the 2.0% predicted in April.
That is a start for the ECB to back off, but as long as inflation holds at higher levels as it is, the ECB's hands are tied. Thus even as the US emerges from its recession the EU will lag and lag more than it should. This happens just about every cycle: the EU truncates economic expansions by fighting what it feels will result in inflation, then as the economies turn over it fights the real inflation that shows up when economies slow, and it fights inflation all the way to nominal levels, trampling its economies into the dirt as it does. Bummer.
THE MARKET
MARKET SENTIMENT
VIX: 24.52; -0.95. Needs a WHOLE lot more upside here. It had the mo on Tuesday. The Wednesday action took the wind out of it for a session.
VXN: 27.76; -0.87
VXO: 27.39; -0.49
Put/Call Ratio (CBOE): 1.1; -0.01. Two days above 1.0 on the close. Starting to get there.
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: 37.8%. Down from 39.3% and 40.7% on the high during the rally off the July lows. Heading back toward 35%, below which is considered bullish for the market as the number of upbeat investors is relatively low. 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: 40.0%. Up from 39.3% and 38.4% the week before. Moving toward 50.0%, the high on this move, but a long way off. As the NYSE indices test the lows you would want it higher. Still above the 35% threshold so still a bullish indication. A steady rise to 50% on this move: 48.9%, 47.3%, 44.7% and 39.3% before that. 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: +18.89 points (+0.85%) to close at 2228.7
Volume: 2.325B (-11.12%)
Up Volume: 1.378B (+1.197B)
Down Volume: 894.266M (-1.533B)
A/D and Hi/Lo: Advancers led 1.31 to 1
Previous Session: Decliners led 4.15 to 1
New Highs: 41 (-16)
New Lows: 233 (+13)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ tested the Tuesday low on the intraday low, holding above the important 2200 level and bouncing modestly. Not bad. Not great, but not bad. Didn't do anything to break up its head and shoulders forming but it kept it in the game, albeit with a lower volume upside move that is not an indication of renewed buying strength.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +7.53 points (+0.61%) to close at 1232.04
NYSE Volume: 1.549B (-8.29%). Above average but lower on the modest bounce higher.
Up Volume: 820.261M (+678.946M)
Down Volume: 714.329M (-775.894M)
A/D and Hi/Lo: Advancers led 1.19 to 1
Previous Session: Decliners led 7.12 to 1
New Highs: 25 (-21)
New Lows: 312 (-45)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Rallied above the 2002/2003 trendline but faded to close just below that level on the close. An upside response to the Tuesday selling, but not a very solid upside response. It does not take it out of the realm of testing those July lows at 1200 and indeed it needs to do that to set the bottom.
SP600 (+1.47%) slightly undercut the Tuesday low and the 50 day EMA (374) and bounced for again. Cleared the 200 day SMA as well. Has a big layer of ice at 380 to break through to make another serious move high. For now we are satisfied with SP600 holding here where it had to and as long as it can maintain this roughly this range during the DJ30 and SP500 test we will be fine with that.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Rallied up to the 10 day EMA (11,376) and then faded back basically to flat. It did avoid a further plunge lower but the action didn't alter its 9 week umbrella top that has it set up for a test of the July low at 10,827 (intraday).
Stats: +38.19 points (+0.34%) to close at 11268.92
VOLUME: 214M shares Wednesday versus 257M shares Tuesday. Modest upside on modest volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Thursday already and just before another storm hits the US. At the same time the market is in a bit of a storm of its own, trying to recover from the massive liquidation from many hedge funds unwinding big positions and financials still struggling to find their inner strength and help, as they usually do, lead the market higher. They have stopped the bleeding and are moving laterally, trying to make the bottom in their bases. If the July lows hold for SP500 and DJ30 they will turn up. Can the market turn up without the commodities, energy, machinery, agriculture, etc. that led the market in 2007? Sure. New leadership for new rallies. With the early cycle economic sectors working better (retail, consumer products, durables, homebuilders), the stage is getting set up for a recovery.
Question is, as with the hurricane, when, where, and how strong? There are serious issues still out there in the credit markets. Mortgages may have just got their fix and it may just be a matter of time for the reverberations to die down and it comes around; homebuilders already are moving. I posit that the hedge fund liquidation of the Big 3 sectors is keeping the market down. Remember, these stocks rallied the market when nothing else was moving higher. There are so many billions in the stocks in these sectors that drove the market higher it only makes sense that when they are sold with the same abandon with which they were acquired that the market shows the same movement, just in the opposite direction.
When the selling is completed then the market will be in much better shape to ride the early cycle stocks higher. Unfortunately, looking at the patterns of these stocks, they are just about halfway or a bit more toward giving all of that back. Of course, they don't have to give it all back. There is a slowdown globally right now, but demand for the products these stocks represent is not going away. So they don't have to give it all back to complete the selloffs.
So the selling is still ongoing in these sectors while the big indices try to test and hold the July lows and put in a bottom. There are early cycle stocks performing. There are small caps in great shape. Just need the other indicators such as VIX to ratchet up to the point that indicates a washout on the sentiment side as well. The market is definitely going through the throes of attempting a bottom and we will just continue to play what the market gives, and right now in this up and down process that means both the upside and downside and take what we can from the moves. Still looking for a downside washout move that fully tests the SP500 and DJ30 lows, and if that holds, bounces, and then holds a test, the upside is in business and the downside is over for the time being.
Support and Resistance
NASDAQ: Closed at 2228.70
Resistance:
2261 is a March 2008 interim low
2286 is the first April 2008 gap up point.
The 10 day EMA is 2289
2300 is some resistance.
2340 from the March 2007 low
The 50 day EMA at 2345
2358 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2370 from the April 2006 peak
2378 is the mid-February peak; 2379 from the October 2006 peak
The 90 day SMA at 2382
2386 is the August 2007 intraday low
2388 is the June 2008 low
2392 is the April 2008 peak
The 200 day SMA at 2401
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:
2202 is the January 2008 low
2167 is the July 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1232.04
Resistance:
1233 is the 2002/2003 up trendline
1234 is the late July low
1244 is an August 2005 peak
The 10 day EMA at 1255
1257 is the March low
1270 is the January low
The 50 day EMA at 1280
1285 is the recent July peak
1313.15 is the August 2008 peak
The 90 day SMA at 1313
1317 from the February low
1324 is the April low
1331 is the June low
The 200 day SMA at 1352
1356 is an ancient trendline
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
1224 is the June 2006 low
1215 is the July 2008 closing 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 11,268.92
Resistance:
11,317 from March 2006
11,388 is the prior August low
The 50 day EMA at 11,552
11,670 is the 2004/2005 up trendline
11,670 is the May 2006 intraday high; 11,642 closing
11,680 is the up trendline off the July low
11,700 is the January intraday low
11,731 is the March 2008 low
The 90 day SMA at 11,854
11,867 is the August 2008 peak
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 12,304
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
10,962 is the July closing low
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 8 - Monday
Consumer Credit, July (3:00): $4.6B actual versus $8.5B expected, $11.0B prior (revised from $14.3B)
September 9 - Tuesday
Pending home sales, July (10:00): -3.2% actual versus -1.4% expected, 5.8% prior (revised from 5.3%)
Wholesale inventories, July (10:00): 1.4% actual versus 0.7% expected, 0.9% prior (revised from 1.1%)
September 10 - Wednesday
Crude oil inventories (10:35): -5.8M actual versus -1.89M prior. Even with the drop oil prices sold.
September 11 - Thursday
Export prices, August (8:30): 0.8% prior
Import prices, August (8:30): 0.9% prior
Initial jobless claims (8:30): 444K prior
Trade balance, July (8:30): -$58.0B expected, -$56.8B prior
Treasury Budget, August (2:00): -$105.0B expected
September 12 - Friday
PPI, August (8:30): -0.5% expected, 1.2% prior
Core PPI (8:30): 0.2% expected, 0.7% prior
Retail sales, August (8:30): 0.3% expected, -0.1% prior
Retail sales ex-Autos, August (8:30): -0.2% expected, 0.4% prior
Business inventories, July (10:00): 0.5% expected, 0.7% prior
Michigan sentiment, September preliminary (10:00): 64.0 expected, 63.0 prior
End part 1 of 3
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