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money investment, financial investment
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9/11/08 Investment House Daily
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Investment House Daily Subscribers:
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RIDING THE STORM OUT. RIDING THE STORM OUT. From the REO Speedwagon song, we are in the last phases of storm prep. The report is shorter but as usual Jon Johnson had some important comments he wanted to get out with respect to the Thursday market action.
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MARKET ALERTS:
Targets hit alerts: DXD; SDS
Buy alerts: CNQR; MTH; RMD
Trailing stops: None issued
Stop alerts issued: None issued
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:
- Gloom ramps on financial, global economic worries, sparks a bounce, but not gloomy enough.
- Wear them out or scare them out? VIX suggests no bottom, but commentary indicates sentiment is getting bearish enough.
- Trying to put in a higher low ahead of the weekend and another Paulson move?
Gloom to zoom. Kind of.
New Zealand cut rates 50BP versus the 25BP expected, the latest round in the rush to recession by foreign countries. Financials were also back to hurting as LEH was down again along with Washington Mutual as worries swirled once more re their solvency. Futures were poised to test the July lows.
Stocks opened lower and came close the July lows on the SP500 (12 points). It didn't make it that far and DJ30 didn't come close. That pseudo-test held. We took some downside gain on the SDS and DXD plays. The indices bounced and held the bounce into the afternoon. Then a see-saw trading range into mid-afternoon. When the indices did not sell off, the shorts had to cover more and that spurted the indices higher to session highs at the bell, helped also by a rumor that an LEH buyer, more specifically BAC, was ready to take them out over the weekend given Paulson told all of his staff it was a working weekend.
That move got a lot of commentators ramped up given the almost test of the July lows by one index. It was still a disappointment, however, as VIX did not spike higher on the move. Each time it starts its run a relief valve pops and the fear subsides. Disappointing, but as discussed below, maybe not a determinative factor here.
TECHNICAL. Intraday it was good action: gloom and a dive lower to a reversal and a run to gains easily topping 1% -- on the large cap indices. The smaller issues were up but their gains were in the 0.5% range.
INTERNALS. Breadth showed the smaller caps lagging with A/D negative (-1.2:1 on both NASDAQ and NYSE). Volume was lower though still above average. Not that super surge you like to see on a market reversal off lows. Not bad but not superlative. Interestingly, new lows jumped to 453 on NYSE as the small and mid-caps sagged lower. They did rebound. Still less than the July lows as they are holding well above those levels.
CHARTS. As noted, SP500 fell to 1211.54, just 12 points off the July low. It reversed and recovered the 2002/2003 trendline. Has the look of a double bottom . . . DJ30 did not get near its July low, holding above even last Fridays intraday low. It reversed and it rallied on stronger volume. Not bad but still iffy at best. NASDAQ undercut its recent lows but held at 2200, easily above the July low and reversed on solid trade. Held where it had to; now, can it rally from here? As with DJ30 the prognosis is not nearly clear or as good looking as SP500. SP600 small caps again tested 370, and as on the Friday low they rebounded, this time much more sharply. Cleared the 50 day EMA on the close, just over 380. This is the next level of import and it needs to move on through. Lagged all session but held where it had to.
LEADERSHIP. More of the same with the early cycle stocks rebounding: homebuilders, durables, consumer products, retailers. Medical/healthcare did just fine. Even solid financials played well, e.g. WFC, HCBK, BAC. Commodities bounced, and that also helped the indices. They dragged the market lower as hedge funds were forced to unwind their positions as discussed Tuesday and Wednesday. Now that the last round of regurgitation has abated they are bouncing to the upside. Not likely the bottom for them though they are trying to stem the tide and bounce at roughly 50% retracement. If they hold that means they try to base here. That remains to be seen but we could get some upside plays on this move.
VIX is still low but there are signs of excess angst.
VIX had a head of steam Tuesday, but as the market rebounded Wednesday and again Thursday, it fizzled. On the Thursday open VIX hit 26.25 on the high. A high on this bounce but well, well off the 40+ it needs to get to in order to really indicate a reversal.
Now it doesn't take much for VIX to steamroll higher once it gets started. Thus far, however, each time it starts to ramp it gets a bounce in the market and it turns flaccid. Steam builds, a pop-off valve blows, it fades. Thus it doesn't look as if the market has put in a bottom as the last several market bottoms involved a spiking VIX and a pretty clear reversal.
That is not always the case, however. A spiking VIX coincides with a lot of fear. It is the old 'scare them out' type of bottom as stocks careen lower and investors run shrieking for the door. Okay maybe not shrieking, but they get the heck out of the market. When they all sell that clears out the pipes and early money starts to move in.
There is another form of bottom, the 'wear them out' type. This is an ongoing grind where nothing is good as the market moves up and down but generally down, never really ratcheting up the downside, just bouncing up and down enough times to totally whipsaw investors. They finally say to heck with it and step aside to doctor their skinned up knees and elbows from the back and forth grinding. VIX never really spikes, just swells to higher levels as seen this year with the three prior peaks.
There are common threads and one of them is the 'this time it is different' phrase that often accompanies bottoms. In October 2002 I turned on the TV one morning when stocks were diving lower again in that selloff and heard Bob Pisani at CNBC saying that traders were telling him that none of the traditional market indicators were working in this selling. That, combined with a VIX near 48, extremes in breadth, improving new lows, and some decent patterns in the semiconductors led me to conclude that the bottom was likely in. We started buying semiconductors such as VSEA and company and made a lot of money through November and early December before the test of the bottom in early 2003.
Thursday we heard some interesting things. A money manager from a major financial service company said that they 'had never seen a market like this.' Not the classic 'this is different,' but nonetheless the same statement cloaked in different words. Barton Biggs, a famed money manager and one of the few we find worth listening to because he only speaks when he sees something important, said his stomach hurts and he is waking up at night and that is typically a good sign. Barton's gastrointestinal health is not an exact timing device, but his stomach rumblings are usually pretty accurate when the market is getting in range.
These are not the 'a ha!' kind of comments, but they are important to note even with a lower VIX given pessimism is high even if VIX is not. If VIX were to spike we would likely be there, but this one is sly. It may just be time for a 'wear them out' kind of bottom here. The problem with that theory: this selloff is only 11 months old, not exactly a long time frame that would wear all investors out. On the other hand, there are those improving economically sensitive sectors that are moving upside even as pessimism rises. Definitely getting to a point where things could very well bottom but we have not heard the combination that rings the bell in our mind just now.
THE ECONOMY
Due to the storm we are not covering economic developments in detail.
THE MARKET
MARKET SENTIMENT
VIX: 24.39; -0.13
VXN: 27.31; -0.45
VXO: 27.11; -0.28
Put/Call Ratio (CBOE): 1.01; -0.09. Third straight session over 1.0 on the close.
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: 38.2%. Up from 37.8% last week but still from 39.3% and 40.7% on the high during the rally off the July lows. Turned back up before it got down to 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: 41.6%. Up from 40.0% as the bulls and bears diverge with bulls more bullish and bears more bearish. This is a positive. If the bulls turn over and crap out below 35% again that would be a strong signal. Interestingly they are still 'crossed over,' i.e. more bears than bulls. 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: +29.52 points (+1.32%) to close at 2258.22
Volume: 2.302B (-0.97%)
Up Volume: 1.582B (+203.548M)
Down Volume: 691.25M (-203.016M)
A/D and Hi/Lo: Decliners led 1.2 to 1
Previous Session: Advancers led 1.31 to 1
New Highs: 31 (-10)
New Lows: 274 (+41)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Held 2200 support again and started to rebound. Basically held where it had to but hardly an affirmation of an upturn or new trend higher.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +17.01 points (+1.38%) to close at 1249.05
NYSE Volume: 1.452B (-6.26%)
Up Volume: 938.359M (+118.098M)
Down Volume: 496.844M (-217.485M)
A/D and Hi/Lo: Decliners led 1.24 to 1
Previous Session: Advancers led 1.19 to 1
New Highs: 26 (+1)
New Lows: 458 (+146). Jumping but still below the prior new lows hit on the July spike downside.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 bounced up just over the July low at 1200 and recovered the 2002/2003 trendline. Has the look of a double bottom but it will have to prove it.
SP600 (+0.51%) held 370 again, where it had to, and bounced nicely, clearing back above the 50 day EMA on the close. In the middle of its range and holding well.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
DJ30 did not get close to the July low before bouncing back up and reaching the bottom of the August trading range. Strong, above average volume. Still has that umbrella top look that needs a fuller test, but if SP500 got close enough for government work (and with the feds involved in mortgages and about everything else financial, that is about right) then DJ30 will follow. Not counting on that, however.
Stats: +164.79 points (+1.46%) to close at 11433.71
VOLUME: 247M shares Thursday versus 214M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Shorts were covering given the market held the July lows, bounced, and did not roll back over. Worry of another fed move over the weekend helped fuel the late move with the LEH buyer rumors, and that could keep the upside fires burning Friday as not many want to be short over the weekend giving Paulson is supposedly working this weekend, ostensibly on LEH and its asset sale. If nothing comes of it, the shorts will be back.
It is possible the Thursday SP500 test was enough. There are arguments that can be made to that end as noted above. Don't really think that is the case just yet. Thus while Friday could see another upside session as commodities bounce in their selloff, shorts cover, and the new leaders move higher, unless something changes we still suspect the test of the July lows is not over.
Thus we are still looking for good buys in the leading groups. Picked up some of them today. We are also going to watch for the beaten down areas to bounce and set up some more downside for a real test of those lows. In the interim we can play some of these to the upside. Got a head fake with AKS earlier in the week, but they sold further and started to bounce. We can catch a couple of days or so and pocket some nice gains as they bounce. Going to look at those rates of return on them a bit closer tonight and see if they are worth the money put out for them.
In sum we still look for another downside test but the move lower this week saw leaders hold up and now we are seeing the commodities in a bear market bounce of their own. We will continue to take those solid positions in those solid new leaders in the early economic cycle (housing, consumer, retail, medical/health care) as they present themselves while letting new downside set up for another test. If we get some rebound plays from ex-momentum stocks (at least with respect to the upside), e.g. MOS and company, we will take some of them.
Support and Resistance
NASDAQ: Closed at 2258.22
Resistance:
2261 is a March 2008 interim low
The 10 day EMA is 2283
2286 is the first April 2008 gap up point.
2300 is some resistance.
2340 from the March 2007 low
The 50 day EMA at 2341
2360 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 2380
2386 is the August 2007 intraday low
2388 is the June 2008 low
2392 is the April 2008 peak
The 200 day SMA at 2400
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 1249.05
Resistance:
The 10 day EMA at 1254
1257 is the March low
1270 is the January low
The 50 day EMA at 1278
1285 is the recent July peak
The 90 day SMA at 1311
1313.15 is the August 2008 peak
1317 from the February low
1324 is the April low
1331 is the June low
The 200 day SMA at 1351
1357 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:
1244 is an August 2005 peak
1234 is the late July low
1233 is the 2002/2003 up trendline
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 11,433.71
Resistance:
The 50 day EMA at 11,547
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 11,838
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 12,297
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
10,962 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): -0.7% actual versus 0.9% prior
Import prices, August (8:30): -0.3% actual versus -0.7% prior (revised from 0.9%)
Initial jobless claims (8:30): 445K actual versus 440K expected, 451K prior (revised from 444K)
Trade balance, July (8:30): -$62.2B actual versus -$58.0B expected, -$58.8B prior (revised from -$56.8B)
Treasury Budget, August (2:00): -$111.9B actual versus -$105.0B expected, -117.0B prior
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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money investment
financial investment
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