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money investment, investment help
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9/15/08 Investment House Alerts
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The storm came, went, left things in shambles. We are trying, as Lt. Col. Henry Blake said in the 'MASH' television show, to 'de-shamblize'. Not all of the researchers and writers got to places where there is power and internet service or they simply could not leave their property. This should change within the next 2 to 3 days. Until then we will you what you need to stay on top of the market events and your investments but we may have to cut some areas shorter and try to get you the report as timely as possible. Thank you for bearing with us.
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: TWM
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Two storms hit the US, one sending SP500 below the July lows.
- Got collateral? Got anything? Fed lowers requirements beyond garbage.
- Fed, Treasury say no more bailouts, leaving LEH, AIG, and others to be named later to fail.
- Looking for another shot at a bottom on Tuesday, but questions about the extent of the financial distress may defer any true bottom.
- Don't forget the FOMC as it meets on Tuesday as some switch from no rate cut to 50 BP rate cut predictions. Let's just go ahead and shoot the dollar.
Feds active over the weekend, but no bailouts and the market has something of a bad day.
Two storms were bearing down on the US at the end of last week: Ike and Lehmann. Both of them hit hard causing immediate damage. Both of them left problems that will take a lot more time to sort out.
Ike slammed Texas with 100+ mph winds, pushing wind and water that caused billions in immediate damage. After it left the extent of the damage is staggering. Just as with Louisiana, Mississippi, Florida, etc., after the storms leave the repercussions linger.
Monday the second storm hit the US as LEH filed for bankruptcy. We went into the weekend knowing LEH had to find a suitor or get one of those federal golden tickets that FNM and FRE or even BSC got in order to survive. Things looked promising with BAC at the table and Paulson/Bernanke working the weekend once more. Last time the Treasury and Fed collaborated over the weekend there was a massive bailout and the market rallied . . . that day. This time that didn't happen. MER intervened and called BAC. BAC coveted MER and they had a deal by Saturday. LEH asked for federal help. This time the door was slammed in the face of the hopeful borrower/takeout candidate. Seems the federal black box of who is allowed to survive and who has to die figured LEH wasn't worth it. No problem with that in theory as there are real issues just what the feds should be doing here, but no one knows just what the decision process is as to who gets the golden parachute and who gets the shaft.
So what if BAC took out MER, reducing the pool of potential failures by one (or maybe it just makes for a bigger failure to come?)? Investors simply saw more negatives than positives on the session, focusing on the LEH bankruptcy filing and a huge problem with insurer AIG. AIG is also seeking financing, offering some of its best assets for sale and knocking on the Fed's door. The Fed's answer to AIG was the same as Treasury's to LEH: not this time fellas.
That set the stage for a bad session as the financial sector got some tough love that was needed earlier. This is like parents trying to change behavior after the young adult has committed a crime. Yes the bad deed is done but do you send the kid to the pen or other punishment or try to save things for now and strive for change later? As with most poorly raised kids the financials reacted poorly, helping the market to its worst showing since opening after 9-11.
Not that the BAC/MER deal was a sweetheart affair. They like each other and BAC offered a 70% premium. We also heard, however that Treasury and the Fed were pleased and encouraged the deal something like parents in the past used to encourage weddings with a shotgun.
The Fed and Treasury were not done with just saying no to LEH and AIG. They said 'no and no one else come ask either.' They tried to say FNM and FRE (and yes BSC) were it with respect to bailouts. But they did not just exit stage right. The Fed is helping AIG by rounding up 10 big banks to throw $75B in the kitty to help AIG's liquidity issues. Man, need those guys around for the next fundraiser we have.
The Fed also changed some requirements for its lending facilities in its continuing attempt to get money into the banks so they will lend, lend, lend . . . all according to the strictest yet fairest standards of course. Now the Fed will take all kinds of debts as discount window borrowing collateral. It also eased lending restrictions on the liquidity bank affiliates had to maintain. Before we said the Fed would take only the finest garbage from the finest institutions. Now it will take anything as collateral. Hmm. I have some 'collateral' left over from the hurricane. I wonder . . .
The market gapped lower on the next chapter of financial news. SP500 tested the July low again but again it didn't get there before bouncing. VIX hit 30.96 on that opening salvo. The market bounced nicely. Never made it positive, but it took the losses back to 1% and less. It tested but could not make new headway. It tested and the kept testing and testing. SP600 broke below the recent lows at 370. SP500 broke below the July lows and closed there. VIX jumped back up to close at 31.70 at the session high.
TECHNICAL. Intraday stocks went from a gap lower to trim the losses nicely, holding support. They faded into the close and to new session lows. Promising, but could not get the job done.
INTERNALS. Volume surged to the strongest levels since mid-July. Stocks getting dumped. The advance/decline line was what you call extreme at -16:1 NYSE. NASDAQ was big for that index as well at -6.6:1. Some truly ugly results. New lows exploded higher on NYSE (723) thanks to the small cap tumble. NASDAQ was still light at 346 indicating it is not getting routed outside of some big stocks. Of course it is also not at the 2008 lows as is SP500. NYSE is getting extreme, however, and if some of the other indicators such as VIX step up on another dive lower and rebound SP500 could find a bottom.
CHARTS. SP500 undercut the July low and closed below that level. It has tested and now the question is how far it goes? If it closes in this range even if it say dives lower once more, it will still be able to call this a bottom without the need for a subsequent test. SP600 closed below the recent lows at 370, ready to head lower. NASDAQ undercut its July closing low but the March is still 25 points further. DJ30 made a new closing low but it is still 90 points off the July intraday low. That is about 90 seconds away if things open bad Tuesday.
LEADERSHIP: The market dove but the recent leadership still hung in there. Retailers struggled to end last week but held nicely at near support Monday. Homebuilders look good as well, also riding at near support. Personal products ditto. Trucking companies had a solid session. All of these are aberrant if the economy is heading lower. They are part of that early cycle trade we have discussed and they are still holding up even with the dives by the large indices.
SUMMARY: Early on the market showed a wisp of wanting to bottom, but that was more wishful thinking as investors tried to will a bottom. Yeah, that works. This was a nice quiet and easy test of the lows, the 'wear them out' discussed last week. With the Monday action the 'scare them out' bottom is back on the table. Another blast lower, not atypical after such a weak Monday, would help get the flush-out going. The market needs another selloff to jack up VIX to 40 or better and then an intraday surge back up to positive on heavy, heavy volume. The problem with Tuesday is the Fed is out there with a one-day meeting and everyone will want to see what the Fed has to say now that there is talk of a 50 BP rate cut from those calling for the Fed to hold pat just a few weeks back.
THE ECONOMY
Having to limit this somewhat this evening but we note that the New York PMI contracted (-7.4) versus the 1.4 expansion expected (2.8 prior). Some volatility as turns try to take place is expected and this is definitely in a volatile condition
THE MARKET
MARKET SENTIMENT
VIX: 31.7; +6.04
VXN: 32.13; +3.92
VXO: 33.61; +4.28
Put/Call Ratio (CBOE): 1.47; +0.46. Fifth straight close over 1.0, indicating the downside speculation and protection is getting to more excessive levels.
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: -81.36 points (-3.6%) to close at 2179.91
Volume: 2.728B (+35.84%)
Up Volume: 148.952M (-793.244M)
Down Volume: 2.571B (+1.539B)
A/D and Hi/Lo: Decliners led 6.61 to 1
Previous Session: Decliners led 1.06 to 1
New Highs: 33 (-5)
New Lows: 346 (+180)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -59 points (-4.71%) to close at 1192.7
NYSE Volume: 1.877B (+43.39%)
Up Volume: 168.848M (-608.419M)
Down Volume: 1.706B (+1.182B)
A/D and Hi/Lo: Decliners led 16.11 to 1
Previous Session: Advancers led 1.35 to 1
New Highs: 22 (-1)
New Lows: 723 (+522)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 closed at a new 2008 closing low and the low of this down cycle.
SP600 broke below 370, the low in this current fade.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Massive point drop to a new closing low on this cycle but still above the July intraday low at 10,827. SP500 can dive lower and recover while DJ30 does the same. Neat package if it can pull it off.
Stats: -504.48 points (-4.42%) to close at 10917.51
VOLUME: 432M shares Monday versus 239M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
CPI is out along with the FOMC decision at 2:00ET. As noted above, the FOMC meeting is the wild card as now many are calling for a 50BP cut. That would be more of a confidence building cut versus a liquidity injection. After all, the Fed said it would take anything at the window now so why cut rates?
Despite all of the news to come, we are going to watch and see if the market provides another dive lower and can recover. There will be some impetus lower as WFC announced after hours that it was going to have charges related to LEH. This is one of the rocks in financials, and that it has some skeletons in the closet won't help a snap back.
We have to watch where DJ30 bottoms; want to undercut the prior low. If we see a big dip and reversal we can close the downside and buy some upside in the retailers, and some others on the report and see how they recover. We can let the upside we have that is holding up well just bounce back as well and see how they recover. It is definitely a market of extremes as the indices get pounded but many stocks are getting money in anticipation of an economic recovery. For now they are not breaking down despite the problems with the financials.
Support and Resistance
NASDAQ: Closed at 2179.91
Resistance:
2202 is the January 2008 low
2261 is a March 2008 interim low
The 10 day EMA is 2261
2286 is the first April 2008 gap up point.
2300 is some resistance.
The 50 day EMA at 2332
2340 from the March 2007 low
2365 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2370 from the April 2006 peak
The 90 day SMA at 2374
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 200 day SMA at 2395
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
Support:
2167 is the July 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1192.70
Resistance:
1200 is the July 2008 intraday low
1215 is the July 2008 closing low
1233 is the 2002/2003 up trendline
1235 is the late July low
1244 is an August 2005 peak
The 10 day EMA at 1254
1257 is the March low
1270 is the January low
The 50 day EMA at 1274
1285 is the recent July peak
The 90 day SMA at 1307
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 1349
1360 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:
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 10,917.651
Resistance:
11,061 from February 2006
11,131 is the late July 2008 low
11,317 from March 2006
11,388 is the prior August low
The 50 day EMA at 11,517
11,670 is the May 2006 intraday high; 11,642 closing
11,685 is the 2004/2005 up trendline
11,700 is the January intraday low
11,731 is the March 2008 low
The 90 day SMA at 11,798
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 12,278
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:
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 15 - Monday
NY Empire State PMI, September (8:30): -7.4 actual versus 1.4 expected, 2.8 prior
Industrial production, August (9:15): -1.1% actual versus -0.3% expected, 0.1% prior (revised from 0.3%).
Capacity utilization, August (9:15): 78.7% actual versus 79.6% expected, 79.7% prior
September 16 - Tuesday
CPI, August (8:30): -0.1% expected, 0.8% prior
Core CPI (8:30): 0.2% expected, 0.3% prior
Net foreign purchases, July (9:00): $53.4B prior
FOMC decision on monetary policy (2:00)
September 17 - Wednesday
Building permits, August (8:30): 925K expected, 937K prior
Housing starts, August (8:30): 950K expected, 965K prior
Crude oil (10:30)
September 18 - Thursday
Initial jobless claims (8:30): 440K expected
Leading economic indicators, August (10:00): -0.2% expected, -0.7% prior.
Philly Fed, September (10:00): -10.0 expected, -12.7 prior
End part 1 of 3
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