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world stock market, us stock market
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9/23/08 Investment House Daily
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Investment House Daily Subscribers:
*****
Amazing. Down trees, brush, debris stacked up on the streets so high you cannot see the houses behind the 'wall.' Still waiting on the utilities . . .
*****
MARKET ALERTS:
Targets hit alerts: AAPL; BRCD
Buy alerts: JOYG; SDS
Trailing stops: SF
Stop alerts issued: MTH; PEP; TWM; WHR
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SUMMARY:
- Market doesn't like watching sausage being made, unable to hold an early bounce.
- Kind of ironic: too much pork in the bailout bill
- Buffett messes up our brokerage trades for Wednesday with Goldman investment and an after hours market bounce.
- A bailout plan, a Buffett cash injection. Can the market stand the plenty?
Market bounces until Congress gives Paulson and Bernanke a hearing.
Stocks were trying a bit of a relief bounce as all areas gave back some of what they took or lost Monday. Stocks were modestly higher, the dollar was a bit stronger, and oil and gold were lower. They hardly recovered the ground gained or lost to start the week, but after the Monday thumping there was an attempt at some relief.
It, of course, could not last. Paulson, Bernanke and Cox went to Capital Hill for a congressional hearing on the administration's bailout plan. Even before they started their testimony the early market gains started to fade. The plan's massive scope is worrisome in itself and the prepared testimony did not calm those concerns. Then the legislators had their venue and there were many different views tossed out on both sides of the aisle. Republicans generally hated the size of the package and the socialist implications of so much government intervention. Democrats mainly complained the plan was too big as well and wanted to focus on the households versus the mortgage companies and financial institutions. There were also plans to cap salaries, take equity interests, and even bail out auto loans.
Stocks sold as the hearings started, making a session low just after lunch, basically when the hearings ended. Stocks rebounded given the bloviating ended, but that didn't change the market's tune: in the last hour stocks turned down and tanked back to session lows at the bell. Lots of ideas were offered, and the worry there were too many divergent views to get a decent and relatively quick bailout package once more took stocks down in the last hour. Investors wondered how so many polar extremes could be ground up together into something palatable to all. No one likes to see the sausage being made and these hearings were a front row seat at the grinder.
An early bounce on some hope, a reality slap in the face when the hearings started, a failure at near resistance at the 10 day EMA, and then a tumble into the close with losses in excess of 1%.
TECHNICAL. Intraday action after the short sale ban and the announcement of a big plan to come shows a lake of drive in the market. Up and down but dead in the water on low volume as investors back off because there are so many great unknowns out there. With the uncertainty in the vacuum after the rush higher Thursday and Friday on news of the plan the action has been downside with crashes into the close. Lots of concern using upside to move out of positions and that pushes the market lower on the closes.
INTERNALS. About middle of the road for what we have seen of late with a -2.5:1 reading on NASDAQ and -1.8:1 on NASDAQ. Pretty tame. Volume remained low with a bump higher on NASDAQ (+4%) but down 9% on NYSE. New lows were low as the indices remain above the recent lows, still holding onto some of that 700+ gain on DJ30 to end last week.
CHARTS. Stocks rallied out of the gates, right up to the 10 day EMA. That was the zenith. They turned down and undercut the prior 2008 lows on SP500 and DJ30 (throwing out last week's dive) while NASDAQ is testing its March low right now. That modest bounce to tap the 10 day EMA and then the roll over shows how weak that early bounce was. That is the lowest, weakest resistance any stock or index can find. That they tapped that level and turned over is not a good sign of the current state of the market, at least as of the bell on Tuesday. After hours was a different story.
LEADERSHIP. Struggling, struggling. Financials held up decently after an ugly Monday session; the leaders in that group stopped the bleeding at near support. Retail continued its struggles as the worry about a bailout plan has taken a lot of the early cycle money right back out of the sector. Even healthcare and medical were at best mixed, and they are somewhat defensive. Homebuilders faded, truckers sold off, and even personal products had a questionable session. Leadership is suffering from some assault and battery, but with Buffett buying into GS as announced after hours we should see the financials that sagged back to support show some life. How retail, transports, and personal products, financials respond AND how they hold their moves will be key. After hours financials and pretty much all other areas were jumping.
THE ECONOMY
Market doesn't like the sausage making and the pork loading up the bailout.
Kind of ironic: the Congress is making sausage as usual and also, as usual, it is trying to load it with pork. I am really thinking about writing a distressed constituent letter to my congressmen and senators just to see if I can get something put into the legislation. Hurricane Ike victim, still lacking some utilities, homeowner, adopt children, adopt pets from the local shelter, keep green space for wildlife yet hunt as well. There has to be something in there for someone like that. How about you? Time to be creative.
There were some good ideas in the posturing and pseudo-outrage (after all, no senator or rep wants to pound the table too hard lest he or she draw attention to his or her inattention). New York senator Schumer suggested the size could be reduced by doling out the money in tranches so that we could see whether it is working or not before raiding the bank further. Paulson didn't have a really good answer to that other than they felt they needed the big stick of the entire $700B to show the world they meant business. Good points on both of those. Another suggested tax credits for these companies to keep their collateral. That would reduce the overall size of the government's check but it would require the suspension or repeal of the mark to market regulations and allow companies to carry the investments versus marking them down to junk and then facing runs by investors and creditors.
There were some really bad ideas. There were the usual, e.g. capping CEO salaries, taking equity interests on FMV transactions, extending the relief to auto loans and basically any kind of loan currently outstanding. Quick, go get a loan. Of course, you have to be able to get one and not many are lending right now. It is just un-American for the government to tell someone how much they can make. There are less intrusive means such as compensation votes, etc. That in itself highlights why investors are so concerned: there is a rush to 'fix' perceived problems and the carefully orchestrated outrage typically leads to heavy handed, jackboot-like regulation that saddles industry with unnecessary burdens for decades. If you do a good job and your shareholders are happy with what you have done for them, why should the government tell you that you make too much? There was no cap on stock market gains in the tech boom or even the bust when those companies when bankrupt even after their CEO's cashed out with millions. Where was the outrage then? How about each real estate boom that sees new millionaires made? Do we want to reward them by capping what they can make? Where will the risk takers come from? Where will the CEO's with reorganization expertise come form if we tell them they can only make a few hundred thousand if they turn around a multibillion dollar company?
There are more worries. The lone socialist in the senate (at least the senator that admits he is a socialist) is chiding conservatives favoring a bailout of some sort, asking why they are for a bailout when that cuts against their principles. Of course as I have pointed out here last week, it is incumbent upon the government to fix what it broke. Interest rates at 1% forever, lack of enforcement of existing regulation, encouraging home ownership as a sign of American prosperity, insane mark to market rules that forced companies to run themselves out of business. No, there is nothing the feds did to cause this making a bailout necessary. It was all greedy capitalists squeezing the poor hard working little guy. Insane of course, but with every crisis insanity takes hold and we get some really, really bad legislation made really, really too quickly.
The end result, however, will be a $700B Treasury line of credit that it will use not only to buy bad mortgages, but also auto loans, student loans, home equity loans with the government ending up with ownership of all kinds of assets. I still believe that if the government buys the mortgages it will come out ahead in the longer term. Why? Because there is no mark to market requirement with the federal government and it will hold them through the bad times until things turn.
Thus it is imperative that we require any surpluses be returned to those that pay taxes. Note that NOTHING was said about this during the hearings today. Even the so-called conservatives didn't at least require as a capitulatory favor that the taxpayers get paid back for underwriting $700B of bad loans. And remember, the $700B entails paying dollar for dollar all of the bad sub-prime, Alt A, and every other somewhat shady loan out there.
THE MARKET
MARKET SENTIMENT
VIX: 35.72; +1.87
VXN: 36.52; +1.06
VXO: 38.54; +2.26
Put/Call Ratio (CBOE): 1.04; +0.07. Back above 1.0 on the close after a 3-day hiatus. Ten straight sessions above 1.0 before the announcement of the bailout. Now, right back at it, even with no shorting of financials.
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: 37.9%. Down from 38.2% though not as much as you would have anticipated givn the volatility. Down from 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: 43.7%. On the rise as bulls fall, what you want to see for a bottom. Up from 41.6% last week. 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: -25.65 points (-1.18%) to close at 2153.33
Volume: 1.999B (+4.41%). Volume bumped higher but was still well below average so no reason to get too wrapped up in calling this a distribution session.
Up Volume: 527.265M (+234.982M)
Down Volume: 1.447B (-159.648M)
A/D and Hi/Lo: Decliners led 1.82 to 1. Pretty mild.
Previous Session: Decliners led 3.21 to 1
New Highs: 25 (-12)
New Lows: 132 (+37)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Tapped the 10 day EMA on the high and then continued the Monday selling, closing at the session low. That took NASDAQ below the July low and left it just below the previous 2008 lows from March (2169 closing, 2155 intraday). Not the picture of strength as the bailout rally quickly evaporates with NASDAQ looking back toward last week's low at 2070.
Same action though the large cap techs did not even make it up to the 10 day EMA before turning lower and heading toward the prior lows. AAPL made us some money on that move and it looks as if NASDAQ 100 is going to the lows at 1606.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -18.87 points (-1.56%) to close at 1188.22
NYSE Volume: 1.153B (-9.21%). Lower, very below average volume as NYSE indices headed lower and below the July low.
Up Volume: 270.19M (+53.797M)
Down Volume: 876.906M (-172.08M)
A/D and Hi/Lo: Decliners led 2.58 to 1
Previous Session: Decliners led 4.18 to 1
New Highs: 11 (-12)
New Lows: 152 (+65)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
As with NASDAQ, SP500 tapped the 10 day EMA on the high and then rolled over to close at sessions lows and take out the prior 2008 low at 1200. The upside was all due to the story of the bailout, and now reality is hitting. Of course it was a point where Buffett felt it was appropriate to finally enter the market with money for financials, and that could very well turn this new dive lower right back up. Again, however, the test is whether it can hold yet another rah-rah bounce.
SP600 (-1.30%) slid through support at 380 and the 200 day as well. Tapped the June and August highs on the surge and it has imploded after that gap higher and test of that resistance. Such a rapid reversal is typically not a good thing. There is a lot of support down to 370 (closed at 375.53) and SP600 will try to hold there after the GS/Berkshire news hits the market.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
As with the other large cap indices, DJ30 tapped the 10 day EMA on the high and turned back down, closing at the session lows. Low volume but with the lack of shorting ability, a downside day is a downside day. Downside pressure remains and we will have to see if the GS news can bounce the Dow financials. Technically weak pattern and we will have to see once more how the index handles a surge on good news.
Stats: -161.52 points (-1.47%) to close at 10854.17
VOLUME: 204M shares Tuesday versus 213M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
We were in the process of scanning for plays after hours and felt that GS and other investment brokerages would be a good bet for some upside as GS and the brokerages, unlike the rest of the market, finished well on the session, trying to make a higher low. Turns out there was a reason. The news had leaked out that Berkshire Hathaway was investing $5B in GS. GS, MS and other brokerages as well as banks and financials in general were up after hours in glee.
Why glee? Well now there is going to be a bailout coming in some shape and size. In addition, Buffett is finally making a buy into this mess in the financials and many figure that means we must be at the bottom. Buffett has great timing; maybe it is the bottom. As the downside can be a self-fulfilling prophecy, there are times that the upside can be the same.
The question is how long the glee lasts. The bailout news a day and one-half. The Buffett news? Maybe more, but expect continued volatility until the bailout plan is finally hammered out. Buffett is important but the bailout is more so.
The news bounced stock futures up 17 points or so and that makes financial stocks look very good on the open. We will watch to see how other sectors move as well, i.e. if there is a serious bounce or just a perfunctory move, something like light applause. Again, Buffett is important, but the market also needs to get comfortable with the bailout plan to try and put in a bottom. For now we will look at the bounce to see if we need to use it as an exit point for upside plays or if they can shake off the recent attacks upon the leaders and hold gains into the close. Staying power, as noted before, will tell the tale.
Given the news we are not wild about entering on the open. The market has a bad habit of late of starting stronger and finishing much weaker. This news is a bit different and may be the start of a turn. If it is then there will be stocks presenting buy points along the way. There is still that bailout program to get taken care of but this Buffett news can provide a nice segue to that time.
Support and Resistance
NASDAQ: Closed at 2153.33
Resistance:
2155 is the March 2008 low
2167 is the July 2008 low
2202 is the January 2008 low
The 10 day EMA is 2208
2261 is a March 2008 interim low
2286 is the first April 2008 gap up point.
2300 is some resistance.
The 50 day EMA at 2301
2340 from the March 2007 low
The 90 day SMA at 2354
2370 from the April 2006 peak
2371 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2378 is the mid-February peak; 2379 from the October 2006 peak
The 200 day SMA at 2381
2386 is the August 2007 intraday low
2388 is the June 2008 low
2392 is the April 2008 peak
2419 is the January 2008 peak and the early February peak
Support:
2070 is the recent September 2008 low
2043-47 from the July 2006 low and October 2005 low
2020 from January and April 2005
1912 from April 2005
S&P 500: Closed at 1188.22
Resistance:
1200 is the July 2008 intraday low
1215 is the July 2008 closing low
The 10 day EMA at 1216
1239 is the 2002/2003 up trendline
1244 is an August 2005 peak
1257 is the March low
The 50 day EMA at 1259
1270 is the January low
1285 is the recent July peak
The 90 day SMA at 1294
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 1341
1361 is an ancient trendline
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
1133.50 is the September 2008 low
1065 is the Q4 2003 level that SP500 started the run to 2007 after the first run in the recovery.
Dow: Closed at 10,854.17
Resistance:
10,962 is the July closing low
11,061 from February 2006
11,317 from March 2006
11,388 is the prior August low
The 50 day EMA at 11,406
11,670 is the May 2006 intraday high; 11,642 closing
The 90 day SMA at 11,673
11,695 is the 2004/2005 up trendline
11,700 is the January intraday low
11,731 is the March 2008 low
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 12,206
Support:
10,827 is the July 2008 intraday low
10,459 is the recent September 2008 low
10,215 from Q4 2005
10,100 to 10,000
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 24 - Wednesday
Existing home sales, August (10:00): 4.93M expected, 5.00M prior
Crude oil inventories (10:35)
September 25 - Thursday
Durable Goods Orders, August (8:30): -1.3% expected, 1.3% prior
Initial jobless claims (8:30): 455K prior
New Home sales, August (10:00): 518K expected, 515K prior
September 26 - Friday
Q2 GDP final (8:30): 3.4% expected, 3.3% prior
Michigan Sentiment, September revised (10:00): 70.9 expected, 73.1 prior
End part 1 of 3
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