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world stock market, us stock market
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10/02/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: DUG; JOYG; NEM
Buy alerts: THS
Trailing stops: None issued
Stop alerts issued: PRXL
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SUMMARY:
- October starts where September left off.
- Sometimes our leaders need to think before they speak or just think
- Economic data continues the turn back down.
- Waiting to get the bailout bill issue put to bed so the market can start worrying about its own.
- Sure feels gloomy. Been here before it seems.
October gets underway by throwing out the Tuesday rebound attempt.
About the only thing up Thursday was the dollar, LIBOR rates (hit 6.6% on the high), and jobless claims. The ECB is in the process of shifting its bias so the dollar exploded higher (closed at 1.38 euros, a gain of over 2 cents in one day). Not a bad thing as our currency needs to get back its strength, but it shows the tumultuous times as Europe and the rest of the world follows the US in the slowdown. It, along with a weaker outlook for the world economy, pushed oil lower again (93.69, -4.84). Gold fell despite world uncertainty (839.60, -47.70). Conway trucking lowered its outlook and the bottom fell out of transports. Harry Reid, in efforts to sell the bailout bill, mentioned that one insurer could go bankrupt if the bill was not passed. That sent insurers lower.
With that the market opened lower and dove downside. Midday there was a bounce attempt and the indices set up an intraday double bottom. We thought there might bring in some short covering ahead of the House vote on the bailout plan, but that just didn't happen. Stocks tumbled to the close, holding just over the September lows on the NYSE large cap indices. The other indices made new lows for 2008. They all closed right at the lows so there was no one willing to step in to the upside.
TECHNICAL. Not a lot of good technically. As noted the market opened lower, failed a rather weak midway bounce attempt, then sold to session lows on the close. Sellers ruled the session.
INTERNALS. As you would expect the internals turned sharply negative after a flat showing on the flat Wednesday session. -4:1 and -5:1 breadth is stout. Volume jumped back to above average on both NYSE and NASDAQ. After a brief respite it is back to the negative numbers shown on Monday and before. That is fine. If you are going down, go down big and get everything cleaned out.
CHARTS. New lows on all but the NSYE large cap indices. That means the rally attempt from Tuesday is basically junked. Yes DJ30 and SP500 closed above the Tuesday low but with the higher volume selling on all indices the really is in serious trouble. You never like to see a rebound attempt met with quick high volume selling. DJ30 is the strongest, but it is going to have to pull one out of the hat to rally from right here. They are in the midst of flux right now and with the overall movement downside, the direction of least resistance right now.
LEADERHIP. The same leaders are still hanging on but they are more like an island now versus leading the way and beckoning more to follow. Many strong financials held up well. Homebuilders are going about their pattern building. Food and medical/health are solid though they are more defensive. Personal products are solid, but they too are more defensive. A few weeks back the early cycle stocks were moving up into leadership. Transports and consumer retail fell off pace, indeed falling hard. Leadership is holding on but it is not building just now, at least among economic expansion stocks.
SUMMARY. The turn back down was decisive but not complete. Came close; if the NSYE large cap indices broke to new lows it would have run the table. The market sold off again either building in a House 'no' vote on the bailout, a failure of the bill to accomplish its objectives, or just looking at a recession beyond passage of the bill. As discussed last night, the bailout doesn't address the economic damage the credit freeze has done; if it is successful it will free up credit and eventually the economy recovers. There is paltry help in the bailout that will provide the kind of economic stimulus needed to get the economy back on its feet after the initial credit freeze crisis is handled.
THE ECONOMY
Factory orders, jobless claims show a new turn to the downside.
The monthly economic data picked up the pace over the prior four months, but in August and September the data started turning back to mixed. Yes the data was still mixed before these new reports, but the overall trend was improving. Some key reports have taken sharp turns. This week the ISM fell sharply off its 50 levels. Thursday August factory orders fell 4.0%. Roses were not expected (-2.9%), but this is a sharp decline from the 0.7% in July. Moreover, the revision was not up as some of the prior reports were, but down from 1.3%. Revisions are often the key as they show better, harder data. Orders are falling and they are falling at a faster pace than thought.
There is going to be more damage to the economy showing up in the numbers. High oil coupled with the credit issues has done damage. The question is how much. Again, we are trying to rescue the credit markets so they can function normally and money can move. That is absolutely necessary. Problem is, then the damage has to be fixed. There is no ammunition left in the boxes after such a massive bailout, at least according to those who believe tax cuts are costs to the government. They will oppose attempts to provide real economic stimulus, the kind that history shows works, i.e. capital investment tax incentives as discussed Wednesday night. We need more revenues, and the way to get more revenues is not raise taxes but to cut them the right way, encouraging investment in America. That produces new ideas, businesses and jobs, and that throws off more revenue than spent on the tax cuts.
There are those who will resist. The 'blue dog' democrats that voted for the bailout bill on Monday are said to be lining up against it on Friday. Why? Because they were willing to throw $700B at the mortgage bailout but are balking at a few billion of tax incentives put in to sweeten the pot. $700B to restore credit but without offsets for the tax cuts, no deal.
What is the difference between the two? At least good tax incentives jumpstart the economy as in the early sixties, early eighties, and early 2000's. They bring in more revenue than the 'cost.' How letting people keep their money is a cost only makes sense in Washington. The $700B won't do that. It may be necessary to save the economy as some say, but it won't fix the economy. Thus we are going to have to have some kind of real, capital investment inducing policies to rev the economy back up. Or we let it fall and do nothing, but after pushing $700B at the credit issues, that would certainly be a waste of all the taxpayer's money. Give the taxpayers a bonus and let them keep their money if they invest in the US and we then kick start the economy after the credit markets are normalized.
THE MARKET
MARKET SENTIMENT
VIX: 45.26; +5.45. Strong though just off the Monday high.
VXN: 49.53; +6.61
VXO: 54.16; +8.89
Put/Call Ratio (CBOE): 1.37; +0.38. Very strong readings here showing a lot of worry there is more downside ahead.
Bulls versus Bears:
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: 33.7%. Big drop from 37.5% and below the 35% threshold considered bullish. Now with the bulls down and the bears up big there is plenty of pessimism here. Down from 40.7% on the high during the rally off the July lows. Heading back toward the 27.8% on the low this round. Hit 30.9% low hit in March. In March the indicator did its job with the dive below 35% and the crossover with the bears. 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: 47.2%. Surging from 40.9%. Closer 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 move over 50 takes it to the highest since 1995. Extreme negative sentiment. 35% is 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. 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: -92.68 points (-4.48%) to close at 1976.72
Volume: 2.143B (+10.98%). Distribution again as the techs are sold on higher volume as they are unwanted in the current economic outlook.
Up Volume: 98.731M (-387.875M)
Down Volume: 2.109B (+674.225M)
A/D and Hi/Lo: Decliners led 4.33 to 1
Previous Session: Decliners led 1.71 to 1
New Highs: 6 (-1)
New Lows: 402 (+247)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower and closed at a new 2008 low on rising volume. Not good. There is still plenty of work ahead for NASDAQ as it has to base out once more, but at this point with the new low for the year it still has to find the low first and then start to base. NASDAQ is in the range of 2004, landing right in the middle of that range Thursday. A failure here and a frankly there is another 150 to 200 points on the downside.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -46.78 points (-4.03%) to close at 1114.28
NYSE Volume: 1.463B (+6.89%). Volume rose as the NSYE stocks sold. With the small caps at a new low and economically oriented, we have to see the volume as dumping of the small caps.
Up Volume: 159.963M (-538.419M)
Down Volume: 1.295B (+629.53M)
A/D and Hi/Lo: Decliners led 5.35 to 1
Previous Session: Decliners led 1.02 to 1
New Highs: 11 (-6)
New Lows: 629 (+392)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Sold hard, giving up the bounce though still holding just over the Monday low that was a new 2008 low. Hard to call this a good pattern; more a continuation of a trend lower after breaking below the prior lows for the year and unable to hold the rebound move and even try for a follow through.
New closing low for the year as SP600 lost 5.12%, only surpassed by the mid-caps that lost 5.57%. It has surpassed the closing lows but is within the intraday lows this year. If it is going to hold those it will have to prove it because this has been a rather incredible 60 point selloff.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The Dow lost ground as well on big volume as GE trade soared on its issues. It is above the prior September low and can still hang on and make that double bottom. At this juncture we have to let it make its play and see if it is going to hold similar to 2002 in the midst of all the chaos. Things are certainly negative enough.
Stats: -348.22 points (-3.22%) to close at 10482.85
VOLUME: 395M shares Thursday versus 108M shares Wednesday. Some high volume selling led by old GE. The financials? Low trade.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
This is historical. First Friday of a new month and the phrase on everyone's lips was not 'jobs report' but 'House bailout vote.' We all know jobs are going to be down once more. It lags and it will have to be a big, big miss to intensify the gloom much more. Everyone will watch the numbers and then immediately return to speculation about the House vote. When will it happen? Will the blue dog democrats take away what the conservative republicans give? From what we hear in Washington, as the evening has passed there is more confidence it will pass. Maybe this time the whips from the parties will actually whip their members and get them to vote as the parties desire.
It looks as if passage will occur and perhaps then the market can get to what it does best, discounting the future. With the bailout in the bank the market can discount looser credit markets and assess the economic outlook and figure out how far down it will go.
Gloom is getting as high as I have seen or felt. The violent downside ahead of the bailout proposal, the Monday dive lower, and then the dive lower Thursday as the bounce attempt was squashed. Floor traders, pit traders, market makers, brokers and the fund managers are all saying just head for cover, that there is no way you can navigate the market. Individuals are looking a the market and panicking over their 401k's. Money is being yanked out of funds. The market has tried to bounce but each time it has the past month it has been bludgeoned back down. Bomb shelter time.
If there were more leaders ready to move higher, growth leaders, then I would be more excited about the gloom. The market is hitting the sentiment and internals buttons; the indications are at levels that indicate a turn. It typically takes several weeks after they are hit to actually make the market turn.
Thus we move on two levels here. First, we look at what stocks are setting up in bases over that period. As noted above, there needs to be more growth leaders in position to breakout when the indices bottom and move higher. That means more work to be done. Second, we look for taking what the market gives in the interim. Yes it is very tough in the market, but there are moves that set up both ways. There are some stocks rolling up and down, just now touching down at the bottom of their ranges after a harsh market selloff. They can make us money as the market makes a relief bounce from this selling. After a relief bounce we look for more downside. Up and down action is part of the bottoming process and we will continue looking to play that as the market continues on whether it bases laterally here or continues to sell.
In short, we recognize: the indicators are at levels that accompany market turns; volatility is such that accompanies market turns; it can take several weeks to set up the move higher. We take what the market is giving when it sets up. We watch for those leaders to make their moves higher and move in.
Back in 2002 the leading group off of the bottom in October was semiconductors. They surged higher ahead of the rest of the market, making us 100% on our options plays over and over and 30%+ on our stock plays. Then the long test through March 2003 that everyone thought was the start of a new leg; we saw the low volume and lots of patterns building positively. We were preparing that buy list for when EBAY and others broke out and led the market.
Financials are set up to move higher again after passage by the House. Thus we are looking at financials to lead the way higher if there is a break off these lows. Perhaps home related stocks as well as they have held up nicely. We are already in several financials and are looking at more if they give the nod. It is an exciting time when you see the long dormant financials showing excellent relative strength and good patterns forming in the midst of all of the angst as to whether they will even survive. It isn't universal across the financials by any means; more work has to be done, but there is never a guilt free or fear free bottom. You have to gird up the loins a bit and step out when they move. You don't feel great about it at all but if they show the patterns and the moves you just have to act.
So we take in all of the gloom, wanting to see even more. We want things to look just awful, so bad if you put a cup of milk out on the trading floor it curdles. We keep our emotions at bay. If we are down in a position we look for a better exit point, take it, then look at stocks that are setting up positively as well as some shorter term plays to take advantage of the market swings. It is the hardest thing to do when you are beaten up and then look up just to see the truck coming.
It is at these times, however, that you see the moves developing if you watch leadership and market action, seeing them for what they are and not what emotions suggest. Right now there is one, maybe two serious leadership groups; there needs to be more for a bottom. They can form up over the next several weeks. We are looking at financials. They have to lead out of this mess as they led us down into the pit. The market action is not superlative either. New lows on all but SP500 and DJ30 on Thursday. Watch DJ30. It is the key right now. It can form the same pattern it did in 2002. Watch SP600 as well. It is at the 2008 lows hit on three prior occasions this year. If it holds and moves up with DJ30 and the leaders start popping, then things look brighter in the midst of all the gloom.
Support and Resistance
NASDAQ: Closed at 1976.72
Resistance:
2070 from September 2008
2099 is the mid-September closing low
The 10 day EMA is 2103
2155 is the March 2008 low
2167 is the July 2008 low
The 18 day EMA at 2153
2202 is the January 2008 low
The 50 day EMA at 2249
2261 is a March 2008 interim low
2286 is the first April 2008 gap up point.
2300 is some resistance
2340 from the March 2007 low
The 200 day SMA at 2361
Support:
1912 from April 2005
1900 from August 2004
1882 from October 2003
1782 from August 2004
S&P 500: Closed at 1114.28
Resistance:
1133.50 is the September 2008 low
1200 is the July 2008 intraday low
The 18 day EMA at 1201
1239 is the 2002/2003 up trendline
The 50 day EMA at 1240
1244 is an August 2005 peak
1257 is the March low
1270 is the January low
The 90 day SMA at 1278
1285 is the recent July peak
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 1331
1364 is an ancient trendline
Support:
1075 from August 2004.
1065 is the Q4 2003 level that SP500 started the run to 2007 after the first run in the recovery.
995 from June 2003 peak
Dow: Closed at 10,482.65
Resistance:
10,827 is the July 2008 intraday low
10,962 is the July closing low
11,061 from February 2006
The 50 day EMA at 11,284
11,317 from March 2006
11,388 is the prior August low
The 90 day SMA at 11,545
11,635 is the January intraday low
11,670 is the May 2006 intraday high; 11,642 closing
11,700 is the 2004/2005 up trendline
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
The 200 day SMA at 12,126
12,250 from late March 2007 lows
Support:
10,459 is a September 2008 low
10,365 is the new 2008 low
10,215 from Q4 2005
10,127 is an April 2005 low
10,100 to 10,000
9937 from May 2004 low
9814 from August 2004
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 29 - Monday
Personal Income, August (8:30): 0.5% actual versus 0.2% expected, -0.6% prior (revised from -0.7%)
Personal Spending, August (8:30): 0.0% actual versus 0.2% expected, 0.1% prior (revised from 0.2%)
September 30 - Tuesday
Chicago PMI, September (9:45): 56.7 actual versus 54.0 expected, 57.9 prior (revised from 56.9)
Consumer confidence, September (10:00): 59.8 actual versus 55.0 expected, 58.5 prior (revised from 56.9)
October 1 - Wednesday
ADP employment survey, September (8:15): -8K actual versus -53K expected, -37K prior (revised from -33K)
Construction spending, August (10:00): 0.0% actual versus -0.5% expected, -1.4% prior (revised from -0.6%)
ISM Index, September (10:00): 43.5 actual versus 49.5 expected, 49.9 prior
Crude oil inventories (10:35): +4.2M actual versus +2.8M expected, -1.52M prior
October 2 - Thursday
Initial jobless claims (8:30): 497K actual versus 475K expected, 493K prior
Factory Orders, August (10:00): -4.0% actual versus -2.9% expected, 0.7% prior (revised from 1.3%)
October 3 - Friday
Non-Farm Payrolls, September (8:30): -105K prior
Unemployment rate, September (8:30): 6.1% expected
Average workweek (8:30): 33.7 expected
Hourly earnings (8:30): 0.3% expected
ISM Services, September (10:00): 50.0 expected, 50.6 prior
End part 1 of 3
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world stock market
us stock market
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