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world stock market, us stock market
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10/08/08 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CME; QQQQ
Trailing stops: None issued
Stop alerts issued: CHTT. Took part of the position off on JPM, USB, WFC ahead of lifting short sale ban
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SUMMARY:
- Investors awake to global selloff, but 'rescued' by a global rate cut.
- Volatile session shows some signs of buyer life.
- Same store sales down as 67% miss estimates
- Treasury market refuses to move to new lows despite rate cut, rebounding from old lows.
- Gasoline demand drops 9.5% last week to the lowest level in 10 years
- Time to suck it up and buy some upside for a strong relief bounce.
Market threatens another major selloff when the world central banks step in.
Japan was down 9.4%, leading Asia lower. LIBOR jumped overnight to 5.38% from 3.94%. Same store sales were weak, led by a big TGT miss (-3% versus -0.8% expected) and warnings Q3 could miss as well. SP500 futures were down 30 points. Just your basic, ugly, right in the teeth of a bear market selloff.
Then the somewhat anticipated global rate cuts were announced. The US cut 50BP, reducing the Fed Funds rate to 1.5%. Normally that would have cold cocked the dollar, but the BOE, ECB and other central banks all cut rates as well. Japan 'fully supported' the cut, though with its rates at 0.5% it did not feel it could cut. Instead it sent a 'wish you well' postcard. Of course the yen was the only currency up on the day. After a strong run the dollar is taking a few days off. It slipped to 1.3664 euros, more than the 1.3623 on Tuesday. Futures turned around and were +20 on SP500. Happy days indeed.
At least for 10 minutes or so. Then futures fell back to -30 ahead of the close. Volatility even before the opening bell. Stocks started lower but within 2 minutes they rebounded and moved positive. After a half hour pending home sales were announced and the 7.4% gain was much better than expected. Stocks spurted then turned over, falling back to the early session lows by lunch. Then, a turn back up and rally into early afternoon and back to positive. They held that move into the last half hour of trade and then the backsliding started. By the close the indices were down except for NASDAQ 100 as it posted a fractional gain. Volatile both before the open and during the session.
TECHNICAL. Intraday the market finished lower but it was all over the map. The buyers came into the market twice, driving the indices to positive. That is a big change from recent history where buyers would run away at the first hint of sellers and the sellers would have their way. With buyers moving back in after the selling bouts there is some momentum shifting that is setting up a bounce of some sort.
INTERNALS. Breadth was to the downside but was quite modest compared to recent downside days (-3:1 NYSE, -2.5:1 NASDAQ). New lows were still impressive (2000 NYSE, 1200 NASDAQ), but with each session pushing the indices to new lows and with breadth lopsidedly downside, it is not surprising to see new lows continue their growth. Volume was very strong, up over 2B on NYSE, more in range of what you wanted to see on the Monday reversal if it was something more than a pressure pop-off rally. NASDAQ trade was very strong. If the indices finished positive this would have been a clear plus. As it is it still wasn't bad given the action seen as buyers kept coming back in to the market on the day.
CHARTS. SP500 held the mid-2003 consolidation range. DJ30 tapped at the top of the mid-2003 consolidation range again. Ditto NASDAQ. This is the point where they should hold and attempt a rebound. After a straight plunge over 20% they are ripe for a bounce as well.
LEADERSHIP. Large cap tech showed a bit of relative strength and there are a few of those that are in position to make a move higher. Some commodities and ag are set to bounce, and as seen in October 2002, the beaten stocks can post impressive bounces to help lead to the upside. Longevity is the problem. Stocks that went straight down tend to bounce straight up and then flare out. As I have said, there is a need for more bases in quality stocks, and if a bottom is forming right here they will form their bases as the market rebounds and then tests this new deep low. That is where the initial group forms and when the market surges off the second low they make the breakout. After that initial run the market tests that double bottom and that is where more bases are formed as many say it was just a bear market rally. Then it bottoms and those new bases yield breakouts and propel the new rally. That is why we are watching for bases forming right now as they will be strong early leaders that give us strong early returns. If they don't form up the groundhog has spoken and we get more stock market winter. Thus we play the bounce with stocks that can make us money from good bounce points or actual bases, and at the same time watch whether more bases form that the market can use as the foundation for a sustained, significant rally.
THE ECONOMY
Same store sales stink, suggest school spending sags.
The misses were across the board as over two-thirds of retailers missed their expectations. WMT matched and other discounters had positive sales, but those are definitely recession retailers. The others were disappointing at best. Department stores missed and lowered their current quarter outlooks.
Not really a surprise given that the consumer is now in full panic given the crisis it didn't know about or really didn't understand was thrust front and center when the Fed and the Treasury panicked and ran to Congress with a bailout pass in hand. That got consumers into the game because they saw the bailout as for the companies that made blunders because they were not feeling the same intensity of the credit crunch or mortgage decline as the financial institutions that held all of this crap on their balance sheets.
When the consumers spoke their congressmen did their jobs and listened. That upset the plans of the Treasury and the Congress that saw Treasury's plan, with the proper big government modifications allowing Congress to usurp Treasury as the big government arm controlling what companies and banks the government buys into, as the vehicle to get the taxpayers to pay for another big government land grab. When the deal was exposed it was voted down and the financial markets and institutions had a tantrum.
Consumers scared by the market crash in response to the bailout bill & what lies ahead with tax policy.
That scared consumers and now they are shutting down along with the financials in very quick order. Retail sales fell quickly as consumers stopped spending to get the lay of the land. IF, and it is a big IF, the Treasury gets a move on and all of these various methods of improving liquidity and then gets out of the way, the consumer can come right back. Of course there are overlying issues involving the election and some seriously dangerous policies given the nature of the world economies getting bandied about. That is not helping things either as the market also has to factor in policies that tax the jobs producers and the capital that will underpin any recovery.
Gasoline demand falls. Cheaper gas is on the way . . . along with less money to buy it.
The 9.5% drop in demand is a 2 year high. Wholesale gasoline fell below $2/bbl. Gasoline prices are falling, but they are still well over $3/gallon, begging the question 'why is it taking so long for them to fall?'
They will fall. They are falling, just not as much as consumers want. They better pick up the pace, however, because if they don't, consumers won't have enough money to buy gasoline even at lower prices as panic shuts down the economy and bad policies to come after the election freeze up investment capital even more than now.
Bond market suggests the turn is here.
The list of Fed and government programs to help get out of this credit crisis grows impressively each day. The feds are doing things I never thought they would and frankly, don't think they constitutionally have the power to do. Of course that never stopped a big government. It makes one wonder why we are surprised when federal judges ignore the Constitution and do what they think is right versus what the law of the land says (Justice Marshall's infamous comment "we will make the law and let society catch up to us" clearly states their superiority complex and apparent disdain for the document through which they are employed): Congress ignores the Constitution when necessary to make its power grabs.
Of course I digressed, but it had to be said. Kind of like that Nextel commercial where the firefighters are all in assembly supposedly conducting the business of government. "Who wants clean water?" They respond "we do." The head fireman says "this is the easiest job I ever had" and tells them to all go home as the work is done. All but figuring how to get clean water, etc. It is absurd, something like a city counsel fighting fires by voting on them. Upon hearing of a fire, it votes to have the fire put out. "All agreed?" "Aye." "Okay, our work is done, the fire is out, go home."
Okay I really digress. The Fed and the feds may have finally hit the level of programs that will make a difference. Wednesday it was coordinated rate cut from the US, BOE, ECB, Bank of Switzerland, Bank of Sweden, etc. that appears to be the tipping point, at least from looking at the bond market.
Bonds sold off hard early in the session. The 3 month Treasury and even the 30 year Treasury were lower and indeed were threatening the prior lows. There was no really good news Wednesday. Yet treasuries refused to violate those old lows and indeed bounced sharply back. On the open yields were lower as investors rushed to US bonds (1.32% 2 year, 3.41% 10 year, down from 1.45% and 3.48% Tuesday night. Bu the close the 2 year moved up to 1.57% and the 10 year to 3.66%.
What does this mean? The old lows held and bonds reversed sharply. It looks as if the bond market has put in its low. The stock market showed hints of the same though not as clearly. More on that below.
THE MARKET
MARKET SENTIMENT
VIX: 57.53; +3.85. Hit 59.06 on the high. That is a new high on this run. Impressive.
VXN: 63.27; +4.76
VXO: 68.01; +4.95
Put/Call Ratio (CBOE): 1.18; +0.08. Yet another day over 1.0 on the close, over two week's worth. That shows plenty of fear of more downside movement.
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: -14.55 points (-0.83%) to close at 1740.33
Volume: 3.568B (+22.77%). Plenty of volume, topping the Monday volume and indeed topping all but the volume hit on the Thursday and Friday the Paulson plan was announced. That trade is big enough to support a turn.
Up Volume: 1.198B (+1.108B)
Down Volume: 2.363B (-392.733M)
A/D and Hi/Lo: Decliners led 2.57 to 1
Previous Session: Decliners led 4.36 to 1
New Highs: 6 (+1)
New Lows: 1184 (+476). New 2008 lows, new highs in new lows.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower, immediately recovered, and then bounced up and down all session. It closed on the downside and still over the mid-2003 consolidation range at roughly 1650. NASDAQ overall showed relative strength as its beleaguered large caps held and bounced. Massive dive straight to the 2003 levels and it is ready to make a bounce as we see it.
NASDAQ 100 (+0.05%) held onto only a modest gain, but that relative strength indicates it is going to try and lead a bounce or at least partner up on one with other stocks such as MA, CME, and some commodities to bounce.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -11.29 points (-1.13%) to close at 984.94
NYSE Volume: 2.106B (+22.1%). Strong NYSE volume, matching the levels preceding the bailout announcement volume. Good enough.
Up Volume: 715.152M (+642.195M)
Down Volume: 1.384B (-265.587M)
A/D and Hi/Lo: Decliners led 3.27 to 1
Previous Session: Decliners led 6.7 to 1
New Highs: 13 (+6)
New Lows: 2041 (+895). More new lows on a new low for the bear market. Would have preferred to see them pull in some, but we can live with this.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps gapped lower, recovered, positive, then yo-yoed into the close similar to NASDAQ. The index held the 2003 consolidation, the first one after the rally off of the test of the bottom hit in late 2008. That makes this a very key level for SP500 to hold if a bottom is at hand. There are other support levels as well, such as the post-October 2002 high where SP500 can find support, but with all of the other considerations as to how far it has declined on this leg and the sentiment indicators, this is the point SP500 should make a stand.
SP600 (-2.10%) made a lower 2008 low as well and it is just over the mid-2004 peak. This is the first big consolidation for SP600 off of the 2003 low and thus where SP600 should hold if this is going to be the bottom on this third leg and this selling.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Same action on the blue chips as they finally hit down close to the top of the mid-2003 consolidation range. As with SP500, this is where it needs to hold the line and make the rebound off of this downside leg.
Stats: -189.01 points (+2%) to close at 9258.1
VOLUME: 479M shares Wednesday versus 362M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The late afternoon failure that pushed stocks negative makes the session appear to be a failure. It certainly wasn't a major reversal, but we don't think it was a failure. It is a change in the character: buyers came into the market and they didn't run scared at the first sign of sellers. The bond market bounced off its prior lows and did not look back. Now we are looking for stocks to do the same.
It doesn't look like much but with the sentiment indicators, the internal readings, the depth of the decline, bonds, the massive amount of federal aid, and some relative strength in techs and buyers on Wednesday, it is time to suck it up and put some money into some upside. We are looking for a strong rebound rally to start very soon and with the action seen from the buyers Wednesday we were starting to put some upside money to work and will continue to do so.
It may not turn out to be the bottom. It may be the first part of a new double bottom attempt and the bounce would be the move off of that first bottom. Then a test would help form some desperately needed bases in some leaders that could lead the market on a breakout move from the second bottom. After that move is spent the big test of the double bottom, and that, if it is going to be successful, will be where a lot more solid growth stocks form bases to start pitching in to lead the market higher after that initial test.
There you have it. We are putting some money to work in anticipation of the bounce off this selling and will do so on the move higher. Not loading the boat; need to see a rebound, a follow through, and leaders breaking higher en masse. Definitely not at that point, but at a good risk/reward point to make some money as the indices and some big name stocks bounce off some extraordinarily rough selling.
Support and Resistance
NASDAQ: Closed at 1740.33
Resistance:
1752 from 2004
1782 from August 2004
1882 from October 2003
1900 from August 2004
1912 from April 2005
The 10 day EMA is 1940
The 18 day EMA at 2032
2070 from September 2008
2099 is the mid-September closing low
2155 is the March 2008 low
2167 is the July 2008 low
The 50 day EMA at 2185
2202 is the January 2008 low
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 2345
Support:
1644 from August 2003
1630 from 2001
S&P 500: Closed at 984.94
Resistance:
1065 is the Q4 2003 level that SP500 started the run to 2007 after the first run in the recovery.
1075 from August 2004.
The 10 day EMA at 1090
1133.50 is the September 2008 low
The 18 day EMA at 1133
1200 is the July 2008 intraday low
The 50 day EMA at 1206
1242 is the 2002/2003 up trendline
1244 is an August 2005 peak
1257 is the March low
The 90 day SMA at 1259
1270 is the January low
1285 is the recent July peak
1313.15 is the August 2008 peak
1317 from the February low
The 200 day SMA at 1321
1324 is the April low
1326 is an ancient trendline
Support:
995 from June 2003 consolidation peak. Below this level on the Wednesday close.
965 is the 2003 consolidation low
Dow: Closed at 9258.10
Resistance:
9323 From June 2003 peak
9575 from September 2003, May 2001
9814 from August 2004
9937 from May 2004 low
10,100 to 10,000
10,127 is an April 2005 low
The 10 day EMA at 10,180
10,215 from Q4 2005
10,365 is the new 2008 low
10,459 is a September 2008 low
The 18 day EMA at 10,503
10,827 is the July 2008 intraday low
10,962 is the July closing low
The 50 day EMA at 11,027
11,061 from February 2006
11,317 from March 2006
11,388 is the prior August low
The 90 day SMA at 11,396
11,635 is the January intraday low
11,670 is the May 2006 intraday high; 11,642 closing
11,720 is the 2004/2005 up trendline
11,731 is the March 2008 low
11,867 is the August 2008 peak
The 200 day SMA at 12,041
12,050 from the March 2007
12,070 from the early February 2008 lows
Support:
9200 is the July peak in the 2003 consolidation
8985 is the closing low in the mid-2003 consolidation
8626 from December 2002
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 7 - Tuesday
FOMC Minutes, September 16 (2:00)
Consumer Credit, August (3:00): -$7.9B actual versus $5.0B expected, $5.2B prior (revised from $4.6B prior)
October 8 - Wednesday
Pending home sales, August, (10:00): +7.4% actual versus -1.2% expected, -2.7% prior (revised from -3.2%)
Crude oil inventories (10:35): +8.1M actual versus 2.3M expected, +4.2M prior
October 9 - Thursday
Initial jobless claims (8:30): 475K expected, 497K prior
Wholesale Inventories, August (10:00): 0.4% expected, 1.4% prior
October 10 - Friday
Export price ex-ag, September (8:30)
Import prices ex oil, September (8:30)
Trade Balance, August (8:30): -$59.0B expected, -$62.2B prior
End part 1 of 3
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world stock market
us stock market
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