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money investment, day trading
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10/13/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: Given the huge surge, took some interim gain on DIA, IWM, SPY
Buy alerts: AGU; GXDX; QQQQ; QSII; THOR
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Investors like the G7 action, push a market surge.
- US bond market back from holiday Tuesday, and that is where the real impact of the G7 results will show itself.
- Have to worry about rising too fast and burning out ammo with 11% gains, but this is just the first bounce off the low.
After historic meltdown, a historic surge.
After the worst week in history and a massive Friday reversal, the market was ready to move upside. MS announced its deal with Mitsubishi was complete and thus would not follow the BSC and LEH spiral into the history books. The Treasury's new bailout manager held a news conference outlining what was in place, when the buyouts would start, and what the initial targets (the big solvent banks) would be. Easily the most eloquent spokesman yet on this bailout. Then there was the G7's weekend meeting, and with a Sunday agreement to take "all necessary steps" to prevent a panic and get credit flowing. Monday some details emerged such as Germany putting up $600B to guarantee interbank loans. That is the most anticipated aspect of the meeting to investors, and Tuesday it is anticipated that a blanket guarantee would issue in Europe and the US.
Investors were all aquiver over the news and futures were sharply higher. They continued higher at the open, gapping stocks upside. There was an early, first hour attempt to sell stocks, but that was arrested and they started climbing. We took some positions on that test and bounce, and as it turned out the market, while up substantially early, was nowhere near done on the session. It rallied early and often, with the only real effort to sell stocks coming just after lunch. That lasted about 50 minutes, and when it ended stocks exploded higher. Then they increased the upside tempo in the last 15 minutes of trade in what looked like a massive short squeeze and blow off top all in one.
The US bond market was closed (Columbus Day) so investors could not get a clear read on just how the G7 agreement will impact the TED spread discussed this past weekend. It opens Tuesday and likely the bulk of the specifics with respect to the G7 agreement will issue ahead of the open. It is expected that the US will also agree to guarantee interbank loans given the desire to avoid an arbitrage situation between Europe and the US. How the US bond market trades will tell much more of the tale as to how effective this new aspect of the bailout will work in conjunction with the other links of the chain already in place. Needless to say investors need to see LIBOR rates and the TED spread (3 month LIBOR less the 3 month Treasury) fall - significantly.
TECHNICAL. After a big, capitulation-like reversal Friday the market surged with an equally and even more violent rally Monday, the strongest session since the 1930's. Yes it was a surge, but the tremendous volatility continues, and if it doesn't settle down that is indicative that the market is still not at the point where it is ready to sustain a move. More on this below.
INTRADAY. It was all upside with a gap higher to start with a massive late surge. In the last hour and one-half NASDAQ added 95 points to its gain, DJ30 450 points, and SP500 55 points. A massive short squeeze and a fear of missing out on a potential market reversal from a straight drop to a ballistic shot higher.
INTERNALS. Impressive and almost equal with the downside strength shown last week. Advancers topped decliners 16:1 on NYSE and 6:1 on NASDAQ. New lows fell off the table as you would imagine. Volume topped 2B on NYSE (2.1B) and clicked off 2.6B shares on NASDAQ, but after Fridays reversal that was still lower. Strong but lower. That shows the Friday move was the kind of volume you want to see on a reversal.
CHARTS. SP500 and DJ30 fell into the middle of the 2002 bear market low bottom and NASDAQ tested near the middle of its 2002 bottom as well. They all bounced rather violently from that level. Monday they gapped higher and surged, rallying to near resistance at the 10 day EMA or surprisingly close thereto for just one session. Indeed we put that as resistance in the pre-market alert, but did not think they would ready that level. NASDAQ made it, SP500 is 20 points shy, DJ30 200 points below. This is very much the kind of response you get when there is capitulation or a washout to the downside such as Friday morning. Monday there were no more sellers, at least sellers ready to come into the market and challenge the idea that the western central banks were going full monty with their bailout/backup plans. Just as the selling snowballed downhill when the sellers panicked at the though of being the last ones out the door, the upside buying increased in fury as investors feared missing out on a new huge rally. Fear on the way down, fear on the way up.
How far will the bounce off the lows run? As you know we are mostly in the camp that lows need to be tested to some degree. They can be undercut modestly, they can be matched, they can be waved at from above; in short, a test can take many forms. Before that, there is the initial rally off the low. In 2002 DJ30 rallied 25% from its intraday low to its intraday high on the initial run, then fell back to the October low and really scared everyone, so much so we heard that old 'the usual indicators are not working anymore.' The market bottomed that day. A 25% move off the Friday intraday low puts DJ30 in the 9850 range. We think that given the severity of the dive lower it could make it on up to 10,000. We want to see the move slow down, however, so it simply does not shoot all of its bullets and then keels over and founders without bottoming. We play this move upside knowing it will likely not be the bottom of the market, at least not a bottom that goes straight up from here without a test. We let good positions run, but we also anticipate a turn lower to test in some shape or form. That will take some time and will scare people. We also have to factor in the rally is based on government intervention and those have failed thus far. This time, however, the intervention completes what the others started. In any event, we play the bounce, watch for a rollover, look at playing some downside, and then see how it bottoms near that Friday low.
LEADERSHIP. Everything was up with the rush higher though financials struggled more than you would expect. The more beaten down areas in energy, commodities, agriculture and industrials were some of the bigger leaders. Big tech showed some relative strength last week and it was up with gaps higher as well. We want to play the rebounds off the lows as in 2002 when the chip stocks led the move. We have to realize, however, that unless this is a very rare circumstance, after this initial run (10,000 on DJ30?) there will be a test, and that test is the one where we look for the really big move off of the lows. We were not complaining taking gains on the index plays taken Friday, and we are looking for more gains with other plays, but we also have to recognize we are looking for some more downside before this is done. I digress a bit, but the point is that during this initial run there are not many stocks in bases, but this process of rallying, testing, and then setting up to rally again is where the first leadership bases are formed, and that leads to a more sustained and orderly move higher as the reversal matures from a violent reaction to a steady accumulation process.
THE MARKET
MARKET SENTIMENT
VIX: 54.99; -14.96
VXN: 60.27; -11.31
VXO: 60.28; -25.71
Put/Call Ratio (CBOE): 0.88; -0.34
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: 25.3%. Largest single week drop we have ever seen, down from 33.7% and 37.5% the week before. Well below the 35% threshold considered bullish. Down from 40.7% on the high during the rally off the July 208 lows. Surpassing the 27.8% on the low this round. 30.9% was the March ow. 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: 53.0%. Surging from 47.2% and 40.9% the week before. Surpassing 50.0%, the high on this move. Well above the 35% threshold so still a bullish indication. This move over 50 takes it to the highest since 1995. Extreme negative sentiment. 35% is the level that historically indicates excessive 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: +194.74 points (+11.81%) to close at 1844.25
Volume: 2.666B (-36.59%). Much lower volume but still above average. Light as it was a holiday, but light above average.
Up Volume: 2.539B (+906.985M)
Down Volume: 91.952M (-2.441B)
A/D and Hi/Lo: Advancers led 6 to 1
Previous Session: Decliners led 1.09 to 1
New Highs: 2 (-4)
New Lows: 133 (-1576)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
After gapping lower last Monday in one of its worst weeks every, NASDAQ gapped to the upside this money in one of its best single days ever. It rallied to the 10 day EMA on the close; never figured it would make that in a day. Looking for NASDAQ to move up near the gap down point at 1947 (the 18 day EMA is at 1944) with 1984 on the high side.
NASDAQ 100 (12.58%) led the market higher with some big recoveries in some big names such as AAPL as it gapped higher in leading the large cap techs. NASDAQ 100 cleared the 10 day EMA, moving in on the gap down point last Monday at 1471 and the 18 day EMA (1493) on up to 1500. That is the first test level for NASDAQ on this bounce.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +104.13 points (+11.58%) to close at 1003.35
NYSE Volume: 2.146B (-26.75%). Lower but still strong volume, stronger than any session last week outside of the Friday reversal. Very strong upside buying.
Up Volume: 1.719B (+647.464M)
Down Volume: 425.25M (-1.429B)
A/D and Hi/Lo: Advancers led 16.1 to 1. As lopsided as any downside session during that dive lower in October.
Previous Session: Decliners led 1.95 to 1
New Highs: 2 (-14)
New Lows: 37 (-2594)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 gapped higher, a rather unusual occurrence, and rallied to close at the session high with that afternoon rush upside. The financials were up but they were not powerful; somewhat pensive ahead of the formal announcement from the G7 as to the details. Closed below the 10 day EMA (1024). Some resistance at 1100 could start slowing it down as that would recover just over half of the losses from late September.
SP600 (+8.45%). Small caps gapped higher, building on their market leading recovery Friday. They did not lead Monday, indeed lagging the field though 8.45% is not anything to scoff at. The dive was so straight down there is no clearly defined resistance levels outside the 10 and 18 day EMA (313, 331; closed at 306) before hitting the bottom of its 9 month trading range at 345. Strong moves off the low but as with the other indices it will need a test before it puts in a complete bottom.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Massive move higher off that Friday intraday reversal. As noted above, it did not make its 10 day EMA (9584), the first level of resistance, but we are looking for a move up to 9852 (25% off the Friday intraday low) on up to 10,000 before it feels pressure to stall. A move up to the late September low (10,365) is not out of the question. Good reversal, good surge and now we ride it higher until it runs into resistance.
Stats: +936.42 points (+11.08%) to close at 9387.61
VOLUME: 399M shares Monday versus 674M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
The market responded to the Friday reversal that washed out a lot of investors by rushing higher, bringing a lot of investors right back in. As one commentator put it, fear on the downside, fear of missing out on the upside. Tuesday is even more of a test, however, as the bond market opens and the G7 announces specifics with respect to its plans. There was some news on that this evening as Bernanke and Paulson are working together on the US plan that will include guarantees equaling those in Europe.
Investors will watch for LIBOR rates and the TED spread to fall and fall significantly when the US bond market opens Tuesday. That will signal that the credit market is finally comfortable, with banks assured they can lend to one another without worrying about failures and thus can lower those interbank loan rates and thus get money to those needing it and moreover out to businesses and individuals that need the funds to operate their businesses.
There is talk of new stimulus plans and more hands on tinkering with the economy as the presidential campaigns have to put their mark on the problem. It is an election year and now that the idea has settled in that something has to be done everyone is rushing to one up the other in just how grand their largesse can be. I still think all the plans should be scrapped and just have FRE and FNM guarantee 3% mortgage loans to anyone who wants one. You still have to make your payments and if you cannot you are out, but anyone wanting to buy or refi for 3% gets it. The money freed up would be huge as suddenly nonperforming loans become performing and people had extra cash each month. It is not perfect by any means but in one step it solves many of the problems the federal plans try to solve in several, huge and complicated steps.
That isn't going to happen so we are watching LIBOR and TED spreads to see whether massive federal programs will work when smaller more private ones might better succeed. With all links of the chain finally in place the federal bailouts should start freeing up credit and eventually get money flowing again.
The market rallied over 11% in anticipation of that. Sure builds in a lot of upside expectations in one session and things need to calm down some on the way up or this could run out of ammunition before it gets much higher. A steady rise with a pause for a day or two would not hurt it at all as the indices move up toward those resistance points outlined above. A steady move is better than a flare shot out of the depths of the selling.
For now we have positions we are riding higher, taken during the depths last week and some more taken today. We are going to look for other upside opportunity as not all stocks surge at once, but we are also cognizant that this is likely just the first part of the bottoming process and will likely lead to another test after this bounce. Thus we don't want to chase too many positions too late into the bounce; just 1 day, but 11% is 11%. There is always the chance this is a 'V' bottom that never comes back, but that is the rarity. Even if it is we will get plenty of opportunities to buy in. We already have some great stocks in tow and if this market never comes back they make us great money as we pick up others when the pullbacks present themselves. Not counting on a V bottom, but will gladly accept one.
Support and Resistance
NASDAQ: Closed at 1844.25
Resistance:
The 10 day EMA is 1844
1882 from October 2003
1900 is the gap down point in October; from August 2004
1912 from April 2005
The 18 day EMA at 1944
1947 is the point where the market gapped down from in October 2008
1984 is the lat September low
2070 from September 2008
2099 is the mid-September closing low
The 50 day EMA at 2133
2155 is the March 2008 low
2167 is the July 2008 low
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
The 200 day SMA at 2330
2340 from the March 2007 low
Support:
1782 from August 2004
1752 from 2004
1644 from August 2003
1620 from the early 2001 low
1521 is the late 2002 peak following the bounce off the bear market low
1387 is the 2001 low
1253 is the March 2003 low on the test of the rally off the 2002 bear market low
1108 is the 2002 low
S&P 500: Closed at 1003.35
Resistance:
The 10 day EMA at 1024
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 18 day EMA at 1079
1106 is the late September low
1133.50 is the mid-September 2008 low
1200 is the July 2008 intraday low
The 50 day EMA at 1247
1243 is the 2002/2003 up trendline
1244 is an August 2005 peak
The 90 day SMA at 1244
1257 is the March low
1270 is the January low
1285 is the recent July peak
1313.15 is the August 2008 peak
The 200 day SMA at 1313
1317 from the February low
1324 is the April low
1340 is an ancient trendline
Support:
995 from June 2003 consolidation peak
965 is the 2003 consolidation low
889 is an interim 2002 peak
853 is the July 2002 low
800 is the March 2003 post bottom low
768 is the 2002 bear market low
Dow: Closed at 9387.61
Resistance:
9575 from September 2003, May 2001
The 10 day EMA at 9584
9814 from August 2004
9852 is 25% off of the October 2008 intraday low
9937 from May 2004 low
The 18 day EMA at 10,030
10,100 to 10,000
10,127 is an April 2005 low
10,215 from Q4 2005
10,365 is the new 2008 low
10,459 is a September 2008 low
The 50 day EMA at 10,778
10,827 is the July 2008 intraday low
10,962 is the July closing low
11,061 from February 2006
The 90 day SMA at 11,274
11,317 from March 2006
11,388 is the prior August low
Support:
9323 From June 2003 peak
9200 is the July peak in the 2003 consolidation
8985 is the closing low in the mid-2003 consolidation
8626 from December 2002
8521 is an interim high in March 2003 after the March 2003 low
7702 is the July 2002 low
7524 is the March 2002 low to test the move off the October 2002 low
7282 is the October 2002 low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 14 - Tuesday
September Treasury Budget (2:00): $45.0B expected, $112.9B prior
October 15 - Wednesday
September Core PPI, (8:30): 0.2% expected, 0.2% prior
NY Empire State Index, October (8:30): -10.0% expected, -7.4% prior
PPI, September (8:30): -0.4% expected, -0.9% prior
Retail Sales, September (8:30): -0.7% expected, -0.3% prior
Retail Sales ex-auto, September (8:30): -0.2% expected, -0.7% prior
Business Inventories, August (10:00): 0.5% expected, 1.1% prior
Crude Oil Inventories, 10/11 (10:35): +8.1M prior
October 16 - Thursday
September Core CPI (8:30): 0.2% expected, 0.2% prior
CPI, September (8:30): 0.1% expected, -0.1% prior
Initial Jobless Claims, 10/11 (8:30): 470K expected, 478K prior
Net Foreign Purchases, August (9:00)
Capacity Utilization, September (9:15): 78.0% expected, 78.7% prior
Industrial Production, September (9:15): -0.8% expected, -1.1% prior
Philadelphia Fed, October (10:00): -5.0 expected, 3.8 expected
October 17 - Friday
September Building Permits (8:30): 840K expected, 895K prior
Housing Starts, September (8:30): 870K expected, 895K prior
Michigan Sentiment-Prel., October (10:00): 65.0 expected, 70.3 prior
End part 1 of 3
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money investment
day trading
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