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money investment, financial investment
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10/14/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: Took some more gain on the gap higher: DIA, MA, QQQQ, SPY
Buy alerts: SVR
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Market gaps higher on G7 details, US liquidity injection into financial institutions, but this gap is used to sell.
- Not much global warming with respect to credit.
- Money getting yanked from mutual funds.
- Intel tries to provide a tech spark with after hours earnings. Something needs to make the techs more attractive.
Sellers take their shot as the market posts a second day of gains.
The news was all out Tuesday with the US mirroring the rest of the G7 in guaranteeing interbank loans and upping guarantees on non-interest bearing accounts, etc. Treasury announced plans to inject capital directly into banks to provide immediate liquidity while setting up the longer term asset purchases. 'The Nine', no not the ones from 'The Lord of the Rings' though the outcome for free enterprise as we know it may be the same, were officially anointed as the recipients of half the $250B set aside for the capital infusions, commanded to go out and make the capital available. LIBOR rates fell. JNJ beat on earnings and raised guidance. Foreign markets surged 5% all the way up to 14% on the Nikkei. The plan appeared to work.
Nonetheless in the morning alert we cautioned to keep our focus. Yes we expect more upside on this move, but with DJ30 set to open near 9800 given the futures and that 9850 is 25% off the Friday low, we had to watch for a test. Might get some opportunity from the test, but would have to see how it panned out. stocks did open higher, up 400 points on the Dow, taking it to 9794 and change. As soon as the market opened, however, sellers moved in and attacked commodities, large cap tech, agriculture - - basically anything that bounced from the sharp selling. The hedge funds were back in and selling; had to as the redemptions coming in are huge.
As the morning progressed LIBOR was lower, but it stopped heading lower after just a modest decline. Investors expected more. Stocks sold even more. Energy and financials held positive, but as oil rolled over from its bounce up to test resistance at $85/bbl (closed at 79.25, -1.94) it took energy stocks down with it. That left financials as the sole survivor outside a few stocks here and there. The market sold into the afternoon after trying to stabilize after lunch. Got pretty ugly but managed to bounce in the last hour with the Dow even managing to get back to flat. As quick as it got there it turned back down for a mush finish. SP500 and DJ30 held up decently with losses easily less than 1%, but that was in large part due to the relative strength in financials (C up 2.87, BAC up 3.74). NASDAQ, the small caps, and the mid-caps all sold hard point-wise, and NASDAQ sold on some strong downside trade.
TECHNICAL. Intraday it was the old high to low. Stocks ran higher big time Monday then tried to continue the move Tuesday but got body-slammed. Many big name stocks were sold back down on hard volume after gapping higher as well.
INTERNALS. Very middle of the road breadth and new lows. Volume was the issue. Mixed trade with NYSE showing lower volume, NASDAQ higher. Not bad on NYSE as they sold modestly point-wise and on low trade to boot. The sellers were not in charge. On NASDAQ they were. Now we see what side holds sway as the market continues working through its big reversal.
CHARTS. The Dow opened just off the 9850 level that is 25% off of the Friday intraday low. The other indices did not get as far, getting through the 10 day EMA intraday but unable to hold the move. NASDAQ could not make it to the downside gap point from the prior week. The NYSE large caps look fine given the internals, just giving back some of the surge higher, hanging on to the lion's share. The worry is NASDAQ as it gapped higher and then reversed sharply on some strong volume.
LEADERSHIP. Financials were mostly in the lead along with a scatter of stocks throughout the market. Energy tried to provide some leadership, but as noted, rolled over. Large cap techs, commodities, energy, agriculture; any that rebounded from the sharp dives lower during the hedge fund liquidation were under pressure Tuesday. Many were under high volume pressure as they were dumped on a rally. The market is still looking for leaders, still in the process of having them work through the selling and try to form patterns. Part of the process. Don't like the high volume selling as that shows dumping. If the indices can hold onto the gains a bit and make a decent continuation of the climb higher the action is of course positive. With the higher volume selling that remains to be seen.
THE ECONOMY
Credit Suffers no Major Thaw Tuesday.
One of the major issues with the market Tuesday was that the G7 action did not send credit rates and spreads plummeting. There were moves in the right direction, but they were baby steps.
Junk spreads fell 67BP and were easily the winners. LIBOR rates fell 11BP. Dealer commercial paper fell 11BP. Improvement to a point but then it stalled. The market was looking for more and will be looking for more as the days progress. If it cannot break up the ice there will be some issues for stocks.
Hedge funds still under pressure to sell to meet redemptions.
The data available is for mutual funds as they are regulated and have to report this information. You can likely extrapolate this to hedge funds, however, particularly give that they were aggressively selling again Tuesday in the commodities, energy, and large cap tech arenas.
What kind of dollars are we talking about? Big ones. On Friday $8.8B was pulled. That puts October on pace for $56B of withdrawals.
Significance? Retail investors tend to pull their money out at the bottom and put it in at the top. Most reputable mutual funds have very decent performance over the long haul. They are not hedge funds and have different charters and thus cannot move in and out, play short, etc. as easily as the hedge funds (some not at all), so their performance is best measured over the longer term. Studies show that while a mutual fund may return 8% to 10% per year over the long run, most mutual fund investors experience far less gains because the try to actively manage their accounts. That lets emotion in and they sell low and buy high.
Thus when we see these kind of numbers it is simply another contrary indicator, i.e. the worse it gets the more it indicates an extreme in emotion. When that lines up with other indicators in extreme territory you start looking for a turn. That is the case now.
In addition, redemptions mean that cash strapped funds have to sell in order to meet customer demands for their cash. If things are really bad a fund will delay or deny redemptions; never a good sign. Not hearing much of that right now. For now funds are liquidating whatever they can sell easily, e.g. large cap technology positions. It was believed that Friday was the kind of panic selling that led to a complete flush out of the forced selling. Tuesday was a bit of an ominous cloud threatening to cover the horizon. We have to see if the hedges are really done or not.
THE MARKET
MARKET SENTIMENT
VIX: 55.13; +0.14. Down to 'just' 55 after a run into the upper 70's. A 55 reading would have been smoking but for that spike into the 70's.
VXN: 62.77; +2.5
VXO: 58.45; -1.83
Put/Call Ratio (CBOE): 0.87; -0.01. After three weeks above 1.0 a couple of sessions in the 0.8 range is nothing.
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: -65.24 points (-3.54%) to close at 1779.01
Volume: 2.916B (+9.41%). Stronger, above average volume as NASDAQ gapped higher and reversed with the large cap techs getting sold off the hardest. Some more hedge funds dumping technology shares to raise money.
Up Volume: 490.273M (-2.049B)
Down Volume: 2.43B (+2.338B)
A/D and Hi/Lo: Decliners led 1.63 to 1
Previous Session: Advancers led 6 to 1
New Highs: 8 (+6)
New Lows: 131 (-2)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ made it to the October gap down point on the high (1900ish) and then reversed on volume as large cap tech was hit again. In short the techs did not even make it to the serious resistance up at the gap down point at 1947 (the 18 day EMA is at 1926) before it turned back. Does not mean the move is over, but never like to see volume jump as an index trades the day after what is thought to be a more seminal move.
NASDAQ 100 (-4.54%) filled its gap up to the October gap down point (1471) and then rolled over on that higher NASDAQ volume. The large cap techs were hammered. They will have to hold the line and buy a little more upside time before they sell back down and test that earlier low.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -5.34 points (-0.53%) to close at 998.01
NYSE Volume: 1.878B (-12.51%). Above average volume but lower. Better than NASDAQ and more what you want to see.
Up Volume: 855.867M (-863.071M)
Down Volume: 1.011B (+586.145M)
A/D and Hi/Lo: Advancers led 1.19 to 1
Previous Session: Advancers led 16.1 to 1
New Highs: 66 (+64)
New Lows: 160 (+123)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Rallied up to the 10 day EMA (1019) and on thorough, but stalled out at 1044, long before the 1100 level we looked for to start slowing this move down. The lower volume on the turn back from the early rally and the modest losses is what you want to see if there is selling. After such a rush higher you would expect some give back, and that is what SP500 showed. Its strength was derived from the financials and their government backing. Need to see this spread out.
SP600 (-2.34%). What better place for the strength to spread to than small caps? They are economically sensitive and if they hold the line that is a good sign for the market in general. The pattern does not necessarily look as if it is ready to spring back up. SP600 tapped the 10 day EMA on the high and reversed. Closed off the low so it was not an all-out selling attempt. As with the other indices, the small caps need to buy some time here and spend at least another week moving up and sideways to allow the base to set up better.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Similar to SP500 the blue chips showed a more modest decline, aided by strength in C and BAC. Rallied up close to 9794 on the high, and 25% off the Friday low is at 9852. Big move from the Friday low to the Tuesday high; a breather is understandable. Two to three days to retrench some and then a try to push a bit higher into the range from 9850 to 10,000 to form the base better. Doing what it needs to do for now.
Stats: -76.62 points (-0.82%) to close at 9310.99
VOLUME: 412M shares Tuesday versus 399M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Credit rates (LIBOR, TED, etc.) will continue to receive constant attention; they have to come down or the economies won't work. If they do come down then investors have earnings to deal with. They are widely mixed thus far. Pepsi missed, something you would not expect. JNJ beat handily. After hours INTC beat on the bottom line and pushed on revenues. Its guidance was lowered substantially while gross margins were in line. That was enough to push INTC higher after hours by 5%, but it backed off to half that in the late session. INTC tends to sandbag so investors were mostly positive. Not a whole lot of coattail effect to other techs, however. More and more earnings will impact market action along with credit rates.
Again, SP500 and DJ30 are not in bad shape with that lower NYSE volume. More like a basic pullback to retrench after a big surge. The issue is NASDAQ and the smaller cap indices. Heavy volume selling on the heels of a big new surge higher is not good action as they are still getting dumped even after a potential flush out session. Over the next several days the indices need to hold onto these gains, moving laterally and higher to fill out the base so to speak. That gives stocks a chance to work on bases of their own.
For now we still anticipate a test of the low to finish the bottom. We also expect some more upside here before that is the case with DJ30 around 10,000. Even with backing off Tuesday on the close that is not a lot of room. As noted Monday, the intraday moves need to slow down a bit in order for the base to form. During this time we will look for pullbacks that hold to see if they can provide us sufficient upside potential. Many stocks surged off the Friday low for 30% or more gains. An orderly pullback and then a move higher is a good opportunity on a good stock. As noted, many sold on strong volume Tuesday. That will need to slow down. We will also look for some good bases. A good base is a good base, particularly when the market is trying to set its own bottom and needs some leadership out of the depths. A good base will do that. Have to look at some downside as well. The indicators point to a bottom, but those high volume rollovers in some of the techs and commodities areas warrant attention as discussed above.
Support and Resistance
NASDAQ: Closed at 1779.01
Resistance:
The 10 day EMA is 1832
1882 from October 2003
1900 is the gap down point in October; from August 2004
1912 from April 2005
The 18 day EMA at 1927
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 2119
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 2325
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 998.01
Resistance:
The 10 day EMA at 1019
1065 is the Q4 2003 level that SP500 started the run to 2007 after the first run in the recovery.
The 18 day EMA at 1070
1075 from August 2004.
1106 is the late September low
1133.50 is the mid-September 2008 low
The 50 day EMA at 1169
1200 is the July 2008 intraday low
The 90 day SMA at 1240
1243 is the 2002/2003 up trendline
1244 is an August 2005 peak
1257 is the March low
1270 is the January low
1285 is the recent July peak
The 200 day SMA at 1310
1313.15 is the August 2008 peak
1317 from the February low
1324 is the April low
1344 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 9310.99
Resistance:
9323 From June 2003 peak
9575 from September 2003, May 2001
The 10 day EMA at 9534
9814 from August 2004
9852 is 25% off of the October 2008 intraday low
9937 from May 2004 low
The 18 day EMA at 9955
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 10,719
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 11,242
11,317 from March 2006
11,388 is the prior August low
Support:
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): $45.7B actual versus $45.0B expected, $112.9B prior
October 15 - Wednesday
PPI, September (8:30): -0.4% expected, -0.9% prior
September Core PPI, (8:30): 0.2% expected, 0.2% prior
NY Empire State Index, October (8:30): -10.0% expected, -7.4% 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
financial investment
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