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world stock market, us stock market
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10/15/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: DIA, IWM; SPY
Stop alerts: None issued
SUMMARY:
- Big gap lower gets downright ugly at the close with some record losses.
- Bernanke cautions credit will thaw slowly.
- New York PMI topples.
- Retail sales point to a flat to negative Q3 GDP.
- Dollar rises not on US prospects, but implosion overseas.
- Test of the prior lows coming fast even with a federal backstop. May not be done at these lows.
Selling snowball rolls down through the market again.
INTC might have topped expectations Tuesday night, and JPM, WFC, KO and ABT all beat as well, but that was nowhere near enough to offset the series of negatives for the day. LIBOR rates were down but less than 10BP across the range of issues. Retail sales fell 1.2%, almost doubling up expectations and the third consecutive monthly decline. The New York manufacturing regions tumbled to -24.6 versus the -10 expected. Meanwhile the US 1 month T-bill yield fell to 0.1% as investors ran to safety on the negative headlines.
Futures were in the tank, stocks gapped lower, and within a few minutes were down 3% to 4%. NASDAQ fell 40 points in less than ten minutes. SP500 fell 28 points and DJ30 200 points in those first few minutes. There wasn't a bounce either. Stocks worked in a pattern of lateral moves followed by a sharp drop lower on into lunch. Bernanke was speaking at a lunch club and the market held as he addressed the gathering and fielded some questions. He bluntly said that it "will take some time to unfreeze" and that an economic recovery "will not happen right away." That did not help stocks. The market sold into mid-afternoon and then tried to bounce, and it did so decently. The sellers are leaving no rally unchallenged right now, and when they moved back in there was nothing left on the upside. The selling snowball rolled down hill, getting bigger and picking up speed toward the bell. At the close the losses heading into the last hour doubled, leaving SP500 with a percentage loss that surpassed even Black Monday.
Three things combined in an overall negative view of the economy to send stocks careening back toward the lows. First, the credit problem is simply not responding well to the unprecedented international efforts to loosen the tight market. Many experts expected spreads to fall sharply after the links of the chain were forged. About 20BP in two days is not what was expected.
Second, Bernanke confirmed the fears rising in the morning when he cautioned about "some time" required for the credit market to thaw. That set the stage as buyers backed off completely.
Third, there was a run to cash. The 1 month US T-bill yield fell to 0.1%. You almost have to pay the US to take your money and yet we are expecting the rest of the world to fund our $700B bailout. I suppose we are telling everyone 'you help us with this bailout or you go down as well.' In any event, despite low short term yields investors are redeeming money from mutual and hedge funds and putting it in banks given the feds are insuring it. That means mutual and hedge funds have to sell to meet redemptions.
That selling and returning money to investors requires more assets necessary to meet margin requirements. Those margin calls hit mid-afternoon, and that means more selling. It builds on itself and the vicious cycle rolls over and over, creating this uncontrolled selling. The NYSE has no specialists left to help control the flow of orders and work the system to act as something of a buffer or circuit breaker. Thus the selling just spirals out of control.
TECHNICAL. Gapped lower and continued downside all session with a crescendo in the last hour that doubled the losses. Very negative intraday action, as negative as Monday was positive.
INTERNALS. Breadth was hideously negative again at -8.2:1 on NYSE and -5.9:1 on NASDAQ. New lows are holding at low levels, but the indices are still well off their prior lows. Thus that is subject to change. Volume fell by 10% on NYSE and 11% on NASDAQ. That is the main silver lining in that the selling was not on a new massive wave of distribution. Indeed many stocks we are watching sold, but they sold on lighter trade showing the sellers are not just running up the score. That holds out the possibility that the indices will hold the prior lows.
CHARTS. A gap lower and a selloff to close on the lows. The indices are still above the prior intraday lows, but they are closing in. NASDAQ closed below the recent closing low. SP500 is just 8 points off. DJ30 is less than a short day's work from the prior closing low with just 120 points to the downside. That still leaves them above the big dive lower last Friday. The lighter volume suggests they will try to hold, but this very fast reversal off of the bounce is not enough time to build any kind of double bottom. It casts doubts on the ability to hold that low and the indices may find themselves still finding new lows toward the 2002 lows. The dive lower is not good and we will have to see where the sellers run out of things to sell.
LEADERSHIP. With only 5 of the SP500 closing positive, leadership is kind of a euphemism. The financials were holding positive all session until they finally gave it up in that last whoosh lower. Even with the federales backing them they could not hold the tide back, even for themselves. The quick dive lower is not the best action to build bases for new leaders. It puts a premium on the indices holding above the prior lows and thus allowing stocks to continue working on a base and not having to start over once more. We note that many of the stocks we are watching and playing sold but they did on lower volume as they held in their recent ranges. That is about the only positive you can say, but given the 7+% dives by the indices, that is a start.
SUMMARY. The fast break back to the prior lows and the cascading forced selling again in the last hour shows the selling is not done and that opens the question as to whether the prior lows will hold. Futures are diving after hours again and if that holds they are heading down toward those levels on the open. Another washout attempt? If it dives down there and reverses again, that is a positive. At this juncture, however, that is an open question. The indices could very well fall down to the 2002 bear market lows if last Fridays lows don't hold. The economic outlook is driving stocks lower. The market has to get to the point it has factored in the economic slowdown it anticipates. Last Friday looked promising. If it holds again, it will indeed be promising. If it doesn't, the process starts anew and it does so at levels of sentiment and internal weakness the likes of which we have seen less than the number of fingers you have on one hand. That means things are much worse than the feds realize and that the bailout's ability to right the ship is dubious.
THE ECONOMY
Retail sales are hard to classify as sales.
September was not a good month for stores. Sales fell 1.2% almost doubling up the -0.7% expected. Take out autos, which stink, and they were still down 0.6%. That was more than the -0.2% expected but it was better than the 0.9% in August (revised from -0.7%). Hallelujah.
This was the third consecutive down month on the headline though on the 'core' it squeaked out a 0.1% gain in July. Just about everything was down except gasoline stations. They were just up 0.1% however given the decline in oil prices and subsequent drop in gasoline prices. They are fast approaching levels hit in late 2002 at the height of the last recession.
Not there yet but this is another indication that if this current economic episode is not heading off a cliff of biblical proportion that it is getting closer to ending. Of course, this credit freeze and its impact yet to come on the economy is something we have not seen but a century ago, so the jury is out as to how deep this will get. It is safe to say that we are not there yet, and indeed in the last recession retail sales showed its own double bottom pattern with an initial low in late 2001 prior to that second low in 2002. Sales are definitely going lower before they get better, and right now it is a question of how long. Wednesday even Ben Bernanke could not tell us the 'how long' other than not 'right away.'
Dollar holds its gains at the expense of other currencies.
The dollar continues its rise against other currencies. That is something we have wanted to see for quite some time. The gains are running to the upside similar to how the stock market is running to the downside.
That is not a reflection of US economic strength but the weakness in the rest of the world, i.e. the rapid decline in their economies. The US dollar struggled mightily as the mortgage crisis emerged and concerns about the US economic future rose. Now that is getting reversed as the rest of the world falters as well. When that happens where do people around the world want to put their money? In the US. Thus the demand for dollars is stronger as dollars are sought to buy US treasuries. Indeed the 1 month T-bill yields just 0.1% as of Wednesday. Investors around the world are almost willing to pay to have their dollars placed into the safety of US treasuries while the rest of the world economies struggle.
Indeed, emerging market currencies are in deep trouble the past few days. Some are referring to them as 'blowing up', indicating that their underlying economies are in serious trouble. The US is in trouble and its cold is being felt around the world. In this case the dollar's strength, while appreciated, is not the result of rising US strength, but more a reflection on the plight of the world's economies.
PPI falls overall, rises at the core, but shows signs of improvement.
-0.4% matched expectations and is down from the -.9% in August. The core rose 0.4%, doubling the 0.2% expected and where it has held for several months. Year over year that puts it at 4% versus the 3.8% expected.
That is not great news but as we now, inflation numbers are lagging. The key you look at in the present to determine prices down the road are inflation pressures. Those continue to fall after this spike as the economy pitched and slowed down. Inflation always rises when that occurs. The Wednesday PPI showed that while finished goods rose 0.4% reflecting the current inflation, intermediate goods prices fell 0.3%. More than that, raw goods plunged 9.4%, indicating that the inflation pressures are way down and we will see declining inflation in the future.
THE MARKET
MARKET SENTIMENT
VIX: 69.25; +14.12
VXN: 72.93; +10.16
VXO: 68.35; +9.9
Put/Call Ratio (CBOE): 1.12; +0.25. After a 2-day hiatus the put/call ratio is right back over 1.0 on the close.
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: -150.68 points (-8.47%) to close at 1628.33
Volume: 2.59B (-11.19%). At least volume fell on the selling, NASDAQ to the lowest in two weeks, indicating the sellers are not ramping up their strength for the moment. They were definitely in charge on Wednesday, but they had an open door as there are no buyers after such a huge surge off of last Fridays lows. If they don't ramp up in strength that gives the prior low a chance to hold.
Up Volume: 71.844M (-418.429M)
Down Volume: 2.491B (+61.555M)
A/D and Hi/Lo: Decliners led 5.89 to 1. Pretty high.
Previous Session: Decliners led 1.63 to 1
New Highs: 3 (-5)
New Lows: 216 (+85)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower and sold to the close, filling the gap up from Monday. Too fast of a drop to build a good base so the best outcome here is that the index holds the prior low and then rebounds to continue working on the base. The selling slowed some on Wednesday in terms of volume and we are watching that as it continues lower. NASDAQ is still above its 2002 lows and indeed above the late 2002 rally peak following the October bottom. Still in good shape in that restrict.
Similar picture on NYSE (-8.82%) as it filled the Monday gap but on lower volume. It too is going to test those prior lows.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -90.17 points (-9.03%) to close at 907.84
NYSE Volume: 1.679B (-10.59%). Volume backed off here as well to the lowest in two weeks. As with NASDAQ, that shows a bit less selling as SP500 approaches the Friday closing low.
Up Volume: 45.786M (-810.081M)
Down Volume: 1.632B (+620.83M)
A/D and Hi/Lo: Decliners led 8.2 to 1. Impressive yet again.
Previous Session: Advancers led 1.19 to 1
New Highs: 42 (-24)
New Lows: 281 (+121)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Not a great picture as the large caps show the same short bounce and quick retreat as NASDAQ, making the work on a base that much more difficult. As with the other indices, holding the recent lows is a start, but with the magnitude of the decline it is going to have to prove it.
Same action on SP600 (-9.27%) as it falls hard from the 10 day EMA it hit on Tuesday. A new closing low for SP600 similar to NASDAQ. The small caps and the growth stocks are at the point they need to hold if this is going to be the bottom.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
DJ30 got close to the 25% bounce off the low and turned down. That is normal, but the speed of the drop as with the other indices is not allowing much of a base here. DJ30 is going to test the closing low from Friday and then we see if it is going to test the lower level down in the middle of the 2002 bottom.
Stats: -733.08 points (-7.87%) to close at 8577.91
VOLUME: 374M shares Wednesday 412M shares Tuesday. Volume backed off but it was still relatively stronger than that on NYSE and NASDAQ.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
CPI, Production and Capacity, and the Philly Fed are out Thursday and the economic data is getting close scrutiny along with the credit thaw attempting to take place. On top of that we have earnings ginning up as well. Lots of data for the market to digest, and right now the outcome of each is not that favorable. Economic data is worsening as the consumer pulls in. Earnings are weakening as the economy falls back from the life it showed over the summer. Credit? Well we will see if that can thaw faster.
It may pick up the pace. One of the issues with respect to the G7 and the US' commitments as a result of the agreement is when they take effect. Treasury secretary Paulson was out late Wednesday discussing more of the intricacies of the bank lending and insurance program, stating that the interbank lending guarantee starts immediately. That could have a dramatic impact as this is news to many in the financial sector. With the guarantees in place, banks can lend without worry, putting that $125B given to 'The 9' into play much more quickly to those banks in need of the help those billions will provide.
If LIBOR and the TED spread fall when the US bond market opens Thursday that will be a big boost for the market. Are we counting on it? No, but we will be pleased if it does as that will help the market hold the prior lows.
That is what we are watching tomorrow, i.e. how the indices test last Fridays lows and how they react to them. The sudden dive back is disappointing for the formation of a bottom at those recent lows, but with the declining trade levels it is not out of the picture. We are going to also watch how the stocks that bounced off those lows out of nascent consolidations hold. If they hold again that is also a good indication that the market is still going to try and put in a bottom here.
Whether it holds or not is problematical. The sentiment and internal indicators suggest it should. The quick turn back down suggests it will be a struggle. The market is weighing the impact of the mortgage slide and now the credit freeze on the economy. Before the credit freeze locked up the world's funds these market indicators along with the improvement in the economic indicators would have meant a bottom was at hand. With the credit freeze, the past two months have hit the economy hard and scared consumers.
There won't be a near term pullout of the tailspin, but that does not mean the market dives lower from here. It is a matter of how deep the market sees the recession getting and how long. The market looks down the road 9 or more months, and if it sees a recession over in a couple of quarters it can hold the prior lows, start working on some bases, and then break out in several weeks.
For Thursday again we watch how the indices react to the prior lows. There are many plays that sold but are within their recent lateral consolidations. If the market holds at those lows then they can provide another bounce. From the way foreign markets opened and with futures down 30 points this evening it looks as if the indices will give those lows at least a look early Thursday unless something, e.g. sharply falling LIBOR rates and TED spreads, change the outlook. We are going to watch for a reversal off of those levels, and if they show up we can look at some more SPY, DIA, IWM and the like as they start to recover.
Support and Resistance
NASDAQ: Closed at 1628.33
Resistance:
1644 from August 2003
1752 from 2004
1782 from August 2004
The 10 day EMA is 1795
1882 from October 2003
The 18 day EMA at 1895
1900 is the gap down point in October; from August 2004
1912 from April 2005
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 2099
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 2321
2340 from the March 2007 low
Support:
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 907.84
Resistance:
965 is the 2003 consolidation low
995 from June 2003 consolidation peak
The 10 day EMA at 999
The 18 day EMA at 1053
1065 is the Q4 2003 level that SP500 started the run to 2007 after the first run in the recovery.
1075 from August 2004.
1106 is the late September low
1133.50 is the mid-September 2008 low
The 50 day EMA at 1158
1200 is the July 2008 intraday low
The 90 day SMA at 1235
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 1307
1313.15 is the August 2008 peak
1317 from the February low
1324 is the April low
1345 is an ancient trendline
Support:
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 8577.91
Resistance:
8626 from December 2002
8985 is the closing low in the mid-2003 consolidation
9200 is the July peak in the 2003 consolidation
9323 From June 2003 peak
The 10 day EMA at 9360
9575 from September 2003, May 2001
The 18 day EMA at 9810
9814 from August 2004
9852 is 25% off of the October 2008 intraday low
9937 from May 2004 low
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 10,636
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 11,200
11,317 from March 2006
11,388 is the prior August low
Support:
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% actual versus -0.4% expected, -0.9% prior
September Core PPI, (8:30): 0.4% actual versus 0.2% expected, 0.2% prior
NY Empire State Index, October (8:30): -24.6 actual versus -10.0% expected, -7.4% prior
Retail Sales, September (8:30): -1.2 actual versus -0.7% expected, -0.4% prior
Retail Sales ex-auto, September (8:30): -0.6% actual versus -0.2% expected, -0.0% prior
Business Inventories, August (10:00): 0.3% actual versus 0.5% expected, 1.1% 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
Crude Oil Inventories, 10/11 (10:35): +8.1M prior
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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world stock market
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