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world stock market, us stock market
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10/16/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: DIA
Buy alerts: DIA; IWM; SPY
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- An early bounce rolls over hard, but hark, the prior lows hold and the Dow surges back 900 points. Just another day in the market.
- Commercial Paper, LIBOR and other rates warm a bit more while funds continue to push the US Treasury short end lower.
- Inflation is starting to follow inflation pressures lower, but manufacturing and production continue the string of worsening economic data.
- Tech earnings have things still stirring positive after hours.
- Trying to step up for a better rally off the lows to form a better bottoming base.
More volatility 'as usual,' but a strong recovery is compelling.
The early economic news was mixed with inflation lower, jobless claims lower, but really weak production. After another gutting on Wednesday, however, the dead cat was bouncing as futures were up. The cat bounced for just over 20 minutes and then gravity took effect. The initial move slowed and then at 10ET the Philly Fed manufacturing survey posted a -37.50 reading for October versus the 3.50 September reading. The groan was audible as the indices rolled over. Oil inventories came out at 10:30 and double expectations (+5.61M); that did not have immediate impact, but it was significant later.
The selling picked up speed with SP500 getting to within 26 points of the Friday intraday low. The indices were sporting losses close to 5% midmorning. Ah, midmorning again, the time of day trends are tested. Oil collapsed below $70/bbl. The indices bounced modestly. We issued alerts to buy some SPY and IWM and noted we were looking at DIA as well. We noted in the midmorning alert that that new lows were not surging as the indices approached the old lows, a positive. Stocks turned that bounce into a recovery to challenge the early highs by lunch. Then they faded; here we go again, right? That turned into a 2 hour lateral move, but with oil closing below 70 for the first time since August 2007 the indices took heart. Also, the fact that the sellers could not take it down and that expiration was right around the corner didn't hurt. They surged higher past the early session highs and sprinted to the close. The Dow reversed 782 points low to close. NASDAQ rallied 152 points. SP500 reversed 80 points. We did buy those DIA positions, and right before the close we sold part of the options for a 39% gain. It was that kind of reversal session.
TECHNICAL. The intraday action looked familiar to this bear market: a mauling on Wednesday and then a dead cat bounce to start the session followed by a vicious rollover to 4% to 5% losses. Then a difference. The indices got close to those intraday lows from a week back and once again they turned and put in a massive reversal on volume. Very good action. Now expiration is Friday and thus this volatility has something to do with that as positions are rolled back and forth, and that failure to wallow back down in the afternoon forced shorts to cover. Expiration was not the only reason for that move, however.
INTERNALS. Internals were mixed. NYSE breadth finished negative on the session, unable to catch up with the reversal. NASDAQ breadth was a hair positive. On the other hand those new lows, while up, were not at the 1000 and 2000 levels hit as the indices broke to those new lows last Friday. At 551 on NYSE and 401 on NASDAQ they were much better. Fewer new lows as old lows are tested shows stocks overall are not diving lower, that they are not getting sold as hard as their holders hang on. Finally, volume spiked on both NYSE and NASDAQ as they reversed. Big volume on a reach lower and reversal is always a positive as it shows strength to the upside either from shorts or buyers or both. Yes expiration has something to do with that: the volatility has forced a lot of position rolling and thus volume. Still, it is hard to deny the strong volume on the strong reversal.
CHARTS. Another hard selloff approaching 5% and the prior lows and then a big reversal to close on the highs with surging volume. Short but nice double bottoms on the indices have set the stage for a bounce that could finally produce the type of move that will allow a larger, more stable bottom to form off of that prior October low. That necessarily means we do not believe this sets the low from which a new bull market springs. It does give us a nice tradable move up to those levels cited after the Friday and Monday moves, e.g. 10,000ish on the Dow, 1950ish on NASDAQ, and 1100ish on SP500
LEADERSHIP. There is still a need for serious bases in the market, but there are some good intermediate patterns that have formed, the lateral consolidations that are forming what are called box patterns as they look something like rectangular boxes, e.g. MA, AGU. There are some key techs such as AAPL and RIMM ready to move higher (RIMM has a box of its own). There is a long way still to go to get a lot of solid bases to sustain long moves, but the patterns indicate stocks are getting ready to try a run higher once again.
SUMMARY. Good, positive reversal, but there are still issues: the economic data was not good. It is heading the wrong way and though LIBOR and credit spreads are coming down the immediate impact is not that great in that it is not freeing up the hundreds of billions available to banks to loan, and thus won't turn things immediately. On the other hand lower oil is helping as an immediate tax cut for businesses and individuals with gasoline prices falling below $3/gallon across the nation. There are positives to counter the negatives, and those positives look to the future just as does the market. Thus Thursday stocks were trying again to put in a bottom.
THE ECONOMY
Credit markets show more slow improvement.
The Treasury Secretary's statement that the interbank loans were available as of Monday didn't have a dramatic impact. There is impact, just not dramatic. Overnight LIBOR fell 21BP to 1.94%. 3 month LIBOR fell 5BP to 4.28%. The TED spread fell 27BP to 407. Still way too high, but coming in.
In addition, the commercial paper market is loosening up as commercial paper rates fall and there is supply that is being placed. Still small and baby steps, but improving versus the alternating up and down days during the period all of the bailout was being put into place.
The short end of the US treasury market continues to decline, however, as investors still run to short term treasuries. Thursday the 1 month T-bill yield was 0.04%. There is also a lot of supply coming onto the market as well with $194B already auctioned this week and another $60B or more set to go on Friday.
In sum, improvements in dribs and drabs here at first. Hopefully this will mimic the winter thaw in the mountains: a trickle at first that builds to a torrent.
'Leading' economic data shows more slowing.
Retail sales were crappy on Wednesday, and Thursday production's 2.8% decline (-0.8% expected) on top of an August 1.1% decline. The September reading was the largest monthly decline since 1974 and pushed the yearly change in production down toward the late 2002 lows (-5.8%) and past the 1991 recession lows at 3.8%. Production is getting to levels that say recession and at the same time are close to the bottom as well. As noted earlier in the week, however, how deep the recession is determines how deep the decline in production runs.
The Philly Fed was another disappointment with its plunge to -37.50, well past the -5 reading expected and the 3.8% gain in September. This is a sentiment indicator and thus it is understandable why it fell so sharply with the market dive and the credit worries covered minute by minute on the news shows. Now we hear from many businesses that they are NOT having trouble with credit, but on the other hand we hear from many who are. The outlook is apparently bad enough, however, to have most in the Philly region dour about business prospects. This is a big swing no matter how you slice it. Earlier this year Philly topped all levels over the past 20 years reaching near 80. It slid back starting midyear but this plunge is a big one, suggesting a near term shutdown.
Inflation on the other hand is mitigating. As seen with the PPI the pressures are backing off and this is already showing up in the CPI as it was flat overall (0.1% expected) and up 0.1% on the core (0.2% expected). Pretty much everything was down outside of food (0.6%). As we have noted on many occasions, inflation is a lagging indicator and it shows increases long after the pressures have faded. While many will say it is a no brainer that inflation is down thanks to a falling economy, as discussed before, a slowing economy initially runs inflation higher and can keep it high if there is a recovery in demand but not in supply. Right now that does not appear to be the case as demand goes on holiday as investors and businesses try to figure out just what is ahead for the US economy.
Indeed that is what the stock market is up to right now. It is attempting to gauge the depth of a recession here in the US given the likelihood (and it is still at this stage just a likelihood) that a depression has been put off thanks to the massive socialist-style federal intervention into the private sector that is designed to prop up asset prices and continue the massive borrowing that led to the problem. See why we still hold out that likelihood? May not happen this time, but at some point all of this borrowing and the additional borrowing needed years down the road just won't be enough and the system will collapse massively when it should have been allowed to enter normal recessions 20 years ago and 8 years ago. Now we have backroom deals where the government calls together 9 big bankers, puts a gun on the table and says 'take this money and give us a share of your company or else.' Welcome to third world governments or the pre-WWII dictatorial regimes.
But I digress. Just bitter I suppose. Anyway, the market is trying to assess how far the economy will fall. If it bottoms here it is another 'save' similar to back in 1991 and 2002 that keeps the system going and allows some more expansion until another bubble develops and exposes another crisis. That will keep us going to for 8 to 10 years, however.
THE MARKET
MARKET SENTIMENT
VIX: 67.61; -1.64. Hit 81.17 on the high, the high on this selling and the highest since 1987.
VXN: 72.39; -0.54
VXO: 70.34; +1.99
Put/Call Ratio (CBOE): 1.15; +0.03. Still above 1.0 even on the reversal. Lots of puts had to be rolled/closed ahead of expiration.
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: 22.4%. Down from an already very low 25.3%. That prior week was the 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 low. 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: 52.9%. Modest decline from an already high 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: +89.38 points (+5.49%) to close at 1717.71
Volume: 3.408B (+31.59%)
Up Volume: 2.909B (+2.837B)
Down Volume: 456.862M (-2.034B)
A/D and Hi/Lo: Advancers led 1.21 to 1
Previous Session: Decliners led 5.89 to 1
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ and NASDAQ 100 show a short double bottom at the prior 2008 lows hit last week. NASDAQ 100 actually hit a new low for the year before it reversed on that strong volume. Very nice intermediate pattern to set up a good bounce here.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +38.59 points (+4.25%) to close at 946.43
NYSE Volume: 1.998B (+19.02%)
Up Volume: 1.557B (+1.511B)
Down Volume: 411.088M (-1.221B)
A/D and Hi/Lo: Decliners led 4.54 to 1
Previous Session: Decliners led 8.2 to 1
New Highs: 49 (+7)
New Lows: 551 (+270)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Came within 25 points of the prior low and reversed on volume as SP500 sets up a small double bottom of its own. Looking for a move up toward 1100.
SP600 (+5.76%) posted the best move of the session as the small caps made a higher low and surged off the Wednesday crushing. Same as the other indices, the small caps have a nice little double bottom here to rally from.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Similar pattern on the day with the reach lower and then a reversal on volume. Looking for a move up toward the 10K level off this reversal.
Stats: +401.35 points (+4.68%) to close at 8979.26
VOLUME: 422M shares Thursday versus 374M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Expiration Friday, housing starts, Michigan sentiment. All will play a role. In addition, another read on LIBOR rates will take the temperature of the credit markets. And then there is that traditional October thing called earnings.
Earnings are estimated to fall again this quarter, making it five downside earnings growth quarters. Seems earnings are already in their own recession. After hours Thursday, however, technology was pushing to get back into the lead. GOOG, IBM and AMD all posted pleasing earnings for investors as all of their stocks were up after hours. In addition, MSFT said a deal with YHOO is not dead. Indeed I am sure it looks very good to MSFT right now given YHOO closed at 13, belly flopping from over 20 in mid-September. Stocks were higher in the after hours session, and Asian stocks are up as well, aided by falling money market rates yet again.
Expiration is going to keep things interesting in an already volatile market. Housing starts could put a wet blanket on the action, but no one really expects starts to ramp up with only 1 in 7 homebuilders surveyed harboring a positive outlook over the next year. Of course, that is exactly when you look for the bottom. Recall in 2005 the homebuilders appearing on Bloomberg and CNBC daily, talking about their '10 year demographic' that would keep home sales rising over the next ten years. Of course, we called a top in the housing market in summer 2005 and that turned out to be the top. Now that these homebuilding sages are despondent about the future that likely means housing is ready to turn back up. We said it bottomed this past summer and it just was bouncing along waiting for prices to get low enough so prices were again a bargain. This federal buyout is not helping get prices lower as quick as they would, but they have continued to fall. Once some money gets out into the system we will see buying move up. Not starts; there is still a ton of inventory out there and the builders will be caught flatfooted when things turn and then fall all over one another trying to get land to build on. That is still quite a ways off so let them stew in their gloom for awhile.
What we saw Thursday looked positive. Yes there was expiration driving some of the volume and volatility, but where the indices held and the strength of the reversal shows there is something there more than a pre-expiration rebound. We bought into that move with some index plays and we are looking at more upside as the move continues. It might crap out as with the last bounce from the prior Friday, but again, this has another test lower that held and turned on very strong trade with stocks in position to rally. When a market has every chance to sell off yet holds a prior reversal and reverses again, time to get involved.
It won't likely be the ultimate bottom, but it will be a move that we can make money on as it reaches higher than the last bounce and stretches over more time to better position the indices for the next test and a larger, more stable base to mount a real rally off of. It may surprise us and continue higher and higher. Darn.
Support and Resistance
NASDAQ: Closed at 17117.71
Resistance:
1752 from 2004
The 10 day EMA is 1781
1782 from August 2004
1882 from October 2003
The 18 day EMA at 1877
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
The 50 day EMA at 2085
2099 is the mid-September closing low
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 2317
2340 from the March 2007 low
Support:
1644 from August 2003
1620 from the early 2001 low
1542 is the early October 2008 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 946.43
Resistance:
965 is the 2003 consolidation low
The 10 day EMA at 989
995 from June 2003 consolidation peak
The 18 day EMA at 1042
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 1150
1200 is the July 2008 intraday low
The 90 day SMA at 1231
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 1305
1313.15 is the August 2008 peak
1317 from the February low
1324 is the April low
1346 is an ancient trendline
Support:
889 is an interim 2002 peak
853 is the July 2002 low
839 is the early November 2008 low
800 is the March 2003 post bottom low
768 is the 2002 bear market low
Dow: Closed at 8979.26
Resistance:
8985 is the closing low in the mid-2003 consolidation
9200 is the July peak in the 2003 consolidation
The 10 day EMA at 9291
9323 From June 2003 peak
9575 from September 2003, May 2001
The 18 day EMA at 9723
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 10,571
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 11,164
11,317 from March 2006
11,388 is the prior August low
Support:
8626 from December 2002
8521 is an interim high in March 2003 after the March 2003 low
7882 is the early October 2008 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): 0.1% actual versus 0.2% expected, 0.2% prior
CPI, September (8:30): 0.0% actual versus 0.1% expected, -0.1% prior
Initial Jobless Claims, 10/11 (8:30): 461K actual versus 470K expected, 477K prior
Net Foreign Purchases, August (9:00): $14.0B actual versus $30.0B expected, $8.6B prior
Capacity Utilization, September (9:15): 76.4% actual versus 78.0% expected, 78.7% prior
Industrial Production, September (9:15): -2.8% actual versus -0.8% expected, -1.1% prior
Philadelphia Fed, October (10:00): -37.5 actual versus -5.0 expected, 3.8 expected
Crude Oil Inventories, 10/11 (10:35): 5.61M actual versus +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
us stock market
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