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10/21/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: AMR; STLD
Trailing stops: DIA
Stop alerts: None issued
SUMMARY:
- Earnings disappointments outweigh drop in LIBOR and stocks backslide.
- Horn of Plenty: Fed provides another initiative, this time another aid to money market funds.
- AAPL, YHOO, BRCM, VMW rev up technology after hours.
Some good credit news cannot outweigh the onslaught of earnings Tuesday.
LIBOR and TED were in even better moods Tuesday. Once more improvement across the LIBOR board: overnight 1.28% versus 1.51% Monday; 1 month 3.53% versus 3.75%; 3 month 3.83% versus 4.06%. The TED spread fell 36BP to 2.62%, its seventh straight decline. It closed at 3.667% Friday, so it is down over 100BP this week. The Fed is certainly doing everything it possibly can, announcing yet another initiative Tuesday, this one aimed at helping money market funds fend off redemption deleveraging by giving cash for securities such as CD's. More signs of the credit thaw turning from a trickle to a steady stream. With all of these Fed initiatives it has thrown everything it can at it; about all that is left is some Flo-Max.
Credit improvement was enough for Monday with the low volume gains that session. It was not enough Tuesday. Earnings snatched the headlines and while there were some beats with decent outlooks (MMM, PFE), many good Q3 reports also viewed 2009 negatively. DD, LMT, FCX, LOGI, SNDK were in this category, and they did not fare well on the session. USB missed, but it didn't budge on the session. The power of the Fed and the federal government when they decide to take over a sector.
The earnings dampened the spirits after the Monday low volume gains. Stocks started lower with NASDAQ under the most pressure. The market rallied back to flat, at least on DJ30 and SP500, but then slid to 3% losses. A nice recovery into the afternoon pushed DJ30 flat again, but once more the sellers hit, and in the last hour the indices tumbled to session lows. Investors seemed to get over the early earnings disappointments, but with heavy hitters after the close such as AAPL, they lost their nerve late. Volume was lower on NYSE and modestly higher on NASDAQ so there was no real dumping. Basically the NYSE indices gave back half to two-thirds of Mondays gains on light trade though NASDAQ gave back all and then some though still on overall light trade.
TECHNICAL. Intraday the action was all over the map, but it was never what you would classify as strong even with the afternoon run to flat. In the end the melancholy of the day won out and stocks slumped lower. It was a let down day after earnings came out more negative than positive with respect to the outlook, but was that really a surprise?
INTERNALS. Breadth was rather mundane even though during more 'normal' times -2.5:1 as on NASDAQ would be considered significantly negative. In the current climate that doesn't mean that much. It is all perspective given the situation. Reminds me of a fellow from Arkansas who moved down to central Texas and we became friends. This was back when Texas and Arkansas played in the same conference. He told me that he always thought that UT/Arkansas rivalry was UT's biggest because it was Arkansas' biggest. He confided he soon realized that the rivalry was 3 or 4 down on UT's list. Again, it is perspective given the situation.
CHARTS. Speaking of perspective, with all of the indices testing and failing at near resistance at the 10 day EMA Tuesday did not look very positive. Once more they broke through that near resistance but could not hold it, stalling on some low volume just as they did just over a week ago after that first reversal off the lows. There was a low volume selloff after that and then the second high volume reversal last Thursday. Good price/volume action for sure, but the failure to break hold a break through the closest resistance yet again is a bit unnerving. The market is trying to look past the current credit woes and the understandable issues with this quarter's and even the fourth quarter earnings and put in a more significant move off these lows. The guidance for 2009 threw it a curve Tuesday, but it did not sink the ship on high volume. Indeed, given the positive price/volume action we still see this as a bounce with more upside ahead of it. The tech earnings after hours, given NASDAQ was the albatross around the market's neck Tuesday, could be just the ticket to send the indices back up through this 10 day EMA with some gusto.
LEADERSHIP. What was up Monday (energy, commodities, ag) was down Tuesday. Copper fell below $2. Recall it was over $7 back in October 2007. Copper stocks were not tearing it up Tuesday, particularly as FCX said its outlook was unclear given the wild pricing swings in its product. Large cap techs were the mullets; no one wanted them after TXN's earnings report and AAPL to report after hours. Now there were some decent moves from some well-positioned stocks with good bases, e.g. QCOR, but they are rather limited. Again, however, at this juncture we are looking for moves upside to SET UP bases on the next test. At this stage we are looking for stocks to start forming up bases, not necessarily breaking out. Remember back to our discussion of the 2002 bottom: it was the second leg off the low that was led by some solid bases (though not many) and some stocks surging off some patterns as we see today, the lateral consolidations or boxes. After that many, many good stocks formed bases over the test from late December to early March and then they blasted off. As with bottoms, forming leadership is a process.
THE ECONOMY
Another initiative to reduce anxiety and get credit flowing.
Is it $2.5T or $3T now? Only your Fed knows. The Fed announced another big program Tuesday, another one to aid the money market market. There is a fear that other money markets, due to redemption demands even with the new $250K insurance, will 'break the buck,' meaning investors lose on their investment even in these funds considered relatively safe.
With continued pressure on the money markets to disgorge funds and the potential they will have insufficient liquidity as required by statute if they have to sell assets at losses, the Fed is going the next step and allowing money markets to visit the Fed at the window and exchange uncollateralized instruments such as CD's for cash in a 90 day swap arrangement. This way they can meet their redemption requests without selling assets for losses and starting that cascade lower into oblivion a la BSC and LEH.
It is clear the Fed is going to push as much money into the system as it feels is needed. It is clear Bernanke is willing to bow in front of Congress and agree to increased taxes and spending to 'prime the pump' as the saying used to be, tacitly agreeing with Barney Frank's comments about a sharp increase in taxes, limiting bonuses on Wall Street, and other 'big' expansions in the federal government. This is getting to the point of absurdity in what is supposedly a republic with a free enterprise system. If it works and staves off near term disaster it will be viewed as a dramatic success. In our opinion, however, it only continues the same policies that got us where we are now.
THE MARKET
MARKET SENTIMENT
VIX: 53.11; +0.14
VXN: 60.07; +0.42
VXO: 55.78; +3.06
Put/Call Ratio (CBOE): 0.87; +0.06. Fourth session below 1.0 on the close, did not ratchet back up on this selling, but the advance in the numbers has already done its work.
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: -73.35 points (-4.14%) to close at 1696.68
Volume: 2.168B (+5.34%). Volume was up but it was still below average and well, well below the volume levels hit on the turn back up off the lows. The price/volume action as noted above is also positive, i.e. volume down on the down days and up on the upside days. That shows, even with this choppy market, net buying of NASDAQ stocks since the initial reversal off the lows.
Up Volume: 252.271M (-1.485B)
Down Volume: 1.885B (+1.572B)
A/D and Hi/Lo: Decliners led 2.51 to 1
Previous Session: Advancers led 2.8 to 1
New Highs: 4 (-3)
New Lows: 100 (+1)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Not a great session for techs as they were kicked around early and late, closing at session lows. Failed again at the 10 day EMA (1756) for the third session, not a good sign in a continuing downtrend. Not looking great, but a lot of the action was selling in AAPL and other big techs ahead of some key earnings after TXN stunk the place up Monday. After hours AAPL, YHOO, VMW, BRCM and others were turning things around.
NASDAQ 100 (-5.13%) was hammered down from the 10 day EMA, leading the way lower Tuesday, giving up all of the Monday gains and part of Thursday as well. AAPL is going to try and rejuvenate the large caps on Wednesday.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -30.35 points (-3.08%) to close at 955.05
NYSE Volume: 1.162B (-5.32%). Low, below average volume Monday and even lower volume Tuesday. No dumping of NYSE stocks, just a lack of buyers. That beats the heck out of sellers jumping in all over the stocks.
Up Volume: 222.435M (-845.261M)
Down Volume: 913.188M (+747.504M)
A/D and Hi/Lo: Decliners led 2.23 to 1
Previous Session: Advancers led 4.83 to 1
New Highs: 8 (0)
New Lows: 136 (+31)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Gapped lower, not the norm for SP500, and sold below the 10 day EMA (977) it just cracked on Monday. Low volume both sessions so there was no real buying on the Monday upside or selling on the Tuesday downside. Price/volume action is 2:0 to the upside since the initial low and as with NASDAQ that indicates net buying and thus this lower volume indecision this week is a pause as investors get the lay of the land with the initial earnings results. They will likely also take heart from the nice tech earnings after hours.
SP600 (-2.98%) rallied up to the 10 day EMA as well and then turned down as well. Looks like a typical failure at near resistance in a downtrend, but there is that double bottom with extreme sentiment and internal indicators and some good price/volume action. Doesn't look great in just the picture but there are positives.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Sold back but very low volume as DJ30 bumps up against the 10 day EMA (9187) as well. Its pattern is just a bit better than the others as it holds onto most of its gains after that short double bottom. Still looks ready to make the move up despite the 2.5% loss Tuesday.
Stats: -231.77 points (-2.5%) to close at 9033.66
VOLUME: 231M shares Tuesday versus 241M measly shares Monday. Even lower volume than the weak Monday trade. No sellers, just pausing.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
LIBOR is working in the market's favor. Earnings were not on Tuesday. Wednesday we expect to see a change in that given the strong tech earnings after hours. AAPL crushed Q3 results and even though its estimates for Q4 were low, iPhone sales were huge and investors felt that AAPL was sandbagging once more as it obviously did for Q3. It surged after hours. VMW blasted expectations and jumped 27% after hours. BRCM's profits jumped higher and so did price, up over 8% after hours. YHOO rose 8% as well after hours on some pretty modest results. It seems that the market is ready to move higher given the responses across the board to the after hours results.
So on Wednesday we look for the market to make a new run at the 10 day EMA and this time it needs to post a solid move on some strong trade, holding the gains to the close. Again, putting some mileage on the 10 day EMA is the next important step. Futures are up nicely after hours with NASDAQ up 22 points, but overseas markets are lower at the start of trade from 2% to 3%.
The move we are looking for is not the move that does not come back, but the move up off this new initial low followed by another test in several weeks. Thus we look again at vehicles to the upside for this bounce. There are some new stocks and indices as well as possibly adding positions on current plays. Some plays are solid leadership stocks in good bases that we can let run higher longer term if they will. Others are the bounce plays that are shorter term to ride the bounce higher.
Support and Resistance
NASDAQ: Closed at 1696.68
Resistance:
1752 from 2004
The 10 day EMA is 1756
1782 from August 2004
The 18 day EMA at 1834
1882 from October 2003
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
The 50 day EMA at 2044
2070 from September 2008
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 2304
2340 from the March 2007 low
Support:
1644 from August 2003
1620 from the early 2001 low
1565 is the second low in October 2008
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 955.05
Resistance:
965 is the 2003 consolidation low
The 10 day EMA at 977
995 from June 2003 consolidation peak
The 18 day EMA at 1019
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
The 50 day EMA at 1129
1133.50 is the mid-September 2008 low
1200 is the July 2008 intraday low
The 90 day SMA at 1218
1244 is an August 2005 peak
1245 is the 2002/2003 up trendline
1257 is the March low
1270 is the January low
1285 is the recent July peak
The 200 day SMA at 1298
1313.15 is the August 2008 peak
1317 from the February low
1324 is the April low
1348 is an ancient trendline
Support:
889 is an interim 2002 peak
866 is the second October 2008 low
853 is the July 2002 low
839 is the early October 2008 low
800 is the March 2003 post bottom low
768 is the 2002 bear market low
Dow: Closed at 9033.66
Resistance:
The 10 day EMA at 9187
9200 is the July peak in the 2003 consolidation
9323 From June 2003 peak
The 18 day EMA at 9533
9575 from September 2003, May 2001
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
The 50 day EMA at 10,399
10,459 is a September 2008 low
10,827 is the July 2008 intraday low
10,962 is the July closing low
The 90 day SMA at 11,059
11,061 from February 2006
11,317 from March 2006
11,388 is the prior August low
Support:
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
8197 is the second October 2008 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 20 - Monday
Leading Economic Indicators, September (10:00): +0.3% actual versus -0.3% expected, prior -0.9% (revised from -0.5%)
October 22 - Wednesday
10/18 Crude oil inventories (10:35): 5.61M prior
October 23 - Thursday
Initial Jobless Claims (8:30): 465K expected, 461K prior
October 24 - Friday
Existing Home Sales, September (10:00): 4.95M expected, prior 4.91M
End part 1 of 3
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