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10/22/08 Stock Split Report Update
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Full report issues Thursday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: BCR
Trailing stops: IWM; SPY
Stop alerts: CME; FCX; MA; QSII; TSO; SVR
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SUMMARY:
- Near resistance turns back stocks once more as tech earnings fail to rally the troops.
- Credit market loosens further with larger LIBOR declines.
- Credit rating company arrogance reminiscent of the tech bubble.
- New lows on strong volume puts the bottom attempt in jeopardy.
AAPL stands alone and cannot hold the tide.
Apple reaped the benefit of its earnings report and rallied almost 6%, but it was an island in the Wednesday storm. Futures were sharply lower as most earnings failed to please investors. MCD beat yet again and WLP beat as well, but BA, COP and T among others missed, and once more investors were in a foul mood on the earnings outlook.
Didn't matter that LIBOR fell nicely once more (3 month fell 29BP to 3.54% from 3.83%) and the TED spread stands at 249BP, down from 434BP a week ago). Many experts were out saying that just because there were government guarantees of loans, banks would have to be forced to lend to one another for a long time to come. Improvement, I suppose, is sometimes not improvement.
Didn't matter that crude oil slid sharply once more (67.40, -4.78) as oil inventories jumped yet again (3.2M) and gasoline demand fell over 6%. The fall in oil and gasoline represents a big tax cut for consumers, but the negative side of the story (slowing world economy killing demand) is the current focus, and that is a negative for the market.
Stocks fell sharply at the open, bounced through lunch with NASDAQ making it to positive and the NYSE large caps coming back close to flat. Then the afternoon session arrived and with it the renewal of the afternoon swoon. The Dow fell almost 700 points, NASDAQ 109, and SP500 80. Volume ramped up as the selling stepped up. So much for the good price/volume action shown up to this point as the indices made higher lows off the prior selloff. A late bounce made things look better, though with 4.8% to 6.1% losses are hard to call aesthetically pleasing.
TECHNICAL. Intraday was as described, low to really low with new closing lows on NASDAQ and SP500.
INTERNALS. The headline news was the stronger volume on the selling, returning to above average on selling. That shows dumping stocks. There were hedge funds active again, selling off the test of the 10 day EMA as reports of a new redemption cycle circulated. The cascade lower in the afternoon certainly is reminiscent of the hedge fund selling in September and early October. New lows were not bad even at 500+ on NYSE; that is still below the absurd levels hit on the initial low in this selloff. That is a positive, but enough to counteract the higher selling volume? Selling volume will have to pull back in a hurry.
CHARTS. SP500, NASDAQ, NASDAQ 100 and SP600 all closed at new lows for the year. They are still above the intraday lows on those two reversal sessions, but the pattern has turned into a small descending triangle or wedge. That is a bearish pattern, and with the new closing lows occurring on strong volume that opens the door to the downside for a test of those prior lows. That would come much faster than you want to see it as there are just a couple of weeks between that initial low. That is hardly what you expect a major bottom to form off of but we will just have to see how the indices respond at those prior lows. A very important test given the negative turn of events on Wednesday.
LEADERSHIP. With most stocks to the downside leadership was left to some scattered players throughout the market such as AAPL (earnings) or smaller, out of the way players such as PETS. Many of the stocks that set up laterally during the past 2 to 3 weeks were under pressure with breakdowns from those ranges. Not all of them broke but they were not displaying the strength signs seen the prior two weeks. Still a lot of work to form up bases, and this quick trip back to the lows is accomplishing some of that but more time is better.
THE ECONOMY
Of cows and ratings companies.
Henry Blodgett. Marie Meeker. Infamous names in the internet and tech bubbles that helped foster the hype and as many believe, set up the collapse. The ratings agencies are under the gun now as the media and now Congress are asking how could they have been so wrong so late and only started downgrading companies after the disaster hit, exacerbating an already bad situation after everyone knew the credit issues. In providing 'good as gold' ratings to subprime mortgage loan packages, agencies such as Standard & Poor's played their role in the mortgage and subsequent credit crisis.
As with the internet and tech peaks, emails and instant messaging are providing some of the more 'colorful' and damning information and insight. They show that executives were well aware for AAA ratings to those mortgage related securities. In one exchange by employees regarding a particular issue where one raised questions about its worth the other replied that the agency would rate cows if necessary. Moo. Unfortunately for all of us, that is about all the beef there is.
THE MARKET
MARKET SENTIMENT
VIX: 69.65; +16.54. Hit a new intraday high (81.45) on this move before settling back to the third highest close on this surge higher. Very extreme readings, and as noted over the weekend, after the initial spike in volatility it takes several weeks for the market to set up and complete its bottom.
VXN: 70.92; +10.85
VXO: 70.4; +14.62
Put/Call Ratio (CBOE): 1.22; +0.35. Back over 1.0 after a 4 day weekend.
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: -80.93 points (-4.77%) to close at 1615.75
Volume: 2.62B (+20.84%). Volume bounced back above average after a 2-day lull below average. The higher trade shows dumping of NASDAQ stocks.
Up Volume: 337.992M (+85.721M)
Down Volume: 2.272B (+387.093M)
A/D and Hi/Lo: Decliners led 6.09 to 1. Far surpassing anything shown to the upside when the index put in its upside moves.
Previous Session: Decliners led 2.51 to 1
New Highs: 2 (-2)
New Lows: 309 (+209)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower and sold but on the low it easily held above the prior lows. It made a new closing low on the selling with rising volume, however, and that cracks the door for a test lower toward those levels (1542 is the low). Managed a bounce off the lows but not leaning on that as the savior of this test of those lows. Still in the game for setting a bottom, but it is going to have to prove it can do it after the volume jump on this selling.
NASDAQ 100 (-3.61%) made a new closing low as well with action mirroring NASDAQ as it tests back toward the 2008 lows.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -58.27 points (-6.1%) to close at 896.78
NYSE Volume: 1.554B (+33.78%). As with NASDAQ, volume moved back up above average after a two-day breather, indicating the sellers moved back in and making this test of the prior lows iffy.
Up Volume: 52.06M (-170.375M)
Down Volume: 1.501B (+587.485M)
A/D and Hi/Lo: Decliners led 5.48 to 1
Previous Session: Decliners led 2.23 to 1
New Highs: 8 (0)
New Lows: 537 (+401). A substantial jump but still well below the 1000+ at the first October low.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Turned back at the 10 day EMA Monday and the selling picked up speed and volume, pushing the large caps to a new closing low. Same story as with NASDAQ: the volume shows sellers taking charge and making the test of the prior low (839) more problematical. From not bad to not very good in the turn of a session.
A new closing low on SP600 (-5.54%) as well. As with the other indices, the small caps failed at near resistance and then tanked Wednesday. A test is coming, and the small caps and their economically sensitive nature are not telling a great story.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Doesn't seem to matter if the session is up or down, the patterns on the indices are all following the same pattern and thus the Dow is selling back on rising, above average volume, working in a two week descending wedge. Did not make a new closing low so a bit better than the other indices and as with those indices, still in the game for a bottom here.
Stats: -514.45 points (-5.69%) to close at 8519.21
VOLUME: 348M shares Wednesday versus 231M shares Tuesday as volume broke back above average, showing the sellers exerting control again.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Not much in the way of economic data with only initial jobless claims scheduled. There will be the LIBOR watch and the earnings barrage continues. Thus far earnings are light on the guidance, not surprising given the great unknowns still out there with respect to credit and just how much of the vine the credit freeze burned. Not surprising, but not good for the market as it doesn't give investors anything to price in. Thus they sold on Wednesday, factoring in unknowns.
This is setting up a key showdown with the early October intraday low that we know has to be tested but that we did not want to see again for another three to four weeks. October has just 7 sessions left to find that good old October bottom. All of the sentiment indicators hit extremes, internals hit extremes, the losses were sufficient by historical standards. Thus the groundwork is laid but the market is playing it really close to the vest, right down to the last few points here ahead of the early October intraday low.
With the rising volume on the Wednesday selling we need to be looking in both directions right now. The indices could continue their selling and breach the lows. That typically leads to more immediate selling before a rebound to test. Another short term play but one that can move a big distance. After all, the Dow is still over 600 points off that low, and a breach and further selling could put it down 800 points or so from the Wednesday close before it would turn back up to test the breach. That means there is room to play it downside. You also have to factor in a bounce off of those levels, a third reversal. True, the more times it tries the more likely it fails, but with sentiment, internals, etc. so extreme we still have to watch for the test and reversal yet again.
So we have some downside plays in the pocket and some upside as well. Still in the process of finding a bottom and that means trading versus investing for the short term and some dividends for the longer term. With most dividends already paid out for the year, however, we are going to have to see some good entry points set up.
Support and Resistance
NASDAQ: Closed at 1615.75
Resistance:
1620 from the early 2001 low
1644 from August 2003
The 10 day EMA is 1730
1752 from 2004
1782 from August 2004
The 18 day EMA at 1811
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 2027
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 2300
2340 from the March 2007 low
Support:
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 896.78
Resistance:
The 10 day EMA at 962
The 18 day EMA at 962
965 is the 2003 consolidation low
995 from June 2003 consolidation peak
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 1120
1133.50 is the mid-September 2008 low
1200 is the July 2008 intraday low
The 90 day SMA at 1213
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 1296
1313.15 is the August 2008 peak
1317 from the February low
1324 is the April low
1350 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 8519.21
Resistance:
8626 from December 2002
8985 is the closing low in the mid-2003 consolidation
The 10 day EMA at 9066
9200 is the July peak in the 2003 consolidation
9323 From June 2003 peak
The 18 day EMA at 9427
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
The 50 day EMA at 10,325
10,365 is the new 2008 low
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 11,017
11,061 from February 2006
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
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): 3.2M actual versus 2.9M expected, 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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