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world stock market, us stock market
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10/23/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: DIA; HAL; NSC; SPY
Trailing stops: None issued
Stop alerts: AGU; MON; MOS; USB
SUMMARY:
- Market follows through on the Wednesday selling but NYSE large caps reverse late to close positive.
- Greenspan 'shocked' he was wrong, throws in the towel to regulation.
- Q3 foreclosures rise 71% year/year
- Dearth of IPO's tells the economic story
- Strap it on for another likely volatile Friday.
Volatile market sells again, reverses again.
It was more of the usual. Earnings were out with MO, BMY, UPS, POT and others beating expectations. Of course, many others missed expectations. The common theme: a weaker out look. Not all stocks are bemoaning the future, but the clear and significant majority either cannot tell you what will happen due to rapidly changing conditions or they flat out say things will be worse.
So earnings were not that great and LIBOR, for the first time in over a week, failed to produce a significant decline in rates and spreads. The thaw was hit with a cold snap that stopped it dead in its tracks. That didn't help the investor mood either. Oil jumped higher ahead of a Friday OPEC emergency meeting, and you can blame that, but oil is broken right now and gasoline prices are plunging, so this is at worst a wash between the benefits of lower oil and the world economic implications of lower oil. Home foreclosures in Q3 rose 71% year over year; hard to get happy homeowners out of that stat. Then there was Greenspan who for the second time in memory admitted he didn't know what the hell he was doing and gave the regulation mongers in Congress a pass with respect to saddling all of us with mountains of more CFR pages where the federal regulations are kept. Don't know if you have ever seen the CFR books in a law library, but there are hundreds of them, all containing regulations governing everything in our lives. It is quite sobering when you first see it and realize what you are looking at.
That started the market sour but it was on the upswing even as the opening bell rang. Sold but rebounded decently only to start a big, long roll back down midmorning on into the early afternoon. Your basic 550 point swing on DJ30. It was not done, however, with a massive reversal late in the session that took SP500, DJ30 positive. It was a brutal up and down rebound with big 150 to 200 point bounces as the indices moved higher. The bell rang on one of those upside surges and thus the positive close. That left the indices in pretty good shape after the Wednesday selloff, holding the recent range on a higher volume rebound, but you can anticipate Friday to be a donnybrook as Fridays in recent history have been very volatile.
TECHNICAL. A low open that bounced, then sellers moved in hard into mid-afternoon, but then a late rebound to push SP500 and DJ30 positive. That is good action and while all of the indices bounced in the afternoon, the smaller issues and the more economically sensitive indices did not recover to positive. Indeed, the small and mid-caps were saddled with 2.6% losses despite the afternoon rebound.
INTERNALS. The late rebound pulled the A/D line back to mundane levels though it is noteworthy that it was negative on both indices as the small caps, mid-caps and techs, the economically sensitive stocks, lagged the market. New lows jumped to 800 on NYSE and 550 on NASDAQ as NASDAQ hit a new low along with the small and mid-caps, but that is still below the prior spike when the indices hit that first low in early October. That is still something of a positive as the new lows are not surpassing the others, i.e. less stocks selling off even though the indices dump again. Volume, back up above average on the Wednesday selling, was even stronger on the Thursday rebound. It was downright high on NASDAQ at 3.1B. Good volume on a reversal to positive on SP500 and DJ30 is typically an upside indication.
CHARTS. New 2008 lows on NASDAQ, NASDAQ 100, SP600, SP400 and SOX. SP500 undercut the former second low of the month, but it also held above the early October low and then rebounded. All indices reversed off their lows in the afternoon with SP500, DJ30 and NASDAQ 100 recovering to hold the bottom of their lateral consolidations on the close. The patterns are still small descending wedges and that leans to the downside, but as noted, they once again came back from a test toward the prior intraday lows and did so on stronger volume. The market is showing resilience here, but DJ30 still has yet to come close to testing that first October low, and with Fridays as volatile as they have been, that could happen before the week is out.
LEADERSHIP. Energy was the leader for the day, rising higher ahead of the OPEC emergency meeting Friday as did oil (68.32, +1.57). At the same time that OPEC meeting and the oil rise put one of the recent leader groups, airlines, under pressure. Commodities and agriculture were mixed but the stocks that sold in these groups showed real weakness. Once more there was new emerging leadership patterns, but there are plenty of patterns ready to bounce if the market can pull out of these descending wedges and rally (e.g. energy). Saw this pattern with other stocks, however, and they could not pull off the move higher. Leadership needs more time to hammer out bases. For now the leaders will come from stocks bouncing higher such as from energy and the likes of AAPL.
THE ECONOMY
Greenspan punt's his theories. Guess I won't be buying his book.
After he helped engineer the tech bubble Greenspan panicked a bit and tried for months and months to somehow let the air out of it. He talked of a runaway consumer, citing the 'wealth effect' as a main driver behind the consumption binge. He finally cut off the money supply after Y2K cold turkey and the market pitched over immediately and the economy was in recession later that year. At the end of it all as we sorted through the rubble, Greenspan shockingly admitted that the Fed didn't really know if the so-called wealth effect really existed and sought input from around the country and world to help the Fed study it more closely. All of that carnage over a concept that was more of a hunch than economic theory. Shocking indeed.
Thursday Greenspan was on the hill as part of the litany of witnesses called in as Congress tries to affix blame for our current woes (a large mirror set up across from the panel would have been helpful). Anyway under questioning about Greenspan's views on regulation, markets, etc. and why the seeds of the problems today started on his watch, he said he was 'shocked' that the market didn't self-correct, positing that his beliefs that had held true for 45 years were all in question based on this failure.
In a few sentences he handed the regulation mongers in Congress all they need to add a few more shelves to the CFR section of law libraries, punting on the idea that markets typically regulate themselves, and if we enforce current regulations on the books most of these issues would have been avoided. That would mean oversight by, of all entities, the Fed to prevent these risky loans. Of course when Congress and the executive branch are pushing more and more home ownership, regulatory agencies have their hands tied.
Problem is, the banking and financial markets are hardly unregulated, wild-west shows. There are many, many regulations in place that simply were not enforced in the frenzy to place more and more people into homes as part of the federal plan. The Fed kept interest rates low, did not raise the warning flag about the loans, and did not keep watch over its banks. Top to bottom it was a disaster of government, not lack of regulation, that fostered this financial crisis. Again, if the government didn't get so involved in pushing housing through its elected and non-elected arms, these loans would not have been made; they were just too risky, but with the feds acting as the half-spoken backstop, the money poured in, the oversight agencies looked the other way, and now we have a nightmare. Shocking indeed.
The death of the IPO.
One of the indicators of a good market and indeed a good economy is the flow of initial public offerings coming to market. With venture and investment capital thrown off by a good economy new businesses get their start and before long they are coming to market to raise some serious capital.
After the crash in 2000 the venture capital market dried up and if there were any good ideas during that time, they didn't have any financial backers. Very few IPO's. Right now there has not been an IPO in just about 3 months. That is a dry spell. Historically it is a pretty bad dry spell, but it is not the worst in modern history. That was in 1974 when no IPO's issued for 6 months. That is twice what we have now.
If this economic collapse and subsequent recession are as bad as that period, and with all of the talk of more regulation, spending and taxes just as in the 1970's it very well could be, then the IPO market could see that kind of dry spell. It certainly is not telling a great story right now.
THE MARKET
MARKET SENTIMENT
VIX: 67.8; -1.85. Spiked to 79.43 on the high. Very respectable, just off the highs at 81 on this peak.
VXN: 69.84; -1.08
VXO: 68.56; -1.84
Put/Call Ratio (CBOE): 1.24; +0.02
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: 22.2%. Just a modest drop from 22.4%. Down from an already very low 25.3% that 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: 54.4%. Very respectable rise from 52.9% after pausing at that 53%ish level for a couple of weeks. 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: -11.84 points (-0.73%) to close at 1603.91
Volume: 3.159B (+20.57%). Very strong volume, approaching the levels hit in early October.
Up Volume: 830.767M (+492.775M)
Down Volume: 2.318B (+45.785M)
A/D and Hi/Lo: Decliners led 2.54 to 1. Didn't recover to positive despite the rebound. It was the large caps recovering.
Previous Session: Decliners led 6.09 to 1
New Highs: 0 (-2)
New Lows: 549 (+240)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Made a new low for the year and then reversed, recovering 66 points off the afternoon low in that volatile last hour rebound. That put NASDAQ just below the closing lows in its two week lateral consolidation. It has made three intraday lows at the 1530 level, snapping back each session. We will see if it can make anything out of it though this still is not a great upside pattern.
NASDAQ 100 (+0.17%) managed to reverse to positive as the large cap techs were what drove overall NASDAQ higher given the 2.5:1 negative breadth. Similar to NASDAQ it reached lower to the prior lows and rebounded. Same pattern trying to set up the upside.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +11.33 points (+1.26%) to close at 908.11
NYSE Volume: 1.688B (+8.61%). Volume was stronger and above average though it was not at the levels hit the prior few weeks. Still, it was a reversal on rising volume, showing more strength than the Wednesday selling.
Up Volume: 746.897M (+694.837M)
Down Volume: 927.868M (-572.805M)
A/D and Hi/Lo: Decliners led 1.67 to 1. The 2+% losses in the small and mid-cap indices kept the breadth negative even with SP500 turning positive.
Previous Session: Decliners led 5.48 to 1
New Highs: 10 (+2)
New Lows: 826 (+289). A lot of new lows as the mid- and small caps hit new lows for the year. As noted earlier, they still did not top those early October lows.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 undercut the mid-October intraday low, came within 19 points of that prior low and then reversing in the last hour to turn positive. A little 49 point swing. The move left SP500 right at the bottom of its 2 week lateral move, hanging onto 900 by its teeth with the lower highs pushing down on it. Still a negative pattern but the higher volume reversal shows there is still buying at that level.
SP600 (-2.69%) hit a new low for the year then it too reversed. Still a hefty loss even though it recovered two-thirds of its decline on the day. The small caps are not looking healthy and they should be if the economy is going to get it together over the next 6 to 9 months.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Violent moves on DJ30 again though on the low it held above the early and mid-November lows. It rebounded to post the best gain of the session though on slightly lower volume than Wednesday. As with SP500, the recovery moved the Dow back to the bottom of its two week consolidation where it has held on the closes and where it is trying to put in a bottom. We can still see quite a bit of volatility Friday, however, meaning another test lower before this is over.
Stats: +172.04 points (+2.02%) to close at 8691.25
VOLUME: 340M shares Thursday versus 348M shares Wednesday. Above average but lower than the Wednesday selling volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
As noted above, recent Fridays have proved volatile with major reversals. Thursday saw its own reversal and left DJ30 and SP500 in position to bounce higher while the growth indices lagged, the smaller caps badly so. With the weekend ahead we could see yet another up and down session as DJ30 has yet to test close to its prior lows on this dip. You can bet on a run lower we will be looking to lock in some of that gain on the index plays; we had some 18% to 20% gain in a day on the options and then the indices rebounded. The volatility levels are still incredible and thus the market will likely show us both sides of the flat line Friday before the day is over.
Again this is all part of trying to put a bottom in but right now so many are looking for a 'classic' October bottom that the 'watched pot' principle may be coming into play. All indications that everyone watches say that a bottom should be put in. What has to happen: even those believing in these indicators need to feel as if they are failing them this time and feel the panic. That is when the bottom shows up. Right now everyone feels it lurking out there and it very well could be. As soon as most look away it will show up.
Or it won't and this market dives lower prefacing a truly nasty economic slump. If it happens it happens. We just have to take opportunity as it arises, and thus on another test lower we take some downside gain. On a move higher we look for plays to make us money to the upside. Right now it is that way, a day to day bounce back and forth as the market tries to not so much find a bottom as just bounce some. The patterns are tilted to the downside modestly, but this market, given its volatility, has a way of pulling an unexpected session out of the hat before continuing on. With the hedge funds still unloading positions that makes for an extremely volatile climate
Thus when we move in it is still in less than full positions. We can make money in this market, but it won't make you rich. If you go all in on every play it can make you poor. We love playing these index plays back and forth as we can pick up 20% to 40% in relatively short order given the volatility. As for longer term position plays we also go in partially because of that same volatility. We take some positions when we see a good move and then look for the next opportunity to move in. It may be lower if the stock tests back but still looks solid, or it may be higher as the stock tests back from an upside move. The market has shown it is not ready for a long term upside move just yet, needing more leadership. Thus there is still more work to do, and until the bases are built we move in, we move out, we stick with what looks good, and we keep an eye out for when more just flat out throw up their hands and walk. That is when the bottom comes.
Support and Resistance
NASDAQ: Closed at 1603.91
Resistance:
1620 from the early 2001 low
1644 from August 2003
The 10 day EMA is 1707
1752 from 2004
1782 from August 2004
The 18 day EMA at 1789
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 2011
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.
The 200 day SMA at 2296
2300 is some resistance
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 908.11
Resistance:
The 10 day EMA at 952
965 is the 2003 consolidation low
995 from June 2003 consolidation peak
The 18 day EMA at 998
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 1111
1133.50 is the mid-September 2008 low
1200 is the July 2008 intraday low
The 90 day SMA at 1207
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 1293
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 8691.25
Resistance:
8985 is the closing low in the mid-2003 consolidation
The 10 day EMA at 8998
9200 is the July peak in the 2003 consolidation
9323 From June 2003 peak
The 18 day EMA at 9349
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 10,261
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 10,979
11,061 from February 2006
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
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): 478K actual versus 465K expected, 463K prior (revised from 461K)
October 24 - Friday
Existing Home Sales, September (10:00): 4.95M expected, prior 4.91M
End part 1 of 3
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world stock market
us stock market
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