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world stock market, us stock market
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10/27/08 Stock Split Report Update
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Full report issues Tuesday, Thursday, Saturday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: DDM; EEM; SSO
Trailing stops: DIA; SPY
Stop alerts issued: None issued
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.html
SUMMARY:
- Another grim looking open gives way to a bounce, but sellers re-emerge in the last few minutes.
- September new home sales rise, top expectations.
- G7 wants to prop up currencies vis- -vis the yen as it rises after years of shorting.
- Market may not be at the bottom, but with DJ30 & SP500 holding above the prior lows, it is in position to try a bounce.
Another tough looking open, and despite the late selling stocks act a bit better.
LIBOR suffered again in the third day of the fall cold snap that froze the drop in rates after some very good headway. Rates held basically flat with just a 1 basis point decline on the 3 month rate (3.51% versus 3.52% Friday). Foreign markets were again in the tank with the Nikkei hitting a 26 year low. The G7 talked of an emergency meeting, ostensibly to prop up currencies against the yen as it rebounds from its brutal shorting at the hands of the carry trade. Big tech companies were reportedly having to lend to their customers to buy gear given the lack of available loan funds from our lending institutions.
Man how times have changed. You couldn't swing a cat a year ago without hitting some credit card company or bank offering you a loan. Now after putting in $250B into banks specifically for lending, there is no lending. Indeed, as discussed in some papers this weekend, the money is being used to fund acquisitions of banks by those getting the funds. Some are saying that is okay because the health of the banking industry is our primary concern in the $750B bailout. No, the primary purpose is to fix the sorry state of affairs we are in. The banking system is part of that, but it is no the end in itself. It strains credulity to think those in Congress would have agreed prior to voting that it was okay for banks to use taxpayer money to go on predatory spending sprees, basically using our money to kick other banks while they were down in order to gain competitive advantage.
The bad news offset the nominal positives on the session. Pre-market it was announced that the Fed's commercial paper initiative (called the 'CPFF', Commercial Paper Funding Facility or something like that) designed to re-energize the CP market, a vital link in the credit chain, was up and running. As with the bank lending guarantee two weeks back, the announcement that it was up and running did little to convince investors salvation was here as futures, while off their lows, remained well below fair value.
Stocks started lower but as on Friday the downside was not that severe. As noted, futures were on the mend ahead of the open, and even though stocks opened lower they recovered to positive as the NSYE large caps led the upside action (DJ30, SP500). NASDAQ and the small to mid-caps were really laggards, however, all hitting new lows on the year. Even with that stocks managed a decent recovery, breaking out of an intraday ascending triangle, a bullish base. The breakout eroded in the afternoon, coming back to the breakout point; not great but not bad. Then in the last few minutes of the session sellers came in and took their shot, selling commodity and financial stocks. With no volume on the session it was fairly easy for them to swing things to the downside sharply, and indeed all of the indices fell to early session lows and then to new 2008 lows once more. Not a great ending, but even with that decline the technical indications were not that damaging, indicating the selling, despite the losses Monday, is running out of ammunition if only for this current selling leg.
TECHNICAL. Intraday action again followed the session, i.e. down to up to back down on a down day. It flips and follows each session, up or down. That is the nature of a very volatile market that has not made any decisions about its direction.
INTERNALS. The late selling pushed the breadth much more sharply negative than it was at anytime during the session. New lows, however, did not spike to those levels hit on the initial October low on DJ30 and SP500. But even with NASDAQ, SP600, SP400 and NASDAQ 100 hitting new lows for the year, new lows did not approach those levels even with 730 new lows on NYSE. Small and mid-caps make up the majority of the market and they were pummeled Monday with 4.3% losses, yet breadth did not hit new highs even as they hit new lows. You have to look for it through the red closing prices, but as the other indices hit new lows breadth did not jump. Volume was lower once more, coming in negative on NASDAQ and NYSE, another indication that the sellers are not as strong, just able to move in and take over given the lack of buyers and overall low volume. That suggests that the selling is close to being sold out on this leg.
CHARTS. New closing lows on SP500 and DJ30 though they held above the intraday lows hit in early October. Now the other indices all hit new lows for the year. The most economically sensitive indices such as the smaller caps are getting hammered lower, forecasting more bad economic times ahead. Not much positive in the charts out side the NYSE large caps and low volume, though near term that indicates the indices are getting near a bounce. Overall with the economically sensitive indices hitting new lows the overall outlook is not that great right here, but the with the internals and chart action on the NYSE large caps, the DJ30 and SP500 look ready to lead a relief bounce here. Maybe it morphs into that stronger bounce that occurs in the middle of a double bottom attempt, but that remains to be seen.
LEADERSHIP. Still akin to looking for a needle in a haystack. While there are good stocks in decent short-term consolidations (e.g. AAPL) that would benefit greatly from more consolidation, the market has yet to give them much help. They could use an interim bounce here to form up better and give the market something to rally off of.
SUMMARY. The action was quite similar to Friday though Monday the indices finished in the lower half of the range while Friday they lost ground but ended in the upper half. Looked bad early, improved dramatically, then sold late. A worse finish Monday certainly, but the internals and stickiness of the NYSE large caps over the early October lows leaves the market looking sold out near term and we are looking for some kind of upside bounce to start before at least before another ugly downside leg.
THE ECONOMY
September new home sales notch upward.
Home sales rose 2.7%, beating expectations (464K actual versus 450K, 452K prior). That beat the August levels, but they were revised down 8K from 460K. So, sales were up still, but with the write-down of August it was not that great a beat.
Pricing is the key, along with of course, available financing. Prices fell to a 4 year low, however, and that certainly helped the bump in sales. Prices fell 6.2% as the price tumble picks up speed (-4.6% in July).
The price drop is getting pushed by a dramatic rise in foreclosures, up 71% this month year over year. That no doubt is helping the rise in sales. Some see foreclosures pushing prices lower and thus increasing sales as a negative. No, that is just supply and demand. A NEGATIVE would be if foreclosures jumped, prices fell, but sales did NOT rise. That would show a very, very negative picture. What the rise in sales shows us is that at least there is money out there to be put to work.
Now that doesn't mean the rise in sales was a big deal. Sales are in the toilet, at lows not reached since 1991 when the US was in another recession. Why not in 2001 in that recession? Because that was the post-9/11 cocooning effect and the extremely low interest rate environment along with the Washington housing push. So that period doesn't count. What we have here is a housing market with a precipitous, bubble-like rise as sharp as the tech rise to bubble status in 1999 and then as precipitous a decline.
We still believe the housing market has bottomed. Made that call a few months back. The spike in foreclosures and the decline in prices is making homes, almost ironically, more affordable and thus here come some purchases. That does not mean it is going to head up anytime soon. Lower prices make homes more affordable, but we are heading further into recession and the credit freeze is still blocking funds. Hard to turn and run higher in that environment, but it is setting the stage for the eventual recovery.
G7 counsel wants emergency meeting to prop up currencies versus the yen.
We have seen the hedge funds unwind positions in commodities and the 'Big 3' (commodities, energy, agriculture and even industrials) that led the last of the move higher into October 2007, taking the market lower on that selling. It has ripped the US stock indices as those lop-sided trades they were all in are sold off to raise capital. The snowball has rolled downhill, turning into a giant force that crushed the stock market.
There are other equally lop-sided trades in the process of unwinding. The commodities (not the stocks but the actual materials) is one. The carry trade where one currency was shorted and the another held long is another. The yen was the whipping boy of that trade, sold short versus other currencies. It was weak, but this trade artificially ground the yen into the dirt.
When interest rates and currency rates started to shift as the markets sensed the coming of this credit crisis, the carry trade started to unwind. As with equities and commodities, the more it unwound the faster it unwound as more funds hurried to exit before things got out of hand. Now the carry trade is dead and there is a mad rush to clean up the remaining open positions. The shorted yen is now the purchased yen as the shorts are covered in order to close the trade out. That is allowing the yen to recover as it is bought to close the trade, and more than that, as the other currencies dive lower on sharply weakening economies the yen gains even more strength. The dollar is exploding versus the euro (1.2517 Monday after at 1.2621 close Friday), but the yen's rise is so strong the dollar is not rising against it. It isn't doing badly, particularly with respect to other currencies, but the yen was so clobbered it is rebounding sharply. Perfectly natural reaction to an unnatural situation.
Now the G7 countries, in their wisdom and having just come off intervening into every financial market they can think of, feel it necessary to intervene to slow the yen or at least prop up other currencies in order to slow down the differential, ostensibly to protect Japan and the other countries involved. Let's see, it was artificially ground into powder, and when that artificial pressure is removed and it tries to recover the collective of industrialized countries wants to artificially keep it lower again.
Currency intervention is nothing new; it is done all the time. The problem is when there is so much flux in the world and so much intervention ongoing in every other aspect of the financial world. One might say 'what does it matter then?' and might very well be correct. The problem is when there is so much intervention in so many different areas by so many different mechanisms, it doesn't take much for the dam to spring a leak and then give way.
THE MARKET
MARKET SENTIMENT
VIX: 80.06; +0.93. A new closing high on the session as VIX is still rising and it hits its high on the first low in most cases. Then there is a rally and then a selloff that leads to another spike, but that is typically lower than that first move. Right now it looks as if VIX is on its first move.
VXN: 79.16; +0.34
VXO: 81.15; +1.79
Put/Call Ratio (CBOE): 1.16; -0.08. A week and counting over 1.0 on the close and that is more than enough to help put in a bounce and a bottom. It is not definitive, however.
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: -46.13 points (-2.97%) to close at 1505.9
Volume: 2.281B (-15.01%). Below average volume returned, helping some given it was a downside session. No heavy selling, they just outnumbered buyers (and there were about 0 of those).
Up Volume: 522.911M (+44.598M)
Down Volume: 1.734B (-456.88M)
A/D and Hi/Lo: Decliners led 3.48 to 1
Previous Session: Decliners led 3.84 to 1
New Highs: 2 (-1)
New Lows: 599 (-243). New lows fell as NASDAQ hit a new closing low.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower, rallied to positive, but as with all of the indices, could not hold the goods to the close. New closing low for the techs but on that low volume so we will see if NASDAQ along with the other indices is getting tapped out on this downside move.
NASDAQ 100 (-2.70%) gapped lower as well but then recovered positive. Not bad but then it was back down on the close to a new closing low for the large cap techs as well. Lower, below average volume, but no real damage done, at least no more than last week. High praise indeed.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -27.85 points (-3.18%) to close at 848.92
NYSE Volume: 1.338B (-16.06%). Volume fell back below average on the downside, indicating no heavy selling even as the NYSE indices slid lower.
Up Volume: 155.356M (-81.639M)
Down Volume: 1.178B (-176.337M)
A/D and Hi/Lo: Decliners led 3.74 to 1
Previous Session: Decliners led 4.43 to 1
New Highs: 8 (-9)
New Lows: 730 (-418). New lows fell even as the small and mid-cap indices where most stocks reside fell the hardest of all.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Sold to a new closing low and the second lowest price for SP500, closing or otherwise, for the year. The large caps suffered some financial selling late that dragged it from positive to negative by the close. A lower close is not great action as it opens the door a bit more to the downside, but with the low volume and the index still holding above the prior low (839).
The small cap SP600 (-4.35%) dove to a new 2008 low, closing at 240ish. There is support at 230ish, still a long way down. The small caps are not showing much life, but after this decline of 18% over the past 5 sessions is prime ground for a bounce.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
New low on this leg and now the only low ahead of the October intraday low at 8199. As with the other indices volume tracked lower and below average. New closing low looks ominous on a close line chart but with that prior low still out there DJ30 can still make a new bottom here and post that bounce it is setting up to make back up toward 9500 to 10,000 if this is a bounce that will set up a final bottom.
Stats: -203.18 points (-2.42%) to close at 8175.77
VOLUME: 281M shares Monday versus 335M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Consumer confidence is out a half hour into the session and the Fed starts a two-day meeting where it is anticipated Bernanke will lower rates another 50BP, bringing the Fed Funds rate down to 1%. As we noted earlier today, what is the bother given all of the billions of liquidity and facilities in place designed to get banks to loan and instead works to get banks to buy each other. Oh yes, and more earnings to come as well.
The news is not good and it is likely not to get better unless LIBOR suddenly thaws again and we see banks magnanimously lending as they are supposed to do with our tax money. Oh yes, and while we are at it, why not throw in a lot of good earnings guidance as well.
Now back to what is likely, and for the upside that basically means whether the market can put in an oversold bounce after this last selling with SP500 and DJ30 holding the line above the early October lows. Whether that morphs into a strong rally that sets up a second test or just explodes higher and never looks back remains to be seen. It is a technical set up right now with good internal indications as the indices test lower with yet new lows are holding well below prior levels and volume falls off. With the large cap NYSE indices holding those prior lows, the combination indicates a bounce. Not a 100% certainty to that; bad news could send in the sellers again and wreck even those early October lows.
Monday we started picking up some upside index plays in anticipation of that move. That action was good on the session outside that last 10 minutes. We will continue to look to the upside, and if the market shows positive action we will add to them. If the downtrend proves too much we will have to close them out and flip to the downside again, but as noted, the internals and the large cap NYSE's ability to hold the October lows says a bounce is coming barring some new and ugly economic issue. Such is the market now: trying to hang on at the prior lows and set up a bounce, and that is necessary even before the market can try to put in a lasting bottom. Remember we have to get to the point no one is looking for a bottom, and thus any bounce here is likely not the lasting bottom as many on the street are still looking for an October total market bottom. Not likely to happen.
Support and Resistance
NASDAQ: Closed at 1505.90
Resistance:
1521 is the late 2002 peak following the bounce off the bear market low
1542 is the early October 2008 low
1565 is the second low in October 2008
1620 from the early 2001 low
1644 from August 2003
The 10 day EMA is 1648
The 18 day EMA at 1737
1752 from 2004
1782 from August 2004
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
The 50 day EMA at 1974
1984 is the lat September low
2070 from September 2008
2099 is the mid-September closing low
2155 is the March 2008 low
2167 is the July 2008 low
Support:
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 848.92
Resistance:
853 is the July 2002 low
866 is the second October 2008 low
889 is an interim 2002 peak
The 10 day EMA at 922
965 is the 2003 consolidation low
The 18 day EMA at 969
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.
The 50 day EMA at 1092
1106 is the late September low
1133.50 is the mid-September 2008 low
The 90 day SMA at 1197
1200 is the July 2008 intraday low
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 1288
Support:
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 8175.77
Resistance:
8197 was the second October 2008 low
8521 is an interim high in March 2003 after the March 2003 low
8626 from December 2002
The 10 day EMA at 8756
8985 is the closing low in the mid-2003 consolidation
The 18 day EMA at 9135
9200 is the July peak in the 2003 consolidation
9323 From June 2003 peak
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
The 50 day EMA at 10,108
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
10,827 is the July 2008 intraday low
The 90 day SMA at 10,896
10,962 is the July closing low
11,061 from February 2006
11,317 from March 2006
11,388 is the prior August low
Support:
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 27 - Monday
September New Home Sales (10:00): 464K actual versus 450K expected, 452K prior (revised from 460K)
October 28 - Tuesday
October Consumer Confidence (10:00): Expected 52.0, prior 59.8
October 29 - Wednesday
September Durable Orders (8:30): Expected -1.0%, prior -4.5%
10/25 Crude Inventories (10:35): 3.2M prior
FOMC Policy Statement (2:15): Fed Funds futures indicate a 50BP rate cut to 1.0%
October 30 - Thursday
Q3 Chain Deflator-Adv. (8:30): Expected 4.0%, prior 1.1%
GDP-Adv., Q3 (8:30): Expected -0.5%, prior 2.8%
Initial Jobless Claims, 10/25 (8:30): Expected 473K, prior 478K
October 31 - Friday
Q3 Employment Cost Index (8:30): Expected 0.7%, prior 0.7%
Personal Income, September (8:30): Expected 0.1%, prior 0.5%
Personal Spending, September (8:30): Expected -0.2%, prior 0.0%
Chicago PMI, October (9:45): Expected 48.0, prior 56.7
Michigan Sentiment-Rev., October (10:00): Expected 57.5, prior 57.5
End part 1 of 3
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