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us stock market, trade stock
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10/28/08 Stock Split Report
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MARKET ALERTS
Targets hit alerts: DDM; EEM; SSO
Buy alerts: CELG; FINL; ISYS; RTN
Trailing stops: None issued
Stop alerts issued: NSC
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:
- Market surges after spending the week preparing for the move.
- Case/Schiller home price index continues to fall.
- Consumer confidence is impressively lower.
- Big move has begat big reversals, but there is something a bit better on this move.
Market makes its move and now tries to keep it going.
There was nothing necessarily good to send the market higher Tuesday. The Case/Schiller index was down 16.6%, nothing new there and indeed it was better than previous reports. The theme, however, is that prices continue to fall and as noted last night, getting a big assist from the rise in foreclosures. Boeing reached a tentative 4 year agreement with its machinists. There were some decent earnings from X, BP, VLO, OXY. Not bad but nothing out of the ordinary.
Nothing out of the ordinary for the market of late, but futures were up in a big way on what looked to be a relief move. Nice strong start but then consumer confidence hit an all-time low, the lowest since it has been compiled. Hard to be happy after that and the market wasn't. All of the indices gave up gains 1.5 hrs into the session, riding the consumer gloom lower. They recovered to positive, but just barely, riding laterally through lunch, edging higher but without the zeal of the opening move. It looked as if the market was going to slide back down as the afternoon session got underway, but with a couple of hours left it started higher. The indices reached new session highs just before the last hour but started to fade. They held the early morning peak, however, and then took off to the upside. It was not a slow steady rise. It was steady, but it was fast. The indices moved higher and higher with increasing pace as a violent bear market rally exploded higher.
We were anticipating a push higher though we didn't expect it to be this strong on the first move. We picked up some positions as the afternoon move started and then as the indices exploded higher in the last 20 minutes of trade we took some nice gain on the positions taken Monday in anticipation of this move. Again we didn't expect such an explosive move but then again, as we have seen with the repeated upside and downside plays on the indices we have used to make money in this current market, these bear market moves happen quickly.
TECHNICAL. Intraday it was what you would expect, i.e. started higher, fought off weakness, then surged (yea verily, exploded) higher into the close. It has been that way: strong on the upside and weak on the downside days. There is no overriding trend in place right now and given the indices are in downtrends, that is quite interesting in itself.
INTERNALS. Nice breadth though not blowout with 3.8:1 on NYSE and 2.2:1 on NASDAQ. New lows were up even with the gains as the indices lost their gains in the morning session. That still kept new lows below the early October levels, and as noted previously, that is a positive as more stocks are holding the line instead of heading lower once more. Volume was a positive and even very positive on NASDAQ as it surged well above average on that index and was solidly higher on NYSE, topping anything the prior week could offer that was above average. That shows there were a lot of players in the game on the move. May have just been short covering, but there were a lot more in the game. Looking at the patterns, however, it was not just short covering. There were good stocks that had put in good consolidations, and they were ripping higher on strong volume. Good patterns are not the result of dumping but of accumulation. Thus there was some nice buying activity.
CHARTS. The indices held the lows from early October and then they raced higher. SP500 and DJ30 moved through the 10 day EMA where it stalled them the last two attempts. DJ30 moved right up to the 18 day EMA as well. Big fast move, characteristic of bear market rallies, but there is also still a lot of room to the upside. Recall we are looking for the Dow to get it up toward 10K to really energize this basing attempt. Of course if it gets that high there will be those saying this 2.5 week double bottom is the bottom. Maybe it is, but it has to defy history to be 'the one.' Hey, it is in keeping with the political season. Or was it 'that one'? In any event, plenty of room to the upside for this move if it wants to stretch its legs and not roll over in a day. We posit it has better legs than just a one-day wonder. First things first, however, and that means clearing the 18 day EMA on the indices as that is the second level of resistance in any continuing downtrend.
LEADERSHIP. There is still a lot of work to do to form up a more perfect union of stocks and bases to drive the market higher. There are some stocks moving out of some decent looking patterns (e.g. CELG, FINL, RTN). Others bounced solidly from their 2 to 3 week lateral moves or short double bottoms. That is normal for this stage of the game, i.e. the first bottom attempt in a larger double bottom as discussed in the weekend report.
THE ECONOMY
Consumer Lack of Confidence.
The Conference Board released its September reading of consumer confidence. It was expected to limp in at 52.0 after a 59.8 reading in August. It didn't. It belly flopped to 38.0. there was a positive; August rose to 61.4 from 59.8. Yee ha.
When readings get into the fifties that is low enough for a recession. What is after that? Depression? Sure seems as if there are more than a few consumers suffering from personal depression.
This was the lowest reading in 41 years. The survey started in 1967. That was 41 years ago. Lowest reading in the history of the survey. Nothing like a housing collapse and massive federal bailouts to instill confidence in the citizenry.
It is clear confidence is at rock bottom, at least as can be measured by this index in terms of history. The question is how long it takes to recover. The conference board said it would take a year to recover from these levels. Based on . . . guesswork? Never been this low. Lots of shooting from the hip ongoing in many different areas. Treasury. Federal Reserve. Political campaign. Why not the same in interpreting financial data?
A year? Confidence always lags the economy. Consumers feel downright crotchety even as the market takes off and soars higher. It is a jobs thing. They worry about jobs and stop spending if they feel their paycheck is threatened. They don't feel better until they get a job or their new job is not an issue. As we know, jobs lag the market and economic activity and thus consumer sentiment lags the market and economy as well.
THE MARKET
MARKET SENTIMENT
VIX: 66.96; -13.1
VXN: 66.2; -12.96
VXO: 66.01; -15.14
Put/Call Ratio (CBOE): 1.01; -0.15. Still holding above 1.0 on the session even with the market sparking higher. Lots of puts had to be closed.
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: +143.57 points (+9.53%) to close at 1649.47
Volume: 2.902B (+27.21%). Volume was up sharply, well above average, and while not at the highest levels in the past three weeks, it was right in the middle range of the strong sessions. Very good trade as NASDAQ turned.
Up Volume: 2.444B (+1.921B)
Down Volume: 362.429M (-1.372B)
A/D and Hi/Lo: Advancers led 2.21 to 1
Previous Session: Decliners led 3.48 to 1
New Highs: 6 (+4)
New Lows: 617 (+18). Still rose even on the gain as NASDAQ was negative early. Still did not jump up anywhere near the levels hit on the early October low.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher and filled the gap intraday, then surged to close at the 10 day EMA at the bell. NASDAQ made a lower low the past week and is now bouncing. Will it reverse the downtrend? It has something of a classic double bottom with the right leg undercutting the left, but techs are not leading at this point and they will have to show something more than just a bounce to the 10 day EMA.
NASDAQ 100 (+10.92%) is showing the same pattern, bouncing off a double bottom with a second low that undercut the first. Good reversal and made it through the 10 day EMA on the close.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +91.59 points (+10.79%) to close at 940.51
NYSE Volume: 1.731B (+29.31%). Volume was up and back above average as SP500 reversed off the double bottom off the early October intraday low. That is good indication of a solid bounce in progress.
Up Volume: 1.639B (+1.484B)
Down Volume: 88.957M (-1.089B)
A/D and Hi/Lo: Advancers led 3.77 to 1
Previous Session: Decliners led 3.74 to 1
New Highs: 4 (-4)
New Lows: 686 (-44). New lows on the small and mid-cap indices but overall new lows did not rise.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Bounced before hitting the early October intraday low and surged through the 10 day EMA on the close. That level stalled out SP500 on the last move so this is a good start. 10.8% in one day. Crazy. It has set up the double bottom and is making the break higher on rising, above average volume. The bounce has started, it has cleared the initial resistance, and now it shows us how much it has upside. 1000 is a point to start looking for resistance as that is where the move that followed the initial October low hit. That is the first test.
SP600 (+7.5%) rebounded, but that is about all it did given it was slaughtered the five prior sessions, taking it to a new low in this selling. Nice bounce but still a mile of territory to recover.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The blue chips led the market higher Tuesday along with the large cap techs. Easily held above the early October low, never threatening to take it out. Strong volume as the blue chips turned off the test and shot through the 10 day EMA and on up to the 18 day EMA (9127). The first high off of the October low is 9428 on a closing basis, and that is the first target to look for, but 10K is a nice round number.
Stats: +889.35 points (+10.88%) to close at 9065.12
VOLUME: 372M shares Tuesday versus 281M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The Fed concludes its 2-day meeting Wednesday with its 2:15PM announcement where it is expected to lower rates 50BP to 1%. Some claim this is why the market rallied Tuesday. Nah. A rate cut at this point doesn't do a whole lot for the credit situation near term, certainly not more than all of the billions in play with the various facilities for mortgages, commercial paper, loan guarantees, etc.
As we have discussed, the market set up this move getting somewhat oversold along with showing some improving internal indications. There is still a gross lack of leadership and thus this move has limited horizons, but the bounces that start bottoms all start somewhere. This one was set up well and it started strong.
So strong it has the talking heads already worried about the old 'too far, too fast' mantra, bear market rallies, etc. It is what it is for now. The market sold off hard to start October and reversed. SP500 and DJ30 tested but they never broke that low as the internals improved. A bounce was coming. Massively oversold and thus we should get a bounce that lasts at least a few days. If it can stretch it out for a couple of weeks that would start to put in place a better foundation for a second leg lower to really form a bottom.
It won't all be upside. There will be a couple of upside days and then some days of rest followed by another upside run. This Tuesday move was the zenith with respect to the big moves most likely; the rest will probably be more typical. What you want to see as a bottom hoper/watcher/finder is an upside move that doesn't immediately roll over but maintains some upside momentum even as it slows. We watch for resistance at logical places. If the indices stall out around there we can step in and play the downside run back to test. That will really scare the snot out of most and it will likely be a pretty rapid drop. It is that move that will likely set the bottom.
For now we ride the move higher with the remainder of the upside index plays, the other upside we are taking, and with some new positions. This move has the look and feel of a more substantive move than the prior bounces and we are looking at stocks that can still make us a nice gain with a run to resistance before the next test lower. We play those to the upside for what they give us, take what we can, and see if the market makes that next test that sets up the second leg and perhaps the bottom to this selling.
Support and Resistance
NASDAQ: Closed at 1649.47
Resistance:
The 10 day EMA is 1648 is cracking
The 18 day EMA at 1728
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 1961
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:
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 940.51
Resistance:
965 is the 2003 consolidation low
The 18 day EMA at 966
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 1086
1106 is the late September low
1133.50 is the mid-September 2008 low
The 90 day SMA at 1193
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 1285
Support:
The 10 day EMA at 925
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 9065.12
Resistance:
The 18 day EMA at 9128
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 10,068
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 10,865
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:
8985 is the closing low in the mid-2003 consolidation
The 10 day EMA at 8812
8626 from December 2002
8521 is an interim high in March 2003 after the March 2003 low
8197 was 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 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): 38.0 actual versus 52.0 expected, 61.4 prior (revised from 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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