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world stock market, us stock market
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10/29/08 Stock Split Report Update
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Full report issues Thursday.
MARKET ALERTS
Targets hit alerts: Took some interim gain on AAPL and MON that we bought earlier in the day.
Buy alerts: MON
Trailing stops: None issued
Stop alerts: 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:
- Market rallies into FOMC, survives rate decision, but then gets tripped by General Erratic's late comments.
- LIBOR warming trend starts again, but slowly.
- Banks using our $250B to pay creditors, vendors, and issue executive bonuses.
- Durable goods orders bounce higher but it was mostly aircraft and defense, not your best leaders.
- With the FOMC decision under its belt, market reloads and tries to hold then extend the Tuesday bounce.
Market shows its fragility, gets tripped late by offhand GE comments.
Futures were lower but they were coming back toward the open. Reports of rising layoffs with Q dropping 1200 and expected layoffs at MOT on Thursday hurt the outlook. Durable orders were higher overall, but it was all defense and aircraft. Take them out and it is negative. The dollar was lower after a big run and ahead of the FOMC meeting with an anticipated 50BP rate cut in the offing. Oil jumped on that dollar decline as well as rebounding itself from a tail kicking the past few weeks ($68.19, +5.46/bbl). Earnings were again mixed as PG and KFT beat while GLW, maker of glass for televisions, warned. LIBOR was better again, but not that much.
Futures were down then raced back up just before the open. The market managed to start higher, led by a rebound in commodities and energy stocks on that weaker dollar. They rallied up into the FOMC and just before they went flat. The Fed cut rates 50BP to 1% as expected, and as expected the market jumped up and down in the aftermath. Then as on Tuesday, since the market did not sell off after the Fed, stocks started to run higher toward the close. Looked like another surge into the close and it was in progress.
Then within 10 minutes of the close some comments purportedly from GE's Immelt hit the wires where Immelt indicated hope that GE would make as much money in 2009 as it did in 2008. Now these comments were rebutted as misquotes, but that was not until after the close. The market tumbled lower with the Dow falling from +250 to -125 in a matter of just minutes, settling down 74 points. The GE news, even before the rebuttal, was not deadly; it was much of what we had already heard from GE (a.k.a. Generally Erratic). No big deal but it simply shows how nervous and fragile the market is. GE and other stocks rebounded after hours on the rebuttal, so it was not something that was running stocks lower on into Thursday. Pretty thin-skinned market and that is pretty normal given the recession, credit freeze, etc.
TECHNICAL. Intraday the market rallied nicely into the FOMC, hesitated, rallied into the last few minutes and then was clocked lower. Hard to really read this action with the external forces of the FOMC meeting and the late GE 'news.' It does, however, continue to show the willow like action of the market as it blows in the direction of the news day to day. About the only thing it has done to make technical sense of late is to blast higher Tuesday after setting up over the early October intraday lows. Well, not really. The indicators are all extreme and the action in DJ30 and SP500 has been in line with them, i.e. not undercutting the prior lows, selling on lower volume, then blasting off.
INTERNALS. Not a whole lot to tell here either. It was not much of a strong day either way outside of the last half hour when the indices took off only to get turned over. Volume was lower though not by a whole lot; it was setting up to be a decent session to the upside until it tripped late.
CHARTS. DJ30 and SP500 rallied past the 18 day EMA intraday and putting some distance on that level. The late selling undid that move. NASDAQ reached up to its 18 day EMA but it too fell away late in the session. Wanted to see the indices blow on through this level. Why the interest in the 18 day EMA? That is the second resistance point that will stall a stock or index after the 10 day EMA. If the 10 day EMA stops it the downtrend is strong. If the 18 day EMA stops it, the downtrend is still entrenched. They are important first steps in breaking through a downtrend. Wednesday they made it, but then they didn't thanks to the purported GE comments and of course the chronic fragility of the market. It was not a reversal but it is important that the indices pick right back up and move through those levels on this bounce to keep it going in order to build the appropriate base for a real bottom to set.
LEADERSHIP. Energy led early, blasting out of some short but nicely formed rounded bottoms or double bottoms. The move was such that they never looked back to give anyone a chance to jump them. Commodities rallied as well along with agriculture and some big techs such as AAPL. Seems like the first 9 months of 2008. Of course it is not and they are rebounding off of the harsh selling after setting up modest bottoms. That is mostly what you see in the market, i.e. more of what you would call short term bounce bottoms but they can run hard in that short term as seen in 2002 off that first leg in the double bottom. There are some decent longer term patterns emerging, but they are still few in number. Nonetheless it is a positive they are showing up (e.g. ISYS, QCOR). It will take a rally here and another test for them to set up, but the process appears to be underway with this last market bounce.
THE ECONOMY
LIBOR improves but with banks using our money for bonuses, the slow melt is not surprising.
LIBOR warmed up again and resumed its fall, but as with the first declines, the move is slow. The key 3 month level fell 5BP to 3.42% from 3.47%, Tuesday to Wednesday. That is a far cry from the 25 to 30BP declines before the recent return of frost. That didn't help the world markets this week though in the bigger picture of this bounce, they seem to be getting over it, but not nearly as fast as the hundreds of billions, yea verily trillions, of dollars would suggest it should.
Why not? Remember when this bailout was proposed the outcry about its constitutionality and efficacy? You don't? Not surprising because there were damn few talking about either. Congress was nearly silent on this, but not because there were not members complaining. The din that there was an agreement on the rescue package (a.k.a. wealth appropriation/confiscation plan) drowned out any opposition comments as to the constitutionality and the simple question of whether the plan would work.
Nonetheless it was rammed through Congress because, as we were told every day, if we didn't do it carnage would ensue. So it was passed. Almost $3 trillion in stock losses later we see it didn't prevent anything except letting businesses that should go out of business go ahead and get it over with.
The Treasury freed up $250B of the $750B for direct injection into banks in order to provide immediate capital to lend rather than waiting for the Treasury to get the mortgage/asset purchase part of the bailout in place and start buying assets to get money into banks' hands. Seemed like a good plan given the boondoggle was now the law: better to get money in their hands quickly to get it loaned out through the economy.
Big problem. Unlike in the UK, there were no strings attached with respect to our tax dollars and our children's future income. The government received warrants, non-voting warrants, and the companies are free to do with the money as they see fit. Now if it was their money we have no problem with that. Problem is, after the government took this money from us and our kids it didn't make sure it was going to be used as intended.
Now we are finding out that the banks are using the funds not for lending but for their private business such as paying off creditors, vendors, and giving executives bonuses. It is reported that $190B of this money is heading for end of year bonuses. They need the money to stay alive, to operate. They are supposed to use it to lend and thus allow the banks to make the money they need through lending. Instead they give the taxpayer the finger and spend it on personal business.
I called my senators and they were somewhat taken aback by my rather angry onslaught. Maybe it was something about pissing away our money, but the point is, what does government intrusion get us? More wasted money due to the government's uncanny ability to tax away our money and then squander it foolishly. Listening to the two political campaigns right now this does not give me much hope we will get government doing the right thing to allow us to work out of this mess quickly.
Durable Goods Orders turn positive, but it is a hollow advance.
Orders unexpectedly rose 0.8% versus the -1.1% expected and the 5.5% drop before that. Seems pretty good, but if you take out transportation, namely aircraft, and orders fell the 1.1% expected. Civilian aircraft rose 29.7%. Defense orders jumped 10.1%. Aircraft orders blow with the wind. Defense orders come and go and they are not what you want to rely on; we saw above what relying on the government gets you.
Digging deeper computers fell 1.4%. Business expenditures declined 1.4% as well. Business investment is key to the economy and it is dipping of late. Still, at -1.4% year over year it is still well above the 2001 recession levels. That suggests that if the credit freeze gets thawed out businesses would go back to buying again. Of course there is that $250B we spent that is not going to anything but bonuses. That is not the kind of lending and business expenditure we need to see.
What do we need to get businesses spending? Number one, credit. Number two, some incentives to go ahead and invest in equipment and people even with a declining economy. As seen in the early 1960's, the early 1980's, and the early 2000's, the way to do that is with tax incentives that grant credits and deductions if businesses spend money. The old 'use it or lose it' incentive to reduce your tax bill and at the same time get some equipment, software, etc. that you can really use in your business. That unleashes those dollars the businesses have when there is no real economic reason to do so.
Instead we are hearing of taxing capital and businesses instead of encouraging them and US citizens to invest in their businesses. Wow. I have written about a Great Depression II, but I didn't think we would overtly make the same mistakes made in the 1920's and 1930's. I guess they don't teach that in history anymore because it was so long ago so I suppose we have to make another depression so we can study it and understand what we cannot do for another 70 to 80 years before we screw up again.
THE MARKET
MARKET SENTIMENT
VIX: 69.96; +3
VXN: 69.13; +2.93
VXO: 72.41; +6.4
Put/Call Ratio (CBOE): 0.79; -0.22. Back below 1.0 for the first time in a couple of weeks as the market is starting to bounce.
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: +7.74 points (+0.47%) to close at 1657.21
Volume: 2.819B (-2.85%). Volume was down pre-Fed but it picked up as the market recovered and moved higher. Still above average and it would have been a decent upside session but for that very late dip on the GE factor.
Up Volume: 1.247B (-1.197B)
Down Volume: 1.499B (+1.137B)
A/D and Hi/Lo: Advancers led 1.44 to 1
Previous Session: Advancers led 2.21 to 1
New Highs: 1 (-5)
New Lows: 217 (-400)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Rallied up close to the 18 day EMA (1720) but then was caught in the very late selling to close just over the 10 day EMA. Volume remained strong and above average. Still looks as if NASDAQ is ready to continue the move as long as SP500 and DJ30 make the move. The 18 day EMA is important as is 1750 just to get the move off the ground.
NASDAQ 100 (+0.35%) rallied through the 18 day EMA but gave it up in the late selling. Trying to follow the large cap NYSE upside off this double bottom. It held its own Wednesday, but it has to move higher from here.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -10.42 points (-1.11%) to close at 930.09
NYSE Volume: 1.62B (-6.42%). Volume remained above average but it was lower than the Tuesday surge volume. Thus the turnover at the end of the session was not that damaging. Not great, but not that damaging from a stock accumulation versus distribution perspective.
Up Volume: 857.068M (-782.257M)
Down Volume: 757.242M (+668.285M)
A/D and Hi/Lo: Advancers led 2.72 to 1. Even with the large cap NSYE reversals thanks to GE plummeting, breadth remained positive as the small caps held their gains quite nicely.
Previous Session: Advancers led 3.77 to 1
New Highs: 6 (+2)
New Lows: 102 (-584)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Rallied nicely off the break of the 10 day EMA (926) Tuesday and cleared the 18 day EMA (962.25) in the afternoon. The late tripped the large caps, however, and they stumbled to close at the 10 day EMA. Fragile as the failure to hold the advance on such lame news indicates, but still in good position to continue the move higher to 1000 and if this bounce means anything, beyond. The 18 day EMA is very important, and regardless of the issue Wednesday, it did fail at that point. SP500 needs to run on through it.
The small cap SP600 (+2.11%) gave up more than half its gains on the close but still posted a strong move. It failed at the 10 day EMA, the first level of resistance, so SP600 is not in position to make any great run on its own. It will need to be dragged by the large caps. One advantage, however, is that there is no GE on the small cap index.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
As with SP500 the blue chips rallied easily through the 18 day EMA (9113) on the way to its high (9363). When the GE bomb dropped the Dow tumbled as its component GE tumbled. It held the 10 day EMA (8845) it took on Tuesday, closing below the 'hump' in the ostensible double bottom (9285). It is still in great position to continue the break higher, but it needs to get on with it from here.
Stats: -74.16 points (-0.82%) to close at 8990.96
VOLUME: 316M shares Wednesday versus 372M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The market set the bounce up well and even with the FOMC meeting it continued it well until that last story that revealed the market's thin skin. The drop back late in the session was disappointing, but it was not fatal. The indices are still below the 18 day EMA, the next level they have to break to make this bounce more than just another bounce in a downtrend. The patterns on DJ30 and SP500 suggest that is not the case along with the Tuesday surge, but they have to close the deal on that and rally right back through that level and continue the rebound in order to set up a better bottom for the market if that is its intention.
There are some very good stocks bouncing from some short but decent little bases or patterns. Maybe they are not the best bases to support a lasting break higher, but they can definitely support the current set up by SP500 and DJ30 off of the early October lows and help the market higher. If so we have a real bounce underway, the one we expected off of this first bottom.
Many of these leaders surged out of the gates. If more join them of course the bounce will be successful and the market stands a much better chance of putting in a bottom here. That of course appears obvious, but as discussed the past few weeks, that also means a test lower before the base is set and many are not looking for that.
We are going to continue looking for opportunity to play this upside. We have some positions on the indices and stocks such as AAPL that are moving well, and we are looking for more to ride the move higher. Would like to see energy give us an early pullback to pick up some positions there as well.
We are not looking for this to be the rally, just a very tradable rally off the potential first low in the market bottom. Thus we play the upside here but also expect it to stall after Dow gets near 10,000. Near that level we anticipate a test back toward the October low, and we will see if a generous helping of solid bases form, ready to lead the market on a new breakout. As is often the case in the market, knowing where you are in the lifecycle of any move is paramount. Right now the market is trying a bear market bounce off a plunge that has the earmarks of being the first part of a double bottom or similar bottoming pattern. If it turns out to be more, great. If not, we make some good money and are ready for the next phase as well.
Support and Resistance
NASDAQ: Closed at 1657.21
Resistance:
The 18 day EMA at 1720
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 1949
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:
The 10 day EMA is 1650
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 930.09
Resistance:
965 is the 2003 consolidation low
The 18 day EMA at 963
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 1080
1106 is the late September low
1133.50 is the mid-September 2008 low
The 90 day SMA at 1189
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
The 200 day SMA at 1283
1285 is the recent July peak
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 8990.96
Resistance:
The 18 day EMA at 9113
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 10,025
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 10,833
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 8845
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): +0.8% actual versus -1.1% expected, , -5.5% prior (revised from -4.5%)
10/25 Crude Inventories (10:35): 493K actual, 3.2M prior
FOMC Policy Statement (2:15): Fed Funds futures cut to 1.0% from 1.5%
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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