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11/04/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: CELG; STLD
Buy alerts: AGU; CMC; DIG; POT
Trailing stops: FINL; ISYS
Stop alerts: None issued
SUMMARY:
- Modestly positive trends continue, market rallies on election.
- Watching election results, looking for more upside if we get the certainty.
Market gets comfortable with the election possibilities, continues the rally move with some nice gains.
Once more the market tallied up the positives and negatives on the day and made its decision. Earnings were solid with ADM in the food industry and MA in the finance posting excellent results and outlooks. LIBOR improved again though more modestly. The overnight level improved by 1 BP to 0.38%. The key 3 month fell to 2.71% from 2.86%. That moved the TED spread (3 month US Treasury less the 3 month LIBOR) fell 20 BP to 2.22%. Not its greatest drop but it continues the series of decent declines, showing more confidence in interbank lending. Australia added to the mix by cutting rates 75BP, more than anticipated, but that did not hurt the market's early upside bias.
Stocks started higher as the futures indicated, but almost immediately they started to sell back. A half hour into the session some pretty lousy September factory orders data high (-2.5% versus the -0.8% expected) seemed to be trouble, but the market actually bottomed on that news and started the best rally of the session, pushing the large cap indices to 3% and 4% gains. They hit a plateau until the afternoon, then sold off as the dollar fell sharply in the afternoon (1.3006; closed at 1.2645 Monday), driving oil (70, +6.09) and commodities (gold 764.40, +38.60) sharply higher. The indices never threatened to turn negative, but they did threaten to give back a good rally. A last hour surge, however, took them back up to the prior session highs hit in the morning. We took some gain off the table after some nice moves, took some modest gain on some that were not participating, and we picked up some as well as ag, energy, and metals showed strength.
Election certainty? Maybe though there is still plenty to be uncertain about given the status of the senate and whether it gets to a filibuster-proof level and thus does not face even a modest degree of the gridlock that markets tend to prefer. The last time there was a Presidency and Congress of the same party? Republicans under Bush and we saw a major expansion of the federal government with the Medicare part D. There is indeed a bit to be worried about in that respect. Typically, however, the market rallies following an election.
TECHNICAL. Intraday action was solid with a stronger open, a comeback from an early selling attempt, and another comeback from an afternoon selling attempt to close near session highs.
INTERNALS. Decent to good. NYSE breadth was nearly 4:1 without much small cap help. NASDAQ was so-so. Volume was up nicely, rising close to 30%, but given it was so low Monday, the 30% gain didn't even get trade back to average. Some accumulation, but nothing major.
CHARTS. Solid price moves as the large caps moved higher off the 18 day EMA, putting some distance on that key second resistance level. Would have liked more volume but with the pre-election action that was not happening, at least on a widespread scale. Very solid moves though the small caps did not really participate with a 1% gain. The indices are making the run higher we were looking for off of this 2008 low and while it is on lower volume we are not getting too picky about that because we don't think it will be the absolute bottom of this selling. We like to see some accumulation as it shows bases being built and money moving into stocks.
LEADERSHIP. Metals, energy, agriculture and most commodities rallied on the weaker dollar. Banks and financials enjoyed a solid day. Some very nice large cap tech moves added something additional to the market (e.g. AAPL, GOOG, ORCL). Basically, the sectors that were set up to move did so, and we got some good buys out of them. Some are sporting very good bases while many are in small rebound bases, i.e. consolidations that can propel them higher near term but that need more work overall. The bottom line is that the leadership overall still need some work and this bounce higher from these short bases is the ticket as to how they do it.
THE MARKET
MARKET SENTIMENT
VIX: 47.73; -5.95. It was not too long ago that we would have looked at a 47 VIX and said this was a significant move. After hitting 89.53 on the high, however, this is heading back toward some normalcy. Remember, VIX hits its high several weeks before the market finally bottoms. That is why we are looking for this rally to continue, peak out, and then deliver another downside leg that raises VIX again, but acts more as a last shakeout to try and set the final bottom.
VXN: 51.25; -4.97
VXO: 47.97; -6.25
Put/Call Ratio (CBOE): 1; +0.03
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: 21.3%. Fading from 22.2% as the market could not move up last week. Still decline but now in dribs and drabs (22.4% the week before). 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: 52.7%. Slipped from a high of 54.4% on this move, up from 52.9% before that 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: +53.79 points (+3.12%) to close at 1780.12
Volume: 2.327B (+28.55%). Volume jumped but after such low Monday levels it remained below average. Some accumulation but not clear and convincing.
Up Volume: 1.912B (+995.976M)
Down Volume: 405.415M (-463.63M)
A/D and Hi/Lo: Advancers led 1.79 to 1
Previous Session: Advancers led 1.26 to 1
New Highs: 15 (+1)
New Lows: 68 (+13)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ was led by the large cap techs and it gapped higher, tested to fill most of that gap, and then recovered to hold its gains. NASDAQ moved nicely off the 18 day EMA (1725), putting some distance on it. Importantly it is making a higher high over the last high in October, an important step in reaching higher toward the 50 day EMA (1917) and the October gap down point at 1947. That leaves plenty of upside for NASDAQ as it makes this bounce off the October lows.
NASDAQ 100 (3.27%) was right up there with the market leaders on the day with good moves from big names. As with NASDAQ it jumped off the 18 day EMA and the nice lateral handle it had formed. Very solid action though volume is overall a bit light.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +39.45 points (+4.08%) to close at 1005.75
NYSE Volume: 1.308B (+28.61%). Solid volume bump, but even further below average than NASDAQ so there was not a lot of accumulation you can feel comfortable with.
Up Volume: 1.144B (+650.716M)
Down Volume: 162.163M (-355.712M)
A/D and Hi/Lo: Advancers led 3.8 to 1. Excellent breadth despite a rather laggard performance by the small caps. Mid-caps turned in a 2.29% gain, so they were pitching in as well.
Previous Session: Advancers led 1.3 to 1
New Highs: 6 (-2)
New Lows: 67 (+2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Nice surge by the large caps off of the 18 day EMA (967) as the financials enjoyed one of their better moves in this rally with the large financials and smaller issues moving as well. Putting some distance on the 18 day as we wanted and moving toward the 50 day EMA at (1065) and on up to 1100 where there are lows from late September where it bounced.
The small cap SP600 (+1.04%) moved higher but showed a doji on the candlestick chart that tested toward the 18 day EMA on the low and recovered. SP600 exploded off the late October low with the strongest move of any index. A few days of rest and recreation, lagging the rest of the market, would be normal.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
As with SP500, a nice surge from the blue chips, moving off the 18 day EMA (9209) on some rising but still well below average volume. DJ30 is putting a good move on that 50 day EMA (9929) and the 10,000 level where we anticipate this move will encounter some initial resistance. As it moves toward those levels we will look at taking some more of our index plays off the table on this as well as the SP500.
Stats: +305.45 points (+3.28%) to close at 9625.28
VOLUME: 255M shares Tuesday versus 180M shares Monday. Up but not very strong.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
ADP employment tries to give a precursor to the national jobs report on Friday and ISM services is released at 10:00 and investors are wondering if we get a 30 handle on it as with the ISM manufacturing report (47.0 expected). There is also the election and whether there is an answer at this early hour remains to be seen. We are going to of course be watching and will see if there are any unexpected scenarios that are negative near term. The only one we can see is the Senate. Outside of that we expect a further gain by the indices post-election.
That means we are still going to look for solid stocks moving up out of improving bases, but also recognizing that the move is well underway with DJ30 less than 400 points from 10K after a 305 point gain Tuesday. Thus we don't want to get into the situation where we have new buys just as the market overall decides it needs a rest of that this bounce is over. Despite good patterns, 3 out of 4 stocks follow the overall market and its moves. Thus if they indices get extended and hit resistance, they could very well turn back down and take some good stocks with them for more basing time.
Thus we were taking some gain Tuesday even as the rally got back underway, and even as we took some new positions. They can ride well for us over the next few sessions and give us some gain so we were still active.
The market may rally right on up through 10K and beyond, never looking back. If it does we ride what we have higher and love it. We will get more opportunity to buy into that move when it tests. If it stalls, however, we want to keep our gains and see if the indices are going to give us another downside move. In our models, that is at least a 50% chance and frankly much higher than that.
Again, we therefore throttle back on new buys except for really tasty ones in good bases or that have some other reason to buy, i.e. they can fly higher in a couple of sessions and return us a nice gain. We have some great positions on great stocks, and we need to let them run now without getting overly eager to load up more and more. If the market comes back with just a modest test we can load up some more then. If it keeps going we load up on a test. We are making good money on this bounce, and with the probabilities pointing to another downside leg in the next several weeks, we want to keep making the money and be ready to play some downside when it shows up.
Support and Resistance
NASDAQ: Closed at 1780.12
Resistance:
1782 from August 2004
1882 from October 2003
1900 is the gap down point in October; from August 2004
1912 from April 2005
The 50 day EMA at 1917
1947 is the point where the market gapped down from in October 2008
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:
1752 from 2004
The 18 day EMA at 1725
The 10 day EMA is 1698
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
1493 is the October 2008 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 1005.75
Resistance:
1065 is the Q4 2003 level that SP500 started the run to 2007 after the first run in the recovery.
The 50 day EMA at 1065
1075 from August 2004.
1106 is the late September low
1133.50 is the mid-September 2008 low
The 90 day SMA at 1174
1200 is the July 2008 intraday low
1244 is an August 2005 peak
1248 is the 2002/2003 up trendline
1257 is the March low
1270 is the January low
The 200 day SMA at 1276
1285 is the recent July peak
Support:
995 from June 2003 consolidation peak
The 18 day EMA at 967
965 is the 2003 consolidation low
The 10 day EMA at 954
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 9625.28
Resistance:
9814 from August 2004
9937 from May 2004 low
The 50 day EMA at 9929
10,100 to 10,000
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
The 90 day SMA at 10,733
10,827 is the July 2008 intraday low
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:
9575 from September 2003, May 2001
9323 From June 2003 peak
The 18 day EMA at 9209
9200 is the July peak in the 2003 consolidation
The 10 day EMA at 9150
8985 is the closing low in the mid-2003 consolidation
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.
November 3 - Monday
September Construction Spending (10:00): -0.3% actual versus -0.8% expected , prior 0.3% (revised from 0.0%)
ISM Index, October (10:00): 38.9 actual versus 42.0 expected, prior 43.5
November 4 - Tuesday
October Auto Sales: 3.81M actual, 4.3M prior
Truck Sales, October: 4.1M actual, 5.3M prior
Factory Orders, September (10:00): -2.5% actual versus -0.8% expected, prior -4.3% (revised from -4.0%)
November 5 - Wednesday
October ADP Employment (8:15): expected -100K, prior -8K
ISM Services, October (10:00): expected 47.0, prior 50.2
Oil inventories (10:30): 493K prior
November 6 - Thursday
11/01 Initial Claims (8:30): 476K expected, 479K prior
Productivity Q3 Preliminary (8:30): expected 1.0%, prior 4.3%
November 7 - Friday
October Average Workweek (8:30): 33.6 expected, prior 33.6
Hourly Earnings, October (8:30): 0.2% expected, prior 0.2%
Nonfarm Payrolls, October (8:30): -200K expected, prior -159K
Unemployment Rate, October (8:30): 6.3% expected, prior 6.1%
Pending Home Sales, September (10:00): -3.4% expected, prior 7.4%
Wholesale Inventories, September (10:00): 0.3% expected, prior 0.8%
Consumer Credit, September (3:00): $0.0B expected, prior -$7.9B
End part 1 of 3
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