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us stock market, stock prices
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11/05/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CHK; TFSL
Trailing stops: NUE
Stop alerts: ANR
SUMMARY:
- Certainty in the election (almost), certainly downside in the market as well.
- ADP payroll drop sets the stage for a weak Friday jobs report.
- ISM Services below 50, a bit weaker than expected, still showing some life, but still no economic upturn.
- Stocks need to find some bids or get ready to close up the upside on this leg.
Market sells back some early, then cannot get back on track.
After the gains into the election the market was not ready to start the session upside and was a bit weak but not out of hand. A weaker than expected ADP jobs report (-157K versus -100K expected with the prior month written down to -26K from -8K). A half hour into the session the ISM service report was a bit weaker than anticipated at 44.4, down from 50.2. On the other hand it looks as if the Senate might still have a republican filibuster though there are races that will take 2 to 3 weeks to figure out before that is determined. LIBOR was lower again with the 3 month at 2.51% (down from 2.71%) and the TED spread fell to 2.15% from 2.22%. Some decent earnings from SEL, DVN, TWX, TWC, and AFAM didn't hurt, though results were mixed as usual with DUK, RIG and even PZZA missing. The dollar bounced back from the Tuesday lower close (1.2915 euros versus 1.306), and that helped push oil prices lower (65.25, -5.25).
On balance, the data did not incite investors to buy. Some early profit taking was normal, and stocks rebounded off the weaker open after a half hour. The recovery looked pretty good through midmorning, but then could not push higher. The bounce ran out of gas and stocks started a slide lower that lasted all session and then really picked up in the last hour. Volume was flat on NYSE and lower on NASDAQ, indicating no real selling, just a lack of bids as some profits were taken early and then no one stepped up to buy. Again, the volume indicates no sellers, but there were no buyers willing to step up after that softer open and the initial rebound attempt. That left the indices vulnerable as they test the recent bounce that showed improving leadership and improving bases.
TECHNICAL. The intraday action, as noted, was not great. The attempted rebound off the softer open was great. The fade into the afternoon was not, but the market moved laterally for about 2.5 hours, setting up a floor to try and hold. The indices were above the 10 day EMA. Then the last hour opened up the downside and stocks slipped hard, closing at session lows as the sellers entered right at the end of the day.
INTERNALS. Markedly negative breadth at -4:1 on NYSE as the large and small caps sold after the small caps helped lead the way higher. The small caps needed a breather, but this action was getting a bit out of hand. Volume was lower on NASDAQ and flat on NYSE, both at relatively low levels, indicating no heavy selling, just that lack of buyers noted above. That is a something of a positive offsetting the large price declines.
CHARTS. Selling after the upside gains heading into the election is not unusual. No problem with that but the size of the losses was too large for a single session. You want a pullback to occur over a few sessions, not a 5% dive in a day. Toward the end of the session the indices were fighting to hold the 10 day EMA, and were bouncing a bit to do just that before a last minute dip took them back just below those levels. The low volume is a positive and they held up decently all things considered. SP500 did stall out at the initial peak from the bounce off the October low and that is something we are watching closely. This is where the indices need to hold or risk heading lower again. They are going to be challenged to hold those levels given Cisco's outlook for the current quarter in its earnings report, News Corp's drop in earnings, and a Wells Fargo $10B stock offering to fund its Wachovia purchase. This is where they hold the move and continue higher or lead lower to test the prior lows. It is too quick to do that for a good base. Well maybe not too quick but some more upside would make a much better bottom to work from.
LEADERSHIP. Many of the upside leaders from Monday and Tuesday struggled Wednesday as large cap techs faded long with steel issues thanks to the MT production warning. Big financials were under pressure as well though the smaller financials such as regional banks held up well with modest drops. Energy tested, and despite lower oil prices, remains solid. Large cap tech was disappointing as it gave up its Tuesday gains and now will start underwater again with CSCO and its after hours warning of slowing global demand.
THE ECONOMY
October ISM Services fall back below 50.
The largest part of the economy fell to a contraction level at 44.4 after two months over 50 and hovering around the 50 breakeven point since early 2008. During early '08 it made a quick trip to this 45ish level and quickly recovered. For reference, this is the level hit in late 2001 during that recession.
So, the ISM is at recession lows. Again. As noted it hit that level to start the year and again now. Two hits in the same year versus a dip and recovery in the prior recession. That suggests this level is not necessarily the bottom just because it has hit those levels, particularly as there are no signs yet of a recovery other than the stock market trying to put in a bottom starting with the early October low.
Every sub-index was below 50 outside of export, imports and prices. Business activity hit 44 and new orders fell to 44 as well from 50+ levels. Inventories rose to 48 from 45.5; that is a bad sign as it shows slowing demand and inventories piling up. Exports slipped to 50 from 50.5. Imports rose to 52.0 from 47.5.
Prices paid plunged to 53.4 from 70.0. That does not show prices fell; they are still above 50 and that shows expansion. Prices are still moving higher, just at a slower rate of climb.
The data shows a continued weakening in the economy. It is not making a turn. With the credit crisis still a serious problem with banks not lending even as LIBOR falls and the world's central banks backstopping all loans, the issues run deep. The stock market is trying to put in a bottom here, but it is far from clear that is going to happen despite indications that reached extreme levels on the last selloff. It all turns on how this leg plays out.
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: -98.48 points (-5.53%) to close at 1681.64
Volume: 2.183B (-6.19%)
Up Volume: 215.893M (-1.696B)
Down Volume: 1.963B (+1.557B)
A/D and Hi/Lo: Decliners led 3.57 to 1. Pretty sharp jump in downside breadth.
Previous Session: Advancers led 1.79 to 1
New Highs: 6 (-9)
New Lows: 83 (+15)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ was down from the open and failed an early attempt to recover. The slide into the afternoon formed a nice lateral consolidation but then gave way to a last hour selloff that took NASDAQ below the 10 day EMA (1695). Volume remained below average and was lower than the Tuesday upside. That is a positive. The price move was too much. NASDAQ will have to put the brakes on the downside here and move back up without much more downside. There will be more downside on Thursday morning, however, given the CSCO outlook for the current quarter thanks to weak foreign demand. NASDAQ along with the other indices will show us how much starch is left in this bounce off the October low.
NASDAQ 100 (-5.69%) gapped lower as well and also closed below the 10 day EMA thanks to the last hour selloff. NASDAQ 100 formed an excellent double bottom with handle and broke higher Tuesday on rising though still below average volume. It is threatening to toss that break higher back in the scrap pile as it did in August after forming an even better looking 12 week cup with handle base. NASDAQ 100 needs to hold here.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -52.98 points (-5.27%) to close at 952.77
NYSE Volume: 1.309B (+0.05%). Volume was flat, still well below average as the large caps turned back and sold to the 10 day EMA. That lighter volume is good as long as things hold.
Up Volume: 75.386M (-1.069B)
Down Volume: 1.229B (+1.067B)
A/D and Hi/Lo: Decliners led 4.01 to 1. Stronger downside breadth as the small caps turned down hard from their market-leading run the last week of October.
Previous Session: Advancers led 3.8 to 1
New Highs: 3 (-3)
New Lows: 67 (0)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
After a solid surge off the 18 day EMA (965) Tuesday, SP500 gave all of that back and more. Volume remained low but the price loss was dramatic as SP500 fell back through the 18 day EMA and closed just below the 10 day EMA (954). Some might say we are quibbling with this but those levels are what stalls a stock or index in a continuing downtrend. They are turning higher, following the index up side given the double bottom and break higher in October. That makes this test critical over the next session to two sessions.
SP600 (-5.28%) posted the strongest rally off the October lows and Wednesday it was only surpassed in weakness by NASDAQ and NASDAQ 100. All growth indices mind you, and all led lower. SP600 is now just over the mid-October lows, and this, as with the other indices, is where it needs to find support and continue the move higher. Its pattern is still fine; it is forming a reverse head and shoulders, but as with all patterns, they show the conditions are getting right, but until they show the breakout and indeed sometimes a successful test of the breakout, they are just pretty pictures.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Big price drop in the Dow as well, though it was less than the other large cap indices. High praise indeed with its 5.05% loss. It held near the 10 day EMA (9147) on the low as volume edged higher though was still well below average. It can hold here and have a nice higher low and a good pullback, albeit a hefty one-day event. Still like the Dow and thus the ability of the other indices to hold and continue the bounce and improve this pattern. Will have to fend off the early weakness gratis CSCO and company.
Stats: -486.01 points (-5.05%) to close at 9139.27
VOLUME: 264M shares Wednesday versus 255M shares Tuesday. Stronger but still well below average trade.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The market has had a day to digest the election after rallying into the result. Volume was overall light again on Wednesday, showing the sellers were not jumping back in with any force, just that the upside bid that took the indices higher during the week of rallying disappeared as investors tried to figure out just what the lofty rhetoric means.
They won't have much time. After hours CSCO matched earnings expectations but had the classic Cisco worry about the current quarter given weakening foreign demand. News Corp more than halved its outlook. Large cap techs were already weak and the CSCO results pushed them lower after hours.
With the indices already down to levels they need to hold in the span of one session, once more stocks are at a point they need to find support in order to keep the rally off the October low alive. Looking at DJ30 that is doable despite the Wednesday losses.
Indeed all of the indices are still in position to continue the move after absorbing the extraordinary events of Tuesday and consolidating some of the gains. The issue is only whether they have the stuffing to do so right now or continue to roll over and sell on rising volume. We thought long and hard about closing down some positions in the last hour, but the selling was in crescendo, getting overdone in a late panic. That is typically a bad time to cut and run.
The CSCO results after hours are not helping but we will know quickly enough if the market is going to hold onto this bounce and strive to move higher. If not we close up positions and play some downside while the indices test lower once more. Then we see if a second bottom can form and ignite a strong upside run. The pattern really needs more time to develop and thus an upside recovery from here would be best, but just because that would be the best with regard to a sustainable pattern does not mean it will happen. It helps, however, that DJ30 and indeed the other indices are still in good enough patterns despite the sharp but low volume price drop to hold the line and recover. It also helps that there are still plenty of new leadership quality stocks in position to move higher, no worse for the wear after the Wednesday selling.
Support and Resistance
NASDAQ: Closed at 1681.64
Resistance:
The 10 day EMA is 1695
The 18 day EMA at 1721
1752 from 2004
1782 from August 2004
1882 from October 2003
1900 is the gap down point in October; from August 2004
The 50 day EMA at 1908
1912 from April 2005
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:
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 952.77
Resistance:
The 10 day EMA at 954
965 is the 2003 consolidation low
The 18 day EMA at 966
995 from June 2003 consolidation peak
The 50 day EMA at 1060
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
1133.50 is the mid-September 2008 low
The 90 day SMA at 1171
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 1274
1285 is the recent July peak
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 9139.27
Resistance:
The 10 day EMA at 9147
9200 is the July peak in the 2003 consolidation
The 18 day EMA at 9202
9323 From June 2003 peak
9575 from September 2003, May 2001
9814 from August 2004
The 50 day EMA at 9898
9937 from May 2004 low
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 10,709
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:
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): -157K actual versus -100K expected, -26K prior (revised from -8K)
ISM Services, October (10:00): 44.4 actual versus 47.0 expected, 50.2 prior
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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