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world stock market, us stock market
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11/11/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: Took some interim gain on DIA
Buy alerts: BBY; IDXX; WCN
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Another rescue plan bounces stocks off early selling, but another stimulus/rescue ploy fails to convince investors.
- Feds join in the 'teaser rate' game played by the lenders they just recently condemned.
- How to never break the OPEC link: keep bailing out the same automakers.
- Standard Operating Procedure in the US: Reward those failing to take care of business.
- Still attempting to put in a bottom as the market grinds along in its trading range.
Stocks bounce off selling on another bailout. They then sell again after another bailout.
The bond market was closed for Veteran's Day so the entire session was suspect from the get go. The best thing that could happen was the indices would continue their low volume work inside the 5 week lateral range. That is what happened, so everything Tuesday basically fast forwards to Wednesday, but there were some very interesting aspects to the session though many had nothing specifically to do with the market action.
The morning news lacked good cheer. Earnings were poor as SBUX and Las Vegas Sands both missed impressively and gave equally impressive weak guidance. When people are scorning fancy coffee and gambling times are getting ugly. Analysts were active, downgrading any box that has a chip in it. That rippled across techs. AXP needed an emergency pass to bank holding company status in order to access the money in the TARP. FRE/FNM announced plans to lower the foreclosure rates on their loans though the real action in that respect came later in the session. Russian markets were down 10% as the ruble further emaciates. Ah, remember the good old days when the ONLY issue was the Russian ruble that set off a world financial panic? That was over quickly once everyone decided they didn't care about Russia's microscopic impact on the world economy. It is just a side note right now, unfortunately, as the US and other economies teeter on the brink of Great Depression 2.
It wasn't all bad. Oil was lower again, breaking below $60 on the close (58.83, -3.58) as the dollar surged (1.2527; closed at 1.2732 and was near 1.30 just a few days ago). Of course the collapse in the free and not so free world is having an impact as well. Bought gas for $1.83/gallon the other day. It was nice to fill up with 25 gallons for less than $50, but with everyone in lock down mode as far as spending it was bittersweet.
Stocks were down over 2% with SP500 breaking below 900ish support intraday and DJ30 60 points from interim support at 8500ish. Then the mortgage bailout plan hit the wires and stocks jumped on the sweetheart deal whereby nonperforming mortgages would get a low teaser rate or even better if their monthly payment would still exceed 38% of monthly income. Stocks bounced back to flat on the session, a very nice move. As with the China plan on Monday and the other stimulus/bailout plan announcements before, there was no staying power. The surge ran out of gas when it was decided the plan was just another smoke and mirrors game and investors wondered just how many people and companies would get a federal bailout. Stocks faded to new session lows. A late bounce helped mitigate some losses but the indices finished 2% lower across the board.
TECHNIAL. Intraday the action was low to high . . . and then a flop back to session lows. Same old action in this consolidation, i.e. the intraday moves following the sentiment that day whether up or down. Before too long the market needs to show improved intraday action regardless of the session's outcome. In other words you want to see an upside bias where the market drifts to the upside in the absence of any real catalyst to push it up. That shows a changing character that is in line with a bottom setting up for a break higher. Not there yet; again, it needs to start showing that kind of action over the next week to two weeks.
INTERNALS. Much more aggressive than the prior sessions with breadth advancing sharply to the downside (-4.3:1 NYSE, -3:1 NASDAQ). New lows climbed, but at 350ish they are no big deal. Volume was up on the downside, the second time in four sessions. That shows some stock dumping yet again. As noted over the past week, however, the volume itself, while up, was very low. It is also up in a context of very low volume across the market. Thus the market is still building a base and this rising trade on the downside is must a modest negative.
CHARTS. SP500 sold below the early October closing low at 899, but it recovered to close right at that interim support level. DJ30 did the same thing, selling down near interim support at 8500, just 60 points off, and it rebounded as well. They are testing interim support and they are holding. With the overall light trade that shows no real selling, just consolidation action. You have to like that if you are looking for some upside to come out of this. NASDAQ looks heavy, closing below all but the late October 2008 lows and doing so on some rising volume. It has the look that it wants to test that prior low but we doubt it will get there in a straight line. We could easily see it and the other indices bounce up and then down again over a week or more before getting there. In other words, more of the frustrating, grinding action that wears out investors but . . . tends to generate bottoms.
LEADERSHIP. Some sagging in leadership as well, but with the market heading toward a test of the lows and the leadership is testing as well. Regional banks are mixed but the good ones are holding their patterns. Energy remains mixed but the good ones are doing the same. It is the same story in some small techs, some small healthcare. Stocks are overall struggling but there were not a lot of breakdowns from these sectors trying to lead.
THE ECONOMY
Feds Mortgage Fix is a Continuation of the 'Teaser Rate' game.
Before TARP (a.k.a. Total Abdication of Republic Principles; unlike Senator Dodd and President-elect Obama say, we are a republic, not a democracy) I wrote about a possible save for the mortgage market involving giving everyone with a mortgage a 3% mortgage. There were no favorites, no chosen winners, but everyone. FNM and FRE would have to underwrite the loans as their penance for horrid management and business actions. Those with nonperforming loans due to high interest rates that followed teaser rates or balloon rates would suddenly become workable at the lower interest rate. If they still couldn't make the payments at these lower rates they would go into foreclosure. That is life. The benefit is it would stabilize the market almost immediately and give value to the mortgage backed securities that were instruments without a value because of all of these nonperforming loans. Home prices would stabilize. The near term crisis would be averted without spending billions of taxpayer dollars on buyouts and loans to banks to pay bonuses and support crappy balance sheets. It was not a great plan as it involved government intervention, but intervention was going to happen; it just needed to be in better form than the czar-like TARP. After all, the government through the Fed and promoting these bad loans caused the large part of the problem. It had to come up with a fix; a GOOD fix. This plan was palatable to all groups it was tested on because everyone would benefit; there were no 'chosen' winners while others that paid for it were left out in the cold. It was sent to all House Reps and Senators.
Tuesday the government's plan was announced. It was close in some respects, but very far in most. The plan has the 3% mortgage rate, but the plan only applies to mortgages in arrears 90 or more days. The rate has a balloon feature after 4 years. Rates can be adjusted further in order to make the mortgage more affordable by getting the payment down to 38% or less of monthly income. As with all of the other proposed bailouts, e.g. the automaker bailout, the plan simply transfers the problem to a later date as the mortgagors take advantage of a teaser rate and then face the same firing squad four years down the road. In addition, it creates a class of winners and a class of losers, the losers being the ones who acted and are currently acting responsible.
More on the auto bailout: seems energy independence is not that important.
The auto bailout continues to ratchet up with the general idea is that we simply cannot afford to have so many workers put out of work. The underlying idea that we hear over and over is that it will simply be too hard on us if they automakers fail and these jobs are gone near term.
That is the entire problem with the way we approach our economy today. If things will require tough decisions and cutting federal spending and requiring citizens to be more responsible in order to get on track, those decisions are punted in favor of implementing programs to keep the status quo in place, passing it off to the future. We bailed them out in the 1970's. We are going to bail them all out now. There has been no change in the business models. Indeed, they are worse now in terms of legacy costs and the ability to compete.
More importantly, there has been virtually no change from the 1970's energy crisis to the current crisis with respect to new or alternative fuels or propulsion. These are the companies in the business and they have done virtually nothing to promote the obvious and painfully necessary step to another source of fuel and/or propulsion.
At the same time no one else has stepped up to challenge them. Why not? Because the Big 3 have the monopoly on government assistance. If trouble arises they petition the government and the government snaps to. No one else is willing to put capital into a competing company because they will not get any help and indeed will be actively thwarted by the powers that be.
So, these bailouts provide no incentive for the Big 3 to change their ways and pursue new technologies. Instead they milk their cash cows for all they are worth without significant new R&D. We are thus married to oil-propelled vehicles for the foreseeable future because there is no incentive or market requirement that they do otherwise as long as the government is there with the checkbook.
In addition, the bailouts put off desperately needed change to alternative propulsion as precious, finite funds are flushed down losing ventures versus going to solve the real problem of new propulsion systems. If we don't get away from these bailouts that reward mediocre behavior we will never break the chain and will remain on oil-based vehicles for another 20 to 30 years.
Once more Rewarding the Wrong People.
The announced mortgage plan and the automaker bailout to be accomplish what most federal initiatives since the 1960's accomplish: they reward irresponsible behavior.
A major root of the current world economic dive are nonperforming mortgages. Maybe buyers bought too much house, maybe they were taken advantage of, maybe it was both. Some, as we heard during the election, are BANKING on the new administration bailing them out.
The automakers cannot compete after years of knowing they were losing market share and that their business models had to change. They attempted some changes over the past few years but they were too few and too late in coming in part because of poor management decisions that led to impossibly high legacy costs related to healthcare and retirement. Indeed, in a recent analysis of costs based upon all benefits received, the Big 3 pay their workers $73.20/hour. Toyota pays $48.00. Goods producing manufacturing employees get $31.59/hour. The average of all workers is $28.48/hour. Huge, huge discrepancy for companies that cannot make ends meet and want our money to pay their way out of their problems . . . but only for the moment.
Yet, we are supposed to reward their bad decisions and business practices because it will be too hard for us near term not to. What about the hardship when oil spikes higher again and the entire country suffers with energy costs eating away our productivity and futures?
In the 1980's and early 1990's there was no bailout of the domestic US oil industry even though it suffered a massive collapse following the implantation of the 'windfall profits tax' and subsequent collapse of the energy market as Saudi Arabia tried to corner the market, driving oil to $9/bbl. The domestic industry was gutted with hundreds of thousands of workers losing their jobs and businesses. There was massive restructuring and revamping in order to simply survive. They did make the changes they had to make. They invested in new technology such as horizontal drilling, deep sea drilling, and 3-D seismic, all massively expensive undertakings. As a result they found economically viable oil where it did not exist before. As a result they made a lot of money. They became so lean and so efficient that profits soared to record levels. Once gain they are the fodder for possible 'windfall profits' taxes. A success story WITHOUT government help, and indeed government scorn, because the industry and surviving companies assessed the future and adjusted accordingly.
Again we ask, why not lead the world with new technological advances that can come from encouraging US entrepreneurship and ingenuity as we reward new companies or even existing companies developing new, non-oil based propulsion. Why not have the rest of the world come to us for this technology and build up our trade surplus for awhile? Why not have the kind of new jobs that raise our standard of living such as China, India, Brazil and others gained over the past 10 years as they left the US and we replaced them with basically nothing? Why not keep our dollars here to build up our schools, infrastructure and economic strength versus sending them to countries that really don't like us in exchange for their oil? We have retooled and advanced before using good old capitalism risk and reward as the catalyst for our advances. Why do we abandon what has worked for us for over 200 years when our need is greatest? Bailouts or workouts using the best and brightest minds? We all know the answer to that.
THE MARKET
MARKET SENTIMENT
VIX: 61.44; +1.46
VXN: 60.83; +2.39
VXO: 62.09; +1.49
Put/Call Ratio (CBOE): 1.16; +0.05. Second day back over 1.0 on the close. This indicates high anxiety with respect to further downside. The more that expect one direction in the market, the less likely it moves in that direction.
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: 30.2. Up from the 5 year low of 21.3% hit last week. Nothing like a rally off the prior lows to build up the confidence. Still below the 35% considered bullish for the market. It was at this level in early October just as the market started to dive lower. This move down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 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: 48.3%. Down significantly from the 52.7% last week that was off the prior week's 5 year high at 54.4%. 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: -35.84 points (-2.22%) to close at 1580.9
Volume: 1.937B (+13.57%)
Up Volume: 231.292M (-157.782M)
Down Volume: 1.683B (+368.994M)
A/D and Hi/Lo: Decliners led 2.98 to 1
Previous Session: Decliners led 2.32 to 1
New Highs: 2 (-5)
New Lows: 343 (+133)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower again, traded up and down, then closed near the middle of the range. Volume was up but still well below average. This pushed NASDAQ below the early October closing lows unlike the large cap NYSE indices. It also skews the attempt at a short reverse head and shoulders pattern. Lower high and falling out of the recent attempt to move laterally the prior three sessions. Looks as if NASDAQ can easily test the prior low at 1493 at some point over the next week or two. Low volume remains a positive, but it is all going to have to come together.
NASDAQ 100 (-2.03%) showed the same action, gapping lower but they also held on the intraday low near 1200 where they tapped and bounced twice early and mid-October. That 1200 level will be key to watch as this move continues.
SOX (-1.42%) was a relative strength leader Tuesday and its pattern is very interesting. It has shown little compulsion to bottom with the rest of the market, instead selling in a steady downtrend. It bounced from late October to early November and stalled at the 18 day EMA, heading lower again. Same song, new verse. It tested the October closing low Tuesday and showed a nice tight doji. It is trying to set up a double bottom. Worth watching as the other indices continue their lateral trading ranges. If SOX holds and starts to bounce here that is a sign the change is taking place.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -20.26 points (-2.2%) to close at 898.95
NYSE Volume: 1.227B (+7.44%)
Up Volume: 175.624M (-168.329M)
Down Volume: 1.046B (+257.403M)
A/D and Hi/Lo: Decliners led 4.29 to 1
Previous Session: Decliners led 1.98 to 1
New Highs: 9 (+4)
New Lows: 348 (+157)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Not bad action with a test down to 885 and then a rebound to close right at the early October closing low (899). Low volume again. SP500 is holding this key interim support level and that keeps it in good position to attempt a hold here and start a new upside move. In any event SP500 continues a solid consolidation the past five weeks, holding the key lows and working on a foundation for a new break higher.
SP600 (-2.14%) gapped lower and closed down for the fourth time in five sessions. Similar action to NASDAQ as the small caps sag toward the prior lows with a closing low that moves past the early October lows. Has work to do and looks as if it is going to test toward the prior low at 237 (closed at 256).
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Tapped toward interim support at 8500ish (8451 is the early October closing low) and rebounded nicely. DJ30 is easily holding above the early October lows, closing and intraday, and the mid-October lows as well. Of all the indices, the Dow again is the most resilient of the group, in better shape to hold at the interim support versus testing to the late October low (8143) during this consolidation.
Stats: -176.58 points (-1.99%) to close at 8693.96
VOLUME: 257M shares Tuesday versus 221M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNSDAY
Oil inventories are due out sometime this week though the Veteran's Day holiday may delay them until Thursday; the government has not been too clear on this. In any event, oil is in a steady downtrend and is heading toward $50/bbl before it heads higher. That doesn't hurt stocks, it is just not helping right now with all of the other issues confronting US companies.
NASDAQ and the other growth indices are struggling, sagging lower toward the last October lows. SP500 is making an effort to hold intermediate support. DJ30 is doing the best job of holding up on this test. All of them are working through a 5 week consolidation attempt, testing the prior lows and trying to set a bottom they can rally from. In short, while the strength of the various indices is, well, varied, all are still moving laterally in the range, trying to form a good base.
As noted Monday, this action can be tedious. What am I saying? It IS tedious. There are two kinds of bases, the scare them out and the wear them out. The dive to the early October low that saw VIX explode higher was definitely in the 'scare them out' genre. This past three weeks has turned into the 'wear them out' variety.
It might get to the 'scare them out' one more time. In 2002 the first leg down was scary. The fight back up was decent, but the fall back down was a combination of scary and exasperation. The market would not hold up and was falling back to the prior lows. SP500 held its prior low but NASDAQ and DJ30 undercut the prior lows. Things got scary. The floor traders and others were saying the old indicators just didn't work anymore. Bottom time.
This time DJ30 is holding up better while SP500 and more so NASDAQ have the look of falling lower. There is room to fall and indeed things could get scary once more before it is over. At the same time you have to like the low volume lateral move as it is good basing action. Whether this turns out to be a scare or wear them out move we need to keep the bigger picture in mind, i.e. if the indices are holding prior support, if some are holding and others are not, and what the leadership looks like. Leadership is trying to set up more but it still has more work to do to get to the point in October 2002. There are similar patterns for sure that can lead the way higher. We just want to see them hold the line during whatever route this consolidation takes. If they do then we remain calm and step in when they make the break higher. If they don't we remain calm and play the downside again. For now the action continues its positive build despite enough bad news to choke a pig.
Support and Resistance
NASDAQ: Closed at 1580.90
Resistance:
1620 from the early 2001 low
1644 from August 2003
The 10 day EMA is 1648
The 18 day EMA at 1682
1752 from 2004
1782 from August 2004
The 50 day EMA at 1864
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
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:
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 898.95
Resistance:
899 is the early October closing low
The 10 day EMA at 932
The 18 day EMA at 947
965 is the 2003 consolidation low
995 from June 2003 consolidation peak
The 50 day EMA at 1039
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 1155
1200 is the July 2008 intraday low
1244 is an August 2005 peak
1250 is the 2002/2003 up trendline
1257 is the March low
The 200 day SMA at 1265
1270 is the January low
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
848 is the October 2008 closing 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 8,693.96
Resistance:
8985 is the closing low in the mid-2003 consolidation
The 10 day EMA at 8954
The 18 day EMA at 9057
9200 is the July peak in the 2003 consolidation
9323 From June 2003 peak
9575 from September 2003, May 2001
The 50 day EMA at 9735
9814 from August 2004
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 10,599
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:
8626 from December 2002
8521 is an interim high in March 2003 after the March 2003 low
8451 is the early October closing low. Key level to watch.
8197 was the second October 2008 low
8175 is the October 2008 closing low. Key level to watch.
7882 is the early October 2008 low. Key level to watch.
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 12 - Wednesday
Oil inventories (10:30): 54K prior
November 13 - Thursday
Initial jobless claims (8:30): 479K expected, 481K prior
Trade balance, September (8:30): -$55.8B expected, -$59.1B prior
November 14 - Friday
Export prices, October (8:30)
Import prices, October (8:30)
Retail sales, October (8:30): -2.1% expected, -1.2% prior
Retail ex-auto (8:30): -1.2% expected, -0.6% prior
Business inventories, September (10:00): -0.1% expected, 0.3% prior
Michigan sentiment, November preliminary (10:00): 57.0 expected, 57.6 prior
End part 1 of 3
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world stock market
us stock market
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