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money investment, financial investment
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11/12/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: Nice 1-day turn on BBY downside. Took some interim gain on SPY, EEM.
Buy alerts: ADM
Trailing stops: None issued
Stop alerts issued: DAL
SUMMARY:
- BBY, Paulson headline a sharp slide lower.
- Paulson scuttles RTC-like asset purchases, focusing on consumer credit.
- Gloom continues to rise as market continues to slide.
- Getting to the lick log as indices move toward prior lows on high anxiety.
- Intel likely to send the indices toward the prior lows on Thursday, ratcheting up the worry along the way.
The only news is bad news.
Wednesday Best Buy, a short we entered Tuesday, took the point early on as its CEO talked of a "seismic slowdown" in spending during the month, reporting comparable sales at -7.6% versus the -1.3% expected. That caused quite a rumble in the market as futures again headed lower. Russia was in the news again with its debt risk jumping as the ruble's trading range widens. American Express, after getting its emergency approval to bank holding company status, asked for $3.5B from the TARP. Pelosi is still talking auto bailouts stating the big makers were too big to fail. Others called for mandatory health care, i.e. requiring people to buy healthcare . . . once costs were under control. Of course how to get costs manageable was not discussed; that is the first step and you cringe to think how it will be done given all of the federal action the past month.
All of the news set the stage for a lower open and stocks did not surprise anyone in that respect. Stocks sold off and things got worse when Treasury Secretary Paulson updated us all on the TARP status. He is scrapping the RTC-like buy of bad or distressed assets, instead focusing on providing funds to consumer oriented businesses that provide credit. At the same time he said TARP did not cover the auto industry bailout. Doesn't make a lot of sense and the market sold off harder on the news. The selling continued all session long on into the close with some serious point losses (5%) as the indices moved much closer to testing the 2008 lows. Indeed, NASDAQ is basically there.
TECHNICAL. Low to lower intraday. No change in the intraday action that has mirrored the direction of the market each day, up or down. No question today as to the bias, i.e. there was no hint of any upward drift or bias. More like a rockslide down the hill.
INTERNALS. As the point drops ramp up so are the internal negatives. Breadth was impressively bad and not just intraday but on the close. NYSE stocks fell at a 10:1 pace. NASDAQ stocks were no pillars of strength with 6 falling for every 1 rising. Volume was up again, and it is getting in the range of average. It is not near average, but it is getting in the range. This shows more panic dumping of stocks as the indices approach the prior lows. If things were dire volume would surge. It is understandably rising but it is not jumping. New lows doubled to the 500 range. In normal times that would be noteworthy. After the early October selling saw new lows blow well past 1000, however, those are low numbers. You want to see the numbers hold below the prior levels as the former lows are hit or surpassed as that shows the selling is not as intense. Thus far the internals are uniformly less intense now than they were on the earlier selling.
CHARTS. SP500 gave up interim support at 900ish without a fight and is now just 13 points from the low. NASDAQ is even closer with 6 points separating it and the 2008 low. SP600 its small cap contingency are beating a hasty retreat as well. DJ30 gave up its interim support at 8451, but it is 400 points on the nose above the 2008 low hit intraday in early October. It actually has some room to play with. A full test of the lows is on, but the indices are also down 5 out of 6 of the prior sessions. That leaves them oversold and primed to bounce after another sharply downside move clears out the pipes. The after hours Intel report that business was lousy this quarter sent stocks on that dive in after hours trading. Recall, in 2002 NASDAQ and DJ30 undercut the July low in October while SP500 held right at the level. From there the market found bottom and surged. Right now NASDAQ and SP500 are set to undercut the prior lows while DJ30 is in position to hold the lows as it has lagged on the move. Same story, different faces. There are many reasons to believe this is a good time to try a bottom as chronicled the past couple of weeks, but as always they will have to prove it.
LEADERSHIP. There was not great action in the leaders, but with 5% losses and 10:1 decliners it is hard to put out some great action. Most of the recent more solid stocks were down. Energy and steel are good examples, selling back from their recent lateral move but still in their overall lateral 5 week ranges. They are getting to the point where they are considered dicey, but so are the indices. That is the way it is at bottoms. They are testing back as the market sells, and how they hold up through the test shows their mettle. If this market is going to bottom these stocks such as regional banks and smaller financials (e.g. SF) have to hold the line.
THE ECONOMY
TARP: Take and Redistribute Property.
The Troubled Asset Repurchase Program is in trouble itself. The trouble is in the backroom decisions and the shifting focus. Transparency for the TARP means letting us know the decision and what will happen, e.g. how banks are told in a backroom they are going to give up equity to the feds yet there is no accountability as to use of the money.
In any event Paulson announced Wednesday that he decided buying troubled assets was not the solution. Instead the funds would be used to facilitate consumer credit with aid to credit companies such as credit cards, and apparently other consumer oriented businesses that rely on consumer credit. He said TARP was not set up for bailing out the auto industry, but if any company with a finance arm is eligible as appears to be the case, that would seem to include the automakers with their financing branches. Not complaining Paulson said it did not apply. It is just that the details are somewhat fuzzy.
What we are seeing is that the TARP is a big slush fund for Treasury to use as it sees fit. Not that changing course to focus on what works is a bad thing. If your offensive game plan isn't working in football and you are running out of time you need to try something else. The problem is we have a huge tax and reallocation of our money made by one man.
Paulson likely has the country's best intentions in mind, but the US just does not work this way. We are a republic that elects our officials to act on our behalf. Paulson was not elected by anyone. He is an appointee. He is acting, however, without any constraints from anyone that we can see. Congress seems befuddled as to who has control here. Barney Frank said Wednesday that TARP should be used to buy up mortgages and restructure them to more favorable terms. That is John McCain's proposal in the recent election. That is similar to the plan trotted out Tuesday.
All of these plans are just more of the same however: taking from those who are working and productive and paying our 50+% in income and federal excise taxes (we don't even have the majority stake in our own paychecks anymore) and giving it to those who are not doing as well. Some of this may be for legitimate reasons, but some of these companies and people just made bad decisions that others did not. Does that mean we have our income taken and given to them and then be threatened to have more of our paychecks taken because more and more need help?
I don't know many that are not under pressure in this economy. Most are not looking for a bailout, just to get some breathing room to keep business going. They would love to get their tax rates lowered and see GOVERNMENT tighten its belt. See Congress' pay cut, see the lavish parties and balls cancelled, see the junkets around the globe cancelled, see agencies reduce their staff and payrolls, close some of the office buildings where duplicate or triplicate functions are performed, sunset programs so they have to be voted on to continue them. Washington NEVER cuts back. It just squeezes us more and demands that we cut back. This is not what our Founding Fathers anticipated. As Jefferson said, a little rebellion now and then is a good thing. If things continue the way they are going, there is going to be some tax rebellion from those that are paying the freight for all of this nonsense.
THE MARKET
MARKET SENTIMENT
There is a saying going around that was taken from an old 'M*A*S*H' television episode. Major Frank Burns is shown to be wrong again and he turns to Major Houlihan and says 'Margaret, I was wrong.' Colonel Blake overhears and replies 'Of course you were wrong Frank, that is what is so right about you.'
Right now everyone is negative all of the time, and that is what is so positive about this current market. Sounds screwy, but that is the way sentiment works. When everyone is negative about the market then it is pretty much sold out. High put/call action, high bearish sentiment, surging VIX are all signs of sentiment at extreme levels. The latter two are at extremely high levels.
When the bell rings at the NYSE there is typically a reaction. Even if the day was in the toilet there is usually some relief clapping and even cheering that the session is in the books. If it is really bad there are groans, groans of relief, or even some modest booing.
Wednesday when the bell rang at the NYSE there was nothing. The bell clanged, the gavel banged, and traders just finished up their last trades in silence. Never heard anything like that before except after major disasters, and even then it is rare.
To us this is simply another indication that the market is getting ripe. The professionals are exasperated. These are boisterous people. You have to be to make it on the floor of any exchange. When they are subdued to the point they just want to close the books and get out of the building that is significant. If the market screams lower Thursday as it looks it will do thanks to the INTC update after the close we could see them start screaming again, and it could very well be the same as 2002 when we heard comments that the old indicators just don't work anymore. That is another way of saying 'things are different this time,' and when you hear that you cozy up to the idea the bottom is at hand. Just need some good stocks to take the lead.
VIX: 66.46; +5.02
VXN: 64.64; +3.81
VXO: 70.22; +8.13
Put/Call Ratio (CBOE): 1.16; 0. Third session over 1.0 on the close. There was there weeks of closes over 1.0 back in October and that is enough to set the stage for a bounce, at least with respect to this indicator.
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: -81.69 points (-5.17%) to close at 1499.21
Volume: 2.205B (+13.82%). Highest volume in a week, but with two weeks below average that does not mean much.
Up Volume: 99.045M (-132.247M)
Down Volume: 2.045B (+361.803M)
A/D and Hi/Lo: Decliners led 6.26 to 1. That is pretty extreme.
Previous Session: Decliners led 2.98 to 1
New Highs: 4 (+2)
New Lows: 568 (+225). This would be high in normal times. It is a piker here.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower and closed at the lows just 6 points off the 2008 low. It is at the test. Will it hold? Probably not. Will it matter? Maybe not. It undercut in 2002 and the market still bottomed.
SOX (-5.03%) hit a new low for 2008. It is set up for a double bottom if the rest of the market is ready. Problem is, it is going to scream lower Thursday morning after INTC's horrid after hours prognosis of business. The question we have is whether this is the final bit of band news that flushes the pipes.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -46.65 points (-5.19%) to close at 852.3
NYSE Volume: 1.455B (+18.62%). Volume was up but was also below average for the tenth session.
Up Volume: 53.15M (-122.474M)
Down Volume: 1.398B (+352.02M)
A/D and Hi/Lo: Decliners led 10.06 to 1. This is where NYSE breadth closed the day the market bottomed in 2002.
Previous Session: Decliners led 4.29 to 1
New Highs: 9 (0)
New Lows: 542 (+194). As with NASDAQ, this normally high reading is not that high.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 gave up the interim support without a fight, gapping below the October closing low and closing at the session low. That left it less than 13 points off the intraday low at 839.80. As with NASDAQ the test is here. Will it hold? Likely not. SP500 is the index that held in October 2002, but that doesn't mean it has to hold here for the market to bottom.
SP600 (-5.74%) dove lower as well and is 6 points of its October low. It too can double bottom here. It can also collapse like Elliot Spitzer's political career. Simply put, it is in position to bottom and it either will or it won't based on what the other indices do.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
The Dow was down as well and on rising volume that came close to average. DJ30 is still above the 2008 closing low (8175) and the intraday low (7882). At the rate of decline Wednesday that is just a session away. With INTC in the Dow it will be under pressure and will threaten that level. We are looking for the Dow to sell Thursday, but we are also looking at it to be the large cap index that holds the prior levels while SP500 and NASDAQ undercut them.
Stats: -411.3 points (-4.73%) to close at 8282.66
VOLUME: 314M shares Wednesday versus 257M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The market is going to start lower Thursday barring something totally unexpected. Intel's after hours update that outlined an all around pathetic quarter underway sent it and all techs lower.
With the indices all at or rapidly approaching the 2008 lows the stage is set for a test of this prior low. It is repetitious, but sentiment hit very extreme levels, internals hit very extreme levels, VIX hit very extreme levels, and 5 weeks have passed since DJ30 hit the intraday low it has not violated. That is about half the time that passed between the July and October low in 2002, so things are still somewhat problematical. The key will be whether it reverses along with the other indices and leaders such as regional banks, steel, some energy, biotech take the lead and rally hard.
The financial stations keep asking when will confidence return as if that is when the market turns. Confidence does not return until shortly before the market tops. Before that there is always a wall of worry and when the market turns that wall of worry is more like a 2000 foot cliff at night in a violent storm with a 60 mph gale blowing frozen ice pellets in your face. Despair sets in and you give up.
The Wednesday quiet close oozed a sense of resignation that the selling was unending. Just another day at the office when the market was down 5% with no end in sight. The INTC news on top of that is just the kicker that could sweep away the last hope. When all hope is gone the market is satisfied. We have rarely seen such a terrible economic outlook and such extreme sentiment. The only issue we have is how quickly this has occurred; the prior bear market officially started in March 2000 and ended October 2002, more than twice this episode. Given the grand nature of the economic issues that hardly seems long enough.
Thus we might only get another upside rally trade off of the Thursday plunge lower. The market is definitely oversold and ready to bounce whether for the official bottom or just an interim run higher. Therefore, as the market sells off Thursday we will look to take the rest of our downside gains off the table. We will also look to turn right around and play some upside on the indices. In addition we will look at those stocks that held their ranges the past five weeks or did even better than just holding ranges as solid investments to play longer term trends. After that we will let the move itself tell us its probable longevity in terms of volume and leadership. If it turns out to be THE bottom, great. If not we will play the downside again and just take whatever it gives.
Support and Resistance
NASDAQ: Closed at 1499.21
Resistance:
1521 is the late 2002 peak following the bounce off the bear market low
1542 is the early October 2008 low
1565 is the second low in October 2008
1620 from the early 2001 low
The 10 day EMA is 1621
1644 from August 2003
The 18 day EMA at 1663
1752 from 2004
1782 from August 2004
The 50 day EMA at 1850
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:
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 852.30
Resistance:
866 is the second October 2008 low
889 is an interim 2002 peak
899 is the early October closing low
The 10 day EMA at 917
The 18 day EMA at 937
965 is the 2003 consolidation low
995 from June 2003 consolidation peak
The 50 day EMA at 1031
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 1150
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 1262
1270 is the January low
1285 is the recent July peak
Support:
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 8,282.66
Resistance:
8451 is the early October closing low. Key level to watch that gave up Wednesday
8521 is an interim high in March 2003 after the March 2003 low
8626 from December 2002
The 10 day EMA at 8832
The 18 day EMA at 8976
8985 is the closing low in the mid-2003 consolidation
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 9679
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 10,564
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:
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 13 - Thursday
Initial jobless claims (8:30): 479K expected, 481K prior
Trade balance, September (8:30): -$57.08B expected, -$59.1B prior
Oil inventories (10:30): 54K 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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money investment
financial investment
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