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trading system, money investment
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11/13/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: Took the rest of gain on DIA, EEM, BBY downside positions. Took some interim gain on APC as it rallied close to the 50 day EMA. Took some gain on the DIA upside position taken earlier in the session.
Buy alerts: DIA; FDO; LMNX; PCLN; SPN; WFT
Trailing stops: SPY. Took the rest of the downside gain off the table
Stop alerts issued: None
SUMMARY:
- It wasn't exactly to script at the start, but the indices sell, DJ30 holds the lows, and the market shoots back up.
- Germany enters an 'official' recession, joining the UK, New Zealand
- Steve Jobs to make an iCar?
- Still no believers but nothing wrong with that.
- Market shows strength in the face of bad news, gets a shakeout and reversal, and likely has more upside ahead of it.
No opening implosion but the market finds a way to make it work.
We were looking for the INTC news to keep the momentum sharply downside at the open. With the indices near the 2008 lows and the extremely negative sentiment and internal indications already logged a sharp selloff below the prior lows could cleanse the market and result in a significant reversal and bottom.
The news was certainly lousy enough. Intel said the fourth quarter was terrible and getting worse. AMAT chimed in. LIBOR failed to decline and actually bumped 2BP higher on the 3 month yield, the first rise in 23 sessions. Jobless claims shot to 516K, up 32K for the week. WMT lowered its sales forecast. Germany announced it is in an 'official' recession.
Even with the crappy news the futures were moving to positive toward the open and indeed the market did open higher. That could be okay if the market just rocketed higher. But there was no surge higher. The market just wandered around with modest gains. Once more it looked as if the market was at the brink of really giving us the plunge just at the right moment only to back away from the precipice. The action was very uncertain; you could feel it. The gains started to fade and the market started to sell off.
The selling continued into lunch, ramping up sharply just ahead of the afternoon session. SP500, NASDAQ, NASDAQ 100, SP600, SP400 and SOX all hit new 2008 lows. All but DJ30 the one index we were looking to hold the prior low. With roughly 80 points between it and the early October intraday low the Dow turned. When it did so without breaking its low the rest of the market came with it and in a big way. We had sold our remaining DIA, BBY, EEM, and SPY positions earlier in the session, and with the indices rebounding we moved into some DIA and SPY to the upside. We picked up some individual stocks that held their bases and trading ranges and were breaking higher.
DJ30 swung 880 points from low to close. NASDAQ 168 points. SP500 92 points. Moves 6.5% from the Wednesday close and much larger if you factor in the moves off the intraday lows. Massive turns on rising, above average volume. We were even able to bank some 35%ish gain on some of our DIA options taken earlier in the day. Things did not start just the way we pictured they would Wednesday night, but the action certainly fell in line as scripted after the market got that throw away higher open.
TECHNICAL. Intraday the action was modestly higher to sharply lower and then massively higher. After this move we see if an overall upside bias takes over the intraday action. That would be an additional indication of a shift in character.
INTERNALS. Not bad at all and indeed quite good. Breadth was massively negative Wednesday (-10:1 NYSE), as high as it was when the market bottomed in October 2008. Thursday breadth was not huge to the upside but at 2.9:1 on NYSE on a reversal that is not bad. Breadth tends to lag on reversal sessions. New lows rose as all indices but the Dow and its 30 stocks hit new lows for the year, but at roughly 700, that was far, far below the levels hit in early October on that dive lower. Volume jumped back above average for the first time this month, and it was the strongest volume in more than a month. The move definitely had the indicia of an important reversal.
LEADERSHIP. Many that held the line in the pullback the past week jumped higher in their ranges. Steel and energy tested back to their range lows on the selling and then reversed. Agriculture bounced the same. Small banks held the line and are bouncing. Not great, but bouncing. Discount retailers came to live out of their good patterns. Big tech made some important moves. AAPL tested its early October lows and reversed on high volume. INTC, the spreader of gloom, posted an outside day, i.e. it started lower and closed higher than it traded Wednesday. That is a bullish indication. Again, it looks as if all the bad news had been absorbed.
THE ECONOMY
Auto industry fix looks like a job for Jobs.
I was talking to Steve Jobs today about some saying he should be in charge of GM or the entire US auto industry to get things running properly so that we would have a viable industry. I took it further and said he could do what he did best, i.e. provide the vision for a non-oil based propulsion system that could do more than just power lightweight passenger vehicles but could also handle the industrial and commercial demands of the world economies. His vision combined with his ability to marshal the talents of workers and actually produce what he dreams makes him a great choice to make a mature, stagnant industry a technological leader once more.
He was intrigued but he said he enjoyed his job at Apple where he had developed the iPod and the iPhone and was working on related products. I asked him if he wanted to make music boxes and glorified telephones for the rest of his career or if he wanted to go and change the world. We both laughed as that is similar to what Steve asked John Scully when Scully was at Pepsi and Steve was recruiting him for apple (do you want to sell sugar water the rest of your life or do you want to go and change the world?). Steve stopped laughing, however, and I could tell the idea stirred something inside him.
That conversation is fiction, but that kind of thinking is exactly what the US auto industry needs versus billions of our tax dollars thrown down the same old familiar hole in an effort to maintain the status quo for another 10 years or so. The industry needs the kind of fundamental change the visionaries have but it also needs the kick in the pants to do it. It needs someone to come in and ask 'why not?', find a better answer, and then make that answer reality.
Detroit has failed to ask the right questions or has failed to find the right answers for decades. Now it is asking (more like demanding) us to fund that failure even further under the threat of massive job losses. We do have viable auto plants in the US; they just go under the name Toyota. Perhaps Toyota can fill the void and provide at least some jobs making the kind of cars GM and F make. At the same time a new era in vehicle propulsion and production is born by taking a new approach versus the failed approach in Detroit that our Washington leaders want to continue. Make no mistake about it, even with the demands placed on the industry if it gets a bailout, they will not foster change. Limiting bonuses, executive compensation, and mandating efficiency standards is not the answer. A complete new direction with new types of vehicles, engines, manufacturing techniques, and employee expectations is necessary. Without these changes Jobs or any other gifted leader would have more chance of turning an iPhone into an iCar than make a revolutionary new engine in the current system.
Germany joins the recession crowd.
Germany was one of the first indications Europe was in trouble back in the spring and summer. Not many wanted to believe it was happening but we reported in the spring that Europe was falling fast in a sign that the issues in the US were not just in the US.
Thursday the German economy posted its second quarterly decline, placing it in the textbook definition of recession. England was there before it, New Zealand as well. Kind of ironic. Everyone blames the US for the world's economic troubles but other economies are in recession before us.
Maybe it was because the Fed's dual mandate allowed it to attack the slowdown earlier whereas the ECB couldn't. In any event, it is no good poking fun or casting stones. After Q3 saw a negative GDP growth rate the fourth quarter will be even worse with the huge downturn in consumer and business activity.
THE MARKET
MARKET SENTIMENT
The market reversed and the Dow swung almost 900 points from low to close. Volume was excellent; not the biggest seen in the selling, but better than the average of those days the market was selling off and rebounding in early October. Some were calling it a light volume day. When the volume came in on the upside it was not light. We heard over and over that this was nothing to get excited about, just an oversold bounce. On the non-financial stations the anchors summarized the action as a bear market bounce.
Next to no one believes this reversal is the real thing. Never mind that sentiment indicators hit levels not seen in decades if ever. Never mind that internal readings were equally extreme. Never mind that that the indices did almost exactly what they did in October 2002, just rotating which index held the lows and which ones didn't. Even after the market surged off that October low when the pullback from January to March hit it was called a bear market bounce and that the bear was resuming. We saw it different, writing about the low volume on the down days, the solid stocks setting up good bases. We were ready to buy when they broke out, knowing that the action had been accumulation not distribution. The crowd caught on about half way up that rally.
Think about this. There are so many, the overwhelming majority, that think this is not a bottom. With the massive negative internals and sentiment readings hit during this selling, levels that historically indicate a market turn, denying this is a bottom is a way of saying things are different this time. In other words, if these combined indications always led to a market bottom, denying they indicate a market bottom this time is very similar to saying things are different. That is the phrase that usually is the icing on the cake. It isn't always said the same way. This looks to be just another way of vocalizing this belief.
Maybe this won't be the bottom. Maybe it is in fact just an oversold bounce. There could definitely be some better pattern formation than there is, particularly in growth stocks, but that can come over the next several weeks as well just as it did after the October 2002 bounce. There are enough non-believers, however, to keep the upside moving ahead for quite some time even if it is just an oversold bounce. That will make us money and indeed is already doing so with today's reversal.
VIX: 59.83; -6.63. Hit 69.99 on the high, no small level at all, but lower than the 89.53 hit in October. That is also in keeping with how this indicator works.
VXN: 58.03; -6.61
VXO: 60.6; -9.62
Put/Call Ratio (CBOE): 0.99; -0.17
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: 31.9%. On the rise again, up from 30.2 and the 5 year low of 21.3% hit to start November. 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: 46.1%. Down from 48.3% last week and well off the 5 year high at 54.4% hit the last week of October. 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: +97.49 points (+6.5%) to close at 1596.7
Volume: 3.076B (+39.51%). Strong volume on par with the selling levels in October.
Up Volume: 2.691B (+2.592B)
Down Volume: 337.469M (-1.708B)
A/D and Hi/Lo: Advancers led 2.39 to 1. Not as strong as the downside, but on a reversal session that is not bad breadth at all.
Previous Session: Decliners led 6.26 to 1
New Highs: 7 (+3)
New Lows: 720 (+152). As noted above, high but not nearly at the levels hit on the initial selling. That shows that less stocks were hitting new lows, indicating the market is sold out on this leg lower and primed to rally.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Rallied higher out of the gate then rolled over to a new 2008 low by a long shot, undercutting the prior low by 65 points. It was ugly. Then it surged back to the upside with reversals from key large cap techs such as AAPL and even INTC. Big reversal but still below the 10 and 18 day EMA (1617 and 1656, respectively). One step at a time, and taking those out will be the next step.
SOX (+7.15%) was almost the percentage leader. That is was eclipsed by the small caps and the mid-caps is just fine, however. It moved to a new low Wednesday. It made another new low Thursday. Then it turned back up and posted a strong gain, putting in that double bottom that we noted Wednesday. It didn't scream lower early as we wanted, but it did sell hard and then reversed, led by stocks, Intel.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +58.99 points (+6.92%) to close at 911.29
NYSE Volume: 1.991B (+36.83%). As with NASDAQ, not the biggest volume hit on this selling but easily matching the levels hit if you toss out the highest couple of sessions. Plenty strong enough.
Up Volume: 1.84B (+1.787B)
Down Volume: 144.017M (-1.254B)
A/D and Hi/Lo: Advancers led 2.88 to 1
Previous Session: Decliners led 10.06 to 1
New Highs: 9 (0)
New Lows: 685 (+143). Very nicely tucked in well below the highs hit in the early October selling. New lows were almost 3 times this level at that point.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
As expected SP500 hit a new low for the year along with NASDAQ. It reversed with a vengeance and on strong volume. The move took the large caps right up to the 10 day EMA (916) on the close. That is the next step to handle, but it looks like it has the kind of giddy up on this move to clear that and at least make it up to the 1000 mark it hit on the recovery bounce in mid-October and the early November peak.
SP600 (+7.86%) was the second place gainer Thursday. What a move. A clearly defined double bottom, an intraday undercut of that bottom, and then a surge back higher.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
We expected NASDAQ and SP500 to undercut their lows and they did. We anticipated DJ30 would hold its low and it did. It came within 80 points and then reversed on big volume any way you slice it. On the close it cracked just through the 10 day EMA. Certainly looks as if a bottom is in place for now that will take the Dow up to 9500 to 9600 and then we see what it can muster at that point.
Stats: +552.59 points (+6.67%) to close at 8835.25
VOLUME: 476M shares Thursday versus 314M shares Wednesday. Throwing out those two huge volume spikes, only three sessions topped the Thursday volume level (and not by much) during this entire selling episode since September.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Weeks of bad news faded to black Thursday night with the Intel warning that its quarter was not only going to miss but miss horribly. That followed a warning Thursday morning by Best Buy that sales suffered a 'seismic shift,' and it was not talking to the upside. There could be some really great deals on big screen televisions right before Christmas. The point, however, is that the market has taken on all the bad news it can absorb and it said 'what the f***' as in 'Risky Business' and rallied anyway. The news was PHD the past four weeks (piled higher and deeper), yet the indices based. It got seriously ugly with the BBY and INTC news and it reversed and rallied.
The indicators and the actual market moves indicate there is more upside ahead, at least up to the early November peaks on the indices. The indications are that the move should go further than that and we are inclined to err on the upside at this juncture. There are still good patterns to buy even after this move Thursday, and if this rally has legs more and more will set up. There will ultimately be a test that again casts doubt and fear just as things start to look good similar to early 2003 after the initial rally off the October market low. The market used that to build some great bases that really led the market higher when completed.
To the more immediate future, Friday offers retail sales, business inventories, and Michigan sentiment. Not likely to find a lot of help there as there is not turn in the economy. The economic data is still heading lower. The market will make the turn first. This may be the first move Thursday.
The news may mute the action Friday. After a huge move it is typical for the market to pause a bit, particularly given it is Friday and there is still a lot of worry and doubt about the market. There may be some testing back as a result, and that is not bad as well as we can look at some stocks that surged higher Thursday and get a bit better entry point.
Do you want to move in on Friday? If you worry about the move you don't. Well, that is not really true. Whenever there is a possible bottom at hand after the market has been brutalized your mind and gut tell warn you about getting in again. At that point you have to banish your feelings in favor of what the market is indicating. If you see the moves you have to suck it up, at least a bit, and go ahead and get in. Thus if we see good moves Friday we will commit more money. We will at least commit some money, i.e. partial positions, leveraging our way into a move. There will be tests, and we can use those as well to move into more positions. With powerful reversals, however, the test can be a ways down the road.
Support and Resistance
NASDAQ: Closed at 1596.70
Resistance:
The 10 day EMA is 1617
1620 from the early 2001 low
1644 from August 2003
The 18 day EMA at 1656
1752 from 2004
1782 from August 2004
The 50 day EMA at 1840
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
1428 is the November 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 911.29
Resistance:
The 10 day EMA at 916
The 18 day EMA at 934
965 is the 2003 consolidation low
995 from June 2003 consolidation peak
The 50 day EMA at 1026
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 1147
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 1260
1270 is the January low
1285 is the recent July peak
Support:
899 is the early October closing low
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
818 is the November 2008 low
800 is the March 2003 post bottom low
768 is the 2002 bear market low
Dow: Closed at 8,835.25
Resistance:
The 10 day EMA at 8833 is bending
The 18 day EMA at 8961
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 9645
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 10,539
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 13 - Thursday
Initial jobless claims (8:30): 516K actual versus 479K expected, 484K prior (revised from 481K)
Trade balance, September (8:30): -$56.6B actual versus -$57.08B expected, -$59.1B prior
Oil inventories (10:30): +220K actual versus 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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trading system
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