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money investment, investment help
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11/17/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CASY; LHCG; SRCL
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Market tries to recover but late selling again runs roughshod.
- LIBOR on the lips again Monday as it idles for the session.
- Another day, another batch of nondescript to bad economic reports.
- Indices again at the lick log as a follow through session to Thursday starts looking tenuous.
Midday bounce attempt overrun once more on the close.
Futures were lower to start the week on more negatives. Japan is now in an 'official' recession again since emerging in 2001. Earnings beat expectations for LOW and TGT, but guidance was down once more. Citigroup announced 50,000 job cuts or 20% of its workforce. The New York PMI hit a record low at 25.4 as manufacturing woes continue. LIBOR was flat, at least not bouncing back up. The G20 did nothing, and actually that is a positive come to think of it. Continuing with the veiled positives, production and capacity rebounded, but that was from refineries reopening after Ike. Kind of like creating a government job over a private sector job; not bad if that is all you can get, but it doesn't do much for the economy.
Stocks started lower with SP500 quickly selling to last Wednesdays closing low. Oil started lower (55, -2.04) as the dollar bounced back (1.2655 from 1.2673). Stocks bounced back themselves and indeed turned positive into lunch. A test to start the afternoon held in through mid-afternoon, looking positive for a bounce higher. Didn't happen. Volume was extremely light once more and in the last 15 minutes all it took was a tipping point of a few sell orders and the indices tumbled. Doubled their losses in those 15 minutes, sending the indices back to session lows.
About all the indices did was hold above the prior closing lows on SP500 and SP600. DJ30 held right at the Wednesday low but that kept it easily over the 2008 closing low. NASDAQ was not so solid; it fell to a new 2008 closing low. The indices have given up the Thursday gains and in NASDAQ's case, more. Now the market as a whole is back to the lick log again, i.e. where it has to get to business or sell off further. A fourth test is never great, but if it wants to consolidate at this level and hold up that will work.
TECHNICAL. Definitely not showing the improved intraday action as the indices continue to fail late. It is feast or famine. They surge on upside sessions. They tumble to the close on downside sessions. The back and forth continues.
INTERNALS. Given 2+% losses on the indices the internals were not awful. Volume fell even further below average from the already low trade on Friday. It remains very low outside of the Thursday reversal day when volume surged on the short covering. That high volume reversal is what the bounce is trying to hang onto. New lows were not bad as NASDAQ found a new closing low (416). NYSE breadth was the only really stronger reading to the downside at -3:1. Not great, but the internals did not show any new spike to the downside.
CHARTS. The indices are immediately back down to the prior closing lows for SP500 and SP600. NASDAQ made its new closing low. The move was on low volume so there was no concerted selling, just no upside buyers since the Thursday reversal. If there is going to be a follow through to Thursday it should come form here without giving up much if any more of the gains. Tuesday through Friday are the best days to do so. After the reach to new 2008 lows on all but DJ30, the reversal started a new rally attempt. Now after a couple of days off where it retrenched (nice way of saying it gave all of the bounce back) you look to see if the buyers come back in strong. If it does you call the pullback 'constructive' as part of the process. On the other hand, if it doesn't you call it a dead rally. The indices are making their fourth test of these levels though you can argue it is less. Nonetheless the more it tests after trying to rush higher as on Thursday, the less likely it holds again to make another try higher. Again, the indices are at the point of action where they have to make a move or fail and head even lower.
LEADERSHIP. Still not as widespread as you would like to see and has a bit of a defensive flavor. Groceries, some small tech, home health care have good patterns. A somewhat defensive group. Energy and commodities are not as strong, but they continue to work laterally in trading ranges. As noted on several prior occasions, these stocks can support a market rally from their current patterns. They did in late 2002. One area to watch is the small caps. In an environment where the government floods the market with liquidity the small caps tend to start performing first. They are holding at the prior lows as well, but that is not the same as performing.
THE ECONOMY
LIBOR swings back into the spotlight.
Not much mention of LIBOR on the financial stations for over a week. We addressed the coincident halt of the decline in LIBOR and indeed a bounce in rates when the Treasury announced there would be no purchase of troubled mortgage assets. On Monday there were stories on all of the financial stations discussing the halt in the LIBOR decline. Some are saying LIBOR has reached an equilibrium level. If that is the case we are in trouble because LIBOR rates are still very, very high on a relative basis, too high to promote the free flow of interbank lending.
Much of the entire Fed and federal lending facilities are aimed at facilitating lowering interbank lending rates and spreads and thus breaking lending free to get money flowing once more. Yet the initial reaction by lending rates to the Treasury's new focus is to end the decline and start to rise anew. With the talk of using the $700B baby to also bailout the automakers, despite the administration's belated opposition, the situation is not improving.
Maybe this is just an initial reaction to a course change. If it works it will push the rates lower. Problem is the money that went to the banks and it has not made it out onto the streets except through the bonus payments. Cynical? You bet. Saw a bumper sticker today and it said 'Impeach Congress.' Interesting concept.
More bad data or at least no improvement. No surprise.
New York manufacturing continued its decline, falling to -25.4, down from -24.6. Hey, that was better than the -26.0 expected.
Regional manufacturing is often an indicator of a turnaround. It started showing some improvement in last 2002 ahead of the overall economic recovery. Not there yet.
Of course, the market will start higher before the economic data, even the earlier indicators such as regional manufacturing. It will be nice to see manufacturing at least start to bottom as right now it is in a continuing decline. Again, it was a bit better than expected by 0.6. Whoa baby, got a trend going here.
October industrial production beat expectations as well, bouncing to 1.3% from -2.8% in September. Capacity held steady at 76.4%. Happy days again? Well, maybe for the refineries. After Ike many on the Gulf Coast were shut down once more, and this rebound in output reflects those refineries getting back up to speed and cranking out the product. So it is not really an indication of budding strength, just refineries trying to get up and running and get its employees working.
THE MARKET
MARKET SENTIMENT
More exasperation on Monday. Actually heard some unsavory language while on the phone to some trading desks in the last quarter hour of trade. In the background of course; no one we would talk to us that way directly. Question is whether the high negative sentiment indicators are enough. There are a lot of bottom watchers out there but there always are. Even those, however, are getting exasperated here. Maybe it is not the bottom, but it is getting to a point where a bounce of some sort is anticipated.
VIX: 69.15; +2.84
VXN: 68.6; +2.55
VXO: 73.15; +2.84
Put/Call Ratio (CBOE): 0.95; -0.06. Slipped below 1.0 on further selling. It has not spiked up on the recent selling, but it has put in weeks of straight closes above 1.0 so this has shown high levels of pessimism.
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: -34.8 points (-2.29%) to close at 1482.05
Volume: 1.88B (-17.86%)
Up Volume: 329.769M (+90.192M)
Down Volume: 1.499B (-529.462M)
A/D and Hi/Lo: Decliners led 1.87 to 1
Previous Session: Decliners led 3.98 to 1
New Highs: 3 (-1)
New Lows: 416 (+194)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower, filled the gap on the high, the fell to close at a session low. Also a closing low for 2008. Volume was pathetically low, but that has not stopped NASDAQ from selling all month. Down 7 of 11 sessions in November, giving back 300 points in that stretch. It is oversold and due for a bounce in the normal course of the market. As with the other indices NASDAQ is at the point it needs to rebound, and the oversold condition would appear to help set that move. At the same time it is sliding lower to a new closing low, just two days after a massive reversal last Thursday. So soon back at making new lows doesn't signal strength. NASDAQ is again making an important test.
SOX (-2.82%) made a new 2008 closing low itself. Is still trying a double bottom bounce similar to July and August. Thus far it hasn't taken, but it is oversold as well with just 3 upside sessions in the past 8.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -22.54 points (-2.58%) to close at 850.75
NYSE Volume: 1.311B (-9.54%)
Up Volume: 228.957M (+70.341M)
Down Volume: 1.075B (-207.685M)
A/D and Hi/Lo: Decliners led 3.08 to 1
Previous Session: Decliners led 3.6 to 1
New Highs: 5 (0)
New Lows: 365 (+151)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Large caps struggled again, falling to close just over the late October closing low. Right back down again, giving up the Thursday gains and having to hold the line in order to really again. Eventually it gets worn down with repeated failed attempts. Unknowns in the financial world still hit its stocks. Big surge, low volume test. Now it shows us if it has the strength to follow through and indicate at least an oversold bounce here.
SP600 (-1.45%) closed near the late October closing low, still trying to set up a double bottom. As noted above, with a massive liquidity injection small caps should start performing if the economy is getting on the right trade. Hmmm. Not there yet looking at this slide to the prior low. That said it can still form a double bottom here. Time to do it.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Very low volume here as DJ30 joined the other indices with a late selloff. It matched the Wednesday low and is just under 100 points from the late October prior low. Gave up the Thursday gains, but a low volume drift back down. Now it is . . . at the point it needs to hold.
Stats: -223.73 points (-2.63%) to close at 8273.58
VOLUME: 278M shares Monday, lower than the 304M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
The economic data started and it was nothing good. Didn't really damage anything as it was nothing new either.
The market is what will tell the economic future, and right now there is still confusion as to just what is going on with respect to the feds and what they are going to do. Treasury changes its course. Some say intelligence allows for change. Agreed. Problem is, markets tell you more about what you do than your own views and while they are desperately trying to hold the line and bounce it is a tough situation right now.
As noted the market is oversold for the month. Halfway through and it is decidedly down even with that 880+ Thursday gain. Oversold and in prime position to bounce off the lows, but that is exactly where it was last Wednesday before the Thursday reversal rally. Took quick to be right back down here for most circumstances.
It may be a fool's errand looking for a bottom here given the nature of the crisis facing the US and the world. If not for the extreme sentiment indicators the odds would be downgraded substantially. Those extremes as well as this oversold condition at the prior lows still suggests a bounce it is problematical if the indices clear the 18 day EMA on that bounce. Depends upon the strength of the rebound, i.e. if it is follow through caliber and there is leadership. If not and they fail at the 18 day EMA, the market is heading lower, i.e. blowing out the prior lows.
Will it even give a bounce? Think so. Then we see how strong it is. It will likely be worth buying some more index plays for the upside move, but when they get to the 18 day EMA it is time to be very careful. Any sign of trouble and it is time to close out the upside and stack up the downside.
That indicates a waning belief in the upside. It is actually just taking into account developments from last Tuesday to now. Things were set up beautifully for a dip lower and then a recovery to start a new leg. That happened Wednesday and Thursday. Perfect. Then the market immediately sold, not on volume but sported big point losses nonetheless. Monday more downside giving back all of the gains. Not great action. Thus the follow through probability is downgraded to 'has to prove it' status. Tuesday will be an important day for the market and the Thursday reversal attempt.
Support and Resistance
NASDAQ: Closed at 1482.05
Resistance:
1493 is the October 2008 low
1499.21 is the 2008 closing low
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
The 10 day EMA is 1578
1620 from the early 2001 low
The 18 day EMA at 1624
1644 from August 2003
1752 from 2004
1782 from August 2004
The 50 day EMA at 1814
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:
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 850.75
Resistance:
853 is the July 2002 low
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 898
The 18 day EMA at 920
965 is the 2003 consolidation low
995 from June 2003 consolidation peak
The 50 day EMA at 1014
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 1138
1200 is the July 2008 intraday low
1244 is an August 2005 peak
1250 is the 2002/2003 up trendline
The 200 day SMA at 1255
1257 is the March low
1270 is the January low
1285 is the recent July peak
Support:
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 8,274
Resistance:
8451 is the early October closing low. Key level to watch.
8521 is an interim high in March 2003 after the March 2003 low
8626 from December 2002
The 10 day EMA at 8681
The 18 day EMA at 8845
8985 is the closing low in the mid-2003 consolidation
9200 is the July peak in the 2003 consolidation
9323 From June 2003 peak
The 50 day EMA at 9548
9575 from September 2003, May 2001
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 10,477
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 17 - Monday
November NY Empire State Index (8:30): -25.4 actual versus -26.0 expected, -24.6 prior
Capacity Utilization, October (9:15): 76.4 actual versus 76.6% expected, 76.4 prior
Industrial Production, October (9:15): +1.3 actual versus 0.2% expected, -2.8% prior
November 18 - Tuesday
October Core PPI (8:30): 0.1% expected, 0.4 % prior
PPI, October (8:30): -1.8% expected, -0.4 prior %
Net Foreign Purchases, September (9:00): $17.5B expected, $14.0B prior
November 19 - Wednesday
October Building Permits (8:30): 772K expected, prior 805K
Core CPI, October (8:30): 0.1% expected, prior 0.1%
Housing Starts, October (8:30): 780K expected, prior 817K
Oil Inventories (10:30): 220K prior
FOMC Minutes, October 29 (2:00)
November 20 - Thursday
11/15 Initial Claims (8:30): 503K expected, 516K prior
Leading Indicators, October (10:00): -0.6% expected, prior 0.3%
Philadelphia Fed, November (10:00): -35.0 expected, prior -37.5
End part 1 of 3
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