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money investment, investment help
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11/18/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CEPH; DIA; PCLN; RRC
Trailing stops: None issued
Stop alerts: DIA; SPY; STE; WFC
SUMMARY:
- Market endures more bad news, managing a bounce with the help of HPQ and improving LIBOR.
- Producer prices fall thanks to energy, but jump in the core.
- October online spending rises 1% year/year.
- Market changes gears, bounces late, aided by SP500 rebalancing.
- Looking for more than a bounce off yet another test.
Some more bad news, some decent news, and an afternoon bounce.
Stock futures were actually somewhat flat to start the session, a bit of a relief to see after strongly negative or positive pre-market moves during the recent market volatility. Producer prices were not good even with a massive drop in energy costs; the core jumped to the highest annual rate since late 1989. Earnings guidance continued its poor showing as GLW (flat screen television panels) and Home Depot guided lower ahead.
On the other hand there was some rare and refreshing good news. LIBOR ticked lower after stalling for about a week (1.45% versus 1.47% on the 1 month; 2.22% versus 2.24% on the 3 month). Moreover, all earnings were not bad. HPQ, right in the heart of the technology sector, consumer and business technology at that, beat street earnings expectations and has the audacity to raise its fiscal 2009 guidance. Happy days indeed.
That transformed DJ futures from say -100+ seen of late to basically flat. Stocks started a bit soft but moved positive quickly. A nice steady rise and fall, rise and fall into lunch kept the gains building. Then a rollover and fall. Not a rise and fall stair-step as with the move higher, just the typical, bear market straight down with no respite. Back to flat, back to negative territory, back toward the lows hit last Thursday.
The market managed to stem the selling and form an intraday double bottom ahead of the last hour. Then it stated higher, rallying back to positive on the large cap indices at the close. Not much of a gain outside of the Dow (1.8%) but another higher volume reversal off the lows. There was an external force at play: BUD was leaving the SP500 after the Ambev buyout, and as a smaller market cap SRCL took its place that required buying of SP500 stocks as their weighting increased. Good move but not definitive given the externals.
TECHNICAL. Managed to fight off selling to close near the top end of the range. Still could not push to new session highs on the close as on Thursday. Maybe this will give it the cover it needs to continue higher. Wow is that a stretch or what?
INTERNALS. Nothing great breadth-wise (1.8:1 NYSE). New lows were interesting again as the indices ran down to the Thursday lows and new lows did not balloon (654 on NYSE, 593 NASDAQ). Volume was the interesting feature. It was up close to average on NYSE and getting there on NASDAQ. Last Thursday volume surged as the indices broke to new lows (all but DJ30) and reversed. Volume was up again Tuesday on similar action though much lighter. Even at the lighter level it topped the Friday and Monday trade on a down day. That suggests more buying than selling right now. Given the SP500 rebalance, however, volume is a bit suspect. Looks good but still has to prove it past this session.
CHARTS. NASDAQ came within a point and one-half of its Thursday intraday low before it reversed to close flat. SP500 came within 9 points before it too reversed and closed positive. SP600 actually hit a new 2008 low by a fraction before it too reversed. The Dow sold but it held well above its Thursday low and then bounced the best of all. Good enough that we took some new positions on that index as it recovered. The indices tested yet again and bounced yet again. May have been the SP500 rebalance, however, and this was no follow through action. Thus how it responds the rest of the week, i.e. if it can show a solid volume break higher, will tell the story of an oversold bounce or even better off of this level.
LEADERSHIP. A mix of stocks held in fine and even advanced. Some energy, drugs, consumer, tech (large and small), small healthcare, did just fine, basically maintaining what they had or moving higher after testing. The session kept them in shape to move higher, giving the market something to lean on if it can continue higher off of this test and reversal. Again, we are watching the small caps for some leadership off of the lows given the flood of liquidity pumped into the system. If it is taking hold the small caps historically perform better at first. Thus how they move off this test can be somewhat instructive.
THE ECONOMY
Producer prices, as with other economic reports, post some records.
The more recent batch of economic reports have the dubious honor of notching some all-time bad readings. Monday the NY PMI hit an all-time low. Last week retail sales growth (or lack thereof) was the lowest since the records were kept.
Tuesday producer prices were good and bad, sweet and sour. The sweet: a 2.8% month/month decline, the highest ever. A 12.8% drop in energy prices (the largest since mid-1986) led the decline. On the other hand, the core rose 0.4% because energy is factored out. That pushed the year/year gain to 4.4%, the highest since 1989.
Of course, inflation tends to rise even after inflation pressures have peaked. For now pressures have waned and prices are on their last move higher before they start to fall. Again, for now. With all of this liquidity as a result of the Fed facilities, Treasury bailouts, etc., however, inflation will reappear at some point.
In addition to prices, builder sentiment hit an all-time low. That is a positive of course because when sentiment is terrible you tend to find bottoms. The builders have to stop building, something they have finally done, before there can be a recovery. Prices are plunging, new homes are way down. Problem is foreclosures are still up because of the inability for many to pay on their home loans. Thus inventories remain constant when they need to fall in order to get a housing rebound. The market has bottomed, but it has no traction to rise for now.
That points to some of the fallacy of Treasury's change in focus. The housing market won't stabilize until owners can actually service their notes and thus once more give value to their homes. That is why the '3% mortgage for everyone' plan makes more sense. If you are going to give the money away anyway, give everyone who wants it a 3% fixed mortgage. Make FNM and FRE pay for it as we own them anyway. Then those nonperforming notes are suddenly performing, not to mention the already current notes that are now enjoying a 3% rate, freeing up additional consumer funds every month for investment, consumption, etc. You get economic activity on top of stabilizing prices. The mortgage backed securities start to firm up in value because the mortgages suddenly have value once more. Credit starts to flow because portfolios are no longer valueless or value unknown trash.
But alas, that is not going to happen. Thus despite low builder sentiment, record low sentiment, there is no bottom yet.
October online sales up but barely.
The holiday retail season is supposed to be one of the worst in decades. The October online sales growth was a rather meager 1% year/year. At least it was not negative as could easily have been the case. Bricks and mortar always run more than online, so it is not the worst case scenario.
Still, it is likely to be one of those seasons where consumers hold out until the end to get the best discount there is. We are watching a basket of consumer goods to see the price cuts. Thus far we have watched 52 inch LCD HD, 120Hz, 1080p, etc. televisions fall about $100 per week the past two weeks as retailers try to find a price to entice buyers. This is likely to continue as consumers are holding out, making their limited dollars go as far as possible this season. That means seeking the highest discounts possible as they wait out the retailers.
THE MARKET
MARKET SENTIMENT
VIX: 67.64; -1.51
VXN: 68.31; -0.29
VXO: 72.34; -0.81
Put/Call Ratio (CBOE): 1.08; +0.13. Back over 1.0 on the close as stocks flirted with the prior lows and recovered.
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: +1.22 points (+0.08%) to close at 1483.27
Volume: 2.423B (+28.84%)
Up Volume: 1.08B (+750.675M)
Down Volume: 1.281B (-217.651M)
A/D and Hi/Lo: Decliners led 1.46 to 1
Previous Session: Decliners led 1.87 to 1
New Highs: 7 (+4)
New Lows: 593 (+177)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Reached down to the Thursday 2008 low, holding just over that level, and reversing. Showing a doji on the candlestick chart and that can signal a change of momentum after a run up or down. November has been all downside outside of last Thursday so the index is oversold and this could be the indication that another bounce attempt is going to push to the front. Of course how far is the question. NASDAQ has dug itself a hole and thus the 10 and 18 day EMA (1560, 1609), the near resistance in a downtrend, are key levels on a bounce. NASDAQ has a lot to prove.
SOX (-1.96%) made new intraday and closing lows before a modest recovery. Chips may make a double bottom here, but they will have to break a steep 4 month downtrend that is part of a larger 17 month downtrend.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +8.37 points (+0.98%) to close at 859.12
NYSE Volume: 1.596B (+21.69%)
Up Volume: 723.011M (+494.054M)
Down Volume: 853.402M (-221.526M)
A/D and Hi/Lo: Decliners led 1.78 to 1
Previous Session: Decliners led 3.08 to 1
New Highs: 8 (+3)
New Lows: 654 (+289)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 sold to within 8 points of the Thursday intraday low and rebounded positive. Volume moved toward average. That, however, was mostly due to the rebalance as volume came in late. Another test, another rebound. As with NASDAQ, SP500 needs to show us something if there is a follow through coming.
SP600 (-0.53%) posted a new low, just clipping the prior low, and then rebounding. Still a new closing low for 2008, but the move keeps the small caps in position to double bottom and rally. Key index so we see if they can make the move.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Not bad action on the Dow, testing the late October lows and rebounding positive. Volume moved back above average on the recovery as DJ30 posted a 2% gain. XOM, CVX and helped lead the move higher and pump up the volume. Looks solid to make the move and lead a rebound attempt if the market can put together a couple of upside days for a change.
Stats: +151.17 points (+1.83%) to close at 8424.75
VOLUME: 366M shares Tuesday versus 278M shares Monday as volume jumped above average. An SP500 rebalance assist, but nice volume nonetheless.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The market received a boost from the SP500 rebalance, and that means the late bounce could be illusory in terms of more upside. The indices are perched to make a move higher nonetheless and if they are going to make a follow through move this is the time to do it. The reach lower and recovery off the lows once more shows some life at these prior lows.
Thus we look at IWM as a bounce as well as other index plays. Tuesday was a day where we closed some remaining positions to avoid a downside blowout just to see them recover. Won't turn away from new positions if the indices continue to recover. The market remains in great position to make a rebound move of some degree. The initial key is how a bounce handles near resistance at the 10 and 18 day EMA. If the market clears those levels and on some volume, great. It is set up to do it. On signs of a stall at the near resistance we take what the bounce gives, close it up, and then see if the near resistance does indeed stall it. If not we can move in again. On a rollover, however, we look at what we can get on the on the downside.
On balance given the sentiment, internals, and pattern the market is set to make a substantial upside move, one past the near resistance. That may take an index such as DJ30 up to the 50 day EMA, maybe farther. The safer move is to see a follow through and move in as stocks break higher. We will of course be on tap for that. We will also play some more aggressive plays upside such as the index bounces as we have been doing. Right now choose your comfort level and step in accordingly. The market is going to try and make its break higher off of these tests this past week, and how that plays out will tell the story for the next few months for the market.
Support and Resistance
NASDAQ: Closed at 1483.27
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
The 10 day EMA is 1560
1565 is the second low in October 2008
The 18 day EMA at 1609
1620 from the early 2001 low
1644 from August 2003
1752 from 2004
1782 from August 2004
The 50 day EMA at 1801
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 859.12
Resistance:
866 is the second October 2008 low
889 is an interim 2002 peak
The 10 day EMA at 891
899 is the early October closing low
The 18 day EMA at 914
965 is the 2003 consolidation low
995 from June 2003 consolidation peak
The 50 day EMA at 1008
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 1134
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 1252
1257 is the March low
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
818 is the November 2008 low
800 is the March 2003 post bottom low
768 is the 2002 bear market low
Dow: Closed at 8,424.75
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 8635
The 18 day EMA at 8801
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 9504
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
The 90 day SMA at 10,448
10,459 is a September 2008 low
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): 0.4% actual versus 0.1% expected, 0.4 % prior
PPI, October (8:30): -2.8% actual versus -1.8% expected, -0.4 prior %
Net Foreign Purchases, September (9:00): $66.2B actual versus $17.5B expected, $21.0B prior (revised from $14.0B)
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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