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world stock market, us stock market
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11/20/08 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: IDXX
Buy alerts: None issued
Trailing stops: None issued
Stop alerts: ALK; APC; CHK; EWBC; HAL; LMNX; MON; SPN; WCN; WFT; XTO; RRC
SUMMARY:
- Weak jobs, diving treasuries send indices sharply lower to new 2008 lows.
- Credit crisis worse now than when the crisis exploded in September.
- DJ30 blows out the 2008 low, SP500 the 2002 lows: market is indicating the worst case scenario discussed in mid-September.
- After a break of key levels and indices down near 15% in a week the market is primed for a short covering rally ahead of Thanksgiving week.
DJ30 joins the other indices in plowing new 2008, and beyond, lows.
Jobs, treasuries, oil, the dollar, and earnings. Some good, some bad. There could be no bad. Wouldn't matter. The market is in a mood to take everything bad regardless. Jobless claims moved up to 542K versus the 503K expected and the 515K the week before. The 4-week average moved to 506K and continuing claims moved to 4.01M, all cycle highs and clearly recession levels. Futures were improving ahead of that report and then they thumped lower. It was the highest since 1992, but that was a 1-time spike. This is more akin to 1982 when there were sustained readings above 500K. Unemployment hit 10.1% during that time, foreshadowing issues to yet to come in this cycle.
The dollar was stronger again, closing at 1.2437 euros, its best reading on this run that has taken the dollar close to its late 2005 interim peak on the run lower from the 2001/2002 double top. That dollar gain pushed oil lower (49.62, -4.92) but it didn't slow gold (745.40, +9.40) though gold was not exploding higher. Earnings were not bad with retailers reporting results that beat expectations (CATO, HOTT, PETM). Many retailers posted modest gains Thursday despite the selling. Silver lining? Maybe, but for all of the other brown stuff flying around.
Stocks started weaker but recovered after the first hour, moving to positive by lunch on word that some senators from both sides of the aisle forged some kind of agreement regarding an automaker bailout. Go figure why the market rallied at printing more money, but it is desperate for something positive. Paulson made a speech in California that only offered why he felt Treasury was right in doing whatever it is doing (though it does include scrapping asset purchases). Then the senators held a press conference and the agreement turned out to be a diversion of the $25B already earmarked for loans to help switch to more energy efficient standards to a loan to keep them afloat. The handful of senators then said no vote could pass this month and you realized it was just a few senators talking about an agreement similar to TARP when it was first proposed.
After that anticlimax the market upside did the same and rolled over. It was a dramatic rollover with DJ30 reversing 635 points high to close. In short, another slaughter with the indices closing down 5% to almost 7%. DJ30 took out the 2008 low while SP500 took out the 2002 low. Volume was up. Not a healthy indication.
TECHNICAL. A modestly lower open and a midday recovery was gutted once more in the afternoon, particularly in the last half hour.
INTERNALS. Very negative across the board. Breadth hit -10:1 on NYSE and -5.8:1 on NASDAQ. New lows jumped to 1684 on NYSE, getting close to those early 2008 levels. Does it matter here? The levels are breached but it does show stocks are not just floundering around with broken backs. Volume surged on both NYSE and NASDAQ, jumping above average on both as the selling officially took over. So much so that there is going to be a rebound to test the breakdowns but the sellers are strong now.
CHARTS. As noted DJ30 broke its 2008 low (7882) and it did so with ease. SP500 continued its break lower, undercutting the 2002 bear market lows. It is the only one to do that thus far and with its high concentration of financials that is understanding as those stocks dive to lows not seen for years or in some cases forever. Major breakdown by the SP500, opening the door for a much deeper selloff as discussed when the credit issue really hit full bore after Labor Day. Major levels have been breached, however, and often once that occurs, particularly with violence, there is a test. With the SP500 down 14% on the week and 25% for the month there is additional pressure building for a rebound and a rather violent one at that. Doesn't change the break of extremely important levels but there are many factors converging to render a vicious rebound to test the breach.
LEADERSHIP. Energy rolled over Thursday. Food, healthcare, drugs, defensive leaders, were weaker, but they did not fall out of bed. Well, not all of them. There were some major breaks lower in every sector as the market selling starts to break apart leadership groups as the key support levels give way.
THE ECONOMY
After steadily loosening, credit market starts to cave back in again: Berkshire, Treasuries tell the story.
When LIBOR's decline suddenly stalled after Treasury changed its focus the credit market was signaling trouble. We saw it and reported it, noting it was not good news. It was really not good news. LIBOR improved a bit Thursday as the 2-month slipped barely (1.40% versus 1.41%) along with the 2 month (2.15% versus 2.17%), but the decline the past week has turned into a virtual standstill.
The past three days credits spreads have shot higher, i.e. widened once more as credit risk perception deteriorated. Corporate bond spreads are worse than just after the LEH bankruptcy started the chain of events. Berkshire Hathaway is an AAA rated company whose debt has soared in price. Money is freezing up again. We can lend money to the automakers, but if only a few can get the money to buy the cars, how much does it help?
Treasuries are very hot commodities. They have been hot for months, but over the past week the drive to US bonds has been incredible. The 2 year bond yield was 1.22% Monday morning. Thursday it closed at 0.97%, the first close below 1% in history. Everyone around the world is rushing to the safety of US debt and abandoning all other asset classes such as stocks, commodities, real estate, art, wine, etc. The last time that occurred? The late 1920's and 1930's.
As you can tell, we are concerned about this development after appropriating $700B to solve the problem, giving $250B to banks to pay bonuses and handle routine business, and still have major credit problems. You have this sinking, sick feeling that the money is doing nothing to resolve the problems.
Market action telling us the economy is going to get much worse.
SP500 broke below the prior recession lows. Very important. The market is the leading economic indicator. A break below a prior recession's lows tells you that stocks are building in an economy that will slow so much that it will undo all of the gains made since that recession and will undo gains made prior to that recession. The violation of the 2002 lows consummates a 6 year double top on SP500. The next level of support is from 2006 with 650 on the top and 625 on the bottom of that 7 month range. After that you look at 475 from 1994 where the market moved laterally for the entire year. The latter is another 37% from the Thursday close.
I wrote about this back when the credit issues hit full stride in September. It seemed far-fetched at the time and I had reservations, figuring the issues could be handled if incentives to invest in the US were instituted. That would create capital assets of value and create opportunity through more R&D and new companies. That has not happened and from what we see in Congress and the incoming administration, it is not going to happen. Instead we are trying to print and inflate our way out of it, putting up $700B we don't have (that means we borrow from our trading partners) so everyone can keep on acting as if nothing is happening. Unfortunately the rapidly worsening credit picture (yet again), the diving stock market, and the diving Treasury yields show that is not working.
A dive to those levels indicates an economy approaching at Great Depression 2 level. There are differences of course. In the original GD we did nothing. We are trying to do something now, but as noted we are not pursuing a plan that will work. At least we are putting money into the system. In GD 1 the government did nothing, letting 1/3 of the banks go under. That necessarily took money out of the system and everyone was left to fend for themselves. Roosevelt started the 'pump priming' plans that, as the recent scholars concluded, only prolonged the Depression. With all of this money perhaps we can avoid Depression levels, but we are unfortunately looking at something worse than the 1970's, and the seventies really sucked for more reasons than disco.
What are possibilities? Big name financial stocks such as C, MER, WFC, etc. could price out at less than $1/share. The dollar will fail to hold its recent gains that have taken it up near 2006 levels (though still well off its late 1990's strength), facilitated by China and its huge stimulus plan. China will have to raise the capital for the stimulus and it will likely sell US treasuries to do so. That will initiate or facilitate the dollar's decline when it starts.
Gold is starting to show signs of at least an interim bottom, having formed a double bottom over the past 5 weeks. Gold surged starting mid-September when Treasury and Bernanke ran up to Capitol Hill to advise Congress of an imminent financial collapse. It sold off with the TARP passage, the G7 agreements, the money guarantee agreements, etc. As noted, it looks as if it is bottoming. If gold breaks out and surges that indicates there is no faith that the facilities will work: gold sold off while the facilities were put in place, and if it surges again it is telling us they are not working.
I won't go into what a really ugly economic climate we will have in this situation. With all of the homes already in or are in trouble of delinquency, the waves of additional homes will swell inventories and drive prices lower. At least you won't have to worry about anyone coming to kick you out; make a payment now and then and the lender will be thrilled to have something coming in.
In any event, the markets are not telling us the Fed and Treasury action will work. It is also telling us it has no faith in the policies the new administration talked about in the election and since. The President elect when questioned did not back off his pledge to raise taxes on the jobs producing class and one of his advisors said that it didn't matter because his plan was still a net tax cut. That is additional baggage dragging on the market. The economy needs some stimulus that promotes investment in the US and US industry, not rebates that will go under the mattress given the current consumer psychology. We need 'use it or lose it' stimulus to buy capital goods by individuals and businesses, i.e. tax credits that you get only if you buy. They will have to be serious credits to overcome this problem, but we are willing to throw away $700B to fund bonuses. So what is the deal?
THE MARKET
MARKET SENTIMENT
VIX: 80.86; +6.6. New closing high for VIX on this round. Not a high, that was at 89.25. That is not much of a stretch from here of course.
VXN: 80.64; +5.98
VXO: 87.24; +7.61
Put/Call Ratio (CBOE): 1.33; -0.08
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: 30.9%. Modest decline from 31.9% after bullish sentiment rose steadily off the 5 year low of 21.3% hit to start November. Remains 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: 43.6%. Bears continue to decline, dipping from 46.1% last week and 48.3% the week before. Still falling form 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: -70.3 points (-5.07%) to close at 1316.12
Volume: 3.19B (+33.59%). Highest volume since the third week of October and topped the reversal volume shown last Thursday. When the support broke on DJ30 the selling hit across the market.
Up Volume: 236.944M (+175.454M)
Down Volume: 2.929B (+602.952M)
A/D and Hi/Lo: Decliners led 5.86 to 1. Bad. Not as bad as Wednesday, but not good.
Previous Session: Decliners led 7.94 to 1
New Highs: 2 (-1)
New Lows: 1270 (+447). Big jump. As NASDAQ has given up the lows this does not mean as much at this point.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower, filled the gap, then sold off to session lows and a new 2008 low. Volume surged above the last Thursday level. It is still above its 2002 lows so hey there is something still to be happy about, right? Massively oversold but still not down as much as it was on the late September to early October dive. After a sharp break below 1500, however, on another low open Friday NASDAQ will be primed to bounce to test that breach.
SOX (-3.26%) was positive most of the session, trying to stick a landing and bounce. It was overrun by the selling in the last hour so we see if it can recover and continue higher. Interesting action Thursday even if it did get walloped late.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -54.13 points (-6.71%) to close at 752.44
NYSE Volume: 2.147B (+31.34%). Volume surged to levels topping all but the TARP announcement bounce.
Up Volume: 130.857M (+102.932M)
Down Volume: 209.322M (-1.397B)
A/D and Hi/Lo: Decliners led 10.22 to 1. Another day of extreme downside breadth.
Previous Session: Decliners led 11.19 to 1
New Highs: 45 (+25)
New Lows: 1684 (+647). Surging again. Given new lows, appropriate.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Continued lower after undercutting the prior lows. It also undercut the 2002 bear market low (768), opening the door for some serious downside in the future. Interim it sells a bit more tomorrow and then bounces up to test ahead of the weekend given the plunge this month and this week along with the break of the prior lows.
Diving to new lows for the year in a rather amazing 30% drop this month. The small caps are indicating the economy is in the crapper and swirling.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.JPEG
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Took out the 2008 low at 7882, closing near session lows on strong volume. Another surge lower to start out Friday and it is ready to test along with the other indices. DJ30 held out longer so it is not as oversold. It did not hold and send the market back up, but how quickly it reacts to this selling and how it holds on the bounce higher will be interesting.
Stats: -444.99 points (-5.56%) to close at 7552.29
VOLUME: 528M shares Thursday versus 350M shares Wednesday. Big volume on the downside as stocks were dumped as DJ30 broke support.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
No economic news officially but there is news. Dell earnings were not horrid and it was up after hours. Congress is officially giving up on the auto bailout for the month. Oil will be interesting as it closed at 49.62, below the 49.90 low hit in January 2007 at that low. That opens the door to 40. Nothing much to stop it either.
Futures were kind of flat after hours. Moral victory. Anything can happen before the Friday open. Frankly it would be best just to see the indices dive lower at the open and then stage a rebound ahead of the weekend. Or just go ahead and bounce at the open and rally sharply to test the move. Typically an index will bounce shortly after undercutting key levels, making a quick test. It can overshoot to the upside and look pretty good on the move higher and then falter. We will just have to see how strong the move is, let it run its course and then sell the upside and play the downside. Naturally the first point you look for it to struggle is the prior low. After that the next low or the 10 and 18 day EMA.
There is some possible upside on the rebound. There are the indices, there is gold that is firming and ready to break higher. There are the leaders that faded on the selling but held up. Upside in the face of this downtrend is aggressive, but we have enjoyed nice gains on reversals from selloffs such as the string starting in October off that low.
Thus a reach lower Friday and the start of a rebound and we will look to move into some positions on the indices. That will help our current positions and give us some gain on the test. We take it as far as it will go and then get out and see if it rolls over and play that move. The market has hit the next level and now we have to see how the first test plays out to gauge how strong the new lower level is. Not over yet despite the impressively negative sentiment and internal readings. It can still surprise us with strength and we are open for that as well. Whatever it does we will go with it.
Support and Resistance
NASDAQ: Closed at 1316.12
Resistance:
1387 is the 2001 low
1428 is the November 2008 low
The 10 day EMA is 1490
1493 is the October 2008 low. Key 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 18 day EMA at 1558
1565 is the second low in October 2008
1620 from the early 2001 low
1644 from August 2003
1752 from 2004
The 50 day EMA at 1766
1782 from August 2004
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
Support:
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 752.44
Resistance:
768 is the 2002 bear market low
800 is the March 2003 post bottom low
818 is the November 2008 low
839 is the early October 2008 low
848 is the October 2008 closing low
The 10 day EMA at 853
853 is the July 2002 low
866 is the second October 2008 low
The 18 day EMA at 888
889 is an interim 2002 peak
899 is the early October closing low
965 is the 2003 consolidation low
The 50 day EMA at 990
995 from June 2003 consolidation peak
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
The 90 day SMA at 1124
1133.50 is the mid-September 2008 low
1200 is the July 2008 intraday low
1244 is an August 2005 peak
Support:
650 on the top and 625 on the bottom of a 7 month range in 1996
475 from 1994 where the market moved laterally for the entire year.
Dow: Closed at 7,552.29
Resistance:
7702 is the July 2002 low
7882 is the early October 2008 low. Key level to watch.
7965 is the November 2008 intraday low.
8175 is the October 2008 closing low. Key level to watch.
8197 was the second October 2008 low
The 10 day EMA at 8343
8451 is the early October closing low. Key level to watch.
8521 is an interim high in March 2003 after the March 2003 low
The 18 day EMA at 8594
8626 from December 2002
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 9371
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 10,374
10,459 is a September 2008 low
10,827 is the July 2008 intraday low
Support:
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
Housing Starts, October (8:30): 791K actual versus 780K expected, 828K prior (revised from 817K)
October Building Permits (8:30): 708K actual versus 772K expected, prior 805K (revised form 786K)
CPI, October (8:30): -1.0% actual versus -0.8% expected, 0.0% prior
Core CPI, October (8:30): 0.1% expected, prior 0.1%
Oil Inventories (10:30): 1.6M actual versus 1.0M expected, 220K prior
FOMC Minutes, October 29 (2:00): Said economy would stay back through mid-2009. No recovery to 'normal' economic activity until 2011.
November 20 - Thursday
11/15 Initial Claims (8:30): 542K actual versus 503K expected, 515K prior (revised from 516K)
Leading Indicators, October (10:00): -0.8% actual versus -0.6% expected, prior 0.1% (revised from 0.3%)
Philadelphia Fed, November (10:00): -39.3 actual versus -35.0 expected, prior -37.5
End part 1 of 3
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world stock market
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