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trading system, money investment
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3/9/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: APSG; ASIA; NTES
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Early bounce runs out of buyers, market fades but for once so does volume.
- After a 56% loss on SP500 in 17 months, is there value yet?
- Mark to market hearings to provide a spark to relieve the oversold condition, and market action shows some adjustment just in case.
- TXN provides its mid-quarter update and rallies . . . 14 cents.
More selling to start a week but selling volume finally subsides.
Not a lot of news to kick off the week, but there were some wrinkles that harkened back to days of old such as . . . mergers and acquisitions. MRK is buying SGP. That was pretty much it. A pretty weak attempt at a Merger Monday of old. The UK is nationalizing more banks, COF joins the 80+% group in terms of how much it is slashing its dividend. Buffett, spending 15 hours this week on CNBC (a.k.a. the Buffett network with 3 hours per morning), started the week off with a zinger, stating the US economy had fallen off a cliff. The World Bank made the bold prediction of a further worldwide economic contraction. As always the WB is well ahead of the curve, and only Buffett's pronouncement could have pushed such insightful, completely new conclusions into the shadows. LIBOR was up again, showing more upside strength as well with all times moving higher (0.33% overnight versus 0.32%; 0.56% 1-month versus 0.55%; 3-month 1.31% versus 1.29%). This advance is gaining speed as the 3-month is over 20 BP from its post-TALF low.
Stock futures were lower and stocks started lower, but they rebounded from the open and turned positive by midmorning. All the indices stalled below the Friday peak, however, and the selling started. A familiar price slide ensued into the last hour as all indices closed lower than they started (and they started lower). Another Monday, another week starting with losses.
TECHNICAL. Higher start, lower close as the buyers could not maintain the morning recovery. Intraday the action remains bearish, but that is no surprise given yet another sharp selloff the past three weeks.
INTERNALS. New lows were manageable even as NASDAQ and SP600 hit new bear market lows (498 NASDAQ, 463 NYSE). Breadth was not good but not the gutting seen on many downside sessions (-2.5:1 on both exchanges). Those are both positives and they have been positives of late whether extreme negative breadth or new lows holding below the November levels on the undercuts. Volume was interesting as well. Lowest volume in two weeks on the exchanges as they modestly sold. What this shows us is that the early buyers simply ran dry and stopped buying versus a surge of selling. Many shorts are wary of putting on new downside positions here given the sharp leg lower the past 7 sessions after that short lateral move to end February. Thus no sellers piled in, but note that the lateral move in February did not produce a bounce but collapsed into this last downleg.
CHARTS. Higher start led to a bit of a rally but it all caved in. NASDAQ and SP600 touched new bear market lows but rebounded to hold above those levels. Volume faded to significantly lower levels, but not below average as you would want to see. It shows the sellers were not driving the downside. They are on a respite. This action gives the market a chance to set up for a rebound attempt, but it does not mean it will rebound. Again, it tried a lateral move in February but that imploded. In short, this is a start of yet another attempt to relieve this oversold condition and it is not sufficient in itself. The indices have just completed the second leg lower since breaking from the lateral consolidation from December to early February and they will likely try to bounce again to test near resistance at the 10 day EMA as they did with that late February lateral move where the 10 day came down as the indices worked laterally and then they started lower again. Maybe some mark to market changes will change the lay of the land a bit, i.e. change the character, but it will have to prove it given the continuing downtrends on the indices. Of all NASDAQ and NASDAQ 100 were quite bearish as NASDAQ 100 catches up with the other indices in testing the November lows. AAPL, CSCO, DELL and other large cap techs had touch sessions.
LEADERSHIP. China is still showing life even though many of those stocks were lower, but they were just resting on low volume, e.g. BIDU. ASIA took off. The rest of the market showed some leaders here and there. ASPG in telecom. HANS in beverages (Monster). Chips continue forming up lateral moves (NSM, VLTR). Even some retail stocks are doing the same thing (e.g. TJX, AMZN). The point: they are there but are few in number right now and relatively scattered. The interesting thing is that they are still holding up and setting up despite the major indices in continuing downtrends. SOX remains in its lateral move, mirroring the lateral move, more or less, of the individual chips.
SUMMARY. A down day but on a lack of buyers versus sellers. Market is oversold with this second leg lower of the same downtrend that started when the lateral consolidation broke down. The lack of sellers suggests the indices may try another lateral move or, if the trigger is there such as a change in mark to market, an actual rebound move. In either case it is not a change of character out of the downtrend, and if they don't break higher they are new downside opportunities. Once more we have some potential government action overshadowing market action. We are even hearing that a veteran will be put in Treasury soon to either give support to an outmatched Geithner or even replace him. The former could help while the latter would just confirm everyone's suspicions that another Administration is clueless as to how to handle the crisis and who to have in charge of fixing it.
THE ECONOMY
What is value? History suggests even with this market decline it is not there yet.
Every day, this morning included, you hear some saying these are great value times to buy stocks. They have dropped so far and P/E ratios are not bad, and thus you should be on America. That is overall good historical advice. As discussed over the weekend, however, value depends upon what the future holds with respect to earnings. If they are still falling, then values will still fall.
There are historical studies of when value is 'right.' One by Graham measures equities against a decade of profits (to smooth out distortions). That puts the current SP500 trading at 13.2 times earnings. The three worst recessions since 1929 showed an average P/E ratio below 10. If SP500 P/E's are to reach that level, the SP500 would have to fall 25% or so, or down to 495ish.
Now if the banking system is fixed and there is some stimulus passed that works, then SP500 does not have to make that dive in order to get 'value' in stocks. Economic improvement works wonders for value, but more than that, stocks jump when they sense an economic turn coming. Thus growth, as usual, heals all wounds.
THE MARKET
MARKET SENTIMENT
VIX: 49.68; +0.35
VXN: 48.76; +0.77
VXO: 51.47; -1.2
Put/Call Ratio (CBOE): 0.74; -0.13VIX: 49.33; -0.84
To recap what we said last Thursday with respect to VIX' failure to spike higher on this most recent selling: VIX does not have to spike higher to signal a bottom. It has done its work already and historically it spikes several months before the actual bottom. In 2002 it spiked to 56, the high, over three months before the October bottom. It has been just over four months since the first spike higher in October and just over three months from the November high that was a closing high in the run.
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.
This is a historical milestone in the making. Bulls are impressively low considering we are in general a very optimistic country. The few bulls is a positive indication because it means most everyone that is getting out is out and there is money on the sidelines. In other words the ammunition boxes are full and as the market recovers investors will start opening up the boxes and firing. Little by little they will be forced to put more money into the market and there will be some rushes higher in fear they are missing the train. You relish times when sentiment is so negative because it means some tremendous buys are setting up. This could indeed be the opportunity of a lifetime, and you take advantage of it by buying quality stocks and letting them work for you as long as they will. If we can hold them for years, great.
Bulls: 29.7%. Ticked higher last week from 28.6%. Won't likely be there next week after this selling. A lot were looking for a bottom, hence the higher reading. Still a dive, down from 31.1% the prior week and the 35.2% it recovered to on the market rebound. Well down from 43.0%, the current top of the recovery as the market rallied off the November low. A rise from 25.3% in December and quickly starting to fall once the market encountered the January selling. Bullishness bottomed on this leg lower at 21.3% in November 2008. This last leg 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: 44.0%, down modestly from 45.1% for the same reason as bulls were up slightly. Up from 41.1% and 36.3% before that. Hit the 34's on the lows, falling from 38.5% and 46.2% in mid-December. Still above the 35% level considered bullish for stocks, but as with bulls, still well below the level considered bearish for stocks. Bearishness hit a 5 year high at 54.4% the last week of October. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment on this move. 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: -25.21 points (-1.95%) to close at 1268.64
Volume: 2.059B (-17.09%)
Up Volume: 531.085M (-497.185M)
Down Volume: 1.503B (+65.208M)
A/D and Hi/Lo: Decliners led 2.48 to 1
Previous Session: Decliners led 1.06 to 1
New Highs: 1 (0)
New Lows: 498 (-114)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower, rebounded to the November closing low (1316), and closed 9 cents over its Friday low, skating past a lower bear market close. NASDAQ was notably weak as the large cap techs had a tough session. No new break lower, lower volume. Maybe it is going to move laterally once the NASDAQ 100 hits its November low. It is oversold matching the first leg lower in mid-February, another aspect it could find some support here.
NASDAQ 100 (-1.96%) hit a new low on this selling but then recovered. Seven points from the November closing low, 25 points from the intraday low. The large cap techs are playing catch up to the downside and when they are there the other indices will be ready for a test to the upside or at least a lateral move as in late February.
SOX (-2.33%) sold as well but it held the lows of the past three weeks. That has it still below the January low but inside its overall consolidation. Chips remain one of the sectors that is setting up, again, but they need more work themselves. They are, however, in pretty decent shape to lead a bounce higher once NASDAQ 100 tests its low or close to it.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -6.85 points (-1%) to close at 676.53
NYSE Volume: 1.556B (-12.12%)
Up Volume: 698.499M (-112.446M)
Down Volume: 833.132M (-93.918M)
A/D and Hi/Lo: Decliners led 2.56 to 1
Previous Session: Decliners led 1.62 to 1
New Highs: 4 (0)
New Lows: 463 (-60)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Closed lower, but held easily above the Friday intraday low, sporting a second consecutive doj on the candlestick chart. That makes basically a 2-day lateral move as the 10 day EMA (713.78) descends. In late February SP500 worked laterally for 1-2-3 sessions and then resumed the selling as it bumped the 10 day EMA and rolled over to a new bear market low. Another day sideways and we see if SP500 tests the 10 day and falters after another 3-step lateral test or if it can rebound more substantially in anticipation of a possible change in mark to market rules and/or a new sheriff at Treasury (or deputy that runs the show).
SP600 (-2.06%) had no respite from the selling, but it did manage to close above the Friday low. Not looking for much leadership from the small caps, at least on any rebound move. SP500 may bounce on a mark to market accounting change, but that won't help the small caps. Thus any rebound is suspect and we will look for it to slam into resistance and roll over. A test of the November intraday low near 200 would be excellent, providing a decent rebound from the selling to let off the pressure and allow a new fall.
DJ30
Finished lower as well but on that lighter volume of the other indices and above the Friday low. Looking for a shift laterally or modestly higher and a test of the 10 day EMA (6875). From there we see what kind of strength the Dow has on any bounce. It is in its second leg of the downtrend after breaking lower, and an index can make 4 to 5 such moves if it is a strong trend and nothing suggests this is not strong.
Stats: -79.89 points (-1.21%) to close at 6547.05
Volume: 365M shares Monday versus 425M shares Friday. Still above average but a significant decline on the selling shows simply a lack of buyers.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
This week congress conducts hearings on the mark to market accounting requirement, and there were some mitigating words from Rep Frank last week that are causing some optimism that the rules may be temporarily suspended or significantly reduced near term.
Indeed, the market's lower selling volume today was an indication the market is taking note of this possibility as the sellers were not enthused about jumping on more downside positions after such a strong downside leg equaling the first leg lower. It is time for a bounce or lateral move to test, and a serious change in accounting regs could give a move more octane.
There is also talk of a true veteran set to ride into the Treasury and bring back some air of experience and calm, and hopefully confidence, to Treasury. Geithner may be smart but as with the Administration he seems to be overmatched by the circumstances. There is a confidence gap that has to be filled. A solid name could be another peg in the board that helps to restore confidence and bounce the market from this oversold condition.
TXN was out after hours with its mid-quarter update. Orders for January and February are up over December. Good news, but December was scarily low; if they remained at that level TXN would be talked about past tense. The news was good for a 15 cent or so bounce for TXN. Off to the races.
If the market shows another push lower that will be time to take downside gain off the table and then see what the upside brings. Recall that Tuesday is a good day for the market to start a bounce, and a lower open would most likely do the trick for a bounce or lateral move. If the accounting rules are changed or the anticipation grows we likely get a move higher ahead of the news. Then the question is whether the rumor is stronger than the news. A run higher ahead of the news that does not clear a key resistance level (10 day EMA, November low, 18 day EMA) is ripe for a selloff on the news.
We are looking to play some of the solid pattern plays upside on any rumor of mark to market change that pushes them higher. If we get some good gains into midweek we can take some gain then see if there is a pop on any change in the rules. After that we either take some more gain or pull the stops up and let them run as far as they will. Then we look for downside setups after that move in the event the downside bias and downside trend hold and reassert their dominance.
Support and Resistance
NASDAQ: Closed at 1268.64
Resistance:
1271 from is the March 2003 low, 1253 intraday
1295 is the November 2008 low
1316 is the November 2008 closing low
The 10 day EMA at 1342
1387 is the 2001 low
1398 is the early December 2008 low
1428 is the mid-November 2008 low
1434 is the January low (1440.86 closing)
1460 is the February low
The 50 day EMA at 1472
The 50 day SMA at 1491
1493 is the October 2008 low & late December 2008 consolidation low.
The 90 day SMA at 1516
1521 is the late 2002 peak following the bounce off the bear market low
1536 is the late November 2008 peak
1542 is the early October 2008 low
1565 is the second low in October 2008
1569 is the late January 2009 peak
1603 is the December peak
1620 from the early 2001 low
1644 from August 2003
1666 is the January 2009 peak
Support:
1262 from July 2002
1192 is the July 2002 intraday low
1114 is the October 2002 low, the bear market low
S&P 500: Closed at 676.53
Resistance:
681 is the June 1996 intraday peak, 673-71 closing
The 10 day EMA at 714
722 is a December 1996 low
741 is the November 2008 intraday low
The 18 day EMA at 743
752 is the November 2008 closing low
768 is the 2002 bear market low
800 is the March 2003 post bottom low
804 is the low on the January 2009 selloff
The 50 day EMA at 807
812 is the February low
815 is the early December 2008 low
818 is the early November 2008 low
839 is the early October 2008 low
848 is the October 2008 closing low
The 90 day SMA at 852
853 is the July 2002 low
857 is the December consolidation low
866 is the second October 2008 low
878 is the late January 2009 peak
889 is an interim 2002 peak
896 is the late November 2008 peak
899 is the early October closing low
919 is the early December peak
944 is the January 2009 high
Support:
665 from August 1996
656-654 from January, April 1996
607-05 from November 1995
Dow: Closed at 6547.05
Resistance:
The 10 day EMA at 6875
7008 from February 1997 closing peak
The 18 day EMA at 7139
7197 is the intraday low from October 2002 bear market
7282 is the October 2002 closing low in the prior bear market.
7449 is the November 2008 low
7524 is the March 2002 low to test the move off the October 2002 low
7694 is the February intraday low
7702 is the July 2002 low
The 50 day EMA at 7766
7867 is the early February low
7882 is the early October 2008 intraday low. Key level to watch.
7909 is the early January low
7965 is the mid-November 2008 interim intraday low.
8141 is the early December low
8175 is the October 2008 closing low. Key level to watch.
8197 was the second October 2008 low
The 90 day SMA at 8261
8419 is the late December closing low in that consolidation
8451 is the early October closing low
8521 is an interim high in March 2003 after the March 2003 low
8626 from December 2002
8829 is the late November 2008 peak
8934 is the December closing high
8985 is the closing low in the mid-2003 consolidation
9088 is the January 2009 peak
Support:
6528 is the November 1996 peak
6489 from December 1996 closing peak
6356 is the April 1997 intraday low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
March 10 - Tuesday
January Wholesale Inventories (10:00): -1.0% expected, -1.4% prior
March 11- Wednesday
03/06 Crude Oil Inventories (10:30): -757K prior
Treasury Budget, February (14:00): -$200B expected
March 12 - Thursday
Initial Jobless Claims (8:30): 640K expected, 639 prior
Retail Sales, February (8:30): -0.4% expected, 1.0% prior
Retail Sales ex-auto, February (8:30): -0.2% expected, 0.9% prior
Business Inventories, January (10:00): -1.1% expected, -1.3% prior
March 13 - Friday
February Export Prices ex-ag. (8:30): -0.0% prior
Import Prices ex-oil, February (8:30): -0.8% prior
Trade Balance, January (8:30): -$38.2B expected, -$39.9B prior
Michigan Sentiment-Preliminary, March (10:00): 56.3 expected, 56.3 prior
End part 1 of 3
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trading system
money investment
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