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us stock market, trade stock
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3/10/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: BWLD; DRIV; ISIL; NSM; ORLY
Trailing stops: QID
Stop alerts: BRCM; SMH
SUMMARY:
- Citi says it may have a decent quarter, Bernanke hits of slight accounting change and the oversold rally gets its trigger.
- Wholesale inventories down again but less than expected and December.
- Credit market experiencing no global warming as dollar LIBOR gaining upside speed.
- Sustainability and for how long is already the next issue of the week.
Market desperate for a trigger finally gets one.
A very oversold market needed the right kind of indication to get the shorts to finally give the nod to some serious short covering. Despite the selling the past week you could see it trying to shift gears and prepare for an upside move with the rebound Friday and the low volume selling Monday. Hints of a change in the mark to market accounting regulations were reason for the shorts to get a bit more restless . . . along with this last (and second in the series) nasty leg lower that had run the same distance as the first leg. Time for a bounce. The question is how much powder would go off when the fuse was lit.
The fuse was two-part. Citi announced it was having its best quarter since 2007, the last time it made a profit. High praise given a better quarter than those of late could mean it was not on death's door. There is a saying whenever you see something such as a hotdog labeled as 'all beef': before you take comfort in that, remember, even a cow's rear end so to speak is all beef.
There was more. Bernanke was speaking before the open and again pledged the kitchen sink and even said that some adjustments in mark to market accounting might be worthwhile. He did not say it should be suspended; he was against suspension. He simply mused about some changes without any detail or direction as to what changes. Didn't matter. Citi was having its best quarter since it went down the toilet and Bernanke said he was for a possible, careful, modest, thoughtful, somewhat remotely likely change in market to market accounting rules.
Futures surged. UTX axed 11K jobs. Big deal. Stocks gapped higher and the indices posted a strong first leg higher in the first hour, then slid laterally for just over an hour and one-half. Then Representative Frank stated the uptick rule could be reinstated in about a month. Fuel for the upside. Of course this is being offered after the financials were run over and left for dead by massive bear runs. A lot of the damage was already done, but maybe the rule could now prevent them from being sold to zero. Kind of ironic that Frank would in reality have nothing to do with the reinstatement of the rule.
Stocks rallied a bit further on the Frank news, but not much. The indices ran right into the 10 day EMA at lunch and stopped. That started a 4 hour lateral move that finally saw a drift higher late in the session that helped the indices push past that near resistance. Stocks held the gains right into the close as the sellers NEVER attempted to step in and block or undermine the move. Sellers have stepped back. They let the market rally and then rest unmolested. Thus the market moved laterally after its surges, giving no ground intraday. The market got a free pass to rally, and there is likely more upside given the shorts were covering in droves, driving the financials higher on massive volume. The shorts won't step in until the Uptick and Mark to Market news dies off, turns out to be a bum steer, or something else such as the continued credit deep freeze comes back to the fore. In any event, the move higher gets interesting at the next short term moving average (the 18 day EMA) as well as the November low on SP500 as old support tries to act as resistance.
TECHNICAL. High to higher intraday with no pullbacks at all. Gains were held and the indices closed at their highs. Sellers were covering , not selling. They were not going to turn right back around and sell what they just sold when the oversold rubber band was still overstretched.
INTERNALS. Strong breadth at 8.6:1 on NYSE and 4.8:1 NASD. Volume was up on both indices, surging well above average. NASDAQ trade matched last weeks downside selling volumes. A solid upside session on par with that selling. NYSE volume exploded to 2.1B shares, the highest since the last day of February. NYSE volume was driven by massive short covering of the heavily shorted financials. You look at stock after stock in those sectors and you see a surge up in the downtrend on huge trade. Buying? In the sense the shorts are covering. Sure there are some long buyers in the crowd, but this massive volume on a rebound session in a gut wrenching downtrend is by far and away short covering volume. There was some good volumes on stocks breaking higher from good patterns (e.g. BWLD, NSM), but they were in the minority.
CHARTS. Pushed on through the 10 day EMA near resistance after stalling there through lunch. After moving laterally for nearly 4 hours the indices managed to push higher late in the session and take out the 10 day EMA. Thus, though the indices took out the 10 day EMA, it was a session long effort to do it. NASDAQ recovered the November low. SOX bounced off its recent lows and is moving up to the key 50 day EMA, its first real resistance level. SP500 and DJ30 were nowhere near recovering that level. SP600 could not even retake its 10 day EMA. NASDAQ 100 managed to hold over its November low on this test and now we see if it can make a double bottom spanning November to March and break the market to the upside. After the drugging the large cap techs received Friday and Monday that seems unlikely, but you have to let the move unfold now that it has started.
LEADERSHIP. Chinese stocks jumped to the upside. Chips rallied nicely from their very solid patterns. Some retailers moved well. All of those stocks in good patterns broke higher as you knew they would when the market trigger arrived. All of those heavily shorted broke higher as well; they just don't have good accumulation patterns. They are in downtrends and the shorts covered up big time, driving them higher in their downtrend. Classic rebound moves. The market still has to come up with more stocks in good patterns. A rally versus a straight 45 degree downward sloping selloff allows stocks to work on their patterns. Even if the rally ultimately fails and the market falls into a base, you get constructive action that creates a new pool of leaders. We can look forward to that on this move. We should also note that the chips led the rally off the October 2002 lows when there were not a lot of great patterns.
THE ECONOMY
Changes in the mark to market accounting regulations may help bring about some resolution for the financials, but it won't be a cure. We sound like a broken record, but the credit markets continue to cause problems and credit is the lifeblood of any economy.
With that in mind we note that dollar LIBOR rates continue to rise, gaining speed the last week even as anticipation of a change in accounting methods circulated the markets. Tuesday 3-month LIBOR, the basis for the TED spread, rose to 1.33% from 1.31%. Well off the highs in the 4% range hit in September 2008, but well above the recent lows hit after TALF when 3-month LIBOR fell under 1.10%.
Not meaning to be a downer, but it is important to keep an eye on this even as the market rallies on the hope that the mark to market accounting rules get modified to some extent.
THE MARKET
MARKET SENTIMENT
VIX: 44.37; -5.31
VXN: 43.83; -4.93
VXO: 45; -6.47
Put/Call Ratio (CBOE): 0.73; -0.01
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: +89.64 points (+7.07%) to close at 1358.28
Volume: 2.455B (+19.27%). A good volume surge equal to the selling volume from last weeks selling sessions. In that sense it was solid volume and there was buying in the chips versus short covering.
Up Volume: 2.291B (+1.76B)
Down Volume: 125.245M (-1.378B)
A/D and Hi/Lo: Advancers led 4.77 to 1
Previous Session: Decliners led 2.48 to 1
New Highs: 7 (+6)
New Lows: 186 (-312)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Recovered the November low and the 10 day EMA, aided by that late move higher after stalling at that level from lunch until the last hour. Strong start to an upside rebound rally with next resistance at the 18 day EMA (1383) and the December closing low at 1398. Not much of a run given the Tuesday move, but only the strongest rallies can sustain such moves as they typically slow the advance after that initial rebound surge. The move certainly has the look of having some legs behind it, and if the chips continue to rally they will give NASDAQ extra upside push. Will make that first key test of the 18 day EMA and the bottom of the early December consolidation range very soon.
SOX (+8.07%) held the recent lows and surged through near resistance toward the 50 day SMA (209). The 209 to 212 level is a tough level to cross, but if there is strength in chips, if they are going to lead, they will move through that level.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +43.07 points (+6.37%) to close at 719.6
NYSE Volume: 2.144B (+37.73%). Huge trade as the shorts covered up their short positions on the financials. You will know if there is long side buying if there is a follow through session as early as Friday or as late as next Wednesday where stocks rally again on strong volume. That shows new buyers and not just shorts covering.
Up Volume: 2.107B (+1.409B)
Down Volume: 78.047M (-755.085M)
A/D and Hi/Lo: Advancers led 8.69 to 1
Previous Session: Decliners led 2.56 to 1
New Highs: 8 (+4)
New Lows: 158 (-305)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Cleared near resistance at the 10 day EMA (715). That stalled the move in late February when SP500 consolidated laterally for a week but then collapsed down into the last selling leg. Already something of a change in character that it has cleared that level on one session. Now it has the key levels ahead of it, the 18 day EMA (740), the November low at 741, and the closing low at 752. Now that the rebound has started we let it run and see what kind of legs it has.
SP600 (+6.80%) was the only index not to retake its 10 day EMA. The small caps with their economic bias are sadly the group that is lagging the entire market, showing no indication of an economic recovery on the horizon. If they were in the lead or right up there this move would have a lot more credibility in this early stage.
DJ30
DJ30 crossed the 10 day EMA (6885) as well on a solid price gain and on solid trade as those financial stock shorts were covered. DJ30 has its own resistance from late February at 7115 before it challenges its November low at 7449 intraday and 7552 closing.
Stats: +379.44 points (+5.8%) to close at 6926.49
Volume: 640M shares Tuesday versus 365M shares Monday. Huge volume surge as many shorts were covered and stocks such as BAC, already drifting higher, caught a bid.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
After a wicked move from the second leg of the selloff and picking up some positions ahead of and on the move you pretty much watch how the rally continues and what strength it holds. It cannot maintain the initial strength as it continues. You want it to show good volume and crisp moves up to the next resistance, take a lower volume pause for as long as it takes (can be a day to a week), and then a new break higher on volume.
That accomplishes several things. It shows continued buying and on the second leg some long side buying versus just short covering. It allows new leaders to form up bases, and as we know any rally must have leadership and plenty of it or it will fail. Right now this rally needs more leadership help. Some good stocks are moving higher out of good bases, but they are pretty thin overall.
Thus for now we don't want to leap in without regard that the indices surged 6% t 8% in a day. As noted we have picked up positions Monday and again on the move Tuesday. If there are some stocks that are still set up well we can still move into those Wednesday but you want to start paring back and look for the next opportunity. This is still an unproven move, meaning it is a bounce with no follow through session. Thus it could rally a few days and roll right back over. Stocks bought late in the move come right back on you in that situation.
Therefore we let our positions rally as the indices move toward next resistance. We let some laggard positions run as far as they will and then look at closing them if they stall and show topping signs. Then we see if the indices can continue the rally after a pause or short consolidation, giving us new buy points, or if they roll back over and we lock up the upside and move into some more downside positions.
Support and Resistance
NASDAQ: Closed at 1358.28
Resistance:
The 18 day EMA at 1383
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 1467
The 50 day SMA at 1487
1493 is the October 2008 low & late December 2008 consolidation low.
The 90 day SMA at 1513
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:
1316 is the November 2008 closing low
1295 is the November 2008 low
1271 from is the March 2003 low, 1253 intraday
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 719.60
Resistance:
722 is a December 1996 low
The 18 day EMA at 740
741 is the November 2008 intraday low
752 is the November 2008 closing low
768 is the 2002 bear market low
800 is the March 2003 post bottom low
The 50 day EMA at 803
804 is the low on the January 2009 selloff
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 849
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:
681 is the June 1996 intraday peak, 673-71 closing
665 from August 1996
656-654 from January, April 1996
607-05 from November 1995
Dow: Closed at 6926.49
Resistance:
7008 from February 1997 closing peak
7115 is the February 2009 closing low
The 18 day EMA at 7117
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 7734
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): -0.7% actual versus -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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