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world stock market, us stock market
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6/08/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: CE; IR
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Dollar strength continues as market picks up on the Friday reversal, but no damage is done.
- Greenspan's conundrum, Bernanke's conundrum: there ARE NO conundrums, just the same market.
- Credit card delinquencies jump as the shadow of the next crisis deepens.
- A familiar problem: stimulus tucked into the mattress versus getting spent.
- TXN mid-quarter forecast a positive.
Market finds a bid after continuing the Friday selling to start the week.
Friday saw commodities, energy and other dollar denominated areas struggle as the dollar bounced from its sharp selloff. Monday the dollar strength, and thus the commodity weakness, continued. The dollar closed at 1.3902, down from Fridays 1.3966; intraday it was trading in the 1.38 and change range before fading to close out the day. Gold closed lower but also off its session low (953.10, -9.50). Bond yields in response continued to jump at both ends of the curve. The two year bond is feeling its oats, zooming to 1.43% on the close, up from the 1.29% on Fridays close. 40 basis points since Thursday. Now that is a move. The 10 year is no slacker itself, closing at 3.91% from 3.84% Friday. While the dollar bounces in relief the bond market is not getting fooled; it sees inflation ahead and no modest dollar bounce changes that.
Even with the dollar holding some of its gains, when it moved off its session highs the entire stock market recovered and moved quite nicely higher in the last 1.5 hours. Indeed all session long the market attempted to hold the line and rebound, and in the afternoon it finally found traction and even moved to positive. Couldn't hold the gains on the close, but some pretty solid action as SP500 held its flat, lateral move while the other indices held their breakouts.
TECHNICAL
INTRADAY. Lower open with downside gaps and selling from there, but the indices all held near support and all bounced back in the last 1.5 hours to cut the losses, and for awhile, trade positive. There were reasons to sell what with the stronger dollar and surging interest rates, but stocks, including the dollar sensitive equities, all bounced back, catching bids and significantly cutting their session losses. That is continued positive action for the upside.
INTERNALS. Modest breadth at -1.6:1 NASDAQ and -1.7:1 NYSE. Extremely low volume on both NASDAQ and NYSE show no distribution, just a buyer's pause early in the day. By the end of the session the buyers already started moving in, looking for bargains off the test.
CHARTS. The story of the day again involved SP500 and its action at the May high. The large caps topped 944 again but failed to take out the January peak. Wide 20 point range but closed just a fraction lower as it continues its overall tight lateral move on low volume above the December peaks. Stingy with its gains and that is a positive for a continued breakout as SP500 shows no or very few signs it wants to break lower. NASDAQ tapped lower toward the 10 day EMA, but bounced before it got close to that level. No threat of a breakdown, just a rather easy test. SOX tested lower but held above the 18 day EMA and bounced to hold the 10 day EMA, showing a candlestick chart doji at the early May peaks. Very key as SOX gave up a breakout last week but then held up well Monday on an attempt to sell it. SP600 performed well also, reaching below the January peak but holding over the 10 day EMA and rebounding to hold that important peak. All showed positive action for the upside.
LEADERSHIP. Energy, commodities, industrials faded as the dollar continued its relief bounce. Techs and chips were lower as well. All recovered nicely, however, and that painted the session as basic testing. A continued underlying bid showed itself again late in the session. While there may be more testing by these leaders, thus far the action is positive for a further upside move and with TXN reporting a solid mid-quarter update after hours the chips could get a shot in the arm and lead a bounce higher.
THE ECONOMY
As with Greenspan, Bernanke has no conundrum, just a tough problem to solve.
Greenspan testified to Congress that the bond yield curve inversion in his last year of office despite the appearance of a solid economy was a 'conundrum.' As I discussed two weeks back in discussing Bernanke's problem with rising 10 year rates, that was no conundrum; the inverted yield curve meant what it has always meant, i.e. that economic weakness was coming. The bond market proved very prescient; it sniffed out the loan problems and the upcoming housing crash. Of course it didn't have to be that omniscient: there were many public warnings from many people that the poor quality loans would explode the market.
Now there is Bernanke and the surging 10 year rate despite the Fed holding short term interest rates at basically zero. The Fed lost control of the 10 year yield despite its purchase of $300B in US Treasuries and the not so veiled intent to buy even more if it proved necessary to keep rates in control. Now over the past three sessions the 2 year yield has exploded higher. That takes some heat off of raising rates to narrow the disparity between the two, but it also underscores a serious problem we have discussed daily: the coming inflation threat.
Nonetheless Bernanke's problem is now characterized as 'Bernanke's conundrum' in the media as if there is some great mystery as to why rates are jumping when the Fed has rates at 0%. The economic data does not suggest any big economic recovery and the type of collapse along with the form of the fiscal stimulus are not the mix to bring about a big economic recovery.
Thus the rise in rates is not due to any anticipated economic surge but anticipation of surging inflation. Gold surged, commodities surged, and oil surged, not on demand but on speculation. Oil demand remains at 2001 levels or worse; there is no real demand for commodities regardless of China's economic rebound. There IS a weak dollar that is pushing prices higher, a weak dollar gutted by the US Treasury printing press that is also a direct reason for the rate spikes: everyone demands more dollars to lend dollars given the diminishing returns thanks to the weakening currency.
In sum, it is no conundrum, it is just history repeating itself as it did during Greenspan's last year. To say it is different this time simply because the recession is the worst since the Great Depression is simply wrong. Indeed the length and depth of the recession underscores that this is the reason, PARTICULARLY when you factor in that we are adopting the same economic and monetary policies of the 1970's that led to what we are seeing now, i.e. spiking commodities prices, a weak dollar, high inflation, high unemployment, slack economy. That is not a conundrum, and to style it as such instead of addressing the real problem is a downright dereliction of duty by our elected and appointed leaders.
Credit card debt is another economic problem to come . . . soon.
Several have warned the past few months of a coming credit card collapse similar to the housing crunch. The question was when it would show up.
It looks as if it started to show in Q1. That is the quarter where consumers have to face the holiday bills, and during Q1 many were not in good position to do so thanks to the continuing longest recession since the Great Depression. The delinquency rate jumped to 11%, historically one of the highest seen. The average balance carried jumped to staggering $5700, up over $200. That is average; on average that is the credit card debt carried month after month by the average cardholder. Staggering is all you can say.
Wrong kind of stimulus leads to wrong kind of result as dollars tucked under the mattress.
The tax refund checks/decreased payroll taxes have amounted to $121B thus far. During the same time period the savings rate climbed and totals put savings increasing by $131B. What the credit numbers and the savings numbers tell you is that the tax refunds are not being spent to pay down debt or on much of anything else.
This simply underscores with hard facts (again) what we have discussed for years from back with the first Bush tax cuts: if the tax cuts, 'refunds', 'rebates' or whatever you want to call the giveaway is simply a regurgitation of cash, if times are truly tough the money will be saved versus spent. The initial Bush tax cuts in the early 2000's did nothing. The refunds/rebates from 2007 helped spending in early 2008 because the economy was not that bad and consumers spent the funds bolstering retail sales. The economy is really bad right now so the tax cuts are not being spent.
Once again we learn the hard way that if you want consumers and businesses to spend and invest in really bad economic times you have to make any tax cuts or tax incentives the 'use it or lose it' variety. In other words, you only get the benefit if you spend the money. The classic example is a tax credit. You get the credit if you use it. You are going to spend the money one way or the other either sending it to the government and getting no discernable benefit in return or you can spend the money on something your business or career needs. You still have to spend the money, but you are getting something tangible with one versus trying to fill the government's spending black hole with the other.
The choice is pretty simple and it is a time-tested method of getting money invested into the economy when there is absolutely no incentive to do so. Unfortunately we are once again learning that 'empathy' and caring for those out of work by making busy work federal construction projects and giving tax rebates that no one can use to replace lost income simply don't work at turning around an economy.
We have to go through this re-learning process every 25 years or so but only after we squander billions (in this case it will be trillions) and years (in this case it could be a decade similar to the 1970's) where everyone suffers. We finally realize that entrepreneurship and American ingenuity are the drivers of our success, not handouts. Fixing bridges and roads only provides temporary relief; they do not create the technologies and new businesses that create lasting, next generation jobs needed not only to pull out of the recession but to keep our standard of living high and lead the rest of the world. Empathy for the struggling workers is best shown by creating jobs that allow them to climb the socioeconomic ladder versus a decade of mediocre jobs that do nothing to raise our standard of living or build back our technological edge.
THE MARKET
MARKET SENTIMENT
VIX: 29.77; +0.15
VXN: 31.18; +0.47
VXO: 28.21; -1.09
Put/Call Ratio (CBOE): 0.94; +0.13
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: 42.5%. Bulls continue their steady climb, trotting higher as the market holds its gains. Up from 40.9% where it has hung around for three weeks. Steady move up from 36.0% just over a month back. Moving in on the 43.2% hit mid-April before anticipation of stress tests and SOX' issues. Over the 35% threshold, below which is considered bullish, but this is not a bearish indication yet. Has to get up to the 60% to 65% level to be bearish. Dramatic rise from 21.3% in November 2008, the bottom on this leg. 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: 25.3%. Bears are becoming rare. Down from 28.4% last week and 33% four weeks back. Well off the 37.2% and the 37.1% in mid-April as the rally continued higher. As with bulls, below the 35% threshold considered bullish though not at bearish levels. Now far from off the high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: 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). That was a huge turn, unlike any seen in recent history.
NASDAQ
Stats: -7.02 points (-0.38%) to close at 1842.4
Volume: 1.935B (-12.76%). Lowest volume of the month as NASDAQ tested and bounced back for a modest loss.
Up Volume: 821.187M (-310.027M)
Down Volume: 1.071B (-90.994M)
A/D and Hi/Lo: Decliners led 1.57 to 1
Previous Session: Decliners led 1.18 to 1
New Highs: 40 (-12)
New Lows: 7 (0)
Gapped lower and traded in a 39 point range - not chopped liver - but held above the 10 day EMA (1809) and recovered 23 points off the low. That keeps NASDAQ comfortably over the November peak (1786) as it tests and sets up a new run at the October peak (1897). Another test lower toward the 10 day EMA before this is over would be nothing bad at all.
Even with AAPL struggling NASDAQ 100 (-0.32%) enjoyed a nice session with a tap at the 10 day EMA and then a recovery over the mid-October peak. Nice action here as well.
SOX (-0.06%) closed basically flat after testing the 18 day EMA on the low and rebounding to close just over the 10 day EMA near support. It is still below the mid-October peak after failing the early June breakout over that level. The action Monday was positive, however, and with TXN raising both its earnings and revenue guidance after hours the chips could make an important move in stepping back into clear leadership.
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -0.95 points (-0.1%) to close at 939.14
NYSE Volume: 1.077B (-14.64%). Volume continues paper thin, almost as low as the Friday ahead of Memorial Day weekend.
Up Volume: 452.871M (-11.8M)
Down Volume: 609.342M (-159.174M)
A/D and Hi/Lo: Decliners led 1.76 to 1
Previous Session: Decliners led 1.1 to 1
New Highs: 18 (-20)
New Lows: 46 (-25)
Nice action, tapping at the 10 day EMA (928) and the May peak (930) on the low and then recovering for a modest loss. Still below the January peak at 944 and above the December peaks. Tight range as the large caps refuse to give up their gains; if you look at the financials you see they have stepped up their consolidations a bit, moving laterally with the index. They have not sold off after their stock and debt offerings, instead moving laterally. They are showing indications they want to break higher, and if they do, SP500 will break higher once again.
SP600 (-0.86%) tested toward its 10 day EMA as well and rebounded, still closing with a loss but holding over the January peak. Good hold, and if the small caps can continue moving laterally around this range they stand a good break higher to continue the new breakout.
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
A second straight tight doji over the 200 day SMA (8696) and a snapback to close with a modest gain. Moving laterally along with the rest of the NYSE and setting up the next move higher.
Stats: +1.36 points (+0.02%) to close at 8764.49
Volume: 189M shares Monday versus 255M shares Friday. Still very low volume, even lower than the pre-Memorial Day session.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Good action to end the Monday session as the buyers continue to be rather quick to move in on dips even with the dollar holding some gains and interest rates rising. There may be some more testing, but the bid from all of that liquidity in the world remains under the market.
We will continue to be patient and let the market make its test and let the plays set up. We already see more buys on current positions, and as always, we have no problem putting more money into stocks that continue to show great action and set up new buy points. The commodities, energy, techs, and chips are setting up nicely. Indeed, the TXN mid-quarter update managed to spark up the chips after hours though we have seen good news from individual stocks fail to carry over to the entire market, but with the setups taking shape this has a good look to it. It is just a matter of if it can continue the tight consolidation and show the break higher.
Support and Resistance
NASDAQ: Closed at 1842.40
Resistance:
1897 is the October post gap intraday high.
1947 is the October gap down point
1984 from late September
2099 is the mid-September low
2169 is the March 2008 double bottom low
Support:
The 10 day EMA at 1809
1780 is the November 2008 peak
1773 is the May peak
1770 is the mid-October interim peak
The 50 day EMA at 1697
The 200 day SMA at 1681
1673 is the prior April peak
1666 is the intraday January 2009 peak
1664 is the May 2008 low
1661 is the April 2009 prior peak
The January closing peak at 1653 (intraday)
1623 is the early April peak
1620 from the early 2001 low
1603 is the December peak
1598 is the February 2009 peak, the last peak NASDAQ made
1587 is the March 2009 high is getting put to bed again
1569 is the late January 2009 peak
1542 is the early October 2008 low
1536 is the late November 2008 peak
1521 is the late 2002 peak following the bounce off the bear market low
1505 is the late October 2008 closing low.
1493 is the October 2008 low & late December 2008 consolidation low
S&P 500: Closed at 939.14
Resistance:
944 is the January 2009 high
1000
1050
Support:
935 is the January closing high
930 is the May peak
The 10 day EMA at 929
The 200 day SMA at 918
919 is the early December peak
899 is the early October closing low
896 is the late November 2008 peak
888.70 is the April intraday high.
The 50 day EMA at 884
882 is the early May low
878 is the late January 2009 peak
The prior April peak at 876
866 is the second October 2008 low
857 is the December consolidation low; cracking but not broken
853 is the July 2002 low
848 is the October 2008 closing low
846 is the April peak
842 is the early April peak
839 is the early October 2008 low
833 is the March 2009 peak
The 90 day SMA at 830
818 is the early November 2008 low
815 is the early December 2008 low
805 is the low on the January 2009 selloff. KEY Level
800 is the March 2003 post bottom low
Dow: Closed at 8764.49
Resistance:
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
9387 is the mid-October peak
9625 is the October closing high
Support:
The 10 day EMA at 8638
8626 from December 2002
8588 is the May high
8521 is an interim high in March 2003 after the March 2003 low
8451 is the early October closing low
8419 is the late December closing low in that consolidation
8375 is the late January 2009 interim peak
8315 is the February 2009 peak
8307 is the April 2009 intraday high
The 50 day EMA at 8275
8221 is the May 2008 low
8197 was the second October 2008 low
8191 is the prior April peak
8175 is the October 2008 closing low. Key level to watch.
8141 is the early December low
The early April intraday peak at 8113
The early April peak at 8076
7965 is the mid-November 2008 interim intraday low.
7932 is the March 2009 peak
7909 is the early January low
7882 is the early October 2008 intraday low. Key level to watch.
7867 is the early February low
7702 is the July 2002 low
7694 is the February intraday low
7552 is the November closing low. KEY Level.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
June 9 - Tuesday
April Wholesale Inventories (10:00): -1.1% expected, -1.6% prior
June 10 - Wednesday
April Trade Balance (8:30): -$29.0B expected, -$27.6B prior
Crude Oil Inventories, 06/05 (10:30): -2.87M prior
Treasury Budget, May (14:00): -$181.0B expected
June 11 - Thursday
May Retail Sales, May (8:30): 0.5% expected, -0.4% prior
Retail Sales ex-auto, May (8:30): 0.2% expected, -0.5% prior
Initial Jobless Claims, 06/06 (8:30): 625K expected, 621K prior
Business Inventories, April (10:00): -1.0% expected, -1.0% prior
June 12 - Friday
May Export Prices ex-aq. (8:30): -0.3% prior
Import Prices ex-oil, May (8:30): -0.7% prior
Michigan Sentiment-Preliminary, Jun (9:55): 69.5 expected
End part 1 of 3
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world stock market
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