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money investment, investment help
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6/10/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: BHI; EOG; FLEX
Trailing stops: CMG; HMSY; PLT; SINA; STJ; TYL
Stop alerts: JACK; NKTR
SUMMARY:
- Bad news aplenty and market squanders an early gain, but recovers in the afternoon.
- Home Depot, Fed tell the same story: slowing declines, but still falling.
- Russia wants to meet with China as both ponder unloading dollar investments. Count Brazil in as well.
- Oil spikes again as inventories post a surprise decline.
- Bond auctions are not soothing investors.
- You cannot devalue your way to prosperity, lesson number 9,789
- As expected, SP500 is shaking out some here at resistance.
Market tries to overcome bad news, but it was not ready to try the breakout.
Home Depot increased the upper end of its profit range and declared the worst is over as far as the declines in its business. Now THAT is a new story. Seems every piece of economic data up until recently (when they started weakening again) has told the same story: slowing declines albeit declines nonetheless. HD raised some spirits, however, and it also helped that the G8 is beginning discussing unwinding the stimulus in an apparent effort to stave off a feared inflation surge.
Those were enough to bounce the market higher at the open, but with all of the other issues on Wednesday the gains did not hold. One of the big headlines: Russia announced it desires divesting out of dollar holdings and wants this to be one of its agenda items when Russia meets with China this summer. As we know China is already talking about getting out of a chunk of its dollar investments as well. Brazil made a similar statement. You would have thought that would have pushed the dollar lower, but it actually gained on the session (1.3991 close, 1.4069 Tuesday) as a poor 10 year bond auction pushed investors toward the dollar. Bond yields rallied (1.35% 2 year, 3.95% 10 year) on a poor US Treasury auction as buyers required more return for their investment.
In addition, oil continued its torrid run, clearing $71/bbl (71.28, +1.27). A weaker than expected inventory reading (-4.4M bbl) only fueled (ha ha) the recent price surge. Gasoline inventories fell 1.6M when a BUILD was anticipated given refinery usage is up and we are in the vacation and travel season when stockpiles are ramped up. All we can expect to ramp up now are gasoline costs that continue over $2.60/gallon. Nothing like adding a major crimp into the consumer during a recession. Recall we discussed people not spending their tax savings, and indeed they have saved 108% of their tax rebates. Unfortunately they are going to have to spend it on gasoline now just to get to the job they may still have. This is a tough, ugly recession.
Then there was the Fed's Beige Book that was also more of the same with 5 of 12 regions reporting 'moderation' in the contraction. Still predicts a recovery by year end. They say time heals everything. Not sure that is enough time for this recession, at least with a stimulus plan that only seems to stimulate inflation given the massive $1.8T deficit it helped create. Because of that debt our dollar is worth less and the bonds we are selling to pay for it require higher yields. Seems pretty much a cause and effect scenario and hardly a positive for the market.
Finally there was the continuing story of government pressure regarding the financial companies in the fall of 2008. That story is starting to explode as Bernanke looks as if he may be caught in an untruth regarding the BAC/MER deal. There are also issues as to what was disclosed to shareholders and whether more pressure was brought to withhold some information in order to get the deal done. The very fact that these questions are arising is a very sad day, again, for the US.
So with that background the market gave up that early gain, squandering any potential SP500 breakout attempt. We really were not expecting a breakout, however. Stocks sold but once more 'L' word took over and in the afternoon money came in and bounced stocks nicely, cutting the lion's share of the losses.
TECHNICAL
INTRADAY. As noted stocks gapped higher but immediately turned over and sold negative. Kept selling to midmorning where the obligatory reversal made its attempt. Couldn't make it stick and the indices sold to new session lows after lunch. Then that liquidity driven move into the close that just ran out of time to get the indices positive. Looks like something of the shakeout we discussed on Tuesday.
INTERNALS. Breadth was lower as you would expect on a down day, but it was humping it back up with the late rebound and closed at -1.5:1 on NASDAQ and -1.2:1 on NYSE. Volume rallied on both NASDAQ and NYSE (2.3B and 1.2B respectively), putting volume back to average for NASDAQ though still well below average on NYSE. Distribution given the indices closed lower? Nah. Trade was light until that late afternoon move. That is when volume kicked in. That shows buyers were back in the hunt, using the shakeout to the downside as buy points.
CHARTS. Tuesday we noted that SP500, pressed up against the January peak and above the December highs on the downside, would likely shakeout some, ratcheting up the fear that the index would break lower. Indeed after hours Wednesday we heard one commentator refer to SP500 as a coiled spring below that resistance, and predicted a 'significant spike' lower. That can always be the case; no one knows what the market will really do. Looking at this pattern, the leadership, and price/volume action it looks more like a spring coiled for a break higher. The shakeout action is a neat, though trying, part of the equation, where those looking for weakness feel they are getting their views confirmed. Then the market bounces back up and makes the breakout. Of course all of this depends upon the financials; as they have consolidated the past 5 weeks SP500 has done basically the same. SP500 did break through the December highs without their help, but now it needs the financials to play ball. They will tell the tale of the next move.
NASDAQ gapped higher as well and turned over after a series of gains the past two weeks. It did not test the October gap down point and reflex bounce off of that; it did not hit it and turn over, it just sagged after a good move. More of the shakeout in the market. SOX (+0.20%) sold down and then rebounded to post the only gain of the major indices. Good to see it hold the breakout, at least if it was just one day.
LEADERSHIP. Despite the rise in the dollar, steel stocks continued their spike higher. Now this is either a break of sorts with the dollar/commodities relationship, perhaps now leaning more toward the inflation aspects, or it could be a last gasp spurt. Interestingly, other commodities recovered nicely as well and though not as strong as steel they showed there is still a bid under commodities even when faced with a higher dollar. Energy was a bit soft but some moved up well. Natural gas stocks were stronger as were service companies. Chips were not surging, but they tested and held well; still poised to break higher again. Leadership still looks solid and is still in position to move. Financials, again, will be a key. They are not what you call great leaders, but they need to lead to help SP500 make the breakout.
THE ECONOMY
U.S. Trade Gap widens for second straight month.
Remember the days during the housing collapse that the economy kept turning in solid GDP numbers? Exports were jumping as the BRIC countries and others were snapping up our products to facilitate their economic expansions and build-outs. That kept the economy expanding even when the domestic market was contracting.
Of course as soon as the other world economies started to struggle our exports started to slide. So what do you do? You continue to let the dollar slide in the vain hope that continually lower priced US goods thanks to a weaker dollar versus other currencies will keep exports up and thus prop up the economy.
Guess what? It isn't working. The US dollar was already weak and then was gutted when Treasury's Geithner tacitly acknowledged merits in a 'global' currency sans the dollar. That told the world that the 'new boss' was the same as the old boss (credits to the 'Who'), i.e. that a strong dollar is wanted in name only.
Add to that the massive dollar printing thanks to massive deficit spending with $1.8T deficits (makes you long for those old $300B deficits of 2007, huh?) the dollar is getting slaughtered further. On top of that the rest of the currencies are wobbly thanks to their central banks running the presses 24/7. They cannot buy more US goods despite the weaker dollar.
April's trade gap shows the result. At $29.2B it was the second straight month of a wider gap with exports the LOWEST in 3 years. No one can afford to buy our goods as their economies are in the crapper as well. On top of that OIL is surging. To add insult to injury, we have to buy oil with dollars that are worth less and thus oil costs more.
Once more we are proving you cannot devalue your currency as a way to prosperity. How can it be prosperity-inducing to pay more per barrel of oil because your currency is worth less and less? All that does is drain your real assets more and more. Terrible path we are on, and we can thank both the republicans and democrats for steadfastly pursuing our 'strong dollar' policy of the past 18 years.
THE MARKET
MARKET SENTIMENT
VIX: 28.46; +0.19
VXN: 29.77; +0.08
VXO: 27.17; +0.43
Put/Call Ratio (CBOE): 0.86; 0
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: -7.05 points (-0.38%) to close at 1853.08
Volume: 2.301B (+9.56%). Rising, average volume as NASDAQ lost some ground. Technically distribution, but the volume came in late as NASDAQ recovered. That shows buyers coming in.
Up Volume: 1.068B (-610.639M)
Down Volume: 1.288B (+823.966M)
A/D and Hi/Lo: Decliners led 1.55 to 1
Previous Session: Advancers led 1.53 to 1
New Highs: 48 (-3)
New Lows: 9 (0)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped higher but turned over immediately. Never threatened the October gap down points at 1897 to 1902 before it turned down and tapped the 10 day EMA on the low (1827). It managed a pretty decent recovery to the close cutting the losses by 26 points. Pretty solid rebound after a pretty good sized selloff.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SOX (+0.20%) broke out again Tuesday and on Wednesday it managed to hold that move with a late rebound of its own. That is a good indication for the market if it can hold the breakout. A very good indication.
SP500/NYSE
Stats: -3.28 points (-0.35%) to close at 939.15
NYSE Volume: 1.22B (+15.1%). Volume was up as NYSE indices sold down and then rallied right back up. Not huge volume but rising after two really low sessions and a decline the entire month. Still one of the lower levels of June but looks to be on the upswing. As with NASDAQ, the selloff and recovery on rising trade is a positive in our view.
Up Volume: 506.47M (-83.818M)
Down Volume: 697.163M (+266.47M)
A/D and Hi/Lo: Decliners led 1.24 to 1
Previous Session: Advancers led 1.63 to 1
New Highs: 17 (-11)
New Lows: 38 (-10)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Flat as a pancake below the January peak and over the December highs. It is near the 200 day SMA (915) as well. Big run, bumping the next to last resistance from the big selloff once it started to bottom. It can break either way and you find as many saying upside as downside. We think upside is likely, but you cannot build expectations to the point you ignore when things deteriorate. Right now it still looks to us the path has a continued upside bias, but SP500 depends upon the financials getting an upside bid once more.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
SP600 (-0.87%) was the loss leader, and it sold aggressively down through the early May peak, but then it reversed and closed just over the January intraday high. That keeps it, similar to SP500, in a nice tight lateral range, but unlike SP500 it is OVER the January peak. Small caps have tried to shoulder into the leadership, and if they can hold here they are in good position to move higher.
DJ30
Another flat-line move as well with a deep reach similar to Monday as it tested near the May peak (8588) and then rebounded basically to flat. Volume was up, showing the buyers, as with the other indices, stepped in as they recovered. To us that is positive action.
Stats: -24.04 points (-0.27%) to close at 8739.02
Volume: 220M shares Wednesday versus 187M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The market, specifically in terms of SP500 and the other NYSE indices, is setting up for an important break. Now NASDAQ, SOX, and to a lesser extent, have all had solid upside breaks. NASDAQ more than the other two is due for something of a pullback after running toward the October gap down points, though it could still move on up to that level first.
If it does test that could also coincide with the NYSE indices in something of a shakeout move. Again, a shakeout is a fade on lighter trade that scares out the weaker holders, those with itchy trigger fingers, and then rebounds. That means a test of the December peaks (919 intraday, 910 closing), maybe a bit lower on SP500. That would work out pretty well.
Again the market can break either way from this pattern. What we like is how leadership continues to hold up, set up, and move up. If financials join the upside again, SP500 makes the break higher. If they don't it can still break higher (see the late May run), but it is a tough road.
The big news Thursday is the retail sales report for May. We already saw disappointing same store sales thanks to WMT not providing its data; it is recession and WMT takes in a large chunk of any recession spending. With WMT back in on retail sales expectations may be a bit too low after same store sales. Well, sounds good in theory, right? Sales are expected to move to 0.5% from -0.4%. It could do it given gasoline prices have surged and gasoline sales are part of retail sales.
We continue to see leadership in energy, commodities, chips, techs, and industrials. Pretty broad group that is set up well and moving up as well. The market is going to make that break, and with good leadership the bias is upside, but these levels always test your nerves, i.e. there could be some more shakeout action with new lows in the SP500 consolidation. We watch the volume and what the leaders do. Is volume low on the move and are leaders holding their patterns? If the good consolidation action holds then the upside character remains and the upside break is still in play.
Support and Resistance
NASDAQ: Closed at 1853.08
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 1824
1780 is the November 2008 peak
1773 is the May peak
1770 is the mid-October interim peak
The 50 day EMA at 1710
The 200 day SMA at 1676
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 939.15
Resistance:
944 is the January 2009 high
1000
1050
Support:
935 is the January closing high
The 10 day EMA at 932
930 is the May peak
919 is the early December peak
The 200 day SMA at 915
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 888
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 8739.02
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 8675
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
The 50 day EMA at 8311
8307 is the April 2009 intraday high
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): -1.4% actual versus -1.2% expected, -1.8% prior (revised from -1.6%).
June 10 - Wednesday
April Trade Balance (8:30): -$29.2B actual versus -$29.0B expected, -$28.5B prior (revised from -$27.6B
Crude Oil Inventories, 06/05 (10:30): -4.4B actual, -2.87M prior
Treasury Budget, May (14:00): -$189.7B actual, -$181.0B expected, -$165.9B prior
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): 615K 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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