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money investment, investment help
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6/17/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: AIPC; POT
Buy alerts: CELG
Trailing stops: None issued
Stop alerts: FSLR
SUMMARY:
- Market holds the line though dollar trades remain under stress.
- CPI showing no problem with inflation? Not given this bad recession.
- Mortgage applications plunk to a 7 month low
- Crude oil inventories fall but gasoline supplies surge.
- Dollar faces a moment of truth in its rebound
- Maybe an interim bounce, but hard-pressed to say the pullback is over after Wednesday.
Indices hold the next level of support, but that is about all.
The data was noncommittal to weak, and that was nothing new. CPI followed the PPI's lead, showing little sign of near term inflation. Mortgage applications tanked again, falling 16% to a 7 month low as mortgage rates continue rise, choking off the refinancing that led the recovery in applications. FDX earnings were fine, but the outlook was a third to one-half of expectations; less demand for good means less shipping. Unlike many economic indicators, this one matters. Analysts were active, upgrading QCOM, BIDU and NVDA.
Nothing really changed the market's character and the pre-market was flat to lower. They sold off the first hour, but held key levels, e.g. NASDAQ's November peak and SP500's 200 day SMA. They turned, rallying to positive through lunch and on into mid-afternoon. A 2 hour fizzle into the close gave back most of the gains though NASDAQ, led by large cap techs and chips, held onto some decent gains. Held where you would expect them to step up and show a little gumption, and as you would expect as well, the better looking NASDAQ was the relative leader on the day.
TECHNICAL
INTRADAY. Soft start, selling to support levels, then recovering nicely only to waffle and give a chunk of the move back. Indeed NYSE indices outside of the small caps gave up their higher ground and closed negative. Nothing changed the market's character though the indices held where you would expect intraday.
INTERNALS. Breadth was split, positive (1.1:1) on NASDAQ, negative (-1.3:1) on NYSE. Makes since as they were basically split on the day, but NASDAQ breadth was not as good as a 0.66% gain would suggest. With the large cap NASDAQ 100 rising 0.88% it is clear the strength was from the large cap techs ahead of RIMM's earnings. Volume jumped substantially, rising 12% on both exchanges. NASDAQ trade moved easily above average, showing the best trade since the first of June. NYSE volume was up as well to its best level in two weeks, but still below average. Good to see rising volume as NASDAQ tapped key support and bounced . . . BUT then again, it is Wednesday in expiration week and volume is going to be up. You would expect rising volume at support as well, if that support is going to try and hold. Accumulation, however? Not going to make that call though it is better to see on a bounce that wraith-thin trade.
CHARTS. NASDAQ held at the November low, tapping almost to the fraction, then rebounded to close positive. Gave back 15 points, more than it held on the close. Not a strong session as NASDAQ once more got no help from anywhere else, but it held where it had to. SP500 did pretty much the same, tapping at 900 on the low (904) as well as the 200 day SMA and then rebounding. This is the initial level we expected it to try and hold in this range, so no surprise it bounced. Does it mark the end of the pullback? Don't think so, at least for SP500. 880 to 875 looks much more likely. SOX (+0.93%) didn't waste time getting down to the 50 day EMA, tapping just over that level on the low. It also held the March/May up trendline and bounced. Gave up the breakout again, but given that action this is the next best thing. A hold of the trendline and a bounce would be huge for the market.
LEADERSHIP. The dollar and inflation trades struggled yet again even as the dollar weakened from its rebound over the past 5 sessions (closed at 1.3944 Wednesday versus 1.3826 Tuesday). They are still under pressure and now many are at key support levels where they have rolled up and down one to two times. We are looking at some potential rebound plays off these levels if they hold smartly AND energy and commodities in general recover as well. Tech stocks look pretty solid on this 'typical' pullback as they look to reassert their leadership role after this test. Healthcare stocks are trying to show some starch and we picked up some CELG Wednesday as it bounced higher of a nice breakout test. We are watching to see if anything else develops out of this broad category. In sum, right now leadership has pulled back and we are watching to see if the same leaders step up again (energy, commodities, industrials), if techs rebound after this pullback, new leadership emerges (e.g. biotech), or a combination.
THE ECONOMY
CPI shows no inflation near term, or does it?
Wednesday we commented PPI showed no serious price gains near term. Wednesday CPI was in line as well with a 0.1% gain overall and in the core. Year over year that pushed the overall level down 1.3%, the largest decline since April 1950. That was the bookend to PPI's 5% year over year decline, the largest since August 1949. Looks as if both show no inflation issues near term.
Of course if you look at the core the picture changes a bit. The 0.1% monthly gain turned into a 1.8% year over year rise. By many accounts that showed no inflation threat as the core level is below the Fed's supposed upper limit of 2%. I mulled it over during the day, however, and that just does not add up.
Sure a 1.8% core level is below the Fed's speed limit, but that speed limit is for times when the economy is jumping. This is the worst recession in terms of length since the Great Depression. If core inflation is at 1.8% at this point when the economy is showing no signs of recovery and the Fed monetary and Administration's fiscal policies are conducive to inflation, this is a very serious problem down the road. Low inflation? NOT in these circumstances, not at all.
Oil rises even with bearish inventories.
Oil moved back over $70/bbl, closing at $70.85, up 0.38. It wasn't all upside, however. Oil was down early even though inventories fell 3.87M bbl while expectations were for a 1.75M bbl drop. What hampered prices was a large unexpected build in gasoline, rising 3.4M bbl versus the 500K build expected. Oil stumbled around after that, and it was not helped by the dollar as it was strong again early.
Then the dollar weakened as the session progressed. Not a massive reversal but it closed at 1.3944, down from the 1.3836 Tuesday. That gave oil a wedge to move higher and it took it.
Dollar facing an important early test.
As discussed this past week the dollar broke a short term downtrend from April a couple of weeks back. It tested and then rallied Friday and Monday. Now it is coming back without making a serious new rally high. It is at a very key level at 80; if it breaks below that level on the close the dollar bounce, brief as it was, is likely over.
Thus Thursday we are watching the DXY0 closely, particularly on the close. If the dollar breaks below on the close that suggests the dollar is heading back down and it also suggests that the dollar related trades (commodities, energy, oil) will strengthen.
THE MARKET
MARKET SENTIMENT
VIX: 31.54; -1.14. VIX is trying to break its March to early June trend. It has bounced up to the 50 day EMA where it stalled in late March before breaking down seriously. Key test for VIX. If the market fails to hold support here VIX is likely to break through the 50 day. If they hold and bounce, it won't. Meaning? Not a lot right now; it is just showing some nervousness.
VXN: 31.47; -0.85
VXO: 30.1; -0.96
Put/Call Ratio (CBOE): 1.13; +0.12. A second session over 1.0 on the close. LOTS of people buying protection and speculating to the downside. Two days don't mean a whole lot by themselves, but it shows a quick growth in downside emotion. There is a lot of negative views but the overall action is not bad at all. Sure they broke down but they are not breaking down severely. Shades of early 2003, though just shades at this point.
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: 47.7%. Bulls are running on Wall Street, spiking from 42.5%. Broke free from the 40.9% where it hung around for three weeks. Steady rise from 36.0% just 6 weeks back. Has passed 43.2% hit mid-April before anticipation of stress tests. 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: 23.3%. Bears are scarcer, falling from, 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 and starting to approach bearish levels (for the overall market). 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: +11.88 points (+0.66%) to close at 1808.06
Volume: 2.47B (+12.69%)
Up Volume: 1.381B (+895.343M)
Down Volume: 1.148B (-612.58M)
A/D and Hi/Lo: Advancers led 1.1 to 1
Previous Session: Decliners led 2.42 to 1
New Highs: 23 (+7)
New Lows: 20 (+6)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ bounced off its November intraday high at 1785. It did not, however, blast off from there. It was the relative strength leader, but it also gave back two-thirds of its rebound gains after a weak morning. Key point for NASDAQ as this was the last resistance coming off the bottom, and there is the late May gap higher from the May peak (1773) that is yet unfilled. Very important test for NASDAQ continues; just because it held Wednesday does not mean it holds in the days ahead, particularly if SP500 breaks down further. For now techs are showing relative strength, and will likely lead higher, but the market overall has to get through this pullback.
SOX (+0.93%) wasted no time moving down to the 50 day EMA, tapping just over that level on the low and snapping back up positive. Just above the 50 day is the March to May trendline, and that held as well. After SOX broke down from its last breakout over the mid-October high this development is a solid positive. Thus we are watching SOX and the chips for potential upside plays if this holds. If not, we are looking for them downside.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -1.26 points (-0.14%) to close at 910.71
NYSE Volume: 1.316B (+11.91%). Solid bump in volume, the best in two weeks but still well below average.
Up Volume: 407.211M (+186.956M)
Down Volume: 899.653M (-42.977M)
A/D and Hi/Lo: Decliners led 1.33 to 1
Previous Session: Decliners led 2.5 to 1
New Highs: 9 (-1)
New Lows: 50 (+3)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 tapped the 200 day SMA (906) on the low and rebounded to flat. It gave up the June consolidation on Tuesday and paused Wednesday, showing a doji at the 200 day and just below the early May peaks at 925ish. The doji can suggest a momentum change, but if it occurs shortly after a move such as this break lower, it is typically just a continuation signal. In other words the market pauses then continues in the direction of the initial move, and in this case it is down. There is support here, however at 900 and the 200 day, and thus SP500 may bounce up off of this, but if it does we expect 925 to hold it and push it back down through 900 and on toward 875. Maybe it holds at 900 and forms a new channel. The point: it broke lower and this action today does not alter the break lower; it has made a bearish move and it still has to establish its next move. All things considered we anticipate it will test lower toward the bottom of this range it fell back into. Doesn't mean it will but the failure to break higher from the consolidation suggests more downside.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 showed a doji at the 8500 and the early May high. DJ30 is in position to bounce. If it was a leader we would be more positive as to the prospects. As it is, it has broken its March up trendline same as SP500. May bounce up to 8600ish but then it has to really break higher or is in trouble.
Stats: -7.49 points (-0.09%) to close at 8497.18
Volume: 240M shares Tuesday versus 230M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Initial jobless claims on the economic data side. Dojis at some interim support on the indices. Typically a doji after a downside move starts would mean just a pause before more downside. The support, particularly on NASDAQ, DJ30 and SOX, suggests a bounce could come tomorrow, but if it does we don't expect it to be up and away from there.
The break from resistance was important on SP500, SP600 and DJ30. They need to play that out. NASDAQ is the X Factor. It broke out and rallied and is making a nice test of a breakout, coming right back to the breakout point. If it surges then we see if the others follow. Again, IF IT DOES we still look at them stalling out at near resistance without making it all the way back up to the May peaks on SP500. This is what we anticipate from the charts, but of course the market is in a transition/test phase, so it can be volatile, particularly with expiration thrown on top.
Thus we see good upside potential setting up at the same time the market struggles and has some downside ongoing and indeed still setting up as well. That happens during these phases and we can, by shortening our timeframe a bit, take advantage of them. The market is not trending strongly now so we shorten our goals to match the market. We also cut back on position size, picking good entry points to maximize the risk/reward ratio. Then when things start to trend again we can stretch out our goals and our position sizes.
Support and Resistance
NASDAQ: Closed at 1808.06
Resistance:
The 10 day EMA at 1823
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:
1786 is the November intraday high
1780 is the November 2008 closing peak
1773 is the May peak
1770 is the mid-October interim peak
The 50 day EMA at 1731
1673 is the prior April peak
1666 is the intraday January 2009 peak
The 200 day SMA at 1662
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 910.71
Resistance:
919 is the early December peak
The 10 day EMA at 927
930 is the May peak
935 is the January closing high
944 is the January 2009 high
1000
1050
Support:
The 200 day SMA at 906
899 is the early October closing low
896 is the late November 2008 peak
The 50 day EMA at 895
888.70 is the April intraday high.
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
The 90 day SMA at 838
833 is the March 2009 peak
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 8497.18
Resistance:
8521 is an interim high in March 2003 after the March 2003 low
8588 is the May high
8626 from December 2002
The 10 day EMA at 8630
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:
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
The 50 day EMA at 8369
8315 is the February 2009 peak
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 15 - Monday
NY Empire Manufacturing, June (08:30): -9.41 actual versus -4.60 expected, -4.55 prior
Net Long-Term TIC Fl, April (9:00): $11.2B actual versus $60.0B expected, $55.4B prior (revised from $55.8B)
June 16 - Tuesday
Housing Starts, May (08:30): +17%; 485K expected, 458K prior
Building Permits, May (08:30): +4%; 508K expected, 498K prior
PPI, May (08:30): 0.2% actual versus 0.6% expected, 0.3% prior
Core PPI, May (08:30): -0.1% actual versus 0.1% expected, 0.1% prior
Capacity Utilization, May (09:15): 68.3% actual versus 68.4% expected, 69.0% prior
Industrial Production, May (09:15): -1.1% actual versus -1.0% expected, -0.7% prior (revised from -0.5%)
June 17 - Wednesday
Core CPI, May (08:30): 0.1% actual versus 0.1% expected, 0.3% prior
CPI, May (08:30): 0.1% actual versus 0.3% expected, 0.0% prior
Current Account Balance, Q1 (08:30): -$101.5B actual versus -$85.0B expected, -$132.8B prior
Crude Oil Inventories, 06/12 (10:30): -3.87M actual versus -1.7M expected, -4.38M prior
June 18 - Thursday
Initial Jobless Claims, 06/13 (08:30): 602K expected, 601K prior
Leading Indicators, May (10:00): 1.0% expected, 1.0% prior
Philadelphia Fed, Jun (10:00): -17.0 expected, -22.6 prior
End part 1 of 3
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