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7/01/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: EDU
Buy alerts: BLKB; MCD; SU; XTO
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- New money hits for the new quarter, but stocks cannot hold much of the gains.
- SP500 shows a familiar intraday reversal.
- Oil makes no headway despite lower dollar, lower inventories.
- ADP private jobs fall more than expected but revisions are better.
- Mixed economic data still suggests stabilization but lacking recovery.
- Jobs report headlines Thursday. Will the money hold up?
Stocks rally out of the gates but have a hard time holding the move.
The ADP private jobs report was not as strong as hoped (-473K versus -394K expected), but it improved month over month and was the lowest since October 2008. That set futures back on their heels pre-market, but they came right back. GIS (cereal) beat earnings expectations and increased its guidance. China reported its fourth consecutive climb in its PMI though it was barely a gain and frankly, many wonder just how accurate or, more accurately, how honest these numbers are. Oil jumped higher again (71.33, +1.44) in pre-market trade as the dollar sold off, closing at 1.4145 after the 1.4023 Tuesday close.
The positives were enough to offset the early negatives, and stocks were set to start higher. Actually, it was the new money for the quarter simply outweighing any worries; it was going to get put into the market regardless of what the news was, and that is precisely what happened.
Stocks started higher. They gapped higher even on SP500. That is a more unusual start for the large caps and it underscores there was some money to be put into play barring some major news item that would change the outlook. That was not forthcoming so the money was pushed into the market and stocks started higher out of the gates.
A so-so ISM, weaker construction spending, and a blas pending homes report stalled the move for a few minutes, but the upside resumed into the first hour. That was, however, the peak. Oil inventories came out at the end of the first hour and though they fell 3.6M versus the -2.2M expected, oil prices rolled over. By the close oil was negative at 69.29, -0.60; oil again reverses solid gains to close lower. As noted Tuesday, that is the action of a weakening commodity. The market fell with oil. It held gains at the close, but the indices were 50% or more off of their intraday highs.
TECHNICAL.
INTERNALS. Solid breadth at 2.7:1 NYSE and 2:1 NASDAQ. Volume was flat, and low, on NASDAQ. It tumbled 28% on NYSE, failing to make 1B shares and coming in well, well below average. Rather typical holiday week trade levels.
CHARTS. SP500 is the most interesting as it showed another one of those intraday reversals seen in June when it tried to break over the January peak and then gave it up. It sold off toward 875 on that move. It has bounced up to the May peak, a lower resistance level, and is showing the same action. We will see if the result is the same, and given it started at a lower point you would anticipate a deeper test. NASDAQ showed some similar action as it reversed from a high on this bounce that approached but did not really threaten the June peaks. NASDAQ is the market leading index. If it rolls over and sells more aggressively the rest of the market is going to do the same.
LEADERSHIP. Software continues to push more into the leadership role. Restaurants looked pretty good as well. China is trying to get back on track. Chips are showing some life. That said, there are some big name and key techs that are at important inflection points, e.g. AAPL, RIMM, MSFT. If they decide to fade NASDAQ fades as well. As NASDAQ goes, much of the market strength goes. All in all there is leadership advancing (restaurants, software), leadership setting up, and leadership trying to hang on. Energy is not in good shape. After the initial tank lower it bounced for a week and is turning down as of Wednesday. If they hold and bounce back that is a positive for the sector. That would be a surprise, however; oil is weakening and the energy stocks ahead of it.
THE ECONOMY
Data suggest stabilization at recession levels. A first step but no signs of recovery.
The ISM rose to 44.8 from 42.8, moving toward that 50 threshold that marks contraction versus expansion. The June reading was below the 44.9 expected, so it was something of a disappointment. More than that, however, it is not positive as many are calling for an economic recovery.
As we have reported before, in 2002 the regional indices were turning back above 50 as the market rallied off the October bear market low. The market has put in a 35% move off the lows and its best quarter in a quarter century, and the economic indicators, including the PMI reports, are nowhere near turning positive.
What about construction spending? It was up in April, rising 0.6%. But that was revised lower from 0.8%. May fell 0.9%, worse than the -0.6% expected. Not a lot of economic revival in construction, and with a 10 month or more supply of homes and more office space coming open by the day given the businesses going out of business, there is not about to be a construction boom. Add on the dearth of lending the construction sector recovery looks far off as well.
Business investment is up the past two months and no one is complaining about that. Every recovery requires businesses to invest and spend or else there is no recovery. Consumers cannot lead a rebound: they can help buy goods and pick up the ball of recovery and run with it, but unless businesses are up and running all we get is inflation.
Will businesses keep investing? There has been some replacement investment, and some with money are buying while prices are cheap, seeing inflation ahead. There is, however, no demand reason to invest heavily, and we are concerned that this recent rise in investment will simply be a one-off situation where some buys were made in order to take advantage of low prices as part of a replacement cycle, and then it will dry up. Certainly the small businesses that we talk with and meet with say they have no reason to invest: demand is low, production is slack, workers are not needed full time. Without any stimulus why spend the money?
That raises an important point that we have harped on frequently as well: the stimulus the Administration is pursuing is the kind that rewards spendthrift states and those that have not saved but provides no reason for small businesses to go out and buy equipment and thus spur business investment. None, and I mean none that we have talked with are receiving one bit of help from the stimulus bill. They are not spending, and of course it is very difficult for them to access funds if needed. Those with lines of credit have borrowed on them just to make sure they remain open just in case they need the money down the road. They are not, however, rushing out to invest when they, as most that survived the 1970's, see the same kind of long road to recovery this time around thanks to the errant policies put in place.
Still some say the recession is over.
Nonetheless some have declared the recession over based on the economic data. All the economic data shows us is that we can declare any new depression over. With the 1970'-style policies adopted by the current Administration in terms of regulation, taxation, and spending we can expect 1970's-style results. It took ten years and a 180 degree turn in policies and thinking to overcome those mistakes. As I have said before, as no one reads economic history books the new generation has forgotten our mistakes of the past and now we are going to learn them, not through history books so we can avoid them, but through harsh reality.
By the end of the 1970's they had learned the lesson well and voted to take a new yet old path, the one of free enterprise and capitalism, rewarding those with new ideas willing to take a risk versus attempting to legislate social and economic equality. Almost 50 years have passed since some of these policies were put in place. They are basically ready to collapse on their own as clear failures. It is time. The USSR fell of its own weight after 50 years, aided by its inability to keep up with a revitalized US economy and national spirit. Unfortunately just as these policies that have done nothing other than destroy some segments of society and burden us all with trillions of dollars in future payments were ready to fail they are going to be expanded. That could drive the nails in the coffin of the capitalism once and for all unless we wake up in time once again and vote for our freedoms as in 1980.
THE MARKET
MARKET SENTIMENT
VIX: 26.22; -0.13
VXN: 26.86; +0.17
VXO: 25.17; +0.38
Put/Call Ratio (CBOE): 0.8; -0.28
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: 43.6%. Down from 44.8% as the choppy market is still culling the herd some. Fading from 47.7% it spiked to up from a low of 42.5%. Broke free from the 40.9% where it hung around for three weeks. Steady rise from 36.0% just 8 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: 28.7%. Up from 26.4% and 23.3% the week before. Still 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: +10.68 points (+0.58%) to close at 1845.72
Volume: 1.91B (-4.12%)
Up Volume: 1.358B (+570.988M)
Down Volume: 619.09M (-632.945M)
A/D and Hi/Lo: Advancers led 2.03 to 1
Previous Session: Decliners led 1.28 to 1
New Highs: 43 (+11)
New Lows: 8 (0)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Decent gains but not all that solid a session on the tech index. It rallied to 1862 on the peak, well short of the June high at 1880, and gave up over half the session gains. Not as much a rollover as SP500, but with that index showing familiar action from June we have to be cognizant of the pullback possibility as the new quarter money dries up. As noted earlier, some key stocks are at points where they can test back. NASDAQ is the market leader on this move and if it fades the rest of the market will do likewise. A test of the May peaks once more is a logical pullback level.
SOX (+1.47%) is looking better but it is still below the early May peak and of course below the June twin peaks. It reached toward the May peak on the high (271), again hitting the March/May up trendline and fading back. Better, still trending higher, but not a lot of strength.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +4.01 points (+0.44%) to close at 923.33
NYSE Volume: 950.845M (-28.38%). Honey, that is low volume. At least volume didn't surge as SP500 moved up to the early May peaks and rolled back down. That means it just could be some intraday slop without the sellers taking over. Or course it showed low volume on the last rollover.
Up Volume: 598.002M (+196.643M)
Down Volume: 322.449M (-578.505M)
A/D and Hi/Lo: Advancers led 2.75 to 1
Previous Session: Decliners led 1.41 to 1
New Highs: 34 (+6)
New Lows: 46 (-4
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Rallied up to the May peaks (930) but could not hold the move and closed basically flat. It stalled at the January high in June and is showing some similar action at a lower peak. The Wednesday action does not mean a rollover is imminent or has to occur off this pattern. It is simply similar to its foiled breakout in June and thus we are watching to see if it turns lower after this. After all there was new money coming into the market to start the quarter but it was not enough to help SP500 hold the move to the close. If the money dissipates the large cap index is going to find it hard to clear 930 and another test of 900 and perhaps this time 875 is more in the cards.
SP600 (+2.20%) did not sell its gains back, instead moving up to the May high and holding the gain. Higher low, and if it can punch through to make a higher high off this low is a very good indication. Hard to believe if the large caps and NASDAQ fall, but if it does that bodes better for the economy: small caps are economic canaries. If they augment a bullish pattern and, dare anyone say it, breakout, that will make us change our tune on the economic prospects.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips rallied 120 points then gave half of it back on the close, landing right at 8500, just below the May peaks. Similar pattern as SP500, the old head and shoulders. Yes, but these set up all the time and never result in a serious downside break. It is worth watching given both are setting up the pattern.
Stats: +57.06 points (+0.68%) to close at 8504.06
Volume: 184M shares Wednesday versus 233M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
A quick end to the week starts Thursday, and it goes out with a bang, at least as far as publicity with the jobs report. Maybe the market caught a case of frigid feet on Wednesday ahead of the report and that is why they sold back the early gains.
Whatever the reason, the indices had a hard time holding onto those gains even with some new quarter money getting put to work. Oil is struggling and energy stocks have the look of rolling over at resistance on Wednesday. Some key techs are showing some signs of struggle though it is fairly imperceptible compared to the energy issues. The point: the market has bounced into the end of Q2 on some window dressing and rebalancing, bounced a bit more on the first day of the new quarter thanks to new money, but then struggled. Now we see if it will fade after the money is gone.
That said, Thursday likely won't tell that story. After the jobs report and the initial reaction through midmorning most players will have left the building. The market will trade in very low volume. That means the action can be very quiet, i.e. range-bound, or volatile as low volume allows just a few to take control of the action.
With that background we likely won't get too active as what is wrought Thursday will likely be overturned the following week. What we saw Wednesday was the potential, as discussed ahead of quarter end, that the trends in place ahead of quarter end window dressing and new money buying would resume. That meant a weakening in SP500 as it sold toward 875 but was rescued with the big upside day Thursday last week.
That is what we are still looking for and with SP500 starting at a lower peak that means likely a test of 875. Again, no issues with that. A good test never hurt the market, especially after 35% moves higher. Overall the trend remains up and even with a downside move the liquidity still is under the market, i.e. has the upside's back. After any downside there can be a solid rebound buoyed by the continuing money printing around the globe.
Support and Resistance
NASDAQ: Closed at 1845.72
Resistance:
1880 is the June peak
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 18 day EMA at 1816
1786 is the November intraday high
1780 is the November 2008 closing peak
1773 is the May intraday peak
1770 is the mid-October interim peak
The 50 day EMA at 1759
1716 is the May closing high
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)
The 200 day SMA at 1640
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 923.33
Resistance:
930 is the May peak
935 is the January closing high
944 is the January 2009 high
956 is the June intraday peak
1000
1050
Support:
919 is the early December peak is bending
The 10 day EMA at 918
The 50 day EMA at 902
899 is the early October closing low
896 is the late November 2008 peak
The 200 day SMA at 890
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
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 8504.06
Resistance:
8521 is an interim high in March 2003 after the March 2003 low
8588 is the May high
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
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
The 50 day EMA at 8394
8375 is the late January 2009 interim peak
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 30 - Tuesday
Consumer Confidence, June (09:00): 49.3 actual versus 55.3 expected, 54.8 prior (revised from 54.7)
S&P/Case-Shiller, Apr (09:00): -18.1% actual versus -18.63% expected, -18.70% prior
Chicago PMI, June (09:45): 39.9 actual versus 39.0 expected, 34.9 prior
July 01 - Thursday
ADP Employment Change, June (08:15): -473K actual versus -394K expected, -485K prior (revised from -532K)
Construction Spending, May (10:00): -0.9% actual versus -0.6% expected, 0.6% prior (revised from 0.8%)
ISM Index, June (10:00): 44.8 actual versus 44.9 expected, 42.8 prior
Pending Home Sales, May (10:00): 0.1% actual versus 0.0% expected, 7.1% prior (revised from 6.7%)
Crude Inventories, 06/26 (10:30): -3.6M actual versus -2.2M expected, -3.87M prior
Auto Sales, June (14:00): 3.3M prior
Truck Sales, June (14:00): 4.1M prior
July 02 - Friday
Nonfarm Payrolls, June (8:30): -370K expected, -345K prior
Unemployment Rate, June (08:30): 9.6% expected, 9.4% prior
Hourly Earnings, June (8:30): 0.2% expected, 0.1% prior
Average Workweek, June (8:30): 33.1 expected, 33.1 prior
Initial Claims, 06/27 (8:30): 627K prior
Factory Orders, May (10:00): 0.2% expected, 0.7% prior
End part 1 of 3
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