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money investment, investment help
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7/07/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: IOC
Trailing stops: ICE; VARI
Stop alerts: ICE; JOYG; NETL
SUMMARY:
- Talk of second stimulus no help to the market as the same themes continue.
- An Administration 'surprised' by the recession depth sticks to its spending, er, stimulus, plan.
- Credit, home equity delinquencies hit a record.
- 3 year auction gets a decent bid thanks to weak world economies
- Market is selling ahead of earnings, getting rid of the froth and making some room for a rebound.
Stimulus talk, decent 3 year auction try to buck up market, but could not win out over need to correct.
For a day with little news there was plenty of news. First was a report that delinquencies in home equity and credit lines hit record highs in Q1 while revolving credit shortfalls surged as well. Not great. The dollar was up, but then the second issue hit: talk of new stimulus needed. Laura Tyson, chief Clinton economic advisor and on Obama's advisory council, said that the Administration needed a 'contingency plan' for more stimulus. Fox News reported Obama said something similar.
That news put the kibosh on the dollar. It was lower (1.4034, 1.3975 Monday) and the news drove it down further. As a result oil bounced back from its Monday pounding. But comments from Obama were debunked and the dollar started to rise. It continued higher and higher and indeed closed stronger than Monday (1.3914). Of course oil (and commodities in general) swung from positive to negative (oil closed at 62.45, -1.60; the shellacking continues). Oil is headed for the fifties as predicted.
With the dollar rising again toward the open and the news on the delinquencies, futures wee iffy. Not horribly negative, and good enough to produce a bounce back from the Monday selling. Good enough, but not sufficient. Stocks started lower and quickly sold further. A good three year bond auction bumped them higher after lunch, but by the close they were only lower with 2% losses on the indices.
TECHNICAL.
INTRADAY. Lower start, a tumble into midmorning. This time midmorning produced no reversal. It was the fulcrum, just to more selling. Stocks fell into lunch, rebounded in the early afternoon, actually looking like a rebound in the making. Nope. Mid-afternoon stocks turned and tumbled lower, taking SP500 below the June lows.
INTERNALS. Expectedly negative breadth (-3:1 NASDAQ, -3.4:1 NYSE) as the indices logged 2% losses. Volume fell 1.5% on NASDAQ and 2.9% on NYSE. No heavy distribution as volume remained well below average on both exchanges. The sellers are in control for sure but they always are in a correction. The key is the volume and it is not ballooning, and indeed remaining quite low with the selling.
CHARTS. We have been focused on SP500 with its test as it makes the expected test of 875 hit in May as the lows and as the April and February peaks. It is a blip away. Now the issue is whether it tests on down to 850 or 811, the more logical levels for such a big surge higher. NASDAQ is now the interesting index. It was unable to hold the May peak and that takes it out of the range of support from the November peak to those May peaks. It is now back in the May trading range and that opens the door down to 1665 as a first support level. Now it can reverse on a dime and rally; how many times does a break lower or higher through support or resistance reverse and change directions? Often, but this does not appear to be the time.
LEADERSHIP. Healthcare stocks rebounded as the talk out of D.C. in the Senate pushed back at the Obama plans for national healthcare. Senators are saying taxing healthcare benefits is not the favored way to pay for the boondoggle (I added the last noun). Obama's chief of staff also pitched in, saying that he didn't care how the 46M 'uninsured' were taken care of as long as they were (meaning a public insurance plan is not the only way to go). Of course of those 46M, many are illegal aliens and others choose not to have insurance. When I was young and had my own business going I did not insure myself but self-insured, saving the money in an account (my precursor to an HSA). When I was a bit older I then got insurance. It was my CHOICE and it worked for me just as it works for many of the young '46M uninsured' we hear so much about. BUT . . . I digress. That breathed some life into those stocks. Financials cracked fractional gains. Everything else struggled, even techs. The market is looking for real leadership other than utilities and consumer staples. Defensive tone has taken over and the market needs to get some confidence in the recovery and set up some growth stocks. Right now they are heading into bases.
THE ECONOMY
Surprised by the depth of the recession? Give me a break.
VP Biden again made no friends in the White House as over the weekend he claimed the Administration did not realize how bad the economy was. Obama played the damage control card, saying they were not privy to all the details, etc.
Okay you can buy some of that. But Obama et al also said this was the worst recession since the Great Depression, not once, not twice, not three times but about 265 times. Oh, and of course they 'inherited' the mess. They also took a $500B (max) deficit and turned it into a $1.8T deficit in less than 4 months. Inherited yes, then more than tripled it in 4 months versus 96 months of the previous administration it took to build a $500B deficit.
So if this was the worst recession since the Great Depression as stated at every possible opportunity, then how did they underestimate it? Based on their own words that is an impossibility unless it is another depression. It is bad, but it isn't a depression, at least yet. Their policies may bankrupt the US and make it a depression, but again, not there yet.
As Rick Santelli of CNBC said, the Administration is not really surprised by the recession's depth but that all the spending it calls stimulus did not create jobs and indeed saw the consumer decline into even more dire straits than when Obama took over.
The wrong 'stimulus.'
There are two schools of thought on economic stimulus. The Administration adopts the government spending model that, quite frankly, was the cornerstone of communism and is the cornerstone of socialism. If government spending could result in jobs, then the USSR would not only still be in power but would be prospering. If government spending somehow creates jobs then, as noted Monday, why not spend trillions and let the good times roll?
Why not? Because it DOES NOT WORK. That is the mode of the 1930's. Didn't work. Terrible depression and then recessions until WWII pulled us out of it. The 1970's again showcased how spending does not work. Unprecedented spending and regulation, by both democrats and republicans, led to 10 years of on again/off again recession and stagnation. If it did truly create jobs and prosperity then we would have been rolling in the thirties and seventies. As history shows, those were the worst economic periods in modern US history.
Will more stimulus rescue us? Not the kind we would get.
While some were happy at the thought of more stimulus, Ms. Tyson's comments were not music to most ears. She is still a demand side economist so her suggestions call for even larger spending and more infrastructure spending. Infrastructure is better than what we have seen from the Obama plan, but it is the kind of stimulus that China uses. It works for China because it is not a capitalist country. It cannot stimulate business as we can in the US so it has to put money into its infrastructure build-out. That is how the country is growing its economy anyway, i.e. its massive dams, roads, bridges, etc. that are needed to modernize the country.
Here in the US we are beyond that point. We need to stimulate new technologies as the means to raise our standard of living. Building a bridge doesn't do that. It creates some temporary construction jobs, but we are a 21st century country, not a newly industrialized country; we are not going to get much bang for the buck fixing old bridges. We don't have the billions in population to drive our economy; that is China's game similar to our Baby Boomer years. Now we need to have the technologies that China, India, Brazil and others need. Again, you DON'T GET THAT BUILDING BRIDGES.
So it is no wonder the market didn't roar at the thought of more spending stimulus. Indeed the dollar FELL on the news. Why? Because more Obama stimulus equals more deficit spending on projects and programs that do not enhance economic activity, at least the kind that develops new technologies. Thus the dollar tanked at the thought of more spending that would debase our currency further without solving the problem.
Another week, more bond auctions.
Tuesday saw another auction this time it was 3 year Treasuries. Wednesday it is another auction of 10 year bonds. A few hundred billion here, a few hundred next week. It is becoming a common occurrence. After all, when you need to fund almost $2T in deficit spending you have to have a lot of auctions.
Tuesday the auction was not bad. The bid to cover was 2.62, a solid, average level. The interest rate was a bit higher than anticipated, about 2 BP higher; it is still taking some coaxing now and then to get foreigners to come to the table.
Not as much as it did a couple of months ago when there was the euphoria over recovery. Recall how so many were touting the slowing in the diving economic numbers as a recovery in the making? We were pretty adamant that was not the case and received quite a bit of flack for it. The stimulus was wrong, the numbers were not that good, and with the dollar tanking the odds of a double dip were high. Golly gee Mrs. Cleaver, that was the case.
Then the bids backed off because there was fear the economic recovery was not that positive and the realization the dollar was going to suffer from the massive spending. Ironically, now the dollar is stronger and bonds as well as worries about the economic recovery for the REST of the world make the US currency and debt instruments more attractive. It is all relative. If the rest of the world recovers, the US deficit spending and poor stimulus choice makes the US less attractive. If the rest of the world is going to hell in a hand basket as well, then the US looks comparatively good.
Thus the bond auctions are surprisingly solid despite terrible fiscal policy choices by an Administration that is social policy driven versus good of the country driven. Oh sure it will argue that its plans are for the ultimate good of the country, but that is only if you prefer the Continent versus the New World.
THE MARKET
MARKET SENTIMENT
VIX: 30.85; +1.85. The VIX is over 30, the VIX is over 30. That was the chant today. Big deal. It is still in its downtrend. If it breaks out here and starts to rise that is only a positive for the upside.
VXN: 31.2; +1.95
VXO: 30.32; +2.51
Put/Call Ratio (CBOE): 1.01; +0.14. Third 1.0+ close out of 5 sessions. Or is it 6? The point: apprehension is rising but it is not really high enough to warrant a change yet.
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: 41.47%, continuing the decline. 43.6% last week, down from 44.8% as the choppy market is still culling the herd some. Hit a high of 47.7% on the run from the March lows. Steady rise from 36.0% just 10 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: 29.9%. Bears continue their recovery after falling as the market rallied. Up from 23.3% just over a month back. 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: -41.23 points (-2.31%) to close at 1746.17
Volume: 1.991B (-1.52%). Still no volume.
Up Volume: 262.667M (-314.226M)
Down Volume: 1.767B (+365.179M)
A/D and Hi/Lo: Decliners led 3.1 to 1
Previous Session: Decliners led 1.69 to 1
New Highs: 20 (+2)
New Lows: 19 (-6)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ broke below the May peak (1763 closing), putting it back into the May range from 1664 to 1773. It broke that May peak that was coincident with the 50 day EMA, so NASDAQ is in the correction mode as well if . . . it does not immediately rebound as can happen on these selloffs. Maybe; that would be a tall order given the need for a more 'normal' correction by the market after that March rally. Even if the world economy was not sliding back to the threshold of hell (adopting the Administration's Biden view) the indices would be due for this kind of test. The threshold of hell makes it even more appropriate.
SOX (-2.89%) held out for quite some time on the session but in the end it broke down and headed toward the 250 level tapped at the June low. That is a start to what could be a deeper correction after a lower high below the early May peak.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -17.69 points (-1.97%) to close at 881.03
NYSE Volume: 1.108B (-2.88%). Volume was lower but remained elevated over the last week's sessions. At least no heavy selling on the downside but nothing to get all gushy over.
Up Volume: 171.854M (-300.074M)
Down Volume: 885.697M (+220.948M)
A/D and Hi/Lo: Decliners led 3.37 to 1
Previous Session: Decliners led 1.55 to 1
New Highs: 24 (+8)
New Lows: 49 (-1)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
After bouncing Monday to test 900 the SP500 turned over and raced toward the May lows, closing just over that level (879) and the February peak at 875. A key support level but with the 38% Fibonacci at 846 and the 50% at 811 this is likely not the end of this selling.
SP600 (-1.78%) sold, but it is also holding its June low; the small caps are not in the selloff of the large caps. That does not mean they won't sell more but they are at a point they can hold if something triggers the buyers. Even then, the small caps can sell another 7 points to 250 and still hold support. That gives them some cushion to hold and resume the climb.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Breaking the April peak and heading toward next support at 8000 down to 7760.
Stats: -161.27 points (-1.94%) to close at 8163.6
Volume: 210M shares Tuesday versus 206M shares Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The economic data renews itself with the crude inventories and consumer credit. Earnings season gets its 'official' kickoff with Alcoa's earnings after the close. Expectations are actually high for AA; that is worrisome, but if AA reports good results there is hope for the entire market.
For now the market is making the test it really needed to make with SP500 heading to 875 and likely lower before it is over. 875 might try to hold for a bit or you can get the undercut and quick rebound before selling further. It is never a straight line affair.
The positive for the bulls is that the market is taking out any 'fluff' that developed off the March run higher. It has consolidated, trying to hold the gains, but it is going to give more up and make the more 'normal' tests. Just ahead of earnings that helps give stocks room to run upside if the results and guidance turns out better than expected. The market has a way of doing that. It is taking out the gains now and that allows a move up into the earnings and the first half of the season similar to what happened the last half of January and again in April, though April was a rally pretty much the entire month.
The prognosis near term: more downside to test 875 to 850ish on SP500. At 850 SP500 gives up to the 38% Fibonacci level and that gives us a better idea of its strength. If it bounces briskly that is a positive sign for a renewed advance. If it bounces then rolls back, well, the prognosis is that the move needs more work and may indeed head down to the 50% level near 810. That remains to be seen and first things first with a test of 850ish giving us nice gains on our downside plays and also setting up a good move back to the upside if the economy turns out not to be totally dogging it again.
For now we ride our downside plays, knowing that SP500 may try a hold at 875ish, but looking for a test on down to 850 to really set up the next upside leg. We continue to look for upside setups and many are still holding up at support, but we would like to see the overall market behind them before we get too heavily involved again. We could look at utilities and such, and some do provide some potential for solid percentage moves, but not many. Thus for swing trades we need to ride the downside and let the setups come to us without pushing, and that way we get the best risk/reward entry points as some stocks move back up ahead of earnings. Remember, the full earnings hit in a couple of weeks, and a fade toward 850 sets up a move higher into those results as many are now selling stocks as they fear weaker results given the economic activity.
Support and Resistance
NASDAQ: Closed at 1746.17
Resistance:
The 50 day EMA at 1762
1770 is the mid-October interim peak
1773 is the May intraday peak
1780 is the November 2008 closing peak
1786 is the November intraday high
The 18 day EMA at 1805
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:
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 1633
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 881.03
Resistance:
888.70 is the April intraday high.
The 200 day SMA at 885
896 is the late November 2008 peak
899 is the early October closing low
The 50 day EMA at 901
The 10 day EMA at 906
919 is the early December peak is bending
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:
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 8163.60
Resistance:
8175 is the October 2008 closing low. Key level to watch.
8191 is the prior April peak
8197 was the second October 2008 low
8221 is the May 2008 low
8307 is the April 2009 intraday high
8315 is the February 2009 peak
8375 is the late January 2009 interim peak
The 50 day EMA at 8379
8419 is the late December closing low in that consolidation
The 18 day EMA at 8428
8451 is the early October closing low
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:
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.
July 06 - Monday
ISM Services, Jun (10:00): 47.0 actual versus 46.0 expected, 44.0 prior (no revisions)
July 08 - Wednesday
Crude Inventories, 07/03 (10:30): -3.66M prior
Consumer Credit, May (15:00): -$8.8B expected, -$15.7B prior
July 09 - Friday
Initial Claims, 07/04 (08:30): 600K expected, 614K prior
Wholesale Inventories, May (10:00): -1.0% expected, -1.4% prior
Jul 10 - Saturday
Export Prices ex-ag., June (08:30): 0.3% prior
Import Prices ex-oil, June (08:30): 0.2% prior
Trade Balance, May (08:30): -$29.2B expected, -$29.2B prior
Michigan Sentiment-Prelim, July (09:55): 70.3 expected, 70.8 prior
End part 1 of 3
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