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trading system, money investment
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7/08/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: AKAM; RIMM; SPY; TEX
Buy alerts: GS
Trailing stops: None issued
Stop alerts: AAP
SUMMARY:
- SP500 sells again but rebounds off of next support.
- AMGN new drug a success, but not under a European style healthcare system.
- Simple solutions to complex problems.
- Another solid 10 year auction.
- June same store sales out Thursday.
- Some buying off support indicates a bounce, but still not looking at a new bottom yet.
Stocks lose ground but bounce back on rising trade.
The pre-market news was not bad. Earnings started out positive with FDO, a low-priced discount retailer, beat expectations and increased its guidance. That is bittersweet. Low-cost retailers are flourishing, but the reason is because the economy is languishing. Thus it is no great news that NDN, DLTR, FDO and WMT are doing well. They perform best when the economy performs worst as consumers squeeze every dollar for all the blood they can extract. And why not? Consumers likely gave a lot of sweat and blood to earn that dollar in this economy. It was more encouraging to see TSCO, the semi-rural Home Depot, raise its guidance though most of that was on cost cutting and inventory control versus an increase in sales.
Mortgage applications rose 10.9% after a series of declines, aided by a 15% gain in refinancing. Rates dipped back off of that run to 4+% on the 10 year bond (closed at 3.29% Wednesday as bonds rallied) and that helped fuel some renewed refinancing interest. The IMF chimed in and said the US economy would contract 2.9% in 2009 and would improve in 2010. Of course -2.9% implies some improvement given Q1 was down over 5%, but then again, the IMF evokes as much confidence as a drunk with disheveled clothes, a scruffy beard, and pasty tongue the morning after a binge.
News or not the market was ready for a bit of a relief bounce and the news did not hurt. An early bounce, but that faded after an hour. SP500 made a key test it needed to make, moving down to 875. It undercut that level, falling to 869, then bounced after a solid 10 year bond auction. The bid to cover was 3.2; very strong demand as worries over the economy send investors to US debt. Could not hold the bounce and again fell to 869 where it double bottomed intraday and rallied to the close. Recent laggards NASDAQ and NASDAQ 100 actually managed a positive close while SP500 missed it by that much.
The dollar bounced back and forth all morning, but overall it was holding some gains over the Tuesday close (1.3879 close versus 1.3914 Tuesday). Oil wasn't tracking the dollar this time. Oil plunked down again, closing just out of the fifties (60.11, -2.82) even as inventories fell 2.89M bbl. Gasoline inventories rose 1.9M bbl in a period where they usually fall. That along with a stronger dollar had oil leaking out all over the place.
TECHNICAL
INTERNALS. Breadth was not great even with the recovery off the lows that moved the indices back close to flat. At -2:1 NASDAQ and NYSE breadth showed the rebound was in the large caps. Volume was quite interesting as it jumped 20% on NASDAQ and 30% on NYSE with both moving back above average for the first time in two weeks. With an intraday reversal off of key levels On SP500, the rising trade shows there were some buyers stepping in. That can lead to a near term bounce.
CHARTS. SP500 was again a focus as it finally made it back to 875, undercutting it, then bouncing off 870 twice to rebound to a flat close. NASDAQ sold down to midway in May trading range and rebounded to a modest gain. That did not take NASDAQ out of the range or make any key breakout, but as with SP400, volume was up on the rebound, showing buyers were picking up shares after about a week of testing back. SOX is trying to join in as it set up something of a double bottom off of 250 support as it again rebounded sharply after an intraday test of that level. Overall, however, the pattern still suggests more downside will return after perhaps a short bounce to 900 on SP500.
LEADERSHIP. Still a work in progress. Some recent leaders are in a swan dive. ICE and CME, for example, are diving on continued talk of regulating 'speculation' in the oil and commodities market. Of course, as usual, the regulators completely ignore reality. State pension funds and universities are 'speculators' in that sense. Anyone that hedges their portfolios is a 'speculator' according to the government. When times are tough beware of the government and regulators soothsaying how they will make things 'fair.' Where does it say in the Constitution everything will be fair? You will have a chance to do well, but it is up to you. Fair is a place where you ride rides. Other former leaders are trying to stabilize after diving lower (e.g. energy). Some are in a position to attempt a bounce, e.g. tech stocks such as AAPL and MSFT. As with the market, the leadership remains in a transition or basing phase. That leaves us looking for stocks rebounds off support or tests as well as early basing stocks as upside plays after this downside run (that has made us some nice money with our puts), plays itself out.
THE ECONOMY
AMGN successfully tests another major cancer drug. Only in the US, and maybe not for long.
Our leaders think European-style healthcare will provide good care. Do they REALLY KNOW what they are talking about? No.
I am tired. Tired of hearing how great European or Canadian-style healthcare is. I know first-hand that people die in those systems. My brother died in a European-style system. There is a time change when you go to Europe, Australia, etc. When talking healthcare, set your watch back 30 years. I know from personal experience re Australian and Canadian systems. One let a perfectly treatable condition lead to death. The other would have done the same but for intervention to bring the person back to the US. Personal, direct experience. It does NOT provide good care.
Another case in point. Here in the US there is a drug called Herceptin. It is used to treat estrogen-driven breast cancer by blocking the estrogen in women who have this form of cancer. Expensive but extremely effective. Recurrence rates are basically zero. My wife is the beneficiary of this drug. In the UK Herceptin is outlawed. You cannot use it. The UK system cannot afford it and therefore it bans it from use. Even if you have the money it is illegal to use it.
Despite what our leaders say about the system they want to implement, ask any doctor what will happen. Doctors, hospitals and patients will have to ultimately take the care offered by the national system as it will be so expensive it will have to crowd out private insurance. There is not enough money to pay for it. In that situation the feds will call the shots on what care and treatment is available in order to keep costs lower. That means, as in the UK, necessarily limiting what drugs or the amount of certain drugs that can be used. Of course that ultimately leads to fewer such drugs produced as the incentive to do so disappears: look at Canada as an example. It synthesized insulin prior to its nationalized system. Since then it has produce zero new drugs. Thus, at first you are limited to the drugs you can use even if they are available, but down the road the number of new breakthrough drugs simply diminishes because the incentive to produce them is removed.
The Declaration of Independence says we have the right to life, liberty, and the pursuit of happiness (it was property). The pursuit of life. If there is a drug out there that can prolong your life and you have the means to acquire and use it, is there anything in the Constitution or Declaration to prevent you from doing so? Of course not. Yet that is what has happened under each and every nationalized healthcare system in the world. It becomes illegal to pursue the drugs to extend your life if the federal government bans them. Why would it ban them? Because the costs of such a system are staggering. They cannot be contained. In the UK people go to the doctor in droves; there is massive overuse because it is 'free.' Makes sense; if you are taxed out the rear to pay for it you are going to make damn sure you get your visits out of it. That is more of the 'insurance will pay for it' mentality, and by making healthcare universal that only engrains that mentality instead of the mindset of specifically tailoring a plan based upon what is wrong (or not wrong as the case may be). Thus the 'super drugs' that cost a lot of money but save lives and allow one to pursue happiness are denied. That directly contravenes our founding documents. IT SHOULD TAKE A CONSTITUTIONAL AMENDMENT REQUIRING APPROVAL OF TWO-THIRDS OF THE STATES TO IMPLEMENT SUCH A PROGRAM. Yet we are going to sit back and let Congress abrogate our rights and the Constitution. We get the government we deserve. If we do nothing to ensure our rights and liberty, we lose them.
AMGN just concluded a trial early because an osteoporosis drug for cancer patients (bone loss is a big problem) was so successful. Great news. Great cost. If you adopt a UK style system, forget about these drugs. At first things will be fine. Then costs will explode and they will be banned and then disappear. In the UK they are effectively non-existent because of cost restraints. The UK simply cannot keep up with the latest life-saving drugs and treatments. Is this the kind of system the President referred to when he said he knew of 'several European-style' healthcare plans that provided excellent healthcare. We should all demand of our leader which plans provide this 'excellent' healthcare. Again, I have seen two that are often cited and they are both terrible compared to us.
How many are uninsured?
You hear of 46M uninsured US citizens. That is incorrect. One-third of that group are eligible for Medicare yet do not know how to apply. One-third make mover $50K per year. At least 20% are illegal aliens that don't pay into the system at all.
Are any of these denied care? I don't know of any and indeed all doctors we have talked with say no one is turned away from routine care or lifesaving care. Maybe you don't get a kidney transplant on the house, but you won't be left out on the curb to die as many would have you believe. Indeed, is it better to suffer 'institutional euthanasia' under a national plan that makes you wait for treatment or denies treatment because you are too old and not a good risk? How many of you responsibly and dutifully pay your own insurance (as do all small businesses and self-employed) just to see someone uninsured get free or cut-rate healthcare from your same doctor? I have stood in line to pay our bill after treatment (not having met our large deductible), having paid my premiums, only to see someone who HAS THE WHEREWITHAL to pay for insurance but chooses not to, get free or cut-rate care.
Obviously there are problems to be resolved, but turning the keys over to the federal government is the worst solution. It is the same as Michelangelo letting a housepainter finish the last third of the Sistene Chapel because he is out of brushes; benching Joe Montana in the last minute when on the opponent's 40 yard line and a score wins the game because Joe twisted an ankle; handing the rod to a deckhand when you have a world record marlin on the line because you are a bit tired.
Administration says no need to consider new stimulus right now. How about simply CHANGING the type of stimulus?
Of course, that assumes the $780B boondoggle bill is stimulus. You know our position, and indeed history's position: it is not. It is spending, and the two are not interchangeable.
So much has been written over how to solve these problems. You know I like cycling and the grand tours. Right now as the Tour de France runs there is a Lance Armstrong commercial for Trek bikes that talks about what Trek believes in. One belief is 'simple solutions to complex problems.'
There would seem no simple solution to the current economic recession, but if you think outside the box solutions appear. I heard one today from the classic economic 'outside the box' thinker. Art Laffer was one of many economists booked for a show today, all discussing the economic issues facing the country and the world. The discussion moved to a second stimulus package. Mr. Laffer made THE point: instead of spending $780B on projects and funding state deficits, why not just give every person and business a year long tax-free holiday? The money would hit the economy immediately. Investment would surge. The economy would boom. Tax revenues the following year would explode. We avoid the protracted recoveries of the 1930's and 1970's that the government is pursuing now. Sure we miss out on a year's worth of tax revenue (e.g. $1.4T in 2007) but who cares? D.C. can tighten the belt as well, cut spending, let the economy boom, then the entire difference would be more than made up by the subsequent boom. And let's face it, revenues will be NOWHERE NEAR the 2007 levels; the CBO is telling the feds that revenues are down over 30% already. That puts it in the ballpark of the . . . the spending package cost.
All of the fighting over where to spend, what to cut, who to leave out. Hell, we are printing trillions of dollars we don't have to pay for these new programs; why not cancel the stimulus spending, shift it to a tax-holiday for a year, and let the economic growth explode? We lose NOTHING and can gain everything. Simple, elegant solution to an apparent complex problem.
THE MARKET
MARKET SENTIMENT
VIX: 31.3; +0.45
VXN: 31.07; -0.13
VXO: 30.93; +0.61
Put/Call Ratio (CBOE): 1.03; +0.02. 5 days above 1.0. Getting closer to the point it is going to indicate a turn.
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: +1 points (+0.06%) to close at 1747.17
Volume: 2.405B (+20.78%). Volume jumped above average for the first time in July, and throwing out the Russell rebalance, the first above average trade since mid-June. On a reversal such as shown intraday Wednesday, that is an indication the buyers stepped in and supported the stocks.
Up Volume: 984.986M (+722.319M)
Down Volume: 1.415B (-351.946M)
A/D and Hi/Lo: Decliners led 2.04 to 1
Previous Session: Decliners led 3.1 to 1
New Highs: 11 (-9)
New Lows: 41 (+22)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ reached down to a new low on this selling since the early June peak and then rebounded on that volume noted above. Good intraday recovery, but it is not definitive. NASDAQ is still below the 50 day EMA (1761) and the early May peaks (1763 closing), not to mention the mid-June low (1754). NASDAQ can bounce off this but it has a lot of near term overhead resistance and it has broken into the May trading range, opening the door down to 1664. It can recover here; it can do anything. It has to find new buyers, and there are a lot of stocks hitting support. They need to bounce and then hold, and that means more buyers. They were there Wednesday.
SOX (-0.71%) hit 250ish, undercutting it intraday and then rebounding to hold that level very similar to what it did the third week in June. Something of a double bottom trying to set up here. Still an aggressive view of this pattern, but many chips are holding up okay. How SOX reacts here will give insight into NASDAQ's potential strength.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -1.47 points (-0.17%) to close at 879.56
NYSE Volume: 1.438B (+29.8%). Good volume here as well, cracking above average for only the third time since the end of May. Those two June sessions were expiration and the Russell rebalance. As with NASDAQ, some buyers stepped in and drove the NYSE indices back up.
Up Volume: 412.922M (+241.068M)
Down Volume: 1.009B (+123.012M)
A/D and Hi/Lo: Decliners led 2 to 1
Previous Session: Decliners led 3.37 to 1
New Highs: 17 (-7)
New Lows: 54 (+5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Finally made the test of 875, selling down to 869 and rebounding to hold this support level from the May lows and February peak. Rising volume shows some buyers, and we could easily see SP500 bounce up to the 900 level near term. Then we watch to see how it handles that level and whether it sends it back down toward 850 and that 38% Fibonacci level.
SP600 (-0.67%) sold and recovered as well, not making it back to positive. It did hold above the May lows on its intraday low and managed to close at the 200 day SMA. Not a bad test and recovery, and set to bounce similar to SP500.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Reached down as well, toward 8K but holding over it and rebounding to positive. Solid volume as well, moving back above average. Lots of support here for the Dow from April, January and February. It can bounce but can it get over 8500? Overall still bearish but looks as if it wants to make the break higher near term along with the other indices.
Stats: +14.81 points (+0.18%) to close at 8178.41
Volume: 325M shares Wednesday versus 210M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Not the last day of the week this time around so we have some more interest in picking up positions if they present themselves. Wednesday there was a test lower and then a rebound off of support, indicating the market wants to try a bounce near term. Still bearish patterns overall on the indices and thus any bounce would be suspect, particularly with leadership questionable. There are stocks at support, however, and they can provide some tradable bounces.
We are looking for three things right now. First, any upside bounce to resistance sets up some more downside plays. We are going to be looking at those over the next few days if the market can bounce. Second, there are some stocks at support as noted, and thus some upside possibilities on a bounce. Need to pull in our profit expectations some, and if they can show us they are stronger and going to breakout, great. Third, if the bounce peters out at near support we use it to close some upside plays.
So we expect something of a bounce off this reversal but we are not expecting it to change the overall character right now, and that is overall bearish with SP500 and NASDAQ making deeper tests. SP500 is trying a bounce off a key level, then we see if it makes it to the next key level (900ish) and if so, what it can do there. May be just a short bounce that fizzles quickly. Just have to pick good risk/reward entry points and if they work we let them run, and if they don't we have a low risk exit point.
Support and Resistance
NASDAQ: Closed at 1747.17
Resistance:
The 50 day EMA at 1761
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 1799
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 1631
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 879.56
Resistance:
882 is the early May low
The 200 day SMA at 883
888.70 is the April intraday high.
896 is the late November 2008 peak
899 is the early October closing low
The 50 day EMA at 900
The 10 day EMA at 901
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:
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 8178.41
Resistance:
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
The 50 day EMA at 8371
8375 is the late January 2009 interim peak
The 18 day EMA at 8402
8419 is the late December closing low in that consolidation
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:
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.
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): -2.90M actual versus -3.66M prior
Consumer Credit, May (15:00): -$3.2B actual versus -$8.5B expected, -$16.5B prior (revised from -$15.7B)
July 09 - Friday
Initial Claims, 07/04 (08:30): 603K 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): -$30.0B 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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trading system
money investment
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