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world stock market, us stock market
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8/10/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: DRIV; ESRX; NOV; PH; TKC
Trailing stops: CELG
Stop alerts: None issued
SUMMARY:
- Market sluggish following last week's gains, ahead of FOMC meeting.
- Dollar rallies back and commodities struggle accordingly.
- Mobius calls for a 30% correction.
- Volatility suggesting a correction coming.
- Uptrends remain in place, stocks testing nicely.
Hard act to follow leaves market modestly lower.
You knew it was going to happen. After the 'surprise' regarding the Friday jobs report and the subsequent rally, stocks tested back. NASDAQ never broke to a new high on that session. SP500 did, but it gave up a chunk of the gain and on Monday was a bit weak. It could not push the break farther. A bit of a hangover is normal. The key now is if SP500 can hold the move and pull the rest of the indices up with it.
SP500 didn't get much help Monday. Mark Mobius, a well known bald fund manager, said that stocks worldwide would correct 30%. To us that is a distinct possibility. I have been labeled too bearish by some, not enough by others. All I know is the economy is not nearly as strong as it was in 2002 when the market rebounded, and this rebound is much stronger than that one in percentage terms. It makes little sense, but I know several smart people who lost boatloads of money trying to make sense out of the market instead of taking what the market gives.
The long term is the long term, and today there are simply too many factors intertwined for anyone to know what the world economic outcome will be more than a few months down the road. As you know from our past discussions, worldwide liquidity is one of the major factors driving this market rally. It is an example of the types of influences pushing the market. Without it the result may be quite different. The data is improving thanks to a 'whew' after there was no subsequent great depression coming, but that is not the same as renewed and vigorous investment in the US.
For example, I am up in Colorado right now and as usual there is massive summer roadwork underway. It happens every year; it has to be done in order to shuttle the skiers and their millions of dollars up to the slopes and keep Colorado moving. This year all of the roadwork has the sign proclaiming it is paid for by the American Recovery and Reinvestment act. Without a doubt Colorado needs these roads repaired to get the tourists to the slopes. Regardless of the federal handouts it would be done; it is one of the primary sources of funds for the state. The point: there is no new investment in Colorado as a result of this, just taxpayer dollars channeled to projects that would have been done regardless simply because Colorado would have found the money somewhere to do the roads because every dollar spent brings back many more tourist dollars.
So the improvement in the economy is not a major new leg of expansion on the back of renewed massive investment, it is Depression-era make work programs that spend money near term to 'prime the pump', but the problem is, the pump is broken. Once you stop putting in the money it is back to status quo. I have said it before, but what the heck? We need the kind of spending that invests in new technologies such as those college dropouts in the 1980's that came up with personal computers and software to run them. Thanks to the investment incentives put in place in the early 1980's, Intel was able to drop a sackful of money into a venture with two guys working in a garage making something they called an Apple computer.
That spawned an entirely new era. They invented the personal computer when no one knew what that was. They CREATED their own demand. The government didn't give people money and then those people went out and demanded a computer. Heck, even after it was invented the debate raged as to whether the common person needed a computer at all. That debate is put to bed now, but it just goes to show that demand does not create the supply for the new technologies. Entrepreneurs and the capital to fund them is what creates the next technologies that creates the demand for the products.
Another example is the iPod. Sure there was the Sony Walkman and other precursors, but Apple took it to a new level with the internal hard drive and unique interface. That spawned a whole new generation of devices adapted to the iPod. Alarm clocks with iPod ports, carrying cases, covers, iPod docking stations with speakers, auto adaptors, boat sound systems based on iPods, etc. New technology anticipating demand creates demand and as a result an entirely new industry geared toward that product. Entrepreneurs, innovation, incentives. Beats the heck out of funding a project that was going to be done anyway or a turtle crossing in Florida (and don't get me wrong, I love turtles).
But as usual, I digress. The market was under pressure after a big run and it started soft. It could not get back to positive even though it made a decent midmorning attempt. It sold off to session lows then made another run late, cutting its losses to nominal levels. Not bad: even after a blast higher there were still buyers ready to come into the market.
TECHNICAL.
INTERNALS. Breadth was flat but volume was widely divergent. Trade fell 20% on NASDAQ with trade well below average, but NYSE trade surged to 1.7B shares. Rather concerning given SP500 could not advance the move.
CHARTS. SP500 held its break higher Friday, but it was hardly impressive. That leaves SP500 right over the November peak at 1006. Holding the breakout but now needs to show it can extend the move. Not apparent Monday. NASDAQ didn't even try to move higher. After all it was unable to break over its recent peaks on the Friday rally. NASDAQ is winded and trying to consolidate in a lateral move. Not bad action. SOX is very interesting as it broke below its March/May up trendline. The chips are again playing with fire though they pulled their chestnuts out of the fire back in June and July as they struggled. SP600 is moving higher still, quietly showing excellent strength up as it trends up the 10 day EMA. There is some trouble in the big indices, but there is hardly a breakdown.
LEADERSHIP. The financials were solid again. Maybe not racing to big gains but holding their ground. Energy, despite a dollar rise and an oil decline, rose nicely. Commodities did not fare that well. Tech was not down but it was not jumping; basically continuing the recent tests in the big names. A downgrade of RIMM did not help index, but that should not break its back either. Again we see leaders that moved nicely taking a breather. That is fine. What we are watching close, however, are the chip stocks and how they handle this most recent test.
THE ECONOMY
Volatility increases indicating some selling may be coming as market heads toward September.
Summer has not tanked the market, but the market isn't just screaming higher, Friday rally or not. Indeed, September is approaching and while many investors recall the major selloffs and bottoms in Octobers gone by, September is historically the worst month for stocks.
The time of the year somewhat dovetails with Mr. Mobius' call for a 30% correction. There is, of course, more than that; I wouldn't waste my time writing about that one call.
Volatility is the component I am watching right now. It is at relatively low levels right now compared to the spikes last fall. Nonetheless, it bounced higher to end July and it is holding those gains. You always have to watch carefully when volatility rises as the stock market rises. They often signal some trouble. Indeed, volatility futures suggests there will be a 13% increase in the VIX over the next 5 weeks. Those futures sport the largest spread since August 2008, just prior to the plunge lower. Wide spreads indicate uncertainty and fear as the market makers demand more compensation for taking on what is perceived as more risk. Thus spreads are always important to watch.
Now there are any reasons as to why this would not come to pass, but there is an interesting phenomena in the market: self-fulfilling prophecy. Many times in the past investors have talked themselves into market moves based on the belief it would occur. If there is enough money on the sidelines some bullish overall views can gin up some short term gains. They usually don't last long, but for the short term they can be quite real. Thus when you get the volatility futures rising you take note.
So do you sell everything you have and go to the mattresses? No. As with most indicators volatility futures are one of many indicators. You don't ignore them but you put them in context with others. While we view the economy as much shakier than our leaders suggest, you also have the stock market in an impressive uptrend. Showing some wear and tear of course, but a pretty impressive uptrend. There is still solid leadership. So, it would take a break of the market's trend and leadership under duress rather than just an increase in volatility.
THE MARKET
MARKET SENTIMENT
VIX: 24.99; +0.23
VXN: 25.66; +0.64
VXO: 23.85; -0.8
Put/Call Ratio (CBOE): 0.75; +0.02
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: 42.2% versus 36.7%. More sharp rebounding as the market continues to improve. After falling to 35.6% the market bounce caught up with sentiment. Hit a high of 47.7% mid-June on the run from the March lows. Steady rise from 36.0% in late April. Barely over the 35% threshold, below which is considered bullish. Of course it will jump after this past week. 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: 31.1% versus 35.6%. Big drop after holding for two weeks at 35.6%. Surging from from 30.3% in early July and 23.3% in mid-June. Still well off the 37.2% and the 37.1% in mid-April as the rally continued higher. Cracking above the 35% threshold considered bullish. Still 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: -8.01 points (-0.4%) to close at 1992.24
Volume: 1.818B (-20.32%)
Up Volume: 918.186M (-595.546M)
Down Volume: 837.518M (+27.168M)
A/D and Hi/Lo: Decliners led 1.07 to 1
Previous Session: Advancers led 2.48 to 1
New Highs: 53 (-11)
New Lows: 8 (+6)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -3.38 points (-0.33%) to close at 1007.1
NYSE Volume: 1.78B (+19.7%)
Up Volume: 538.872M (-623.813M)
Down Volume: 530.055M (+231.722M)
A/D and Hi/Lo: Decliners led 1.17 to 1
Previous Session: Advancers led 2.91 to 1
New Highs: 98 (-45)
New Lows: 37 (-33)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -32.12 points (-0.34%) to close at 9337.95
Volume: 1.6M shares Monday versus 216M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
The FOMC starts a 2-day meeting Wednesday, and while the outcome is all but assured the commentary is not. Many wonder when the Fed will start preparing the market for a removal of the facilities that helped thaw the credit market, albeit did not lead to massive lending. This COULD lead to more lending and indeed many bank CEO's go onto the financial stations and disingenuously say they are lending steadily even though the stats show that simply is not the case.
All told stocks performed admirably Monday, giving back some ground but rebounding to minimize the damage. That action shows continued buying support what with all of the liquidity in the world, and thus we are going to continue looking at upside plays. At the same time NASDAQ has not pushed forward and SOX is threatening a sharp drop. That means we don't get too complacent in assuming all is up and away after this test. Thus we still have our stops pulled up relatively tight and will let the market take out many of our winners that we have already banked gain on if the market rolls here. With all of the talk you expect the market to do otherwise, and of course the liquidity is still there. Heading toward September, however, you can expect the sellers to take another shot or two.
Support and Resistance
NASDAQ: Closed at 1992.24
Resistance:
2010 from the Thursday peak
2015 is turning out to be near term resistance
2099 is the mid-September low
2169 is the March 2008 double bottom low
Support:
1984 from late September
The 10 day EMA at 1981
The 18 day EMA at 1954
1947 is the October gap down point
1897 is the October post gap intraday high.
1880 is the June peak
The 50 day EMA at 1870
1862 is the July peak
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
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 1635
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 1007.10
Resistance:
1050
1106 is the September 2008 low
Support:
The November 2008 peak at 1006
The 10 day EMA at 994
956 is the June intraday peak
944 is the January 2009 high
The 50 day EMA at 943
935 is the January closing high
932 is the July peak
930 is the May peak
919 is the early December peak is bending
899 is the early October closing low
896 is the late November 2008 peak
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
The 200 day SMA at 873
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 9337.95
Resistance:
9387 is the mid-October peak
9625 is the October closing high
10,365 is the late September low
Support:
The 10 day EMA at 9223
9088 is the January 2009 peak
The 18 day EMA at 9083
8985 is the closing low in the mid-2003 consolidation
8934 is the December closing high
8878 is the June peak
8829 is the late November 2008 peak
The 50 day EMA at 8759
8626 from December 2002
8588 is the May high
8581 is the July peak
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
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.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 11 - Tuesday
Productivity-Prel, Q2 (08:30): 5.4% expected, 1.6% prior
Unit Labor Costs, Q2 (08:30): -2.4% expected, 3.0% prior
Wholesale Inventories, June (10:00): -0.9% expected, -0.8% prior
August 12 - Wednesday
Trade Balance, June (08:30): -$28.5B expected, -$26.0B prior
Crude Inventories, 08/07 (10:30): +1.67M prior
Treasury Budget, July (14:00): -$180.0B expected,
FOMC Rate Decision, (14:15): 0.00%-0.25% prior
August 13 - Thursday
Export Prices ex-ag., July (08:30): 0.8% prior
Import Prices ex-oil, July (08:30): 0.2% prior
Initial Claims, 08/08 (08:30): 545K expected, 550K prior
Retail Sales, July (08:30): 0.7% expected, 0.6% prior
Retail Sales ex-auto, July (08:30): 0.1% expected, 0.3% prior
Business Inventories, June (10:00): -0.9% expected, -1.0% prior
August 14 - Friday
Core CPI, July (08:30): 0.1% expected, 0.2% prior
CPI, July (08:30): 0.0% expected, 0.7% prior
Capacity Utilization, July (09:15): 68.4% expected, 68.0% prior
Industrial Production, July (09:15): 0.4% expected, -0.4% prior
Michigan Sentiment-Prel, August (09:55): 69.0 expected, 66.0 prior
End part 1 of 3
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world stock market
us stock market
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