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us stock market, trade stock
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8/12/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: TYC
Buy alerts: BHP; NKE
Trailing stops: HLTH
Stop alerts: RIMM
SUMMARY:
- Market does more than rise into FOMC, but the post-announcement action was tepid.
- Import numbers suggest US consumers are still alive.
- VIX, Index put/call ratio anticipating downside.
Impressive gains and a questionable end to the session.
Negative futures greeted investors but they were not anything like locked down. The trade gap figures were better than expected and that helped bump futures toward the flat line. Earnings were solid as well. Macy's beat and guided higher; TOL (housing) sold more units though prices were lower; BHP beat; CREE beat as well. Nice way to round out the season.
On the flip side mortgage applications were lower the past week, coming in at -3.5%. In the unusual category, electricity prices and usage was down in July. Temperatures were cooler in some areas but they were not in the south, so that was a very interesting statistic, suggesting the recession is really hurting consumers to the extent they are opting to use less electricity. Wow.
Nonetheless, stocks ran higher from the open. This was not the typical modest rise into the FOMC report; it was a surge with the indices up 1.3% to over 2%. There was, however, the usual post-announcement equivocation, but then a bid hit and rallied stocks to session highs, pushing SP500 easily over 1006. The story did not end there. Sellers came right back in and erased the post-FOMC rally. The indices still held 1+% gains at the bell, but the action showed that the sellers are still hanging around even on a big surge higher and are trying to push the market back down. Sure the indices held solid gains on the close, but they gave up big gains, and we know that reaction to the FOMC edicts takes more than an afternoon to make their mark on the market.
Statistics. The dollar sold back (1.4210), and oil despite rising inventories (2.5M vs 1.2M expected), rallied as well (70.20, +0.75). Bond yields rallied to 3.71% on the 10 year as investors moved out of treasuries thanks to the stock rally.
TECHNICAL
INTERNALS. Decent breadth but not stellar at 2.8:1 on NYSE and 2.4:1 on NASDAQ. Volume rallied on both exchanges, just topping average on NYSE but unable to make that level on NASDAQ. Volume was up, but it was not a powerful session. Solid, not powerful.
CHARTS. SP500 surged to 1013 on the high but then on the close once more was below 1006, the November 2008 post-selloff rebound high. Having trouble with that level, and that is understandable as it is a key level. No breakdown, just moving laterally this month, trying to hold the gains and set a new shelf to rally from. After a 15% run in July that is more problematical.
NASDAQ bounced off its 18 day EMA test, rallying up to the early August peak and then backing off in that afternoon volatility. Similar to SP500 it is working laterally this month after a strong run higher. So far the upside bias is holding on both SP500 and NASDAQ despite the view that the market is overbought.
LEADERSHIP. Financials were bouncing again on Wednesday, providing solid upside leadership. Chips bounced as well on the AMAT earnings and other good news in chip land. Metals bounced from their 3 to 4 day pullback, helped by BHP's earnings. Energy bounced a bit as well, and industrials were helped higher by BUCY's earnings. The leadership is hanging in there and many are bouncing after short 1-2-3 pullbacks or bull flags. Plenty of leadership still.
THE ECONOMY
Trade imbalance still large but imports show some life.
As noted above, the trade imbalance was better than expected. It is always going to be negative when we send hundreds of billions of dollars each month to OPEC countries.
The interesting portion of the report was the import statistics. They rose 2.3%. Not a huge number but somewhat surprising given the US consumer has been dormant. You may or may not recall that during the Greenspan years he decried the 'runaway' consumer and the US trade deficit. As noted, the deficit will never be positive as long as we import most of our oil from countries such as Russia, Venezuela, and Iran that don't like us (and of course there is Canada and we love Canada). Greenspan was harping on consumer spending, but you have to face historical facts: when the US consumer feels good, the US consumer spends on imports. Thus it was somewhat heartening to see the import numbers improve.
Does it mean, as so many are postulating of late, that the recession is over? Pardon me, but that is nonsense. It will take great GDP growth just to get us out of the hole. Frankly, a modest improvement in imports at the level we are talking about is a statistical non-event.
The Fed has its say.
Before I forget, there was an FOMC announcement this afternoon. To no one's surprise the Fed left its quantitative easing in place. It went a bit further though this statement was pretty much the same one seen the past couple of meetings. The Fed said interest rates will remain exceptionally low for an extended period. Further, economic activity is leveling out and that conditions in financial markets have improved in recent weeks. It is also extending its purchase program of long-term Treasury debt to October, but the amount remains at $300 billion.
As noted in the afternoon alert, there were no bombshells in the statement. Bonds sold on the news, driving rates a bit higher but still in their recent ranges. Everyone expects the Fed to keep its policies and facilities in place, but the speculation arises each meeting as to what it will say with respect to taking back some of the stimulus. Thus far it is not interested in broaching that subject.
THE MARKET
MARKET SENTIMENT
VIX: 25.45; -0.54
VXN: 25.68; -0.43
VXO: 24.23; -0.62
Put/Call Ratio (CBOE): 0.93; +0.16
There is a lot of concern about a correction and you can see it in the index options. Wednesday SPY put options traded at a 2:1 ratio over call options. Tremendous amounts traded. What does this mean? Big investors are buying downside protection for the gains from July. They anticipate a decline and are covering their gains so to speak. We saw this kind of buying in the fall ahead of that crash and to a lesser extent in late May.
We have talked about how this can be a self-fulfilling prophecy, i.e. when the big money in the market anticipates a decline and then fosters it by selling. Now with the put buying there would be no need to sell; that is why a protective put is purchased. Of course not all funds buy these options so you can get that crescendo of selling that starts slow and then warms up quickly.
I also discussed Monday about what the VIX index was telling investors, i.e. it was at the level reached last fall just ahead of that decline and is thus forecasting some type of correction here. What type of correction? For now it looks like a 50 point type on SP500, or a selloff to about 950. That is a moving target subject to investor sentiment, but that is a good working draft.
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: +28.99 points (+1.47%) to close at 1998.72
Volume: 2.109B (+12.71%)
Up Volume: 1.805B (+1.355B)
Down Volume: 336.365M (-1.169B)
A/D and Hi/Lo: Advancers led 2.42 to 1
Previous Session: Decliners led 2.72 to 1
New Highs: 56 (+34)
New Lows: 5 (-3)
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: +11.46 points (+1.15%) to close at 1005.81
NYSE Volume: 1.307B (+2.87%)
Up Volume: 964.826M (+744.891M)
Down Volume: 247.436M (-716.574M)
A/D and Hi/Lo: Advancers led 2.8 to 1
Previous Session: Decliners led 2.71 to 1
New Highs: 71 (+1)
New Lows: 44 (+8)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: +120.16 points (+1.3%) to close at 9361.61
Volume: 197M shares Wednesday versus 171M volume Tuesday. Got some more volme from the financials, but trade was still well below average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The Fed is out of the way but the ripples of its announcement are not just yet. Here is the picture: big rally off the lows in March that lasted two months. Then a 2 month lateral consolidation. Then a big surge in July that lasted into early August. Not two months, but a solid month of gains, indeed a huge month with 15% gains; historic gains not seen since the 1930's when the market made its first run out of that pit.
The point: this is a big move by any measure. The volatility and put buying suggest a correction. Outside of that, however, the market looks solid. Leadership is still holding up well and does not look as if it is worn out and in need of a nice rest. You can find many solid upside plays. You can also, however, find quite a few solid downside plays as well. On top of that the sellers are still out there and continue to flex their muscles and try their hand at selling.
On top of this you have the FOMC meeting over, earnings are done, and September is approaching. Just about all the news out there is, well, out there. Could be a situation of selling when the news is out. The post-FOMC action showed there was an ongoing fight between buyers and sellers, and while the market closed positive on the session, the sellers had the upper hand heading into the close.
Thus we are going to continue keeping our stops at reasonable levels. We have many stocks with solid gains already logged and in part banked. We can let the market take us out on those. On the others we are keeping the stops pulled higher at reasonable levels. We also have some very nice looking downside plays along with the nice upside plays that we can take whichever way the market turns.
That of course means that the market is at an inflection point seeing it has run 15% in a month and is now working laterally as investors decide if the economy is really recovering or is just experiencing a relief bounce before a double dip. The market's next break tells us what it has concluded. Again, even if it breaks lower we are not suggesting a major selloff but instead a nominal correction to a key level. Remember, there is a lot of liquidity waiting for opportunities to go to work. The last dip did not give them the gains they wanted, but that does not mean they won't keep trying to hook onto the back end of this rally so they don't totally miss out on the upside.
Support and Resistance
NASDAQ: Closed at 1998.72
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 18 day EMA at 1960
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 1879
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 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 1005.81
Resistance:
The November 2008 peak at 1006
1050
1106 is the September 2008 low
Support:
The 10 day EMA at 996
The 18 day EMA at 983
956 is the June intraday peak
The 50 day EMA at 947
944 is the January 2009 high
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 874
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 9361.61
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 9251
The 18 day EMA at 9127
9088 is the January 2009 peak
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 8801
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): 6.4% versus 5.5% expected, 0.3% prior (revised from 1.6%)
Unit Labor Costs, Q2 (08:30): -5.8% actual versus -2.5% expected, -2.7% prior (revised from +3.0%)
Wholesale Inventories, June (10:00): -1.7% actual versus -0.9% expected, -0.8% prior
August 12 - Wednesday
Trade Balance, June (08:30): -27.01B actual versus -$28.5B expected, -$26.0B prior
Crude Inventories, 08/07 (10:30): +2.5M actual versus 1.2M expected, +1.67M prior
Treasury Budget, July (14:00): -180.7B actual versus -$180.0B expected
FOMC Rate Decision, (14:15): 0.00%-0.25%
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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