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8/17/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: BRCM
Buy alerts: AMMD; HCBK; SMH
Trailing stops: AGU; CEBY; CTRP; GOOG; ISRG; VWO
Stop alerts: QCOM
SUMMARY:
- Market leaning to the downside belly flops.
- Positive NY PMI cannot turn a market ready to sell.
- SP500, NASDAQ unable to hold lateral consolidations.
- May get a bit of quick backfilling, but the momentum could keep the indices down for a couple more days.
Lateral consolidation summarily trashed.
Over the weekend I talked about us leaning for the market to pullback rather than break higher near term. The market leaned out so far it fell flat on its face as NASDAQ and SP500 gapped lower and broke out the bottoms of their respective lateral consolidations.
Catalyst? Everyone blamed China and fears that its economy was in a bubble. No matter that the New York PMI was positive for the first time since the LEH meltdown, that Japan's GDP was in line, or that the Fed was extending the TALF facility (student loans, credit card debt, etc.), though that last one is a toss-up as to whether that is a positive or not.
Back to China. That news story is a bouncing ball. Last fall China was supposedly in desperate throes and needed a major stimulus plan. It passed one that actually worked for it, and that supposedly helped cure the world's ills in that China would produce enough to soak up our goods and materials. Now that it supposedly worked there is worry of a bubble forming. Sound kind of fishy? Sure it does. The one constant in the market is that when it wants to be nervous it finds reasons to be nervous, and when it wants to rally it finds reasons to rally. It is the quintessential 'half full or half empty' schizophrenic and it can change its colors like a chameleon moving from the sun to the shade.
In any event, after the sellers could not consummate the deal the past few weeks, they sure did some consummating on Monday, driving the market down hard and breaking SP500 and NASDAQ down through their recent consolidations.
As stocks sold investors ran to the US dollar, bouncing it higher versus the euro (14.077 versus 1.4192 Friday). Indeed, the dollar made a higher low last week and is trying to make its first higher high since early June when it rallied off its hard March to June fall. That of course drove oil lower (66.79, -0.72) along with commodities, and that took their related stocks lower as well. Bond yields fell as investors moved into the safety of US Treasuries (1.01% 2 year, 3.47% 10 year).
The dollar helped push energy and commodities lower, and the China story weighed on industrials and the like. Of course the damage was not limited to these areas as most everything was down. The one area spared was healthcare; talk that the Administration may be willing to drop the 'public option' in favor of a co-op helped buoy those stocks. Of course a co-op run by the government is still . . . a program run by the government.
Stocks gapped lower and stayed down the entire session with the indices sporting 2.5% or worse losses. Not a banner day for the upside.
TECHNICAL
INTERNALS. Breadth was pathetic at -4.5:1 on NASDAQ and -6.4:1 on NYSE. As noted above, not a lot of stocks were in the green. Volume fell on NASDAQ (-1.2%) but rose 4% on NYSE. Still below average on both. NASDAQ shows no real distribution but SP500 picked up a distribution session as sellers came in with more force.
CHARTS. The key move as noted above was NASDAQ and SP500 breaking through the bottom of their recent consolidation ranges. That opens the door for SP500 down to the June consolidation at 950 and NASDAQ down to 1860, its June peak. What happens along the way? That is not that far away and the indices could get there rather quickly. Often, however, the market sells hard and then rebounds to fill some of the void, i.e. the gap. We can use that to our advantage, i.e. closing some upside positions that bounce but stall and taking some downside positions as they test their gaps or other moves lower.
LEADERSHIP. Of course most stocks were lower, but on the session healthcare showed great relative strength as noted above. Many other stocks held on quite well from a scattering of sectors. It was more a day that individual stocks, outside of healthcare, held up while most of the market was lower. Leadership is getting a test, but there are some very interesting stocks making very nice little pullbacks that could be new buys. We may be rushing it some, but indeed we are looking at some of these as upside plays.
THE ECONOMY
New York to lead the nation?
The west coast would like to argue, but California has spent itself into social program hell so it cannot put up any claim to economic leadership for now.
Hopefully it can put up some good numbers soon, but for now it is the east coast in the lead. The New York PMI posted a 12.08 reading in August, topping the 3 expected and the -0.55 in July. That is the first positive reading since the 2008 meltdown started (though not since the recession started).
Improvement 'green shoots' showed up across the board. Employment rose to -7.45 from -20.83; okay, not positive but a damn good improvement. New orders surged to 13.43 from 5.89. New orders lead to more production. Add some punch to those Friday capacity and production numbers we said held out promise for the economy. The New York numbers added a little more sauce for the goose on Monday.
THE MARKET
MARKET SENTIMENT
VIX: 27.89; +3.62
VXN: 27.59; +2.35
VXO: 27.05; +3.06
Put/Call Ratio (CBOE): 0.99; +0.04
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: 49.4% versus 42.2% and 36.7% the week before that. Bulls are leaping higher, moving well past the 35% level considered the threshold for bullish or bearish action. Hit a high of 47.7% mid-June on the run from the March lows, and now it has surpassed that level. This is an additional indication that the market is getting overbought and in need of a correction or consolidation. To be seriously bearish it needs to get up to the 60% to 65% level. 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.
Bears: 21.3% versus 31.1% and 35.6% the prior week. Continuing the massive exodus from the ranks of bears. For reference, cracking above the 35% threshold considered bullish. Hit a 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: -54.68 points (-2.75%) to close at 1930.84
Volume: 1.853B (-1.26%)
Up Volume: 150.791M (-299.28M)
Down Volume: 1.706B (+250.911M)
A/D and Hi/Lo: Decliners led 4.55 to 1
Previous Session: Decliners led 3.5 to 1
New Highs: 12 (-10)
New Lows: 17 (+16)
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: -24.36 points (-2.43%) to close at 979.73
NYSE Volume: 1.229B (+4.37%). Pesky rise in volume and while still below average, it does not bode well for NYSE indices. Still, a rally can suffer a day or two of sharp pullbacks on higher trade (distribution to be more concise) and pull right up out of the dive. Heading back to Missouri for now, however, meaning it has to show me it can do that.
Up Volume: 75.455M (-148.336M)
Down Volume: 1.132B (+278.726M)
A/D and Hi/Lo: Decliners led 6.44 to 1
Previous Session: Decliners led 2.47 to 1
New Highs: 39 (-24)
New Lows: 36 (-5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -186.06 points (-2%) to close at 9135.34
Volume: 207M shares Monday versus 172M shares Friday. As with NYSE, trade rose on the selling though it was still below average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Well alrighty then. The market was in the middle of the range and now it is out of the range to the downside. We picked up some downside last week and Monday wished we had picked up some more. But remember, what we want to do for the downside is catch a test of this initial break and ride that lower. We bought some downside in anticipation of this break lower but until it makes the break we were not going to load the boat. On a test that starts to roll over, that is a different story.
Thus we were not taking a lot of downside positions but we did not pass them all up. We also closed down some upside that we did not want to get away from us with a few days of selling. Many upside positions gapped lower and then bounced off of or held some key support. Given the gaps and the rebound attempts we left them open to see if there is more of an upside bounce. At the least we can get some better exit points if they bounce higher on a general market relief move.
Indeed the market often does bounce modestly after a gut-punch such as the one on Monday. It doesn't last too long before the continuation to the downside . . . continues. After that additional selling we will look at a more substantial rebound to set up some more downside plays.
So for Tuesday if we get a bit of a bounce on the open we will see how well it plays out. If the indices get up toward the bottoms of the recent lateral range we will be surprised, but if so they do we will see how they react and be ready to close some more upside and move into some downside. Likely they won't make it that high (992 on SP500, 1962 on NASDAQ) and thus we will be dealing with closing some upside positions as they rebound a bit further but start to run out of steam as well as taking some new downside positions that are set up already.
Support and Resistance
NASDAQ: Closed at 1930.84
Resistance:
1947 is the October gap down point
1962 is the bottom of the August 2009 range.
The 18 day EMA at 1964
1984 from late September
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:
1897 is the October post gap intraday high.
The 50 day EMA at 1890
1880 is the June peak
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 1645
S&P 500: Closed at 979.73
Resistance:
992 is the August 2009 consolidation low
The 18 day EMA at 988
The November 2008 peak at 1006
The August intraday peak at 1018
1050
1106 is the September 2008 low
Support:
956 is the June intraday peak
The 50 day EMA at 953
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 875
866 is the second October 2008 low
857 is the December consolidation low
Dow: Closed at 9135.24
Resistance:
The 18 day EMA at 9169
9387 is the mid-October peak
9625 is the October closing high
10,365 is the late September low
Support:
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
The 50 day EMA at 8855
8829 is the late November 2008 peak
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
The 200 day SMA at 8313
8307 is the April 2009 intraday high
8221 is the May 2008 low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 17 - Monday
Empire Manufacturing, August (08:30): 12.08 actual versus 3.00, -0.55 prior
Net Long-Term TIC Fl, June (09:00): $90.7B actual versus $17.5B expected, -$19.8B prior
August 18 - Tuesday
Building Permits, July (08:30): 565K expected, 570K prior
Housing Starts, July (08:30): 598K expected, 582K prior
PPI, July (08:30): -0.3% expected, 1.8% prior
Core PPI, July (08:30): 0.1% expected, 0.5% prior
August 19 - Wednesday
Crude Inventories, 08/14 (10:30): +2.52M prior
August 20 - Thursday
Initial Claims, 08/15 (08:30): 553K expected, 558K prior
Leading Indicators, July (10:00): 0.6% expected, 0.7% prior
Philadelphia Fed, August (10:00): -2.0 expected, -7.5 prior
August 21 - Friday
Existing Home Sales, July (10:00): 5.00M expected, 4.89M prior
End part 1 of 3
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