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trading system, money investment
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8/19/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: ANR; EMS; LTD; SPY; UTHR
Trailing stops: BRCM; FCX
Stop alerts: NKTR; RTI; VCLK
SUMMARY:
- Market resumes the selling early but reverses to post gains.
- Market making a key bounce to test that August range.
- Plenty of upside setups, plenty of downside as well as market hashes through this most recent peak.
Morning looked like a continuing selloff but stocks find a bid.
Once more China was the morning worry. The debate over whether China is double dipping and we are destined to follow versus China still on the comeback trail and ready to lead us higher. Wednesday morning the double dippers were in charge. Futures were lower here after Asia posted big losses and Europe was in the toilet as well. Weekly mortgage apps rose 5.6%, but that did not turn the tide. Oil inventories came out after the first hour and fell 8.4M bbl when investors expected a 1.5M rise. Oil spiked (72.18, +2.99) and took energy stocks higher as well. The dollar fell versus the euro (1.4227) and that of course helped pump up oil prices and commodities further.
There were not enough positives to turn the tide as the market moved to the opening bell. Stocks gapped lower. Looked as if the Tuesday relief bounce was limited just to Tuesday. Liquidity does interesting things, however.
TECHNICAL
INTRADAY. Indeed stocks started lower with a gap but immediately bounced and filled that gap, coming back up to the Tuesday close. The indices waffled there and it looked as if they were going to sell back after that quick bounce. The market range-traded into lunch but then caught a bid and that launched it higher into the afternoon session. Sellers tried to sell it off heading into the last hour and they enjoyed some success. Unlike Monday, however, they could not finish the job. The selling shriveled and stocks bounced up to the close, finishing out just below the session highs.
INTERNALS. Breadth and volume were no great shakes. Breadth fell to 1.7:1 on NASDAQ and 1.7:1 on NYSE. Tuesday breadth was much better (3.5:1 NYSE) but even Tuesday paled compared to the Monday selling that saw that -6:1 A/D. Volume rose on NASDAQ (1.9B), ostensibly a positive as stocks bounced. Trade still clocked in well below average but . . . it did top the Monday selling trade. Of course that means Monday's downside volume was below average as well and thus was not a massive distribution session. NYSE volume was not as encouraging. It was down from Tuesday's light up volume, and both sessions were well off Monday's trade that just missed average. Again, however, not massive downside volume that session. What does it mean? The market sold on rising but not blowout volume and now it is trying to recover its consolidation range. The internals, however, are tilted a bit more negative near term after holding an edged the first two weeks of the lateral range.
CHARTS. The important technical move was NASDAQ and SP500 recovering the early August trading range. Yes they are in the lower half of that range but the made an improbable move back into that range given the sharp Monday selloff. So all flowers and candy, right? You know that is not the situation. It is a positive that the sellers could not keep the indices down. That shows there is still a tug of war ongoing even at these elevated levels as the buyers just won't let go, using each dip to trowel in more of that money circulating around the globe. The Wednesday move was not definitive, however, simply because SP500 and NASDAQ recovered the consolidation range. The pattern still has that bearish umbrella look to it right now, but the buyers are fighting back. In short, the indices are still consolidating that July gain.
LEADERSHIP. Healthcare is a bouncing ball and Wednesday it was the upside bounce. Monday and Tuesday it traded counter to the overall market, but Wednesday they were all in sync. Commodities, energy, tech, etc. bounced after a gap lower. Lots of nice recoveries from support in many of these sectors, and thus we left a lot of our plays running to allow them to make this bounce and see if they can turn it into something more. There are some good flag patterns out there. There are also many stocks testing the 38% and 50% Fibonacci retracement levels. Those are solid levels to test a pullback, i.e. to test the July surge. Hard to complain about that as they will be setting up some ABCD patterns off of that test, proving more opportunity.
THE ECONOMY
Buffet implies healthcare will be too costly.
Buffet wrote an op-ed saying that the stimulus was helping the economy and that, while hardly strong, there would be a recovery from the near depression levels. His real concern, however, was the costs associated with the massive spending and the money printing required to fund the spending.
In case you are not clear how this is working, and don't feel bad as not many do, the bond auctions the Treasury holds to sell the bonds necessary to fund the spending are not what you would think. We often talk about foreign countries willing to fund our debt, e.g. China, Japan, etc. The conventional wisdom, and the way it used to work, is that these countries buy our treasuries with the dollars they have from our trade deficit.
What is happening now, however, is that the Fed is buying at the bulk of the bonds. One agency of the government auctions, the other buys. We are borrowing from ourselves, just moving money around between those agencies in a shell game. I would say it is smoke and mirrors, but at least you can sell the mirrors for hard currency.
Anyway, Buffet is concerned about what printing money and paying ourselves with the money will do to the economy down the road. Inflation? You bet. Crash the dollar? Of course. Buffett was a staunch Obama backer, but no amount of chomping popsicles can get him to swallow what is former favorite candidate is doing or wants to do.
Look at it this way. Buffet is already worried about the money already earmarked, i.e. the stimulus and the cap and trade. That will put us into hawk at roughly our GDP. If you add on healthcare at $1T we are insolvent. Yet every honest person knows the cost of this program will exceed that estimate. Medicare costs ten times its estimates, so if we take just half of that you are looking at $5T. We are deeply insolvent at that point and our dollar becomes rather cheap toilet paper. Of course our standard of living goes into the toilet along with those dollars.
Food for thought as we embark upon unprecedented debt. I have to laugh (and then cry) when I think back to my conversations with my democratic friends who complained so vigorously when our debt was 2.5% of our GDP. They were sure the dollar would collapse. I wonder if they are all buying Swiss francs or kruggerands at this point?
Check the spark plugs before you tear down the carburetor.
That is an old mechanic's adage that basically means check and change the easy, less costly stuff first to see if you can fix a problem because if you go into the carb you are spending a lot more and it may do more harm than good.
That is an interesting adage, particularly when used as an analogy to this health care issue. Without a doubt we have the best doctors, drug development, and medical appliance and equipment development in the world. Our clinics and hospitals are Meccas for the world's sick. Yes there can be improvements that eliminate kickbacks, favoritism, and waste, but in order to do so is it necessary to scrap the system that the rest of the world relies upon for drugs, equipment, and cutting edge medical care in favor of an entirely new scheme? Nonsense.
Is it not better to try low cost, indeed no cost solutions that many think tanks, from both sides, say would dramatically reduce costs? First, open health insurance purchases across state lines, i.e. allow REAL competition. Second, allow tax deductions for the purchase of health insurance by INDIVIDUALS. Third, expand HSA plans and HRA plans. Fourth, as we do with food labeling, require doctors and hospitals to publish rates for common procedures and standard office visits. After all, I have an HSA and I talk to my doctors first about costs, negotiate discounts, etc., telling them that I am going to be an informed patient because I control the dollars. It works. I am a better patient and they are better doctors. I get very frank discussions that I did not receive before. Fifth, allow pricing structures based on health, health improvement, exercise plans, etc. We do that now for life insurance, right? Require clear publication and verification of patient reviews of doctors and facilities.
These educate consumers of medical services. We pay our own car insurance, home insurance and we are better consumers for it. Energy deregulation has done wonders for our utility bills as we stay informed on the cheapest providers and we get discounts for energy conservation equipment and actions. If we have more information and are put in charge of our healthcare we become smarter, demand better care and services, and get better pricing. Isolated, protected markets in most states suddenly have to compete with better plans offered elsewhere. Doctors are more frank with patients and better health programs are constructed, reducing the endless tests for fear if something is missed a lawsuit arises. In short let Americans, a pretty highly educated populace, have the information to be smart consumers. We will be smart consumers.
In sum there are many things to try that cost virtually nothing but allow the free market to work and thus improve costs; likely dramatically. If they don't work or not enough, then add another method. I get tired of hearing that any one of these won't work. Nothing works on its own, but is that reason to chunk the entire system? Absolute nonsense.
THE MARKET
MARKET SENTIMENT
VIX: 26.26; +0.08
VXN: 26.21; +0.03
VXO: 25.35; -0.41
Put/Call Ratio (CBOE): 0.97; +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: +13.32 points (+0.68%) to close at 1969.24
Volume: 1.928B (+11.68%)
Up Volume: 1.404B (-19.702M)
Down Volume: 551.447M (+250.204M)
A/D and Hi/Lo: Advancers led 1.76 to 1
Previous Session: Advancers led 2.74 to 1
New Highs: 22 (-2)
New Lows: 11 (+1)
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: +6.79 points (+0.69%) to close at 996.46
NYSE Volume: 1.026B (-1.8%)
Up Volume: 579.746M (-253.447M)
Down Volume: 399.284M (+248.137M)
A/D and Hi/Lo: Advancers led 1.68 to 1
Previous Session: Advancers led 3.52 to 1
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: +61.22 points (+0.66%) to close at 9279.16
Volume: 176M shares Wednesday versus 158M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Okay, the indices are back into the early August ranges, somewhat moving against the odds after that Monday selling. Again, that liquidity circling the globe is moving in on any dip, and that is what we saw Tuesday and really Wednesday after the market opened lower and looked ready to resume the selling.
On the other hand it is not a resounding surge back that necessarily indicates a new run to new highs. Lower volume, modest breadth, still a rounded top of sorts. There is more work to do in order to finish out the consolidation and break things upside again.
That said, there are many nice looking upside patterns. Stocks rallied off the March lows, consolidated, rallied in July, and are consolidating again. Most are still trending higher as they continue to put in higher highs and higher lows. We see many flag patterns setting up (breaks higher then a week or so of pullback to near support) and normal Fibonacci retracements. Many solid leaders are in positions to bounce after their pullbacks and indeed many are bouncing. We certainly want to take advantage of those sweet setups even if they produce just trades higher versus long term positions.
At the same time there are many trades to the downside that are set up as well. Not all stocks that pulled back the past week and gapped lower Monday are in position to vault back up. Indeed many have recovered some ground but only to a key resistance level. Those are the nice downside set ups that, if the market stalls out, we are going to take advantage of.
The rather interesting aspect is, given the consolidation attempt and movement, both give us pretty darn good risk/reward positions up or down. If the market breaks either way, and it is going to do that at some point, we can close the sides opposite of the move without losing much on the trades and at the same time make good money on the other side. Even more interesting is that we can make money on the short moves we are seeing.
Interesting times indeed. We are watching the bounce and its strength given that the Monday downside move was much stronger than the upside seen thus far. That means we anticipate it will run out of gas and test further similar to say June. May not happen; the market does what it does. What we will do is continue to take advantage of good opportunities both ways as the market makes its decision and use the bounce to allow some upside to recover as far as they will, closing them if they run out of steam without making enough headway to provide us cushion for another test lower.
Support and Resistance
NASDAQ: Closed at 1969.24
Resistance:
The 10 day EMA at 1972 stopped the index Wednesday
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:
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
1897 is the October post gap intraday high.
The 50 day EMA at 1895
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 1647
S&P 500: Closed at 996.46
Resistance:
The November 2008 peak at 1006
The August intraday peak at 1018
1050
1106 is the September 2008 low
Support:
The 18 day EMA at 988
992 is the August 2009 consolidation low
956 is the June intraday peak
The 50 day EMA at 956
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 876
866 is the second October 2008 low
857 is the December consolidation low
Dow: Closed at 9279.16
Resistance:
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
The 50 day EMA at 8886
8878 is the June peak
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
Housing Starts, July (08:30): 581K actual versus 599K expected, 587K prior (revised from 582K)
Building Permits, July (08:30): 560K actual versus 577K expected, 570K prior (revised from 563K)
PPI, July (08:30): -0.9% actual versus -0.3% expected, 1.8% prior (no revisions)
Core PPI, July (08:30): -0.1% actual versus 0.1% expected, 0.5% prior (no revisions)
August 19 - Wednesday
Crude Inventories, 08/14 (10:30): -8.4M actual versus +1.5M expected and +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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trading system
money investment
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