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world stock market, us stock market
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8/20/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: BWA; EQR; GIS
Trailing stops: BTU
Stop alerts: FSLR
TO VIEW THE VIDEO MARKET SUMMARY CLICK THE FOLLOWING LINK:
http://investmenthouse1.com/ihmedia/marketsummary.wmv
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SUMMARY:
- Blas start but a decent finish.
- Philly Fed turns positive as two regions now show gains.
- SP500 making its third try at resistance, just as in June.
- Market reaching a near term inflection point.
Futures look weak but market posts a respectable recovery to positive.
The market was a bit blas on Thursday. If you were up very early in the morning, you saw that the futures were quite decent, but they whittled away their gains as the morning progressed and were negative by the open. The causes were in the usual mix of news. There was the argument once more that China's buying of commodities was merely stockpiling or hoarding, and that was supported somewhat when Rio Tinto said that it believed that commodity prices were artificially high right now simply because China is stockpiling commodities.
The market still held up quite decently until the weekly US jobless claims came out. It was 26K higher than expected at 576K, topping the 550K expected. That hurt the futures and brought them negative, but when you are in the 500K range, does it really matter? Sure, that is technically better than the 700K + that were lost per week at the turn of the year, but it is still nowhere near the number of jobs needed to soak up the number of employees that come to the economy every month. We need 150K new jobs each month to take up that slack, and we are still hemorrhaging jobs. That was enough to send the market down before the open because investors were not willing to look at the thinly stretched silver lining of jobless claims no longer at - 700K a week.
The market opened lower, but it did not last - it almost immediately started turning higher as it did earlier this week. A half hour into the session it got another boost. Leading Economic Indicators were up for the fourth month in a row, and we got the second positive regional PMI reading of the week. Those are the only two positive readings we have seen since the fall of 2008 when the economy shut down after the Lehman bankruptcy. Those positives helped the market, giving it a goose after the early rush, then it slipped into the usual midday flat line. It was flat as a board for three and a half hours and into the last hour, then stocks started to rise again, moving up to session highs into the close. They backed off a little bit, but they made new highs for the session in the last hour. It seems like a great session - starting low and then moving up higher, but we should look at the technical aspects to see if it really was that great.
TECHNICAL
INTRADAY.
The market showed good low to high action intraday. It fought off the midday slump to finish even higher, moving to session highs in the last hour. That is typical bullish action and there is no problem with that on the day. Does that tell the whole story as to whether or not this was a strong session? Of course not - we have to look at some of the internal action to figure that out.
INTERNALS.
The breadth was not bad at all, but it was not that great either when compared to Monday. On the NASDAQ the advancers led 1.9:1, and on the NYSE it was 2.7:1. Those are very decent numbers in normal situations, but when you look at Monday when we had -6:1 breadth on the NYSE, it somewhat pales in comparison. That is what has happened on each of the moves back up after the Monday selloff. We do not see the same broad move back up as was the panic selling on Monday.
Volume is really more of the key here. The breadth was good enough to support a move up, but it was not 1:1 which would indicate nothing but short covering and just a few big stocks moving. It was 2:1 - almost 3:1 on the NYSE. On the NYSE, volume was weak. The volume on the downside was relatively big on Monday. It was not a huge day for volume on the NYSE, but it was much larger than the past two days when the exchanges moved higher. Relatively, the selling was stronger in the NYSE on Monday then the recovery has been since.
On NASDAQ, we flip the picture. On Monday the volume was no great shakes to the downside. The sellers were not coming in and kicking it down. Volume was up almost 2B shares on Wednesday and Thursday. There was only a 2% gain Thursday over Wednesday, but still both sessions were substantially higher. On NASDAQ, the upside volume toward the end of the week is stronger than the downside volume on Monday. That is a positive, and it shows accumulation in the NASDAQ. That could be techs, software, or many different things because NASDAQ has become much more diverse, but it nonetheless shows that the more speculative index was moving up on stronger volume, and that is somewhat of a positive.
CHARTS.
On Wednesday, SP500 and the NASDAQ broke back up inside their early August trading range, which was a positive. On Thursday they put some more mileage on that, moving up to the upper half of the range on the SP500, so we got more solid action going back up inside the range after recapturing what was lost on Monday. Indeed, SP500 moved over the November closing high at 106. It closed at 107 +, but that keeps it just below the November intraday high. It is just a matter of a few tenths of a point, but that is actually the point right there: it has not moved through it yet and has come back up to test this level.
The NASDAQ's pattern has a little bit of a double top and could be making a lower high right now. It is back in the August range, so give it the benefit of the doubt; it has not rolled over. In fact, when the sellers tried to push it down, it has bounced back up on stronger volume. That shows there are more buyers than sellers at the start of the week, which offsets a weaker pattern where you have a slight, very short double top in August, then a selloff and a bounce back up. The proof in the pudding will be what NASDAQ does when it approaches the recent peaks in August - will it break through, will it stall and continue laterally, or will it stall and roll over? We will see which of the three scenarios plays out. I do not like the pattern here, but I like the volume it showed coming up. That gives it a chance to hold in this range and complete the consolidation.
I will get back to SP500. Look back at June when the SP500 moved laterally for a couple of weeks. The question was whether or not it would continue the move, if it would hold its gains and break higher from there or if it would fall. It fell, dropping 9% into early July. Of course that triggered a 15% run at that point and a new post-March high, so it was a positive consolidation. The question now is whether the SP500 going to make the same kind of move. In June, SP500 made a couple of little tops. It made one top, then another little peak, then tried for a third time and failed, and that is when it went down. Three strikes and it was out. It was not a major selloff, but it was unable to hold its consolidation. If you look at the chart, you can see the same kind of situation setting up now. There are two small peaks, a pullback, and now we are coming up for a third peak. We are coming right up to the November high at 1,007.It made a higher high intraday a couple of weeks back, but it reversed that day and came back down. It did the same thing in June. This is the lick log for the SP500 and indeed for NASDAQ. This is where we will find out where the indices will go in the near term. I think they might pull back, but what I think does not necessarily predict what the market will do. It has the look and we are prepared for that, but at the same time, I cannot ignore the fact that there are a lot of good stocks in position to move higher.
The market is coming back up to make a critical test. The indices are coming back up to make a critical third try at resistance. In June they were unable to make the break and they sold off in another consolidation. I think we will see what happens very soon with respect to their move higher to test the November peak on the SP500.
LEADERSHIP.
I cannot ignore that there are many good stocks and very nice upside patterns. There have been good runs higher and there are excellent bases forming and excellent pullbacks. We are seeing flag patterns, pennant patterns - a bunch of great setups to move higher, and not just set ups anywhere, but setups off of nice support. We are also seeing a few trend reversals. I cannot ignore the fact that software and commodities look good, engineering looks solid, techs look good. There are still many areas that are showing good setups. We were buying some positions on Thursday as the stocks made the moves that we wanted to see, but that does not necessarily mean they will make the break higher.
There is somewhat of an inflection point in the market at this stage as it comes back to the third test of that resistance level. It could break through, and that is why we have picked up some positions, but we have picked them up at very good risk/reward points where, if they do not rally higher and make the breakout and the market does come back down, then we can cut our losses quickly and make money on the downside. There are downside positions setting up as well. As SP500 moves back up to that resistance, if it fails and rolls over we already have SP500 positions. We will add to them and look at other downside positions as well to take advantage of the drop. We will cut our losses short if it turns on us and play the downside. Conversely, if it makes the breakout, we will ride our upside positions higher and cut off the downside plays. That is what you do when you are at this kind of point, and it tends to work well if you cut off your losses and let your winners take off and move with the trend.
In summary, we have the NASDAQ and SP500 moving back up to a key resistance point, more particularly on the SP500. This is going to be its third time at that level, just like in June, and we will see whether or not it will make the break higher and clear 1,007-ish or if it will turn back down and consolidate some more. What do I mean by consolidate? I do not mean there will be another test of the low. I would have thought that several weeks ago, but now I see indications that that might not be the case - one being the positive showings in the regional PMIs. That took awhile to get here, but the fact that it has showed up lends support to the fact that the market moved higher and made these gains. It is kind of late compared to the 2002 recovery, but it is better late than never. We will see some support even if the market is a bit extended now and anticipated this change in the PMIs, if it comes back and makes a June-like consolidation, which is fine. It will make a higher low and continue higher, and we can play that low to the downside and then play it back to the upside.
THE ECONOMY
LEI strings four back to back gains.
The LEIs were better for the fourth month in a row, and there is some history there. When you have four months in a row of improving LEIs that is a very good sign that the economy is making a turn. It is interesting that it is trying to make this turn when only 10% of the stimulus money has hit the market, and it makes you wonder if we have to spend the remaining $700B that is out there for some pretty absurd things. Can we not use that money better? Certainly we can, but it will not change what has happened. If the economy is turning and they have stimulus in place, they will claim it is the stimulus that is doing the work whether or not it has been put to use. The odds of the stimulus getting pulled, despite a growing number of economists saying it should be, are quite slim.
The ECRI is very interesting. It is the best man-made leading indicator and, back in the late spring, ECRI said that the economy could very well bottom in mid-summer. Here we are in August and the most recent PMIs out are showing a turn positive. These regional PMIs are one of the first and best leading indicators that we have when you look back in history at recoveries. They pop up first as positive, and that is the first sign that robins are on the yard and the economy will improve. Lo and behold, ECRI could once more be right.
Philly Fed PMI rings up second gain for the regions this week.
The Philly Fed was + 4.2 when a - 2 was expected, and there was a -7.5 back in July. The average workweek is still somewhat low. We want to see the average workweek pick up because that is an indication that employment is starting to increase. When that happens, the recession is over and recovery is well on its way. Obviously, that is not the case now because the workweek is low and these are just the first signs of improvement. There must be several months of improvement down the road, and after the shut down we saw in the fall, it might take many more to get companies hiring again.
New orders rose 4.2%, which is not a blow out number, but very solid. What does all this mean? It means we could have a turn coming. If Chicago comes in, that could mean that the ISM turns positive either this month or next month; the national one usually lags the regionals by a couple of months. If we can get two months in a row of growth, then that is really solid confirmation. That makes sense, but everyone tends to get excited by a single data point and go off half cocked about that. I do not want to get too excited about one month, but we do have two regions showing positive gains. If we can put back to back months together just as the LEI has put four in a row, then we can start breathing a bit easier (but just a little because we have a long way to recover). Credit is still not where it should be, so we still have some work to do, and I do not think there is anyone who would argue with that.
THE MARKET
MARKET SENTIMENT
VIX: 25.09; -1.17
VXN: 24.97; -1.24
VXO: 23.79; -1.56
Put/Call Ratio (CBOE): 0.72; -0.25
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: +19.98 points (+1.01%) to close at 1989.22
Volume: 1.966B (+2.01%)
Up Volume: 1.375B (-29.707M)
Down Volume: 569.803M (+18.356M)
A/D and Hi/Lo: Advancers led 1.89 to 1
Previous Session: Advancers led 1.76 to 1
New Highs: 50 (+28)
New Lows: 11 (0)
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: +10.91 points (+1.09%) to close at 1007.37
NYSE Volume: 1.119B (+9.04%)
Up Volume: 925.393M (+345.647M)
Down Volume: 184.309M (-214.975M)
A/D and Hi/Lo: Advancers led 2.68 to 1
Previous Session: Advancers led 1.68 to 1
New Highs: 91 (+35)
New Lows: 37 (+2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: +70.89 points (+0.76%) to close at 9350.05
Volume DJ30: 151M shares Thursday versus 176M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
We do not like to buy a lot on Fridays because they can be very deceptive. You can get some covering ahead of the weekend. There can also be people anticipating what happens on Monday, and when it does not pan out they have to reverse their positions and you are right back where you started. If we have another upside day on Friday, I am not going to be too wild about buying into it. There were a few positions that I would not mind picking up to the upside, but they are in small stocks that really are not in the mainstream. They are in excellent positions, they are moving well, and they have made a good pullback and are in solid position to move higher. If things go against us, we do not lose anything if they turn back down - we just cut our losses off and move on. We are looking at some of those positions but will not get too aggressive. We have picked up positions over the past couple of days even as I was kind of pensive about the market coming back. We were buying some positions as we were closing others because some stocks were moving well while others that had been moving well were not making solid bounces with the market. It is interesting because a lot of these were what you might call smaller stocks. What do we know about smaller stocks and smaller cap stocks? When they start to perform better, the economy is usually on their heels because they are economically sensitive. They are the canaries for the economy, or as I learned in a recent trip in a mine in Colorado, they are the rats for the mine because the rats were better at telling when there was a problem in the mine than canaries every were - but I digress.
Money is spreading out toward the small caps, and that is a positive because that shows that money is moving into areas that the smart investors or big money thinks are going to improve. Then they do improve because the economy improves. One chain is connected to the other link, and it just makes for the entire market moving. I am viewing that as a positive which is why, even though it is a Friday, if I see some of these stocks move higher, we will pick up a few shares in that. We could see a good move Monday if more money comes in.
It is Friday, so we do not want to pick up a lot of new positions, but we still see stocks moving up quite nicely. You have to juxtapose that against SP500 making its third try up at the November 2008 peak. That is pretty potent medicine that will tell a lot about what happens in the near term. This is going to be an important test, and that makes it incumbent upon us - if we do pick up some upside - not to get stocks that are too stretched out in a move. We passed up some today that bounced, or maybe gapped a bit more than we wanted to because it kind of destroyed a little of the tight risk/reward that we are looking at right now. You do not want to chase a stock that is up for five days. You have to avoid that because if it comes back down, you are out of the stock, you have no buffer, and you are kicking yourself in the butt. No one wants a black and blue butt before the weekend.
We will look and see if there are a few stocks that we want to move into. There may be some, and we may even look at some downside if they are in a good risk/reward position. Remember, the market has moved back up from that Monday gap lower, so we are back in that range where it could break upside or downside (and it is a narrow range). That gives us pretty good stop points or loss-cutting points on either side, depending on which way the market goes. We can have plays on both sides of the fence, and, whichever way it breaks, we close out the other ones and move with the ones that are in the direction of the market. I still have a feeling the market may break here. I will look at more SPY puts, and may issue an alert on them tomorrow if we get the kind of action I like in the market late in the day. That would be a more aggressive play, but we have to see what the market does and how well it tests that November high on SP500. This will tell the direction of the market.
That leaves us with the market once again at a point where there is no clear answer. There is one thing (well, maybe more) I can tell you that is still the theme of this market. There is a lot of money still circulating the world and trying to find a home. When the market dips, it comes in; we saw that on Monday and then the market has rallied back the rest of the week. That shows us there is still that underlying bid. Even if there is a pullback, even if there is a correction, the market is still in an uptrend, and most of the stocks in the market are still in an uptrend. We do not want to get too aggressive to the downside unless something major changes. Nothing major has changed the character at this point. We may pick up a few shares or positions if the opportunity presents itself, but will not go overboard. Hang in there. We are at an inflection point and we will have some more great plays for you over the weekend as well to set us up into next week. Have a great evening.
Support and Resistance
NASDAQ: Closed at 1989.22
Resistance:
2010 from the Thursday peak
2016 is the August peak
2099 is the mid-September low
2169 is the March 2008 double bottom low
Support:
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
The 50 day EMA at 1899
1897 is the October post gap intraday high.
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 1649
S&P 500: Closed at 1007.37
Resistance:
The November 2008 peak at 1006 closing 1007.53 intraday
The August intraday peak at 1018
1050
1106 is the September 2008 low
Support:
992 is the August 2009 consolidation low
The 18 day EMA at 990
The 50 day EMA at 958
956 is the June intraday peak
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 9350.05
Resistance:
9387 is the mid-October peak
9625 is the October closing high
10,365 is the late September low
Support:
The 18 day EMA at 9203
9116 is the August low
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 8903
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): 576K actual versus 550K expected, 561K prior (revised from 558K)
Leading Indicators, July (10:00): 0.6% actual versus 0.7% expected, 0.8% prior (revised from 0.7%)
Philadelphia Fed, August (10:00): 4.2 actual versus -2.0 expected, -7.5 prior (no revisions)
August 21 - Friday
Existing Home Sales, July (10:00): 5.00M expected, 4.89M prior
End part 1 of 3
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