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us stock market, trend trading stock
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8/24/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: AAP; ANSS; BKE; JNPR
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Sluggish session to start the week, but at least no gap lower.
- Battling economists have divergent outlooks. Imagine that.
- Dollar trying to make a stand at the prior lows but commodities don't sell off.
- Looking at a pullback but with the bid under the market it is likely only a pullback.
Gave up an intraday rally but still holding the gains.
Big recovery last week after gapping lower Monday, and after a strong expiration Friday that broke SP500 out to a new post-March high we expected a bit of weakness. The market was a bit sluggish without any real catalyst, but it still managed to move positive early in the session. At that point, however, it simply did not have any more to give. Stocks peaked midmorning and then slid back the rest of the session. No rout, no major selloff, just a slide back to flat by the close. Considering last Monday's nasty gap lower this action that saw the indices hold their gains was not bad.
There was some news on the morning, most of it dealing with weekend comments from economists regarding the direction of the US economy. The prince of darkness Roubini says the likelihood of a double dip recession is increasing because central banks and governments removing stimulus measures. He did acknowledge that the recovery was already on in China, Germany and Australia; at least he is not ignoring those inconvenient truths.
On the other side of the fence there was Mr. Birinyi who is predicting a 'stronger' economic rebound thanks to the leading indicator of the stock market. These sentiments were echoed by Ms. Cohen who sees the recession ending right now and thus no double dip recession.
Take your pick. The fact that there is quite a divergence among smart people shows there is something afoot. That old volatility we always talk about that indicates a change in the market applies to 'experts' as well. After all, the market is driven by human emotion based on their interpretation of the facts, and that is exactly what these opinions are. Of course the market aggregates ALL opinion, including those that put their money where their mouth is, and makes its conclusions. Thus the market is always the best arbiter of the facts.
Other Markets: The dollar started a bit stronger and strengthened on into the close (1.4296 versus 1.4340 Friday). Oil and commodities were up even as the dollar recovered some lost ground (74.00, +0.11). This is a very interesting development. Up to this point the dollar and commodities have moved inversely: dollar up, commodities down; dollar down, commodities up. If this relationship breaks that could be a sign of a stronger than expected US economy as commodities are more in demand and thus higher priced, and because of a stronger economy the dollar is more in demand.
Indeed, the dollar is trying to bottom above the August low. The dollar sold hard March to June, but it has scratched out a trading range since.
Not all commodities fared that well. Gold gave up almost all of the Friday gains in just one session (942.80, -12.10). Bonds were interesting as well. The market did not sell seriously at all, but investors moved back into bonds, driving the yields lower (3.47% 10 year versus 3.57% Friday).
TECHNICAL
INTERNALS. Pretty lackluster with 1.1:1 breadth and significant drops in volume (-11% NASDAQ, -24% NYSE). That kept NYSE trade above average for only the second time in two weeks while NASDAQ trade slipped back below average.
CHARTS. The indices held their gains from last week though they did not hold their intraday moves. SP500 showed a doji on its candlestick chart but that means little right here, perhaps a pause. NASDAQ gapped higher but closed flat and volume fell back. No distribution, no churn, just a bit of weariness after a good move. Hard to complain about that.
LEADERSHIP. Not a whole lot of change from Friday. Big techs are up but looking sluggish and ready to give some ground. Software still looks as if it is a new emerging area with some life. Energy is moving overall, particularly the oil and gas related sectors. There are some great patterns scattered across many sectors as seen in the reports. Most areas are up thanks to the rally, and there are some really good runs that need a rest. A market pullback to test this breakout will initiate some new buy points. In sum, there are many leadership groups but many are extended.
THE ECONOMY
A slow day for the market and economic news. The economists are arguing over what the stock rally means. There is more enthusiasm but there is an equal amount of concern as to whether China is for real and if the US can follow Europe's lead in the manufacturing improvement.
Here is the bottom line. The US manufacturing data is starting to turn. A bit late re the stock rally, but turning. US capacity and production have turned higher for the past two months; when combined with other improvements they portend economic improvement near term. As noted above the dollar is trying to bottom as well. Makes sense if the US economy is really starting to bottom.
These indications do not in themselves guarantee an economic recovery is here for good. With the EU showing positive manufacturing data there is a solid foundation for economic improvement still to come, at least until the next wave of trouble hits in the form of prime mortgages, commercial property, etc.
The question many are dealing with is whether the market has already factored this improvement in already given the strong move off the March lows and then the spurt higher in July. A lot of that was the 'whew' factor of no Great Depression 2; this last spurt likely included the improving data seen the past week. That makes this market test of the SP500 November peak another important milestone.
THE MARKET
MARKET SENTIMENT
VIX: 25.14; +0.13
VXN: 25.27; +0.58
VXO: 23.25; -0.56
Put/Call Ratio (CBOE): 0.73; +0.14
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: 48.3% down from 49.4%. This follows a steady rise past the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, 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: 23.1% up from 21.3%. Rebounding some from the big drop two weeks back from 31.1% and 35.6% the prior week. Still a 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: -2.92 points (-0.14%) to close at 2017.98
Volume: 1.997B (-11.55%)
Up Volume: 908.292M (-951.005M)
Down Volume: 1.133B (+729.284M)
A/D and Hi/Lo: Decliners led 1.18 to 1
Previous Session: Advancers led 2.79 to 1
New Highs: 79 (+9)
New Lows: 7 (-1)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher and rallied further, but could not hold the move after breaking to a new post-March high. Not a big break at all and we are watching very closely here in the event NASDAQ reverses. If it happens it typically does right after a breakout attempt. If it does reverse we are not looking for a crash but something more in line with the 50 day EMA at 1908.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -0.56 points (-0.05%) to close at 1025.57
NYSE Volume: 1.389B (-24.33%). Volume was lower but above average for only the second time in two weeks. With the pattern shown on the session there was some churn.
Up Volume: 680.414M (-694.036M)
Down Volume: 539.031M (+447.457M)
A/D and Hi/Lo: Advancers led 1.11 to 1
Previous Session: Advancers led 4 to 1
New Highs: 150 (+15)
New Lows: 77 (-4)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 made the break higher and continued the move Monday, coming within 9 points of the next resistance before it faded to flat. That showed an evening star doji on the candlestick pattern, and while this likely means little at this juncture you always take note of them when they occur after crossing to a new high as they suggest a potential reversal of momentum. As stated over the weekend, a test of the breakout would be nothing bad. You really don't want to see it break back into the range, however, as it did in June as that tells you more consolidation is necessary.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: +3.32 points (+0.03%) to close at 9509.28
Volume DJ30: 190M shares Monday versus 293M expiration shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
A candlestick doji here as well after breaking to a new post-March high.
TUESDAY
The economic news kicks back in on Tuesday with Case/Shiller home pricing and consumer confidence. Confidence has held at quite pathetic levels below 50, still at recession levels. For reference, the fifties and even the sixties are levels that suggest a recession is well on the way. It would be very positive to see some upside surprises on confidence start showing up.
The data may influence trade some but what the patterns suggest after Monday is a bit of giveback to test the breakout. That is all they suggest right now. It doesn't change the fact that Friday SP500 cleared an important level. Sure it has to hold it but that is always the case. The point: there does not appear to be anything that would jettison the continuing uptrend in the indices, particularly with the liquidity bid underneath it all.
Of course that is when you have to watch out as it is the unexpected reversals that cause the most damage. Thus we took a few downside positions Tuesday, positions that look as if they will fall regardless of market direction; their patterns are pretty weak. We have a few more on the burner we can put into play if the pullback intensifies as well.
Any nice easy test also puts some good stocks in position to move back up. The worrisome group for me is the large cap techs. They are not overtly screaming 'look out below' but they may need more than a short pullback.
In any event leadership is still strong, and while we can play a pullback with some downside as well as hedge our upside with those plays, the trend remains upside and the liquidity remains there as well (and we hear Obama is going to tell everyone tomorrow he will reappoint Bernanke so the money will remain). With that underlying the market any pullback is likely a good opportunity.
Support and Resistance
NASDAQ: Closed at 2017.98
Resistance:
2070 is the September 2008 intraday low
2099 is the mid-September 2008 closing low
2169 is the March 2008 double bottom low
Support:
2016 is the August peak
The 10 day EMA at 1990
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 1908
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 1652
S&P 500: Closed at 1025.57
Resistance:
1044 is the October 2008 intraday high
1106 is the September 2008 low
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low
Support:
The August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
The 18 day EMA at 997
992 is the August 2009 consolidation low
The 50 day EMA at 963
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 9509.28
Resistance:
9625 is the October 2008 closing high
10,365 is the late September low
Support:
9387 is the mid-October peak
The 18 day EMA at 9264
9116 is the August low
9088 is the January 2009 peak
8985 is the closing low in the mid-2003 consolidation
The 50 day EMA at 8950
8934 is the December closing high
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 8314
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 25 - Tuesday
S&P/Case-Shiller, June (09:00): -16.40% expected, -17.06% prior
Consumer Confidence, August (10:00): 47.9 expected, 46.6 prior
August 26 - Wednesday
Durable Orders, July (08:30): 3.2% expected, -2.5% prior
Durables, Ex Transportation, July (08:30): 1.0% expected, 1.1% prior
New Home Sales, July (10:00): 390K expected, 384K prior
Crude Inventories, 08/21 (10:30): -8.40M prior
August 27 - Thursday
Initial Jobless Claims, 08/22 (08:30): 565K expected, 576K prior
Q2 GDP - Prelim, Q2 (08:30): -1.4% expected, -1.0% prior
GDP Deflator, Q2 (08:30): 0.2% expected, 0.2% prior
Core PCE, Q2 (08:30): 2.0% expected, 2.0% prior
August 28 - Friday
Personal Income, July (08:30): 0.1% expected, -1.3% prior
Personal Spending, July (08:30): 0.2% expected, 0.4% prior
PCE Core, July (08:30): 0.1% expected, 0.2% prior
Michigan Sentiment-Rev, August (09:55): 64.8 expected, 63.2 prior
End part 1 of 3
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