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us stock market, trade stock
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8/31/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: NTAP
Trailing stops: None issued
Stop alerts: GTLS; TKC
SUMMARY:
- Stocks get Chinese flu and a dose of positive Chicago PMI cannot cure it.
- M&A activity shows up out of nowhere.
- Chicago PMI makes three straight positive regional manufacturing reports.
- One day of pullback and the market is in decent shape. You would certainly hope so.
- New month usually means new money. It is, however, September . . .
Stocks in the mood to sell to start the week, end the month.
The big news Monday was the Friday reversal off the highs feeding into the Chinese stock market's 7% Monday loss. That led to China's first monthly loss of the year. Combined with Canada's 3.4% worse than expected GDP loss the market mood was rather sour.
There were positives. M&A activity was back in vogue, at least for Monday. BHI is getting larger, swallowing BJS. Baker Hughes has eaten other service companies in the past so this is nothing new. Disney announced it is buying Marvel. Barbie meets Spiderman and/or the Hulk. Hope they don't go into some tangent about Barbie's new boyfriends; Ken might get jealous.
The positives were not enough to turn the market positive or indeed anywhere near positive. Commodities, metals, oil, energy, and industrials, those stocks that looked pretty sharp to end last week were under pressure thanks to the worries about China's economy and its continued need for materials to build, build and build. Or hoard, hoard, hoard as the case may be. Stocks started lower with a gap and didn't fare much better after the Chicago region joined New York and Philadelphia with a positive read on its manufacturing index. We thought a number that beat expectations and moved to 50 would move the market. It did, just not up. Perhaps investors figured 50 and were looking for more. After all, if Germany can turn out 54.6 surely Chicago can do better. Not this month.
Stocks did manage a rebound to the first hour but faded into the long flat midday trading range seen nearly every session the past couple of weeks. Then a recovery in the last 1.5 hours (though trade was up and down) took back a third or more of the losses by the close. Not a whopping recovery, but still signs of some life on the dips.
The other markets didn't fare much better. Oil was spilled on the China story (69.66, -3.08). Gold fell (952.40, -6.40) as it continues to struggle with the 955-960 level. The dollar was up early but reversed to close lower (1.4337 vs 1.4301 Friday), but that did not help oil as noted. Bonds found some buyers given the tough going for stocks and that pushed yields lower with the 2 year closing at 0.97%, its first foray below 1% in a while.
TECHNICAL.
INTERNALS. Breadth was on the negative side but it did improve from -3:1 levels to -2.5:1 on NASDAQ and -2.7:1 on NYSE. Plenty more stocks down than up given the continuing struggles in techs and the issues the rising stars in metals as a result of the China worries. Volume was mixed, higher on the NYSE and above average for the second session as stocks sold back. A bit of distribution with the financials under some pressure after a MS downgrade. NASDAQ trade was above average as well, but it was lower, backing off as NASDAQ gaped lower and managed to hold support at the 18 day EMA and the range of the early August highs. Some hints of distribution, but nothing that alarming.
CHARTS. The indices were down but the losses were rather modest and they bounced off their lows into the close. Hardly a downside rip and nowhere near the virulence seen three Mondays back when the indices gapped lower and then recovered. SP500 tapped at the early August consolidation range highs and rebounded to hold the 10 day EMA on the close. NASDAQ tapped its 18 day EMA and rebounded to near the 10 day EMA, holding at its early August consolidation peaks. The other indices fared similarly with more or less success (SP600 fell into the early August range). SOX gave up its Friday gap to a new post-March peak but you kind of felt that was coming given the Friday gap higher to a tombstone doji. All in all the losses were not that severe in technical terms, but of course it was the first day of a pullback. They can start rather quietly and fester, but this market has found liquidity as the salve for each decline thus far.
LEADERSHIP. Over the weekend I spent a lot of breath talking about steel stocks and metals in general (the industrial kind) and how they as well as some energy stocks looked ready to move higher after. The China news did them no favors but then again some of these stocks hung in there on Monday with the same kind of tenacity they showed last week. Steel stocks such as RS and SCHN held up well. Copper was down but stocks such as SLT might give us another shot. Some energy stocks such as CHK and COP are still setting up. Monday was far from a total loss. At the same time some industrials and commodities related stocks broke support rather aggressively; it was not just a throw away day for the entire market. Some chip stocks continue to set up well (XLNX). Retail took a hit but its stocks were extended and it could use a pullback. In sum: the pullback took stocks back but it did not ruin all patterns. Indeed some areas needed a test and this will help set up some good entry points if the pullback remains under control.
THE ECONOMY
Chicago PMI makes it three in the black ahead of the national ISM.
Four months on the rise finally saw the Midwest scratch positive if by the slimmest of margins (50.0 vs 48.0 expected, 43.4 prior). Production rose to 52.9 and new orders to 52.5. Prices paid bounced to 50.0, not great news but it made some feel more comfortable with regards to deflation. Deflation is not our issue ahead though inflation is not really showing itself now in anything other than gold and commodities prices. Order backlogs increased to 52.5 from 48 while deliveries bounced to 54.6 from 49.6. Nice gains.
Employment, as you would expect, remained weak at 38.7. Inventories were listless at 27.5, but as we have noted many times before, this is the old half full/half empty indication: as the economy picks up and, as we have seen, so does production, then inventories will either get rebuilt or at the least manufacturers will sell all the product they produce and have to make more. That is of course a positive for the businesses and ultimately new or current employees.
That puts New York, Philly, and Chicago all at 50 or better, and just ahead of Tuesday's national report. That was bumped to 50.2 expectation-wise, but remember, it typically takes two months of regional improvement to get reflected in the national result. Of course that was not the case the last time the ISM was at 50 or better; it jumped up without any real lead in from the regions. Of course it had no staying power as well and immediately tumbled back down. Now there is a foundation and while the market would be upset if the US did not turn positive tomorrow, it would not historically be a bad thing if it waited another month and the regions put in another 50+ month as well.
THE MARKET
MARKET SENTIMENT
VIX: 26.01; +1.25
VXN: 27.17; +2.24
VXO: 23.81; +0.2
Put/Call Ratio (CBOE): 0.89; +0.13
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: -19.71 points (-0.97%) to close at 2009.06
Volume: 2.184B (-5.7%). Down but still above average. Some churn/reversal high volume Friday and more above average trade on the Monday selling. Some unloading of tech stocks after they looked tired and this is going to be an important test for them this week. Volume needs to back down some.
Up Volume: 853.158M (-742.927M)
Down Volume: 1.392B (+662.467M)
A/D and Hi/Lo: Decliners led 2.51 to 1
Previous Session: Decliners led 1.82 to 1
New Highs: 36 (-43)
New Lows: 12 (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: -8.31 points (-0.81%) to close at 1020.62
NYSE Volume: 1.514B (+8.74%). Strong volume topping all trade the past three weeks outside of expiration Friday. Selling volume indeed, but SP500 sold lower, held above support, and bounced some. That is not out and out dumping. It could even be interpreted as some buying. Okay we are not going to wear the rose colored glasses on this one, but it was not all downside selling volume. Still, you have to look at what happens the rest of the week to get a better gauge of the selling strength.
Up Volume: 323.449M (-566.937M)
Down Volume: 1.179B (+693.943M)
A/D and Hi/Lo: Decliners led 2.69 to 1
Previous Session: Advancers led 1.06 to 1
New Highs: 70 (-36)
New Lows: 34 (-32)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -47.92 points (-0.5%) to close at 9496.28
Volume DJ30: 201M shares Monday versus 205M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Friday intraday reversal, Monday gap lower. Makes some sense. Now we see how strong the sellers are given that August is out of the way and September, the worst month historically for the market, comes into play. The Monday selling hit some areas and stocks harder, but it was hardly a knockout blow to the upside move.
There may be some immediate upside relief as it is the first of the month. March was a bad first of the month, but after that bottom, 4 out of 5 months have posted at least a couple of sessions of upside to start things off as new money finds its way in via the mutual funds. July was the off month and it showed only one upside session to start the month and the gains that session were cut in half before the final bell rang. So we could see an early month bounce aided by liquidity even if the indices are to continue lower.
So if there is a Tuesday bounce do you buy those stocks that held up and still look solid or use it to sell upside and buy downside? With this market you can try all three, but the downside has been hard to make much hay with outside of some quick 2 to 3 day hitters, and those are tough plays. There are stocks that sold Monday and if they rebound but cannot convincingly retake key support levels they are candidates to sell. Those would include stocks that gapped Monday and broke some support and fail at recovering it.
There is a lot of back and forth about the ability of the market to ride through this September as part of the recovery move that ignores usual seasonal swings versus this being another September that is just hard on stocks. It will have to play out but there are two competing forces. First there is the liquidity that has kept the bid under stocks all the way up off the March low. Yes there have been 6 week pullbacks but they were ultimately bought and stocks shot to new recovery highs once more. That money has kept the market moving higher.
Second the market has simply run a long way into September. SP500 is up 19.5% from its July low to August peak. NASDAQ is up 19.2%. Those kind of moves beg some give back, particularly when some of the key leadership groups, e.g. tech, have run hard and look winded. The downside seems to be an easier call. It has seemed that way before on this run, however, but the liquidity keeps coming in to fill out the low spots.
The run off the March low lasted two months before it ran into some headwinds in May and again in June. Thus this leg looks ripe for a pullback to test a bit further as well. The month of September on into October are historic selling and bottoming months. The market has already bottomed on this leg, however, so you are looking at more of a May/June type of pullback/consolidation.
That would of necessity put pressure on the upside plays. As noted above, if the market bounces to start September with some new money but the move starts to fizzle in relative short order then you button up the struggling upside positions and let the downside positions run and look for some quick other opportunity to the downside such as NTAP, JNPR, and even some SPY puts though those have not worked that well for us to this juncture.
Support and Resistance
NASDAQ: Closed at 2009.06
Resistance:
2016 is the August peak
2070 is the September 2008 intraday low
2099 is the mid-September 2008 closing low
2169 is the March 2008 double bottom low
Support:
The 18 day EMA at 1996
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 1929
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
The 200 day SM A at 1662
1661 is the April 2009 prior peak
The January closing peak at 1653 (intraday)
S&P 500: Closed at 1020.62
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 18 day EMA at 1010
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
The 50 day EMA at 975
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
The 200 day SMA at 880
878 is the late January 2009 peak
The prior April peak at 876
866 is the second October 2008 low
857 is the December consolidation low
Dow: Closed at 9496.28
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 9381
9116 is the August low
9088 is the January 2009 peak
The 50 day EMA at 9057
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
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
The 200 day SMA at 8335
8315 is the February 2009 peak
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 31 - Monday
50.0 actual versus 48.0 expected, 43.4 prior
September 01 - Tuesday
Construction Spendin, July (10:00): -0.2% expected, 0.3% prior
ISM Index, August (10:00): 50.2 expected, 48.9 prior
Auto Sales, August (14:00): 4.2M prior
Truck Sales, August (14:00): 4.2M prior
September 02 - Wednesday
ADP Employment, (08:15): -246K expected, -371K prior
Productivity-Rev., Q2 (08:30): 6.1% expected, 6.4% prior
Factory Orders, July (10:00): 1.5% expected, 0.4% prior
Crude Inventories, 08/28 (10:30): +128K prior
FOMC Minutes, August. 12 (14:00)
September 03 - Thursday
Initial Claims, 08/29 (08:30): 570K expected, 570K prior
ISM Services, August (10:00): 48.0 expected, 46.4 prior
September 04 - Friday
Average Workweek, August (08:30): 33.1 expected, 33.1 prior
Hourly Earnings, August (08:30): 0.1% expected, 0.2% prior
Nonfarm Payrolls, August (08:30): -225K expected, -247K prior
Unemployment Rate, August (08:30): 9.5% expected, 9.4% prior
End part 1 of 3
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us stock market
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