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world stock market, us stock market
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10/20/09 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: BIDU; TRLG; ZEUS
Trailing stops: SLXP; TIBX
Stop alerts: EDU; EWBC; GME
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SUMMARY:
- Market digests mixed earnings, moving laterally as it does.
- Housing starts give investors a bit of indigestion.
- CAT earnings strong on the face, but show this is not a blowout recovery.
- Unable to do anything with the AAPL earnings, but stingy with the gains and still on for a move higher to year end.
Some earnings good, some earnings questionable, market mulls the results.
The market is focused on earnings right now. Earnings gapped the market higher last week, and continued the show this week with over 400 companies announcing their results. That is how it will be for the next two weeks as the majority of earnings reports are announced. There have been good results such as INTC's, which gapped the market higher last Wednesday. INTC again reported very solid bottom line growth and excellent top line growth. AAPL is the same story; it knocked the cover off the ball. On the other hand, there are similarities to Q2. There are good bottom line beats thanks to cost cutting, but revenues are coming in light or in line at best. There was more of that on Tuesday when PFE, KO, and UTX (to name just a few) reported good bottom line growth but, at best, the revenues were in line.
The market traded down on Tuesday, and there were roughly 0.5% losses on the indices. That could also be blamed somewhat on relatively weak September housing starts, and the dollar did rally back after it was down early, but the focus is on earnings. Investors are looking for something better than they saw in Q2 and are undecided as to how it is shaking out. Without a doubt, there are better earnings (and better top line earnings as well), but the question still remains whether or not the majority of companies will report the top line growth that investors need to see to put more money to work.
The market is choppy and moving laterally due to this indecision. It was up on Monday and down on Tuesday. For the past four days, the market has bounced up and down after it gapped higher on INTC, but that is not necessarily a bad thing. It is good to see a market that is stingy with its gains and will not give up and ground it has just taken, and that is what has been happening. There is also the liquidity that is continually pushed into the market. The indices are moving laterally after a boost higher without giving back any gains. When coupled with liquidity, one can be fairly confident that once investors get a beat on where the earnings median will be, then the market can move higher when the liquidity moves back in it feels safe to buy once more. That is what has been happening all along with this rally, and now that October is half way over, the money is going to try to come in and chase the gains into 2010.
TECHNICAL
INTRADAY.
The market was sluggish all day. It tried to open higher, but on SP500 it was just a steady drop down into lunch where the market formed somewhat of a double bottom. It recovered into the close, but it never was able to make a comeback. It came up twice and bounced up against the morning lows and was unable to move through. It made a significant effort in the last hour, but was unable to make that break and thus finished lower on the session, unable to get back even to the upper half of the range. After a good day on Monday, it was worn out and was not going to go anywhere.
INTERNALS.
NASDAQ -2.7:1, NYSE at -2:1. There was significant pressure to the downside, particularly on NASDAQ after AAPL's earnings. AAPL's earnings were unable to pull the rest of that index up with it. Volume was slightly higher on SP500, although still below average. This is below the excellent volume seen last week as the market moved higher. It did bounce around to end the week, but this volume was scored on expiration week and that can distort things. There is other upside volume that shows there was buying. You can see the same thing on NASDAQ - it almost got to average, but the volume was downside. There may be a hint of distribution (higher volume selling of shares), but it was not anything major, especially when compared to the above-average volume that the market showed on the moves higher prior to this.
CHARTS.
There has been an ongoing lateral movement since last Wednesday's gap higher above the September peaks. The INTC earnings report was able to gap the market up, and it has been moving laterally and choppily ever since. It managed on Thursday to put in a flat session, but it was down on Friday. It came back up on Monday, then back down on Tuesday. It is choppy, but notice that it keeps reaching down and touching the September peaks and then bouncing back up. That shows that the buyers are picking up shares there. They are not overwhelming the market, but they are accumulating. The market is being stingy with its gains, and that is good to see as the market makes any kind of move after a breakout.
It is the same situation on the SP500. It got over the late-September peaks with that gap; it tests toward that level on the lows and bounces back up, easily holding above that peak. It is easily working laterally and in a rather calm and orderly method despite the day-to-day chop. Overall, things look solid for the large cap index.
The small caps are a bit more volatile, but it has the same idea. There is the gap higher, the choppy movement, but it is testing lower and bouncing back intraday, holding above the September peaks. It is important to hold above a key level like that. As I said, there is plenty of liquidity that is helping keep things propped up.
The SOX does not have the same clear breakout and move higher as the other indices. Last Wednesday, INTC did break the SOX above the September peaks, but it immediately collapsed back down. There is something of a triangle ongoing on the SOX. It is pinching off, making higher lows below a constant peak, and that is not necessarily bad action. There are many ways to skin a cat; not all of the indices have to form the same way. The SOX is not as broadly represented as the other indices, so it would not necessarily have the same kind of pattern. There is a trend of higher lows and now constant peaks with the pressure building from below. Every time it sells off, the buyers step in a bit earlier. There is good support at a higher level at 320 and, lo and behold, that is where it held last time. It may come up and bounce back down again. If it makes another higher low, we could definitely see a breakout and perhaps get a decent play on SOX.
The indices are not racing higher just yet, but they are trying to figure out the earnings. There is a lot of information coming out, and some is better than expected and has helped get things going. The market is now sliding laterally, deciding whether to keep moving higher or sell off. I anticipate that, with the money that is ready to move in, earnings are going to be good enough for a run to the end of the year.
LEADERSHIP.
There are a lot of stocks that are moving quite well, but there were some issues today. A lot of stocks were down, but it was not a significant selloff. There are some issues with earnings where some stocks are gapping lower, but that is not the norm. Most stocks suffered along with the rest of the market and pulled back - but they did not tank.
The industrials are doing well. All industrial machinery that is tied to the weakening dollar and newly industrialized countries strengthening is up (CAT, TEX, BUCY, etc). They all came back a little on the day, but it shows the kind of strength they continue to have. Copper is the same way, with FCX down on the session but still in a nice uptrend. You could take that through pretty much any industrial sector you wanted to. In energy, RIG was down on the session but it bounced off of the low and held the 10 day EMA on support. It is a common theme. Stocks may have been off their game on Tuesday, but were holding onto their gains overall.
Retail tells the same story. All the talk about a great retail season coming has the retailers looking pretty good. TJX was trying to break higher, and URBN broke higher, coming back to test that September peak that it went over. That is very nice action. TBL has a neat pattern developing and JOSB broke higher. It has a very tight pullback, a short cup with handle. That is not a bad pattern, and it is something to watch.
Semiconductor stocks moved up. I am looking for us to pick up TSRA. It is breaking higher, and it is coming back. It is trying to get off the dime on this very nice test with a breakout from its pattern. LRCX is another with similar action. It had a nice breakout and is coming back to test on top of prior highs. Of course, INTC gapped higher, but it has come back, so it is not a total washout. It is holding over some support and may give a new run higher, but we will not chase it. We can get more bang for our buck out of some of the other stocks that have better option pricing and can run faster and further.
In financials, JPM broke higher with a gap and has come back to fill the gap. There is a nice test and it does not look bad. MS is similar; it broke higher, but is having a hard time getting over this peak. It is not in the same position where it is coming back to test, and it is not as strong. The regional banks are stronger but did not look as good today. EWBC broke below the 50 day EMA. It is not terrible action but not what I wanted to see.
In techs, AAPL had a gap higher out of its two-week range. It tends to do that. Who knows how much more this stock has, because with the numbers it puts up, it makes its own weight and can do whatever it wants. I like BIDU, and we got into it today. There was a nice pullback to the September peaks, and it bounced off of that on Monday. We got a gift today as it came back to test the 10 day EMA and bounced, and we jumped in as it did that.
As you can see, leadership is everywhere. There are new stocks coming up as money continues to circulate around. Old names that we like, such as BIDU, are setting up to give a run. BIDU can run like the wind, we might be able to get a really nice move out of these stocks over the next two and a half months. Those that can run like the wind could make Christmas look quite nice for us. You have to like the fact that the market is holding onto its gains as stocks set up to make a new move higher.
THE ECONOMY
Housing starts show this is no cakewalk back up.
On Tuesday, the September housing starts and building permits numbers were a bit disappointing; indeed, the futures sagged when the numbers came out. Housing starts came in at 590K. While that was above the 587K that was originally reported in August, it was much less than the 610K starts that were expected. Looking back at August, this is one of those revision times where the revisions were lower than the previously reported number. The previous reported number was 598K, and the revision was 587K. That made it look like September was higher, and it technically was, but it is a disappointment when the original number is revised down 11K. That makes the new number appear to be a beat which was not the case, and the market saw through it since futures softened up when this came out.
The housing market is not that strong. There are issues getting the inventory sopped up and getting pricing back up. Whenever you have such a tremendously long boom, it is naive to think it will be cured in 1-2 years. The housing market did top back in 2005. That is a long time ago, but there is a big difference between topping and finally troughing. The market was at a top after a multi-year run that extended much longer than traditional gains in the housing market. It took awhile to come down and really collapsed in 2008. It is just picking up the pieces now and trying to rise from the ashes, and it is not quite a phoenix-like move yet. Things will go slow as it is taking a long time to get jobs and confidence back. Even with low prices and housing credits, it is difficult to get the housing market back when the mid-to high-end levels and housing are being completely ignored by our federal government. They are focusing on getting everyone into starter homes, but most of the wealth in America and tied up in the middle- and upper-end homes. That is a fact, and until they get prices stabilized there will not be a lot of positive feelings about the future.
There was some more data out and that had to do with the PPI. Similar to the CPI, the inflation at the wholesale level was down. Overall, it was down 0.6%, versus expectations that it would come in flat. That was versus +1.7% in August. The core was down 0.1% versus +0.1% expected and +0.2% in August. The declining energy costs are what brought prices down, the same as with the CPI. As I discussed with that figure that deals with consumer inflation, producers are going to face the same problem because energy prices are spiking back up. Gasoline prices are already rising rapidly, up $0.20-0.40 when it is not even driving season. Crude oil is running higher and it is threatening to break out and move up to $80 which would take it above its range. If it does that, that is not a great indication for the consumer prices. We are a hostage to these energy prices whether we like it or not, and as they continue to rise and fall, our inflation rises and falls since it is all denominated in dollars. Given that we have to pay more dollars every time the dollar weakens, it severely impacts all US manufacturers and the consumers trying to do our job everyday to get the economy on its feet.
The dollar closed fairly flat for the day (1.4937 Euros from 1.4942 Euros on Monday). It was in a very tight range today, although it fluctuated intraday. Interesting to note that even when it was strong, the market was still soft. There has been a solid relationship between a weaker dollar and a higher market, but that correlation is breaking down just a bit. Some say that the dollar might bounce, but thus far, with Bernanke saying there will not be any change in the monetary policy and with other countries such as Australia raising interest rates and seeing their dollar rise, I cannot anticipate the dollar having much strength because the administration wants to see a weak dollar moving ahead. That is not necessarily great for those of us here at home who have to buy the energy denominated in dollars.
The bond market was fairly flat. Investors have moved into some bonds recently and are bringing the yields back down somewhat. 10 year closed down (3.34% from a 3.38% yield on Monday). Gold was flat ($1,056.30, -1.90). Oil was down slightly ($79.09 -0.52).
CAT earnings are solid but not indicative of a powerful recovery.
One of the things I want to touch on is what is happening with earnings. That deals directly, of course, with the economy because the way companies report their earnings tells a lot about how they view the future (and the present situation they are in, of course). CAT is a case in point. It supposedly tore the cover off of the ball and it did have some really good results. It swamped expectations. On the bottom line, it reported $0.64 earnings versus $0.8 expected. Revenues were 7.48 versus 7.3B expected. It did well on the top and bottom line. There were several factors that gave CAT this apparent growth in revenue and helped the bottom line, and one was foreign exchange rates. It sells a lot of its product overseas and benefited from the weaker dollar. It was selling more and also has holdings in foreign currencies through its sales which appreciated against the dollar. CAT had somewhat of a windfall with its exchange rate benefit. It also got a huge tax credit and that is assisting in making its revenues look better. Finally, it estimates it will have a 10% growth level in 2010. That sounds great, but one of the analysts who follows CAT closely pointed out that the 10% growth is because it is liquidating its inventory at very inexpensive prices. The rest of the world may be recovering and demanding what CAT is selling as the newly industrialized nations expands, but CAT still has a lot of inventory it needs to get rid of. It will liquidate a lot of that, and its revenue and sales will grow as a result. It is not able to command a high price, however, and has a lot of inventory it needs to work through. CAT is doing the things it needs to do no get its house in order and has been very successful because it is a multi-national and has the currency benefit. A lot of domestic companies do not have that benefit, so they are having more trouble. They have essentially the same kind of results as CAT, but they are not having the currency factors weigh in their favor, so their earnings do not look as great.
We have a blowout quarter, but there are caveats. There are basically bookkeeping entries that help make the difference. Put simply, it was not just a lot of new sales for full-priced equipment that is driving CAT's sales growth. It is pie-in-the-sky to think that would be the case right now, as things are still very difficult here in the United States and around the world even though there is recovery. You cannot price CAT as if this is a boom time. We have to watch out - as a matter of fact, we have to watch out with a lot of these stocks. This is a liquidity-driven rally, and that means that the money coming in is not going anywhere. It has been made available by central banks but it is not going to finance any new growth, so it is being pushed into financial markets and running them higher. If we think that this is a serious, big recovery underway, then we are whistling past the graveyard. CAT said that the recovery was underway, but it did not say it was a grand recovery. It was very careful in choosing its words. It wants to be positive, but cannot paint a picture that is not accurate because of regulations. The recovery is underway - that is telling the truth. After the economy shut down in 2008, it is definitely recovering by merely getting up and conducting business. Things are getting better, but it is not as strong of a recovery as we have had in the past. As noted last night, this recovery (by the metrics of many of the think tanks that follow economic recoveries) is about 50% of the strength that was had in the early 1980's. That is why there may be pent up demand. There may be a recovery underway, but is not that strong a recovery and we need to keep that in mind as investors. When the money runs out, it could get ugly again, and I want to be careful of that. I hate to be a downer, but I want to keep things real and honest, and to keep our eye on the horizon to know when the trouble is coming. Right now the liquidity is here and ready to drive it.
THE MARKET
MARKET SENTIMENT
VIX: 20.9; -0.59
VXN: 21.62; -0.49
VXO: 20.23; -0.02
Put/Call Ratio (CBOE): 0.92; +0.01
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: 48.9%. Paring back from the 50.6% the prior week. Tough week of selling knocked the bulls back but the bounce will bring them up again. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily 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: 24.4%. Climbing on the market selloff, up from 23.6%. That puts it back up to the level hit three weeks back, still showing sufficient pessimism. Hit a low of 21.3% on this leg. Rebounding some from the big drop 31.1% and 35.6%. 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: -12.85 points (-0.59%) to close at 2163.47
Volume: 2.123B (+11.34%)
Up Volume: 657.311M (-717.328M)
Down Volume: 1.427B (+857.679M)
A/D and Hi/Lo: Decliners led 2.67 to 1
Previous Session: Advancers led 1.82 to 1
New Highs: 127 (-57)
New Lows: 21 (+4)
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: -6.85 points (-0.62%) to close at 1091.06
NYSE Volume: 1.237B (+14.36%)
Up Volume: 273.155M (-476.242M)
Down Volume: 951.982M (+624.839M)
A/D and Hi/Lo: Decliners led 1.99 to 1
Previous Session: Advancers led 2.97 to 1
New Highs: 373 (-265)
New Lows: 44 (-39)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -50.71 points (-0.5%) to close at 10041.48
Volume DJ30: 186M shares versus 307M shares Friday. After some really strong trade a day off is not that big a deal.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The market has been moving laterally for the last week, and it has been choppy. Good earnings have bounced individual stocks up, but the overall market has not been able to do a lot with these good earnings. On the other hand, it has not sold off. Investors are taking all the data and reviewing. They have seen good things from INTC which bounced the market higher over the September highs. They are now trying to sort through the rest of it and digest what they are hearing to prepare for the run toward the end of the year. I still think that run is going to be on. I still think we need to use opportunities to move into positions as they dip, such as BIDU today. It dipped down after a good day on Monday, and we picked up some positions. We will continue to do that, positioning ourselves for a year-end run with stocks that are in great shape to move higher and those stocks that can run like deer when they get going.
I want to play the move to the end of the year. We may even have a spill over into January, then we have to watch out for what is down the road as we come to that first earnings season after Q4 is behind us. Remember, a lot of analysts are expecting a positive GDP growth in Q4. They are expecting 2-3% growth in 2010, and we may not get it. I want to be ready in case the results do not come in as many are anticipating. Until then, we will play this rally. I think it will pick up steam again after it digests the earnings results, make that run to the end of the year, and make us a lot more money so we can have a very happy holiday season.
Support and Resistance
NASDAQ: Closed at 2163.47
Resistance:
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows
Support:
2155 is the March 2008 intraday low
The March up trendline at 2152
The 18 day EMA at 2133
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
The 50 day EMA at 2070
2060 is the August peak
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
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
The 200 day SM A at 1765
S&P 500: Closed at 1091.06
Resistance:
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:
1080 is the September 2009 peak
The 18 day EMA at 1072
1070 is the late September 2009 peak
The March/July up trendline at 1056
1044 is the October 2008 intraday high
The August peak at 1040
The 50 day EMA at 1040
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
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
The 200 day SMA at 911
Dow: Closed at 10,041.48
Resistance:
10,365 is the late September low
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low
Support:
9918 is the September 2008 peak
The 18 day EMA at 9861
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
The 50 day EMA at 9600
9387 is the mid-October peak
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
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
The 200 day SMA at 8540
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 20 - Tuesday
Building Permits, September (08:30): 573K actual versus 595K expected, 580K prior (revised from 579K)
Housing Starts, September (08:30): 590K actual versus 610K expected, 587K prior (revised from 598K)
PPI, September (08:30): -0.6% actual versus 0.0% expected, 1.7% prior
Core PPI, September (08:30): -0.1% actual versus 0.1% expected, 0.2% prior
October 21 - Wednesday
Crude Inventories, 10/16 (10:30): 0.33M prior
October 22 - Thursday
Initial Claims, 10/17 (08:30): 517K expected, 514K prior
Continuing Claims, 10/10 (08:30): 5990K expected, 5992K prior
Leading Indicators, September (10:00): 0.9% expected, 0.6% prior
FHFA Housing Price I, AUG (10:00): 0.3% expected, 0.3% prior
October 23 - Friday
Existing Home Sales, September (10:00): 5.35M expected, 5.10M prior
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