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world stock market, us stock market
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10/21/09 Investment House Daily
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SUMMARY:
- Market starts low, rallies nicely, looks ready for new highs, then falls flat.
- Bank of England starts talking rate hikes, leaving the US the odd man out and the dollar the shredded currency.
- Fed sees 'modest' gains across the US. Recovery to new prosperity or just getting up off the floor?
- Stocks close inside their range but the reversal on volume is a new wrinkle.
Nice start but market shows surprising jitters.
Futures traded modestly lower ahead of the open as earnings continued to show improvement on the bottom line. The top line is so-so, but many are increasing their yearly guidance so that helped placate investors hungry for real improvement. Financials were at the fore early on with WFC, MS, USB and others reporting solid results. The results were not all glowing, however. That same undercurrent seen on other financial earnings showed up again in the fine print as WFC reported an increase in non-performing assets. Banks are raising their provisions for what could be a flood of defaults from both consumers and commercial entities.
Initially investors shook off that issue. Stocks started a bit soft but in bullish fashion rallied to positive and posted some solid gains closing in on 1%. Financials were out front along with energy and the usual cadre of industrial stocks. Yes the dollar was a bit weaker and that didn't hurt stocks. Some BOE comments re interest rates helped bury the dollar by the close (1.5007 versus 1.4937 Tuesday). Oil inventories rose less than expected (1.3M versus 1.75M) and gasoline inventories shrank (-2.2M versus -1.5M), and that exploded oil through $80/bbl (80.97, +1.85). Pain at the pump heading into the holiday season. Who is calling for a surge in sales? Some say it will be down again while others, as reported earlier this week, say sales will rise. If energy prices continue to spike they won't help matters.
So the market was holding up fine, riding the weaker dollar and overall decent earnings. It tested over lunch but in mid-afternoon started bumping higher. Looked as if a run to the close was on the way, a move that could break the indices out of the recent lateral range. Bullish.
Then just as the last hour got underway WFC received a downgrade to sell. Those non-performing assets were sticking in the craw of analysts. They apparently had also been worrying investors in the back of their minds. The indices turned and fell similar to stones. Straight down into the close, reversing almost 1% gains with almost 1% losses, at least on the NYSE indices (AAPL helped prop up NASDAQ as it continued higher on its earnings surge). If this issue along with the worries regarding commercial real estate push to the fore they could act as a significant counter to the liquidity pressing to get into the financial markets. On Wednesday they definitely took control.
TECHNICAL
INTERNALS. Very similar breadth readings to Tuesday with NASDAQ sporting -2:1 and NYSE -1.8:1. Volume spiked, however, and with the intraday price reversal that is not what you want. +20% on NASDAQ to 2.6B shares; +13% on NYSE to 1.4B. Both exchanges spiked volume above average, showing the sellers definitely took over as they drove stocks back down.
CHARTS. At the end of the day the indices were hanging onto the bottom of the recent lateral move. No serious breakdowns: there was enough upside cushion built in from the early rally to new 2009 highs to prevent them from breaking out the bottoms of their recent lateral ranges. SP500 and NASDAQ continued to hold above the September peaks while SP600 fell back through them in a somewhat ominous move: the small caps helped lead the move to new rally highs and they are threatening a break lower.
A major break? Not from the looks of it, at least not thus far. There is still a strong up trendline in place and it is not close to being threatened yet, at least on the NYSE indices; NASDAQ keeps dancing along its trendline. This kind of reversal could send the NYSE indices down to their trendlines for a test. It all depends upon how bad the liquidity wants in versus fears over what the bank earnings fine print is telling us. If there is a test down to the trendline you can bet the liquidity will make a play to rush back in at that point.
LEADERSHIP. Energy, industrials, metals and financials were solid early, but the financials dropped out (good for our GS play) and industrials had issues as well. The chips are down, at least they are the one group that has issues within: some look solid, others are in near term trouble even as analysts proclaim the earnings show a turn in the sector. Plenty of leadership but until there is more of a test there are not a lot of buys right now as stocks, or at least new buys, are a victim of the success the leaders are enjoying in this rally.
One worrisome area is retail. Some higher volume reversals are taking place the past couple of sessions. Retail definitely led higher but suddenly restaurants and retail in general are reversing on volume. The bank loss reserves/provisions and rising credit defaults and non-performing assets may be showing up.
THE ECONOMY
The weak Pound pounds the dollar.
The UK must have watched as Australia made a surprise move to hike rates. The Australian dollar jumped and has continued to climb higher. Down Under they are in a serious revival of capitalism and free enterprise, competing with the Kiwis as to which country will attract more new business. They are abandoning their socialist ways as our new leader's 'change' leads us to the very policies these countries found simply don't work.
Wednesday the Bank of England (BOE) issued a statement telling UK consumers that they should prepare for rising interest rates. No surprise hike, just getting it out there, a little jawboning the Pound perhaps.
Regardless, it was as if the BOE hiked rates. The Pound soared versus the dollar and the dollar was smoked (1.5007 versus 1.4937 Tuesday). That pushed the US dollar index to a new low for the year. The dollar index tried to bounce to end last week, but it failed at the 76 level (now at 75.12), a key resistance level that it tried to hold as support in September (bounced nicely off that level) but then gave up this month.
Thus the dollar now faces the unenviable position of being the only currency in the world's major economies that is not receiving any support from its government. The US is in a 'gut the dollar to prosperity' mindset, believing it can pay back our debt with cheaper (much cheaper) dollars. Problem is in doing so it eviscerates asset values, savings, and retirements in the US, making us a much poorer nation and lowering our standard of living while the rest of the world enjoys gains in their standard of living. Nice job!
Fed Beige Book sees improvement but hard to tell where.
The survey of the US economy can be summed up with this observation from the FOMC: the economy, while gaining momentum, has yet to overcome weaknesses in banking and unemployment. Demand for bank loans was weak or declining. The commercial real estate market was the main worry as all regions noted that it was weak or declining as well.
Many saw the report as much more pessimistic than they expected. Why is that? Most are reading too much into this stock market rally. This is, as noted the past week, a liquidity-induced rally, not an economic surge rally. The economy is of course bouncing; it was a zero activity to end 2008. Any activity is improvement. Even PMI reports over 50 are deceiving: they are expanding but they are expanding from massively lower levels. Many are falling into the liquidity trap.
Maybe it turns out 'priming the pump' and actually leading to a big recovery. That would be a first. Moreover, if cap and trade passes along with national healthcare and we sign the treaty bowing down to the IMF as the leader of world economics, the additional massive expenditures would stagger any recovery, even strong ones. This one is lacking in firepower as all the studies of this rebound versus others in history show.
Thus the Fed's glum outlook is justified. Of course the Fed WANTS to come across as if things are dire so it can continue to push interest rates down. Oh well, the plot is very thick with undercurrents.
THE MARKET
MARKET SENTIMENT
VIX is at a new low for the year, touching down to the August 2008 levels . . . just before it all hit the fan. It is in a prime spot to bounce and with the indices reversing off the highs it could make a decent bounce as the market tests its trendline.
VIX: 22.22; +1.32
VXN: 23.14; +1.52
VXO: 21.19; +0.96
Put/Call Ratio (CBOE): 0.94; +0.02
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: -12.74 points (-0.59%) to close at 2150.73
Volume: 2.558B (+20.51%). Volume jumped to its highest in three weeks, and unfortunately it was as NASDAQ rallied to a new rally high and then reversed to give it all away. Reversal volume.
Up Volume: 666.418M (+9.107M)
Down Volume: 1.877B (+449.93M)
A/D and Hi/Lo: Decliners led 2.05 to 1
Previous Session: Decliners led 2.67 to 1
New Highs: 156 (+29)
New Lows: 19 (-2)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
An intraday reversal is not great action. Even so NASDAQ managed to close at the September peaks, just below its March/July up trendline. This is a good test for the strength of the trend.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -9.66 points (-0.89%) to close at 1081.4
NYSE Volume: 1.406B (+13.69%). Volume jumped above average here as well as SP500 held above the September peak. Same as NASDAQ, however, as the indices reversed on strong volume from new highs hit early in the session. Reversals on volume show the sellers took over. Now we see if they can maintain control.
Up Volume: 371.552M (+98.397M)
Down Volume: 1.005B (+53.175M)
A/D and Hi/Lo: Decliners led 1.84 to 1
Previous Session: Decliners led 1.99 to 1
New Highs: 453 (+80)
New Lows: 65 (+21)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 rallied and just cracked to a new rally high. Then it reversed and closed lower on stronger, above average volume. As with NASDAQ, reversals here are not great but SP500 is in much better shape, holding over the September peaks at 1073ish as well as the March up trendline about 25 points below. SP500 has plenty of room to test even if the selling here continues.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
SP600 (-1.34%) suffered a bit more than its large cap brother. It fell through its September peaks and while it is still at the low just before the last breakout to the upside, the small caps are under more stress. As with the retailers that are an economic barometer, the small caps are the same and they are under a bit more stress.
DJ30
Stats: -92.12 points (-0.92%) to close at 9949.36
Volume DJ30: 251M shares Wednesday versus 186M shares Tuesday. Some spiking volume in the financials pushed volume higher.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The last hour action made things a bit more interesting in terms of the near term move. As noted earlier, the liquidity is still out there looking for a new opportunity to move in. The tension between the rising loan loss provisions and commercial real estate worries versus the liquidity ready to chase gains higher is visible: dips are bought, but the sellers are trying to push the issue with some strong selling Wednesday that reversed the gains. The question is whether the buyers will let the sellers push it lower toward the next support before they step in. If the sellers do take the indices down to support or even the trendline you can bet the buyers will do their best to chase stocks back up.
After the runs higher we would prefer to see a good pullback to support that would set up some new buys whether flag patterns, ABCD, whatever. A lot of leadership in energy, industrials, and commodities is extended; a pullback wouldn't hurt. Thus far these pullbacks have been met with rather furious buying. Still expecting a run to year end, and a pullback is simply priming the pump so to speak (tying together different concepts is a good writing technique I am told). In the interim we have some good downside plays in position that can make us some good money, e.g. GS, and when this pullback runs its course we can close those and play the upside after the pullbacks to support.
Not to get too far ahead, but I continue to wonder what happens after the end of the year. As the Talking Heads sang about, what happens after the money's gone? For now, until it shows otherwise we continue to play the liquidity.
Support and Resistance
NASDAQ: Closed at 2150.73
Resistance:
The March up trendline at 2152
2155 is the March 2008 intraday low
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:
The 18 day EMA at 2135
2099 is the mid-September 2008 closing low
2070 is the September 2008 intraday low
The 50 day EMA at 2074
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 1768
S&P 500: Closed at 1081.40
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 1073
1070 is the late September 2009 peak
The March/July up trendline at 1058
1044 is the October 2008 intraday high
The 50 day EMA at 1042
The August peak 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 912
Dow: Closed at 9949.36
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 9870
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 914
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 8544
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): 1.31M actual versus 0.33M prior
October 22 - Thursday
Initial Claims, 10/17 (08:30): 515K expected, 514K prior
Continuing Claims, 10/10 (08:30): 5970K expected, 5992K prior
Leading Indicators, September (10:00): 0.8% expected, 0.6% prior
FHFA Housing Price I, August (10:00): 0.3% expected, 0.3% prior
October 23 - Friday
Existing Home Sales, September (10:00): 5.35M expected, 5.10M prior
End part 1 of 3
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