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us stock market, trade stock
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11/02/09 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: BHP; GS; RDY
Buy alerts: None issued
Trailing stops: ANV
Stop alerts: FLOW; NVTL; SOHU
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SUMMARY:
- Dollar dips, giving the market modest and volatile gains.
- ISM posts solid gains though orders decline
- September Construction spending surges unexpectedly. Prior month revision gives it all back.
- Pending home sales continue their gains.
- Indices show indications of holding the line, but the dollar ahead of the FOMC controls their movement.
Market turns back the storm but remains volatile nonetheless.
Volatility and higher volume selling were the catch words and phrases describing the action since mid-October. While Monday was not a big point swing on the close as seen in the three prior sessions (SP500 -29.92, +23.48, -20.78), the 23 point swing intraday was in that ballpark, and indeed the back and forth swings were enough to send many to the sidelines as the lead repeatedly changed hands.
The dollar was weaker after a solid bounce the prior week, and that propped the indices up or at least put in a floor for them most of the day. The economic data was solid, at least on the headlines, and that initially provided some pop as they indices gapped higher after the 10:00ET data (ISM, construction spending, pending home sales) hit. That looked positive, but by midmorning it had run its course. There was a big dip lower through lunch that took them all to their session lows, but they double bottomed with a couple of hours left and while there was no upside explosion off that pattern they did work back to positive on almost all of the indices but the rather hapless small caps. Up, down hard, then back up to close midrange on the session. Maybe that is a victory in itself given the crash lower last week. The week is early, however, and there are many threads running in the market such as the dollar, economic data, Tuesday elections, and the FOMC decision and statement Wednesday that has a direct bearing on the dollar.
TECHNICAL
INTERNALS. NASDAQ closed positive but breadth was negative (-1.1:1). The large cap NYSE indices were positive but the small cap SP600 was negative; breadth edged positive to 1.2:1. With the amount intraday volatility, that was not bad. Volume was down on both exchanges but overall remained elevated. Both turned in above average performances with NYSE trade relatively stronger.
CHARTS. Volatility ruled the session, not the day to day volatility seen of late but intraday runs higher, lower, and then higher once more. A real fight as NASDAQ tested the early October low while SP500 did so to a lesser extent as it too also tested the late August peak and bounced. They all showed some form of doji on the candlestick chart for the session. NASDAQ, SOX and SP600 all showed tight doji, selling lower and then rebounding to close basically flat. SP500 reached lower as well and rebounded, showing a doji but not nearly as tight; not as strong an indication.
Does this mean that after almost two weeks of volatile trade that sent the indices lower they are now ready to bounce? It can; a doji often indicates a momentum change at the end of a run whether up or down. It can just as often be a continuation doji, i.e. a rest stop for a day that only segues into more selling. It is a positive they were lower and then reversed, but it is not definitive, so you look for confirmation of the move. With the market as volatile as it has been and with the indices all over the map on a day when the economic data was net positive and the dollar was lower, this move did not instill a lot of faith in the upside. If the market is no longer concerned about the FOMC supporting the dollar then it can rally from here. Nonetheless more downside ahead of the FOMC, at least through Wednesday morning, appears likely.
LEADERSHIP. No relative change in the leadership of late, namely the industrials (e.g. CAT, DE, ITW), energy (BTU, HAL), tech (GOOG, AAPL), and retail (BBBY). They have all pulled back but have not given up the support that many other sectors have and indeed stocks within their own sectors. There is still leadership that has not caved, and indeed some areas that fell hard are showing the same indications they may try to bounce, e.g. GS, as they reached much lower Monday but then managed a reversal. Every severe selloff has its rebound just as every serious rally has its correct. Things got a bit overcooked on the downside and they are in position to bounce if the dollar allows it.
THE ECONOMY
After a near death experience, national manufacturing picks up the pace.
Back in late 2008 the manufacturing picture in the US was bleak. In December the ISM hovered just over 30, indicating the fastest contraction in our recollection. New orders fell to 23. Fifty is neutral. Ouch. You could hear the echoes of the manufacturing companies' deaths: go to the light, all is well . . .
But as Kevin Costner in 'The Postman' said, things are getting better. In August 2009 the ISM cracked back over 50, just 7 months after that nasty low. Did you get the sense of satire in the 'just'? For the U.S was (still is?) the longest recession in modern times.
In any event, things are getting better. The ISM logged a 56.2 reading versus the 55.7 in September and expectations of a mere 53.0; unlike the regional indices (outside of Chicago seen last week), there was no backsliding in the national number. Of course it does take a month or two for the regional movements to impact the overall number so we will see what happens from here, but it is notable that there was some holdover from the prior rebound. Moreover, this is the third consecutive month of 50+ readings and that is a trend that is harder to ignore (55.7, 52.6 in September, and 52.9 in August).
Details: Production surged to 63.3 from 55.7. Employment posted its first expansion in 14 months. Inventories still contracted though at a slower 46.9 level (42.5 prior). On the other hand, new orders slowed to 58.5 from 60.8; still moving up but at a slower pace DESPITE low inventories.
Experts are saying employment rose as furloughed employees were brought back through December, but whether they remain on staff depends upon consumer demand. New orders are NOT rising, but production is increasing. There are some expectations (hope?) that consumer demand will continue to increase and thus the increased production. If orders don't come in, however, that production will shut down quickly and those workers that just returned may be returned to the unemployed. It all, as always, depends upon the recovery.
Construction spending jumps but so do the August downside revisions.
September construction spending surprised economists with a 0.8% gain versus the -0.2% loss expected. Before the government starts rewriting the Q3 GDP report to the upside, however, the August numbers were revised from its own 0.8% gain to a -0.1% decline.
The surprise was in the nonresidential market, though are any declines in that area a surprise given the woes many commercial areas face in many large metropolitan areas? Private nonresidential construction fell 1.8% for the second straight month with every subsector posting declines outside of education.
What does that leave as upside? Residential construction spending aided by the low end buyer credits for one; that pushed private residential spending up 3.9% monthly. Public spending of stimulus dollars was the other leg of the gains with total public construction up 1.3. Health care construction rose 5.1%, power 7.7%, and public safety 2.6%.
So what is wrong with public spending?
Okay so what is wrong with public spending? If it pertains to what the government is supposed to do, nothing per se. It is the taxing of individuals and businesses for the construction of public facilities with questionable, indeed dubious, uses and purposes that is detrimental. If the money is taken from businesses and individuals to build turtle crossings, maybe someone can argue the money was idle and this put it to use.
But what if now that the economy is supposedly recovering, as the current administration is quick to tell us, and business and individuals want to invest that in ventures that could actually create new businesses or company divisions and thus new and longer lasting, higher tech jobs don't have that money? That is the government crowding out investment where it wants to go and replacing it with projects some bureaucrat sees fit. Thus when the economy is actually ready to turn this kind of spending by government fiat actually delays real recovery because the money is taken and used for busy work or pet projects or agendas versus where it would go in a free market, i.e. a lucrative, money making venture.
Thus despite the Keynesian 'pump priming' arguments, history shows this returns very little bang for every tax dollar taken and the fraction thereof that is spent. Remember, Keynes believed that paying someone to dig a ditch and then refill it was productive for the economy because that person was paid a wage and would go out and spend it.
Problem is, history shows that these transfer payments, i.e. the government taking the money in the form of an income tax from someone or some entity that was actually making money and thus helping drive the economy, and giving that money to someone to do busy work delivers far less than a dollar for dollar impact on the economy. WHY NOT funnel more incentives to the company or individual that is making money in a weak economy so that company can expand and create more jobs, hiring the would be ditch digger and ditch filler to a productive job in a productive venture? Oh man, have we uncovered something here? NO. THIS IS NOTHING NEW, it is just not what some people in our society want to do with our tax dollars. It comes down to control and ideology over letting what has always worked in the US deliver the results that the free market can deliver.
THE MARKET
MARKET SENTIMENT
Volatility rallied again Monday, but it barely topped Fridays peak before fading modestly lower. It is close to the July peak and resistance at 32. There is a range of resistance from 32 to 34 that likely puts a lid on this move given the FOMC decision is just a couple of days away.
VIX: 29.78; -0.91
VXN: 29.88; +0.07
VXO: 27.21; -1.68
Put/Call Ratio (CBOE): 1.03; -0.18. Down but still above average for the second straight session. The ratio has bumped over 1.0 four times in recent history; the more it does the better indication of a turn back up, but this is just one part of the picture. Volatility needs to get extreme and potential leaders need to be in position. There are some leaders and VIX is jumping so the makings of at least a short term bottom are falling in place.
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. Fell slightly from 49.5%. They are still holding up surprisingly well, indicating that there was indeed excessive belief that the rally would sustain itself. Bulls have held in the 48% to 50% range for several weeks now though that will start changing some now, and that is for the better in terms of a renewed upside move. 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: 22.5%. Bears surprisingly show little strength despite the selling, barely moving from 23.1%. Bears have trended slightly lower the past several weeks but are mostly holding the line at this level. Now we expect them to jump, an upside positive. 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: +4.09 points (+0.2%) to close at 2049.2
Volume: 2.376B (-6.66%). Lower but still above average. The volume still favors the downside movement but the rebound from a new low on this leg with still strong volume shows some buyers showed up Monday.
Up Volume: 1.221B (+1.005B)
Down Volume: 1.161B (-1.235B)
A/D and Hi/Lo: Decliners led 1.09 to 1
Previous Session: Decliners led 4.18 to 1
New Highs: 20 (-4)
New Lows: 56 (+12)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Sold off to a new low on this leg (2024) and the reversed to close just over the early October closing low (2048). Tight doji on the candlestick chart, and after a 2 week selloff that can indicate a bounce coming. It does show buyers stepped in and brought the index back up off the prior October low, showing some resilience and is in position to bounce up toward 2100 if the dollar plays along.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +6.69 points (+0.65%) to close at 1042.88
NYSE Volume: 1.546B (-6.6%). Even better relative volume than NASDAQ though still below the selling volume. Buyers stepped in but they still could not drive SP500 over its 50 day EMA and make it stick.
Up Volume: 827.118M (+746.571M)
Down Volume: 685.066M (-887.566M)
A/D and Hi/Lo: Advancers led 1.21 to 1
Previous Session: Decliners led 5.63 to 1
New Highs: 58 (-1)
New Lows: 45 (0)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 moved over its 50 day EMA (1047) intraday but then gave up 10 points from the intraday high to close. That pushed it back below the 50 day EMA and the mid-October intraday high at 1044, but it could not stick. Buyers showed up but they could not take over the session. As with NASDAQ, after this kind of selloff a bounce is possible from here, just over the early October closing low (1025) as well as the late August consolidation range (1025-1031 on a closing basis). Possible but not confirmed by this action.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
SP600 (-0.13%) reached way down, similar to NASDAQ, and then rebounded to flat, showing a nice tight doji. It came close to solid support at 290 (294 on the low) and snapped back. All of the growth indices took the hardest hits and now they show the best potential reversal patterns. Makes sense to watch the IWM downside play here. This is not a great upside pattern overall, but it is a good candlestick that indicates a bounce is possible.
DJ30
DJ30 remains the strongest, testing the 50 day EMA to the dot on the low (9678) and then bouncing back up. Gave up as many points off the high as it logged on the close, but cannot complain as DJ30 is holding its uptrend quite well.
Stats: +76.71 points (+0.79%) to close at 9789.44
Volume DJ30: 242M shares Monday versus 327M shares Friday. Lower but still above average volume. All in all not bad.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Factory orders, elections, a day closer to the FOMC announcement. After hours some M&A activity in the tool sector with SWK buying BDK. All stock deal, $4.5B. Wait until prices are high then buy. At least SWK is using stock and it will likely be paying with shares not valued as much in the future. Okay, okay; too pessimistic I know, but everything about this recovery is due to some stimulus and unfortunately not the kind of stimulus that leads to new businesses, technologies and jobs. Hope I am wrong.
As for the near term the market is showing signs it wants to bounce near term, at least that is what the sum of the volatile action Monday suggests. Of course that is all based on what the dollar does; never seen a market so dollar-controlled. The interesting aspect Monday was gold's blast higher (1060.40, +20) when the dollar was just modestly lower and the economic data was overall positive. GOLD made an important move and it is at a very important level in the form of the mid-October highs. If it breaks out then the market could be due for some more downside, though once again, the relationships between the various markets is not always parallel to the way they have been in the past.
Thus we are going to watch for some possible upside moves/rebounds. There are some good patterns as shown in the weekend report, and as noted above there are leading sectors that are looking for a bounce. The liquidity is still there though a bit pensive ahead of the FOMC. If we see some good bounces we can put some upside money to work but this is not a load the boat moment; a bounce here could simply set up some more downside in the form of bear flags and the like.
Still waiting on the FOMC statement, still knowing the Fed likely won't do anything concrete though it has started to engage in the word debate. That means a statement adjustment is probable though nothing that says the liquidity is coming off near term. It does not want to hike rates as in Japan in the 1980's; already said that, though as discussed this weekend, that is not the sum of the variables that caused Japan's woes. It was also the subsidizing banks, taking over private industry . . . uh oh. Will just keeping your currency down and rates low offset the other things that Japan did that we are copying? Which is more important? They ALL are. That is why our recovery in the early 1980's worked so well: it was the complete opposite of what Japan later tried. Japan should have learned from us and right now we should ignore Japan and learn what we should already know from what we did in the 1980's (and 1960's for that matter).
But I digress; the cow is going to jump over the moon before we get that kind of action. Heard just today from a senior White House economic advisor about how the administration 'would look into the corporate tax situation'; geez, how many times have we heard that BS line? Since before the 2008 election. Of course we also heard the administration would assist small business, yet in the stimulus package only government agencies were given money along with huge conglomerates such as GE. But I digress yet again.
Right now we will look for some choice upside if it shows its face, and take a few positions in case the market bounces and keeps on rolling higher, i.e. the liquidity again overwhelms reason. If not then a bounce sets up some more downside and we are ready to play that as a bounce fizzles. The market has sold for two weeks and is showing an indication it may want to bounce. If it does we will oblige it but t the same time stay on our toes if it runs out of gas.
Support and Resistance
NASDAQ: Closed at 2049.20
Resistance:
2060 is the August peak
2070 is the September 2008 intraday low
The 50 day EMA at 2081
2099 is the mid-September 2008 closing low
The 18 day EMA at 2110
2143 is the October range low
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
2191 is the October 2009 peak
The March up trendline at 2192
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows
Support:
2048 is the early October 2009 closing low
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
The 200 day SM A at 1790
1786 is the November intraday high
1780 is the November 2008 closing peak
1773 is the May intraday peak
S&P 500: Closed at 1042.88
Resistance:
1044 is the October 2008 intraday high
The 50 day EMA at 1047
The 18 day EMA at 1064
The March/July up trendline at 1070
1070 is the late September 2009 peak
1078 is the October range low
1080 is the September 2009 peak
1101 is the October 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 peak at 1040
The early October 2009 closing low at 1025
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
The 200 day SMA at 920
919 is the early December peak is bending
Dow: Closed at 9789.44
Resistance:
9835 is the late September 2009 peak
9855 is the early September peak in its lateral range
The 18 day EMA at 9863
9918 is the September 2008 peak
10,120 is the October 2009 peak
10,365 is the late September 2008 low
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low
Support:
The 50 day EMA at 9684
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
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
The 200 day SMA at 8600
8588 is the May high
8581 is the July peak
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
November 02 - Monday
Construction Spendin, September (10:00): 0.8% actual versus -0.2% expected, -0.1% prior (revised from 0.8%)
ISM Index, October (10:00): 55.7 actual versus 53.0 expected, 52.6 prior
Pending Home Sales, September (10:00): 6.1% actual versus 0.0% expected, 6.4% prior
November 03 - Tuesday
Factory Orders, September (10:00): 0.8% expected, -0.8% prior
Auto Sales, October (2:00)
Truck Sales, October (2:00)
November 04 - Wednesday
Challenger Job Cuts, October (07:30): -30.2% prior
ADP Employment Report, October (08:15): -190K expected, -254K prior
ISM Services, October (10:00): 51.5 expected, 50.9 prior
Crude Inventories, 10/30 (10:30): 0.78M prior
FOMC Rate Decision, 11/4 (2:15): 0.25% expected, 0.25% prior
November 05 - Thursday
Productivity-Preliminary, Q3 (08:30): 6.5% expected, 6.6% prior
Initial Claims, 10/31 (08:30): 520K expected, 530K prior
Continuing Claims, 10/24 (08:30): 5750K expected, 5797K prior
November 06 - Friday
Nonfarm Payrolls, October (08:30): -175K expected, -263K prior
Unemployment Rate, October (08:30): 9.9% expected, 9.8% prior
Average Workweek, October (08:30): 33.1 expected, 33.0 prior
Hourly Earnings, October (08:30): 0.1% expected, 0.1% prior
Wholesale Inventories, September (10:00): -1.0% expected, -1.3% prior
Consumer Credit, September (2:00): -$10.3B expected, -$12.0B prior
End part 1 of 3
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