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world stock market, us stock market
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11/09/09 Investment House Daily
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MARKET ALERTS:
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Buy alerts: DE; SFD; TROW
Trailing stops: None issued
Stop alerts: None issued
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SUMMARY:
- Liquidity to remain according to world central banks, so stocks renew their rally.
- G20 says nothing regarding the dollar, and the dollar gets pounded.
- Global financial transactions tax will be here sooner than later.
- Those are some expensive, very expensive, jobs.
- Year end rally may be on and in a bigger way than anticipated despite technically so-so bounce.
G20 green-lights the next rally leg.
Over the weekend the leaders of the world's largest twenty economies gathered to discuss how they can further mess up our lives. Three important points emerged. First, they all agreed that stimulus could not be removed yet and indeed that more stimulus on a global basis may be necessary. If there were any doubts about continued stimulus following the U.S. Fed's Wednesday FOMC statement, the G20 removed them. Thus the money currently circulating around the world will remain, and indeed more may be added to it as other stimulus plans are hatched. That basically green-lighted a continuation of the global liquidity rally in the financial markets.
Second, the G20 didn't even mention the dollar, good, bad or otherwise. Obviously it is not interested in propping up the dollar at this point, and accordingly the dollar was slammed to start the week (1.4992 close versus 1.4894 on Friday). Along with the G20 stimulus comments, the weaker dollar fueled investment in stocks that are currently feeding off of the dollar's decline and was another reason for the Monday market surge.
Dollar Chart: http://investmenthouse.com/ihmedia/DXY0.jpeg
Third, the UK's prime minister changed his position on the so-called Tobin Tax, an ongoing global tax on every financial transaction such as stock buys and sales. It is favored by those viewing financial institutions as villains but fail to understand that the very funds they invest in through their 401k's and pensions would suffer dramatic reductions in profits (and thus reduce the investor's retirement nest eggs) through such a tax. For example, a purchase of 100 shares of GOOG would cost, instead of the $5 or less commission, $505. This kind of tax would put all small investors out of business and decimates retirement accounts. Think it won't happen? There are already kooks in the US Congress (one from Oregon) who think that small investors that trade in and out of stocks more than every six months add nothing to society and are indeed a drain on society. Others think that this kind of tax will punish GS, MS and others paying big bonuses, but they forget that we all participate in the stock market now. Cutting off their noses to spite the face. Fools shouting without knowing the facts. Of course that is the norm it seems in this country today.
A minor digression, but it was related to the point, so what the heck. The liquidity binge outweighed any concerns over a tax getting passed at some later date, as devastating as it may be. It was also enough to overlook the House passing its version of the Bankrupt the U.S. bill (you know, the healthcare bill that jumps up taxes to pay for six years of coverage and then basically punts, hoping somehow we will be fabulously wealthy in years 7 through 10 to pay for the explosion in costs). Stocks gapped higher, rallied, took a rest without losing any ground, then blipped higher in the last few minutes to close at a new session high. SP500 moved through the September peak and is already closing in on the October peak and the key long-term resistance at that point. The other indices are dutifully following, though volume, while higher on the session, remained low overall, particularly relative to the last round of selling. On Monday, however, the liquidity was in command and stocks bolted higher.
TECHNICAL
INTERNALS. Strong breadth propelled NYSE (5:1) and was decent enough on NASDAQ for that index to follow along (2.3:1). Remember the days when NASDAQ would lead in the breadth categories? That was in the tech heyday. Now the growth is in dollar related stocks such as metals, commodities, energy, and industrial. Those are the small and large caps on the NYSE and thus the dominance in breadth readings.
Volume was up on both NYSE (14%) and NASDAQ (2.7%) but it was still below average and relative to the late October selling volume, rather anemic. NYSE trade was the stronger as it actually came within sight of average, but it was still the third lowest in the past four sessions of below average trade. No great burst of buying. A positive that it ticked higher, but after a total snooze on Friday it was not the kind of volume to put many of the old veterans at the NYSE at ease.
CHARTS. SP500 was the key as it blasted through the September peaks (1080 intraday) and left them in the dust. SP500 is moving in on the October peak (1101) much faster than anticipated. It looks bound to test that level that is at the confluence, more or less, of the downtrend from Q4 2007 when the market peaked, and the bottom of the 2004 year long trading range. Serious resistance ahead but SP500 ran at it like a bull . . . a light volume bull, but definitely bull-like in its charge higher.
NASDAQ gapped higher, rallied, and closed at the session high. The move took it past the September closing high though not the intraday peak. As with SP500, NASDAQ is rapidly approaching the October peak and has moved through the bottom of the October trading range. No doubt it too is going to test the high that is also at some pretty key resistance in the form of the March 2008 lows as well as the late 2004 peak and mid-2005 peak. NASDAQ has its own serious resistance as well. Liquidity helps to overlook those, however, until the liquidity is gone. Of course the Fed and G20 said it will stay around reminds me of a 'vote of confidence' in a coach; it often happens just before the coach is canned.
DJ30 2.03%) surged to a new post-March high. The Dow with its heavy weighting of companies with overseas sales, dollar-related businesses, and government favor through the so-called stimulus bill is far outperforming the rest of the market.
SP600 (+2.18%) rallied through the late August peak, gapping along with the other indices. It is following SP500 but its pattern is still crappy.
SOX (3.15%) rallied and cleared some near resistance but it still looks like a train wreck. With NASDAQ and SP500 acting as engines, however, perhaps the chips get pulled out of the fire as well.
LEADERSHIP. Dollar down, liquidity gets the nod, so you can bet industrials, metals, and energy were out in front. Many such as steel stocks performed well, but their patterns still stink. Industrials are fine, energy is good, retail is solid, but the chips, steel, and others that suffered in the selling are simply in bounces after a sharp selloff. They can be dragged along but most likely need more consolidation time; a bounce up in the range is part of that process. There is, however, plenty of leadership in good position to continue the move higher, and after pauses and pullbacks Monday saw many sectors resume their upward lift, e.g. energy, industrials, and some metals. Sound familiar? They are the dollar trades after all.
THE ECONOMY
Bet you wish you had one of those jobs.
Lots of talk and press releases of late, conveniently timed just ahead of the Friday jobs report, about the number of jobs 'created or saved' by the Administration's stimulus plan. It needed the PR given that the unemployment rate exploded to 10.2% and in reality is over 17%. At the same time the Administration crows about saving some teacher, police, firefighter and similar government jobs, small businesses are, as evidenced by the household survey, getting crushed. Despite all the money circling the globe, no small business has credit good enough for the lenders. Most don't have overseas sales so they don't benefit as do GE, CAT, etc., the big companies that are getting the federal dollars for cap and trade, etc. yet are still shedding jobs. The administration has abandoned small business and thus all hope of true economic recovery.
But there are those 640,329 jobs it proclaims to have saved. Okay let's take that as the truth. A teacher salary averages $52K per year. A firefighter, $45K. A carpenter averages $42K. Thus far $194.5B in stimulus money is spent. Do the math: that comes out to $303,750 per job.
My word, for that kind of money why didn't the feds just give the money to municipalities so they could directly hire 5 teachers, 7 firefighters, etc.? Spending $304,000 to 'create or save' a $45K to $52K job? You have GOT to be kidding.
YET, this is the federal government, the body that is supposed to be able to deliver more affordable and fairer health care than the private sector. I guess it is affordable if only the 'rich' have to pay for it; history shows that ALWAYS works, right? Only someone in complete denial of history would accept that premise, particularly with this latest example of the federal government's ineptitude at handling our money: $304K to save a $50K job. ONLY THE GOVERNMENT would crow about that. Of course you could not quite buy two members of Congress for that amount as their salary is $174K. Well, maybe I am wrong. For $304K you could probably buy a sack full of Congressmen.
THE MARKET
MARKET SENTIMENT
VIX: 23.15; -1.04
VXN: 23.55; -1.05
VXO: 21.74; -1.23
Put/Call Ratio (CBOE): 0.87; -0.15
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%. Surprisingly holding steady for the second week after a drop from 49.5% two weeks back. Still a lot of believers in the rally, and that may be to investors' detriment near term as the market consolidates a bit more. 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: 24.7%. A rise as expected, but not a surge despite the rather sharp, high volume selling to end October. Bears remains relatively low, hardly in excess numbers but not so low to start looking for a reversal. Last week 22.5%, and hanging around in the 23% range before that. 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: +41.62 points (+1.97%) to close at 2154.06
Volume: 1.93B (+2.74%)
Up Volume: 1.582B (+448.543M)
Down Volume: 393.76M (-284.945M)
A/D and Hi/Lo: Advancers led 2.3 to 1
Previous Session: Decliners led 1.14 to 1
New Highs: 109 (+29)
New Lows: 24 (+3)
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: +23.78 points (+2.22%) to close at 1093.08
NYSE Volume: 1.235B (+14.35%)
Up Volume: 1.168B (+659.348M)
Down Volume: 64.109M (-434.475M)
A/D and Hi/Lo: Advancers led 5.06 to 1
Previous Session: Advancers led 1.09 to 1
New Highs: 232 (+105)
New Lows: 31 (-8)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: +203.52 points (+2.03%) to close at 10226.94
Volume DJ30: 227M versus 181M shares Friday. Unlike the other exchanges, DJ30 showed above average volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
After too much economic data last week there is a dearth this week until Thursday. Until that time the market is on its own, and with the dollar again tanking and the nod from world central banks that money and credit will remain easy (at least for other than small businesses), the market is going to do quite well on its own thank you. It knows what to do with liquidity that no one wants: take it all in and watch asset prices rise farther above any reasonable relationship to the underlying business and economic activity.
That is why when liquidity driven rallies end they tend to end badly. What happened after NASDAQ rallied 278% from October 1998 to March 2000? It collapsed and over the next 24 months gave all of that rally back and more. From October 1999 to March 2000 alone NASDAQ rallied 94%. Then the collapse.
What does that tell us now? First, liquidity driven rallies tend to end badly (worth repeating). Second, this 73% rally, while extreme, still has room to run upside. If the liquidity remains then the market will continue to gain as long as there is excess liquidity, i.e. money that is not used in economic expansion. The latter is what the money is for: to be used by businesses to invest and grow. Yet as scholar after scholar and economist after economist and business owner after business owner tell you, the money is NOT getting lent. It is almost impossible to get the money if you are not a very large company. Thus the excess is shoved into the markets by the very institutions we bailed out, and they reap the big trading profits and then pay billions in bonuses as a result of the great returns their junior associates make for them.
The tragic irony is that US small business is what drives the world's economy. Why? Because it drives the US economic engine and thus fuels what used to be the most powerful economy in the world. If those businesses don't get any of the 'easy' money out there and don't get any help from the Administration (supposedly the 'friend' of small business, there was not one aspect of the stimulus bill that was directed their way), small business, the foundation of the US economy, is going to crash. Thousands upon thousands of small businesses are on the rivet right now; if things don't improve they go under.
When you add on top of the general economic tragedy unfolding the uncertainties of the costs associated with cap and trade as well as the massive taxes associated with any healthcare bill (those taxes will fall on many small companies that are pass through entities for tax purposes), you get small business afraid to make any moves but desperate to make moves in order to stay alive. It is a crisis that no one is addressing, but for which we will all pay dearly if it is allowed to continue.
Bummer. So what about the stock market? Liquidity is driving again. The market went from inflection point to gapping higher and running toward the prior highs. SP500 and NASDAQ are going to hit those prior peaks and we see how they react. If the liquidity stays in they should take them out as they have had a decent rest period ahead of this spurt higher.
They still have to deal with those peaks and they are important levels. As noted, SP500 has the down trendline and the 2004 year long trading range to deal with. Serious resistance. It can take it out with the liquidity trade but we are going to be watching how it reacts. We would prefer, after the gap, that it stall a bit and allow these gaps higher to settle down a bit and give us some better entry points. We have been buying all along but we have had to let some go just because they gapped and never came back; a bit of testing would be nice to pick up some good plays as they test.
Tuesday we will have to see how the indices deal with that resistance and watch for opportunities as they present themselves, i.e. tests of the gaps higher and new breakouts from stocks either overlooked by the market and now getting money or those that led at one point but were pushed to the sidelines in the market rotation. The beauty of liquidity is that it continues to push new or recycled stocks to the fore and give you buying opportunities to ride the move higher.
Support and Resistance
NASDAQ: Closed at 2154.06
Resistance:
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
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows
Support:
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
The 50 day EMA at 2084
2070 is the September 2008 intraday low
2060 is the August peak
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 1806
S&P 500: Closed at 1093.08
Resistance:
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 March/July up trendline at 1082
1080 is the September 2009 peak
1078 is the October range low
1070 is the late September 2009 peak
The 50 day EMA at 1050
1044 is the October 2008 intraday high
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 926
919 is the early December peak is bending
Dow: Closed at 10,226.94
Resistance:
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:
10,120 is the October 2009 peak
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
The 50 day EMA at 9737
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
The 200 day SMA at 8648
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
November 12 - Thursday
Initial Claims, 11/07 (08:30)
Continuing Claims, 10/31 (08:30)
Crude Inventories, 11/06 (11:00): -3.94M prior
Treasury Budget, October (14:00): -$150.0B expected, -$155.5B prior
November 13 - Friday
Export Prices ex-ag., October (08:30)
Import Prices ex-oil, October (08:30)
Trade Balance, September (08:30): -$31.9B expected, -$30.7B prior
Michigan Sentiment-Preliminary, November (09:55): 71.8 expected, 70.6 prior
End part 1 of 3
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world stock market
us stock market
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