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us stock market, trade stock
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11/10/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: ASH; BWLD; IOC; RS; ZMH
Trailing stops: None issued
Stop alerts: None issued
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VIDEO MARKET SUMMARY. Detailed chart-based analysis of the key index and leadership charts are covered.
TO VIEW THE VIDEO MARKET SUMMARY CLICK THE FOLLOWING LINK:
http://investmenthouse1.com/ihmedia/MarketSummary.wmv
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SUMMARY:
- Lethargic market finds no catalyst to continue the Monday surge.
- Stronger dollar helps blunt an already lethargic pre-Veteran's Day holiday
- Evidence mounting that small business is in a serious struggle.
- SP500, NASDAQ dealing with key resistance after more than a week of gains.
- Bias remains upside but it will take another shot of liquidity buying to send indices through resistance versus testing back in some more range trading.
Market a bit winded as it sizes up next key resistance.
The market went nowhere on Tuesday after the big upside day on Monday. That is not unexpected after a big swoosh to the upside that saw 2% gains on the indices. It was also a week of upside gains after the market played around an inflection point over a week ago that it held and bounced. When it gets to near resistance, you can expect it to take a day off, particularly ahead of the Veteran's Day holiday.
The market closed flat. NASDAQ -3 points; Dow +20 points, up 0.2%; SP500 and the SOX were both flat; SP600 -0.71%. I keep an eye on the small caps because they are an economic harbinger. If they are not doing well, one can anticipate a slackening in the economy. Many people are saying the stock market rally is based upon a future growth in the economy, and that was no doubt some of the move off the lows. The economy came to a standstill last fall and it has recovered somewhat, therefore there will be upside in the market. This is a liquidity-driven move and it does not necessarily equate to a stronger economy down the road. The market is usually a forecaster of economic activity, but it is not a good indicator when there is excess liquidity driving up the prices. That is the case now, and it dovetails with small businesses and the small cap index lagging the others. Even though there is 0% credit and things are supposedly very conducive for business in the country, the jobs report showed that small companies are hurting. It showed that unemployment is exploding to the upside, and there are no prospects for things to get better for the smaller businesses and smaller employers.
The big banks are saying they are willing to lend to anyone except small businesses. CIT is one of the main funders of small businesses for their inventories, and we let it go under without a ripple from Washington, DC. This week, companies such as Fannie and Freddie are saying we need more of a bailout. COF and BAC - two of the major offenders - they said things are not as good as they had indicated at first and they may need more help. The reason this might be coming back around is that we neglected the small businesses. We neglected them in the stimulus package, we neglected to make sure they got the loans they needed to fund their businesses, and we neglected to help the one large financial corporation that actually does good by small businesses (and thus the economy) as it went under. There are serious issues with small businesses, which are the engine of this country. Steve Forbes, who keeps very close tabs on small businesses, and other very good economists are extremely worried about the small businesses in the United States. They are being forgotten, and if they go under, the big companies will go down as well because they are not creating jobs. They are laying people off every day. I hate to paint a gloomy picture, but we need to keep our feet on the ground with respect to the future. This rally looks great, but it is a liquidity rally. When it runs out, it tends to end poorly. We have to be ready for that, and by monitoring how small businesses are doing and what the small cap indices are doing, that keeps us abreast of the next step in the market.
Earnings where are still coming out. FLR, one of the big construction companies, had disappointing earnings. BZH saw an unexpected gain as its orders went up by 2.4%. TYC saw an upside surprise as well. It did not benefit those stocks at all, of course; the market was in no mood to deal with that.
The EU said it was against the ORLC-SUNW merger, but that is no real surprise as they are against every deal that comes out of the United States. North Korea and South Korea were in an old-fashioned shoot 'em up in their territorial waters. Who is to blame for that depends on what newspaper you want to read, of course. Unless they start lobbing nukes at each other, the markets are not going to pay much attention, so it did not cause any major problems.
Germany saw investor confidence decline, and it was the first decline in quite some time. With the consumer confidence and business confidence improving over there for several months, it was an anomaly that did not get much press.
The big story of the day was that the dollar was up (closing 1.4978 Euros, versus 1.4992 Monday). There is a bit of strengthening of the dollar and that bled over into the other markets as well, as the stock market closed flat. Energy was down ($79.17, -0.26). Gold was up slightly ($1,105.80, +4.40). The bond market was flat with the 10 year closing only a tick higher (3.48% versus 3.47%). There was not a lot of change in any of the markets. Trade and action was light either because of Veteran's Day on Wednesday, or because it is taking a breather after a big run higher. Either way, the market was stalling out and taking it easy for the session.
TECHNICAL
INTRADAY
The market started higher with an early rally, but it gave it all back and traded negative for much of the day. It rallied back later, moved back to positive, and then moved back to slightly negative on SP500. Depending on which index you are looking at, it closed a bit above the flat line or a bit below it. It was a very quiet day overall with an early rally, a mid-day dip, a late-afternoon run, and then a modest selloff late to close things out flat.
INTERNALS
The day was quiet from an internal perspective as well. Decliners were a bit higher on NASDAQ at -2:1 versus Monday when advancers led 2.3:1. Those are tame figures when you consider how far the NASDAQ ran on Monday. It does not equate, with the type of gain it put in, to have just a 2.3:1 breadth reading versus a modest loss on Tuesday with a -2:1 reading. The NASDAQ move higher with somewhat of a lagging move, led by a few stocks versus most of NASDAQ moving higher.
With the small caps somewhat lagging with the 0.71% loss, the decliners led - 1.4:1 on the NYSE. Compare that with the 5:1 upside breadth on Monday as the NYSE indices ran higher, and that is more in line with what the day was showing. The small caps have been a downside leader, and they were racing back up with the rest of the market on Monday. The picture of the small cap index does not look great, but it has come up to a resistance level, barely cracked through, and is now testing it. It also has a bearish double top over it. The small cap recovery on Monday was more of a rebound from a bad showing prior to that. I will not discount that breadth reading, but I am not going to put a lot of faith in it.
Volume somewhat lagged on the upside once again. It is not such a big deal to have a day where an index is either up or down but essentially flat. When NASDAQ was flat with just a 1% rise in volume, that did not hurt your feelings much given NASDAQ was down 3 points. The NYSE volume dropped off 13%, down to 1.1B. That is a significant cut given that the Monday trade was a bit better than it has been in prior sessions. Volume is still very low on the NYSE, and it was extremely low on Wednesday. As with NASDAQ, that is not a bad indication when you consider that the indices are trading right below the October peak. A little less volume is not a bad thing when the market is indecisive or when it is taking a breather.
There was high volume selling in late October. There was the rebound this month, but volume has been much lower on the entire move back up, so trade is not participating that well in the recovery. That undermines a lot of the move back up. There is resistance. There is low volume on the one hand, but there is liquidity on the other. That will be the two opposing forces as the market moves forward for the rest of this week.
CHARTS
Tuesday was status quo. There was a tight doji, the index went nowhere, and there was low volume. It did not have much of an impetus to do anything. That is not abnormal after that run higher this month and the strong swoosh higher on Monday. Particularly when it has come back up to a key resistance point in the form of the October high, as well as the 2007 downtrend line and the bottom of the trading range in 2004. There is all that resistance stacked up for the SP500 to deal with.
I am not doing to worry much about the doji. It can signal that momentum is shifting, but this one seems more like a pause day. It is not the kind with a big shadow that went way up and reversed - it sat there spinning like a top, so it is not a concern for us. It does denote that things could turn back down, and given that there are three forms of resistance, it is something to watch. It could lose momentum and trade back down in the range versus a break higher. It will need a good liquidity binge to break higher. That happened on Monday, but it does not mean it will not show up again.
NASDAQ had a similar pattern. There was a big move on Monday, followed by it going nowhere on Tuesday and another spinning top doji on the candlestick chart. That is no big deal, but only shows that the momentum may be shifting. There is no guarantee of that. NASDAQ is similar to SP500 in that it is at a key resistance point. January of 2008, March of 2008, and July of 2008 are key resistance points. You could extend it back to 2005 and there are several peaks and other attempts to move through - there is a lot of congestion at this level. It is an important level for NASDAQ, just as SP500 is facing important levels itself as it bumps up after this week of gains. With NASDAQ, it actually tapped the level on its high and stalled. It got a firsthand look and was not ready to take it on, but that does not mean it is not going to. There could very easily be a pullback with more consolidation and more range trading. I would place my bets on that being the case, but you have that liquidity wildcard out there that could turn everything no matter what the volume is and no matter what the price/volume action is. The liquidity can shove stocks right back up as we have seen in the past.
The SOX has come back up to a resistance level and even cracked through it, but it is at the 50 day EMA. It is still at this range of resistance. Resistance is often a range, and that is what the SOX was tapping on Tuesday. It is no surprise that it came up and faded back somewhat. There was a rally on low volume after some high-volume selling and a lower low. It has brought it back up in a range of resistance and it is showing a doji. The bias would tend to be back down. I do not have a lot of faith in the semiconductors right now, but then again, liquidity keeps being punched into individual semiconductors here and there. There is that dichotomy at play, and while the technical pattern looks like it could fall, the liquidity could break it out of there if it is so inclined.
I have been talking about the small cap index a lot and it is very similar to the SOX. There is a double top with a selloff on high volume, but it held at some support and has bounced. It has now come back to resistance at 310 - the same as the SOX. It cleared it and is trying to test and make a break higher. Maybe it can do that, maybe not. It is at the same type of inflection point as the semiconductors, and it has made a lower low that has snapped some of the upside bias. With the resistance, it could easily turn back down and continue the move lower.
LEADERSHIP
Health stocks did better on the day. There were not a bunch of them moving well, but stocks like ZMH faired nicely. Even with the turmoil in the market with respect to the healthcare picture, the healthcare stocks took over. There was a bit of a defensive tone even as the market made the big rally on Monday and it stalled on Tuesday.
Metals are holding up quite well in some circumstances, such as FCX in copper, while in others it is struggling like in RS. It is coming down and trading lower. It made a lower low and bounced back to key resistance and it is struggling - enough that I felt we could take a downside position in it. GLD continues to move higher. Gold is riding the future inflation as well as the lower dollar trade higher. Gold costs more as the dollar declines in value.
Energy had a decent but mixed day. IOC had a decent session and moved higher. SLB held its own just fine, as did USO. It was not a bad day just to hold the status quo, as you can see.
Retail looks good. I was looking at BBY to set up a buy, but it never came back in its triangle and tested the bottom. It broke out before I felt it was ready. I am looking for it to come up and test back to this breakout, and that may give us the buy.
Tech is doing many different things. AAPL is the consummate tech and is still moving up. JNPR looks like it will break down. There are problems there, too. Leadership of late is being broken apart and separated as the market has run a long way and it is taking a breather. GOOG has had an excellent week and is still moving higher. It is going to a new post-low high. CTRP went up. PCLN reported great results - it had an astronomical number of bookings, and it gapped higher and ran up.
There is still leadership out there, and some of it is testing while some of it is resting. It has had big moves, but they are not the great setups that have been there all along. That is what makes this snapshot of the market more problematic with the SP600, SOX, and even NASDAQ making lower lows and struggling. Leadership matches that picture right now. It has made great moves, but it has come under hard times and they are going to have to either consolidate more to set up again or just be yanked higher by the liquidity if it pours back in. That would give us a lot of great buys because the setups are not there right now. I would prefer to see another rotation back down in these patterns such as there was in SP500. If there could be a rotation back down in this range to consolidate and do some range trading, that could be excellent to help stocks set back up to good buys. They could then break higher either at the end of the year or into 2010 to give us a nice January.
The market is at an important point. It could break out if the liquidity comes flooding back in, but the better picture for the market would be to trade back down in this range, come back down and set up better and then make a new move higher. It could also make a higher low at some point and then make a break higher. That would allow the leadership to set back up and then move to new post-low highs.
THE MARKET
MARKET SENTIMENT
VIX: 22.84; -0.31
VXN: 23.39; -0.16
VXO: 21.43; -0.31
Put/Call Ratio (CBOE): 0.84; -0.03
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: -2.98 points (-0.14%) to close at 2151.08
Volume: 1.949B (+1%)
Up Volume: 858.789M (-723.581M)
Down Volume: 1.134B (+740.234M)
A/D and Hi/Lo: Decliners led 2.04 to 1
Previous Session: Advancers led 2.3 to 1
New Highs: 87 (-22)
New Lows: 42 (+18)
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: -0.07 points (-0.01%) to close at 1093.01
NYSE Volume: 1.073B (-13.14%)
Up Volume: 447.087M (-721.286M)
Down Volume: 606.786M (+542.677M)
A/D and Hi/Lo: Decliners led 1.37 to 1
Previous Session: Advancers led 5.06 to 1
New Highs: 225 (-7)
New Lows: 37 (+6)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: +20.03 points (+0.2%) to close at 10246.97
Volume DJ30: 193M shares Tuesday versus 227M versus Monday. Volume dropped back below average after that Monday burst.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNSEDAY
Wednesday is also Veteran's Day, so the bond market will be closed. With that, we can expect another quiet session, at least in terms of volume. The whole bounce up this time has been on lighter volume, and there have not been the same drivers there. As the indices bump up against resistance, there is some concern about whether they can punch through, or if they will fall back down. There was one big up session this week and then one do-nothing day of rest on Tuesday. There is resistance on the one hand as NASDAQ and SP500 bump against key levels, versus liquidity on the other hand. The big question is which one will win out.
Despite the higher-volume selling to end October and the low-volume recovery thus far in November, the bias in the market is still to the upside. Be careful here. The SP500 has recovered its trendline, and it has moved back up to the key point of resistance from the 2007 downtrend line as well as the 2004 consolidation range. You have to watch out for the quality of the bounce after a significant correction, and this is one of the more significant corrections with respect to this run off the March lows. There was a good consolidation in June and July, but this has been a sharper and higher-volume correction than that in a shorter period. As there is a relief bounce back up, one should be concerned whether or not it is a true bounce and can break out to a new high, or if it is just a false move. It could be the last gasp of the remaining few buyers who used a dip to move into positions only to see the bottom fall out from under them.
The bias remains to the upside overall. Even though SP600, SOX, and NASDAQ made lower lows on this past down cycle, SP500, one of the market leaders, did not. DJ30, also one of the market leaders, did not make that low either. There is still an upside bias in the large cap NYSE stocks. Those have been some of the leaders from energy and metals - those stocks tied to the dollar as it goes down and also tied to the overseas trade and improvement in the economies of India, China, Brazil, etc. Those have been leading the market higher. While there still may be more of a pause at this level, there needs to be a break higher to a new high, and it has to be accompanied by some volume. That has been nagging all the veteran traders on the NYSE and elsewhere. This low-volume bounces usually do not end up well, but my caveat (once again) is that there is a lot of liquidity out there. Liquidity can smooth over many wrinkles in a rally. It can make things look better than they are and keep things going longer than they should.
The thing that has tripped up a lot of people along the way is that they are trying to apply traditional rules to a situation where there is a lot of liquidity in the market. It took us awhile to figure that out - I kept saying that this market was done and ready to roll over, and we would take hedges with some downside positions. They would never pan out because the liquidity kept bumping things higher. If everyone is now assuming that things are okay and that liquidity is going to win out, that is when you need to be careful.
It could go either way at this point. We opened some downside positions on Tuesday and we opened some upside positions as well. It is not because we are straddling the fence, but it is because there were good chances to buy upside positions as well as good opportunity on the downside. They are presenting themselves, so we are taking them. They could work out just fine if the market continues to move laterally, or even if it moves up or down a little bit. They could still play out and make us money both ways. If there is a sharp move either way, one may not work out. If the market breaks upside, the downside will probably not pan out for us and vice versa. We have to watch what we are doing, pay attention to the market, and then move accordingly as it makes a break. It is not showing that it wants to break to the upside right now. Even though the bias is still there, the volume is not that strong. It is going to have to produce something else. Maybe there will be a surge of new buying with the liquidity that will send it higher. We have a lot of plays to the upside that are performing very well and that we have a lot of gain built in. We are letting them run as far as they will. We have picked up some new ones that I think can make money for us because they have good patterns and good ranges they can run in without having to plow a lot of new ground at the old high. At the same time, we need to be ready for downside, so I have downside plays on the report as well as downside positions we have been taking.
Even though there is liquidity and the majority is assuming that the liquidity will win out, we can still be caught to the downside. The indices are ripe for a pullback. There was a low-volume rally higher up to the next resistance after selling off on higher volume. That is a classic topping indication. If there were a strong selloff, a weak rally, and strong resistance, then you would watch for the downside. We can still get some downside. There were high-volume sellers at the end of October, and they are still out there - this move to the upside has not washed them away. The quality levels of this move have been somewhat suspect given the low volume. Leadership is decent, but it is not great and it needs to rest. We need to be careful and play what the market gives. If it breaks one way or the other, we will close out the marginal positions that are not in the direction of the break and ride those that are in the direction of the move.
Once again, we are at another inflection point. The reason for that is the rapid recovery from that October selling. It took the market down to an important support level and it held . The market is now at an important resistance level for the second time. The question is whether it is going to hold. Remember, the market does not always have to break through on the first or second test; it can do it the third or fourth time around as seen when the market moved higher off the March low. The bias is still up over all. We could get a pullback quite easily from here, but that does not mean the rally is over. There is still liquidity out there promised by the Fed and central banks, and that will have some impact on every dip. We are going to see at least some buyers try to come in.
Have a good evening, and I will see you on Veteran's Day. Be sure to fly your flag, wear your lapel pin if you have it, and show that we are proud of this great country.
Support and Resistance
NASDAQ: Closed at 2151.08
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 2086
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 1809
S&P 500: Closed at 1093.01
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 1088
1080 is the September 2009 peak
1078 is the October range low
1070 is the late September 2009 peak
The 50 day EMA at 1052
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 927
919 is the early December peak is bending
Dow: Closed at 10,246.97
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 9757
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 8658
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
Initial Claims, 11/07 (08:30): 510K expected, 512K prior
Continuing Claims, 10/31 (08:30): 5700K expected, 5749K prior
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): 0.0% prior
Import Prices ex-oil, October (08:30): 0.6% prior
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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