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world stock market, us stock market
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11/16/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: LNCR
Buy alerts: BBY; DD; HOC; TEVA; TXT
Trailing stops: None issued
Stop alerts: QID; SDS
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VIDEO MARKET SUMMARY. Detailed chart-based analysis of the key index and leadership charts are covered.
TO VIEW THE VIDEO TECHNICAL SUMMARY CLICK THE FOLLOWING LINK:
http://investmenthouse1.com/ihmedia/TechnicalSummary.wmv
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SUMMARY:
- Retail sales better, Inventories low, blah, blah, blah: the dollar was down so stocks rallied.
- Gold, bonds, and stocks rallying: liquidity rallies have to end some day.
- October retail sales best expectations, but so do the revisions.
- New York PMI puts in a lower but still upside month.
- Breakout over key resistance. All clear, right? Now it tests and holds or fails.
In the end the lower dollar drove stocks higher once more.
October retail sales were overall better than expected, but revisions to September more than took back the gains. The New York PMI was positive but was less than expectations. Futures were knocked back a bit by these data points, but they were hardly in trouble. You see, the dollar was getting rocked again and in the current environment that means higher stock prices. The Asian exporting countries all agreed over the weekend that they would keep stimulus in place. Bernanke spoke midmorning and he basically green-lighted dollar selling when he noted the Fed was watching the dollar and would take action if it felt things were getting out of hand. Of course that implied (maybe more than that) the Fed was comfortable with the current dollar slide. As a result the dollar hit its lowest level in over a year.
Stocks on the other hand gapped higher and hit their highest levels since the March low. NASDAQ and SP500 joined DJ30 with a break through the highs. SP600 topped its recent lower high. Breadth was strong, volume was up. Gold surged (1139.70, +23). Oil surged (78.87, +2.52). Bonds rallied sharply, driving yields lower (3.35% on the 10 year versus 3.42% Friday). Big moves by all markets.
Why the strange rally bedfellows?
The bond, gold, and stock simultaneous rallies are again a curiosity. Gold rallies on inflation fears and worries about economic stability. Bonds rally when investors fear other areas such as equities and seek the safety of sovereign debt. Stocks typically rally on better economic times ahead. See the aberrations here?
I talk with many professional investors, floor traders, specialists and market makers each week. Never have I seen so many professionals so uncomfortable with the stock gains experienced in this rally. Of course everyone expected a nice rally off the low; the selloff was sharp and the shutdown was severe, so the rebound would be significant to signal the re-start of economic activity. This rally has gone on far beyond what the economics suggest it should be, and as we have said, it is now based more upon the unused liquidity in the world versus any idea of projecting a huge economic run higher. These types of stock rallies typically do not end well and that has some nervousness in these professionals. Nervous, but they have to keep riding the horse in the burning barn just as we do.
What about gold and bonds? Gold is in its own world, rallying as we felt it would, heading toward $1,500/oz before this is all over. Inflation, excess credit, you name it. Gold has plenty of reason to run. Bonds are more the enigma right now. They have rallied on and off during this stock market and gold run, never really catching fire either way. Of late, however, they are really getting snapped up again, driving yields sharply lower and rapidly so. As an economy recovers you expect bonds to sell some and yields to rise as demand for money improves down the road. When that does not happen you have to ask some questions, and there are plenty being asked, though at this point no one is doing much about it other than go with the trends.
The rise in gold and bonds underscores the concern with the stock rally. This rally is viewed more of a liquidity move than an economic projection, and the gold rally, now being bolstered by the bond rally, suggests that is the case. The big question is when does it all end and how will it all end? Prior liquidity rallies ended poorly when the liquidity was drained and an economic freeze up resulted. The hope is always the same: the liquidity will foster investment and spending. If there are adequate tax and other incentives to invest and spend, then it will occur. If not, the liquidity goes unused and is thus stuffed into the financial markets in order to get a return on capital given that interest rates are so low thanks to Fed monetary policy. Again, if no investment or spending results, then when the liquidity is ultimately pulled back markets fall hard.
For now the Fed and world central banks are showing little inclination to pullback the liquidity for fear that still feeble economies would buckle and fall back over. Bernanke admitted as much Monday in his address. Thus the continued stock rally in the US market even as the economy remains tepid overall. At the same time, however, gold continues its surge and bonds are starting to rally significantly as well. No one knows when the liquidity rally will end, but more and more are hedging their stock positions. Right now all it takes is some kind of shock that causes a run for safety and then even the US dollar will spike. That might set off an impressive market slide. Has not happened yet, however, so you have to dance to what the band is playing.
TECHNICAL
INTRADAY. Stocks gapped higher and rallied a bit more in the first 45 minutes. Then they slid laterally through lunch and into the last hour. Some modest selling occurred, but nothing serious. Stocks checked up, holding their breakouts, and bounced modestly into the closing bell.
INTERNALS. Solid upside breadth as the small caps rallied back and took out that prior lower high. 4.3:1 NYSE, 3.2:1 NASD.
Volume rallied on both NASDAQ (2B) and NYSE (1.1B), though both were still below average. Indeed the NASDAQ volume failed to match last Thursday's downside trade that moved to average. NYSE managed to top all but last Monday's volume; most trade occurring on the upside on NYSE, and while it is not blowout, it shows more buyers than sellers to start expiration week. It is expiration week and we can get some volume head and shoulders fakes though not typically on Monday.
CHARTS. SP500 is the main focus and Monday the large caps broke through the October peak, the 2007 down trendline, and the bottom of the 2004 year long consolidation. NASDAQ gapped higher and rallied through its October peak that also ran through the March and July 2008 lows. DJ30 continued on its merry way, hitting another rally high. SP600 cleared the lower peak it made last week as SOX moved higher as well. The latter are still well off their rally highs, but they did move higher on the session and made significant moves.
So one of the scenarios is out, i.e. the failure at resistance. With this breakout you know look at the break and successful test or the break and failure. SOX and SP600 are still in weaker positions, and while SP600 may be an indication that the economic rebound is not that great, the liquidity fueling the large cap indices is in control as this breakout evidences. That still leaves us watching for a potential failure and reversal, but once again the liquidity wins out, and until there is more evidence the world central banks are going to change policy it will continue to win out. That money that is not being used has to be put somewhere, and the financial markets are where it is going. Indeed it is bleeding into gold and bonds as well no market is totally immune from the liquidity rise and where do you think some of that money going into those other markets is coming from?
LEADERSHIP. The market did not give us the nice test lower, at least not thus far, that would really set up the upside better. It is simply forcing stocks higher regardless of their patterns. That does not mean there are not stocks out there with good set ups; we picked up some today that are positioned well to move higher. It is simply that there are many stocks that are extended and not in very good buy points and that makes buys on many stocks more difficult. Ah but perhaps that is where the test comes in, i.e. when this breakout is tested. If it holds then some of these stocks may have an opportunity to take a breather.
Energy was of course higher (HAL, SLB), with XOM moving up on word that Buffett bought some shares back in June. Wow, better buy now. Not all are working well, however; CHK still looks somewhat ill.
Metals rebounded with gold surging, copper up once more, and even steel moving back into the picture (STLD, CLF).
Retail rode better retail sales, for the month, higher: COST, BBY.
As you can see many sectors were higher, but the chart patterns are not necessarily the best to buy into even before the Monday move.
THE ECONOMY
October retail sales rise but don't offset the September decline.
1.4% topped the 0.9% expected, but the September 2.3% decline was worse than the -1.5% originally reported. Ex-autos (that saw a much bigger jump than expected), sales rose just 0.2%.
What does the data mean? First, Q3 GDP will be revised lower given the revisions. Combined with the jump in September imports that means GDP will be revised below 3% from 3.5%. No big surprise.
Second, the headlines are a bit deceiving. While ex-autos showed just a modest climb, core retail sales (ex-gas stations are dealers, building materials dealers) rose 0.5% month over month. Core sales are a very good predictor of total sales direction and suggest that November and December could be very solid. Good news.
Another piece of interesting data is in the food and drink establishments. Sales rose 1.2% in October. Typically eating out is a luxury during weak times. The fact that consumers continue to eat out suggests things are not that dire.
Maybe. If small businesses continue to get tread upon, however, it won't be long before the consumer appetite for spending growth fades. Jobs have to become more plentiful; the workweek is still very low and we hope that this blip in spending is not just that, a blip.
THE MARKET
MARKET SENTIMENT
VIX: 22.89; -0.47
VXN: 23.13; +0.21
VXO: 21.84; -0.43
Put/Call Ratio (CBOE): 0.84; -0.17
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: 44.4%. Finally cracking some from the recent spike (48.3% last week, 49.5% prior). Of course this is just in time for SP500 to break key resistance. Believers may have waned but the liquidity did not. 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: 26.7%. Bounced up on the selling in conjunction with the decline in bulls. Up from 24.7% and 22.5% before that. Rebounding 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: +29.97 points (+1.38%) to close at 2197.85
Volume: 2.059B (+12.31%). Volume was up on the gap higher but still below average and still below the Thursday selling trade. It is expiration week and that will make trade quite interesting.
Up Volume: 1.653B (+246.826M)
Down Volume: 456.486M (-20.619M)
A/D and Hi/Lo: Advancers led 3.18 to 1
Previous Session: Advancers led 2.01 to 1
New Highs: 177 (+118)
New Lows: 17 (-24)
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: +15.82 points (+1.45%) to close at 1109.3
NYSE Volume: 1.145B (+17.91%)
Up Volume: 1.001B (+319.225M)
Down Volume: 135.734M (-137.776M)
A/D and Hi/Lo: Advancers led 4.29 to 1
Previous Session: Advancers led 2.73 to 1
New Highs: 515 (+358)
New Lows: 74 (+40)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: +136.49 points (+1.33%) to close at 10406.96
Volume DJ30: 202M shares Monday versus 167M shares Friday. Volume was up but still below average for the Dow as well.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
A new market week, another important test, and liquidity wins out again. Okay, so now that the indices have broken resistance we just look for more upside right? Actually, this is one of the times to be the most careful. The liquidity is no doubt in control of the action, but a breakout or breakdown is always a time to exercise a bit of care. Many times a stock or index will breakout and then reverse sharply. Again, the liquidity appears to be in control here, but with the key resistance levels on SP500 and the assumption that liquidity will rule, this is a really good time to be careful of one in the ear as Shoeless Joe Jackson advised the rookie on 'Field of Dreams.'
That is why we prefer playing a successful test as the main entry point as it shows the break is for real and that buyers still want to own at these prices. You also tend to avoid that uncomfortable feeling of having your pants to your ankles and drawers to your knees when the lights come on. We will still play good setups, i.e. those not in need of a test, but with many stocks extended you don't want to chase too far past the initial breakout. Thus we bought some today on the initial move and we will see how it rallies further and tests.
Of course at the same time you watch to see if the test holds. It is NEVER a done deal on the initial break. A market can break through, rally a bit more, test back, move laterally, do any combination thereof, and still fail. The fact of serious resistance levels on SP500 warrants we still exercise caution even after the Monday break higher. Those kind of levels are not dispensed with in one move.
In sum, it is hard if not futile to argue with the liquidity. The resistance SP500 faced and broke through is serious, and if it holds up then the move upside and a further significant rally is headed for the books. Thus we took some positions on the initial break, if we still get good entry points on other stocks we will move into them, but we won't chase extended stocks because we are also looking for a test. When the test comes and holds we can get more aggressive. If volatility spikes then we throttle back and see what the outcome is because that volatility would mean buyers and sellers fighting at this key level. In short, use common sense, buy good setups, remain patient.
Support and Resistance
NASDAQ: Closed at 2197.85
Resistance:
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows
Support:
2191 is the October 2009 peak
2177 is a low from March 2008
2169 is the March 2008 closing low (double bottom)
2168 is the September 2009, intraday peak
2167 from the July 2008 intraday low
2155 is the March 2008 intraday low
2143 is the October 2009 range low
2099 is the mid-September 2008 closing low
The 50 day EMA at 2099
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 1822
S&P 500: Closed at 1109.30
Resistance:
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low
Support:
1106 is the September 2008 low
1103 is the 2007 down trendline
1101 is the October high
The March/July up trendline at 1100
1080 is the September 2009 peak
The 18 day EMA at 1079
1078 is the October range low
1070 is the late September 2009 peak
The 50 day EMA at 1058
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
The 200 day SMA at 932
930 is the May peak
919 is the early December peak is bending
Dow: Closed at 10,406.96
Resistance:
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low
Support:
10,365 is the late September 2008 low
10,120 is the October 2009 peak
The 18 day EMA at 10,077
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
The 50 day EMA at 9837
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
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 8701
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
November 16 - Monday
Retail Sales, October (08:30): 1.4% actual versus 0.9% expected, -2.3% prior (revised from -1.5%)
Retail Sales ex-auto, October (08:30): 0.2% actual versus 0.4% expected, 0.4% prior (revised from 0.5%)
Empire Manufacturing, November (08:30): 23.51 actual versus 30.00 expected, 34.57 prior
Business Inventories, September (10:00): -0.4% actual versus -0.7% expected, -1.6% prior (revised from -1.5%)
November 17 - Tuesday
Core PPI, October (08:30): 0.1% expected, -0.1% prior
PPI, October (08:30): 0.5% expected, -0.6% prior
Net Long-term TIC Fl, Sep (09:00): $30.0B expected, $28.6B prior
Capacity Utilization, October (09:15): 70.8% expected, 70.5% prior
Industrial Production, October (09:15): 0.4% expected, 0.7% prior
November 18 - Wednesday
Housing Starts, October (08:30): 600K expected, 590K prior
Building Permits, October (08:30): 580K expected, 573K prior
CPI, October (08:30): 0.2% expected, 0.2% prior
Core CPI, October (08:30): 0.1% expected, 0.2% prior
Crude Inventories, 11/13 (10:30): 1.76M prior
November 19 - Thursday
Initial Claims, 11/14 (08:30): 504K expected, 502K prior
Continuing Claims, 11/13 (08:30): 5600K expected, 5631K prior
Leading Indicators, October (10:00): 0.4% expected, 1.0% prior
Philadelphia Fed, November (10:00): 12.0 expected, 11.5 prior
End part 1 of 3
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world stock market
us stock market
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