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us stock market, trade stock
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11/18/09 Investment House Alerts
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IH Alert Subscribers:
MARKET ALERTS:
Targets hit alerts: CLF; TWP
Buy alerts: CPST; FMX; JOYG
Trailing stops: None issued
Stop alerts: SHAW
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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:
- Dollar continues to struggle but stocks cannot capitalize on its weakness.
- Housing start decline dampens investor appetite for Wednesday
- CPI, PPI hailed as 'no inflation' indicators. Hmmm.
- Thus far NASDAQ, SP500 are holding their upside breaks with modest, lazy tests as dollar decides what it wants to do.
Stocks sluggish even as the dollar sells back on the session.
Futures were up Wednesday as the dollar was lower pre-market. Then the October housing starts slumped far beyond expectations (-10.6%) and futures were dragged lower. They rebounded toward the open, but the market never really got back on track, struggling all session. No real surprise; after SP500 and NASDAQ's Monday breakout over resistance a bit of a pause to regroup is normal, particularly at such a key level as on SP500 (2007 down trendline, 2004 year long trading range, October peak). Indeed, though the indices were lower, in the last hour they mounted a credible advance and cut the losses to nil. Thus far they are just testing that move, not giving up any ground. Certainly the buyers have not surged back in to try and sell it off.
Why, however, didn't they capitalize on a significantly lower dollar (1.4957 versus 1.4868 Tuesday)? It must have been housing because oil was higher (79.65, +0.55) along with gold (1144.70, +5.3). Those markets continued to respond in the inverse manner to dollar movements. Indeed the SP500 with its energy and large multinationals that benefit from a weaker dollar still outperformed the other indices on the day, showing that the relationship is still intact even with the overlay of the weaker housing starts data.
Indeed growth continues to lag. The small caps are still well below both the September and October peaks. The mid-caps rallied up to those levels but could not make the break, at least yet, as did the large cap indices. Perhaps those large caps simply drag the others higher with them, but we will see just how far these smaller cap indices, the key barometers of economic health, go. Small businesses are getting crushed right now and healthcare will only make matters almost geometrically worse. Thus how they react at these prior peaks (key resistance for SP600 from 2005) is telling for the economy's future. It may not tell the tale for the near term, liquidity driven market move, but it will tell us more about the sustainability of the rebound.
TECHNICAL
INTRADAY. A weaker open and subsequent selloff to the Tuesday low on SP500 and below that on NASDAQ. The indices checked up, bounced, tested that same level over lunch, and then advanced on through the afternoon with a late last half hour push higher that brought the indices back to flat on the NYSE large caps.
INTERNALS. Breadth was again negative but modestly so (-1.2:1 NYSE, -1.5:1 NASDAQ) as it lagged the late recovery by the indices. No surprises there though NASDAQ breadth notably lagged as growth still struggles.
Volume rallied 7% on NASDAQ and 9% on NYSE. If the indices had remained significantly lower on the close that may have meant something for the bears. As they rebounded to near flat you can view that as somewhat positive: a test lower and then a bounce back up off that level on rising trade. Of course the rising trade was still well below average trade even on Wednesday in expiration week. Thus the trade and the price action didn't mean a whole lot. More of the same seen Tuesday, i.e. moving laterally, holding the Monday breakout and catching its breath.
CHARTS. SP500 sold off to the Tuesday low that again held the breakout and then recovered to flat. Stepping sideways, taking it easy as the market digests that break higher on low volume.
NASDAQ performed in a similar manner, testing lower than Tuesday but still holding the break higher over the October peak, then rebounding to cut the losses. Still a half percent loss but no relative change in the chart: a reach lower and then a rebound to hold the move. Of course there was not a lot of strength on the Monday break: volume was up but still well below average, no immediate follow through (though that is not necessary). As with SP500, NASDAQ is holding the move, pausing and trying to gird up for another upside bounce.
SP600 (-0.37%) faded for a second day, but it also rebounded off the lows just as on Tuesday. It is tapping at last week's lower high and holding the move over that level, but it is also below the September peak at 325 (closing) and the October peak (330 intraday). This is a key level for SP500 as the index peaked here twice in 2005 on the way up and twice later in that year as it tested a break over it. Plenty of 'touches' at the October peak to make it another important level for a key market index.
SP400 (-0.49%). For grins let's also look at the mid-cap index. It is faring better than the small caps as it has pushed up again to its September peaks and is sitting just below the October peak. It made a slightly lower low in early November but it bounced immediately back over that low and rallied through Monday. There is key resistance for this index as well from the top of a 2005 consolidation range and tested in 2006 on the downside at the bottom of a base.
In sum, the large cap indices are over a key resistance level (though SP500 has moved inside the 2004 trading range) while the smaller cap indices are still below. If they break through as well that starts to be a better indication for the economy than just the large cap, lower dollar liquidity driven rally thus far. What would really change the picture, however, is these indices starting to LEAD to the upside versus just getting dragged along as investors look for other areas outside the large cap dollar related plays to stuff the excess liquidity.
LEADERSHIP. Agriculture has come to life off its summer and early fall selloff. Pharma continues its recent run. Steel continues its recovery rally as well. Industrials are holding nice little pullbacks (CAT, CMI) or are outright running (DE). Retail is taking a pause, but just a pause (BBY, URBN) though some are surging on news (PNRA stock buy back).
Again, plenty of leadership, just not a lot of it in position, at least from a good risk/reward standpoint, for buys. There are some pullbacks from recent runs and those can be played for shorter term gains and of course we are looking at those. There are always plays but at this moment the choices are more limited versus a nice consolidation and basing period. If the money continues to come into the market ahead of year end, i.e. the liquidity push, then it can still rise. Any plays we make have to be taken in context, i.e. if they are bounce play for a nearer term target or a longer term play based upon a good base or consolidation.
THE ECONOMY
CPI rise considered 'non-inflationary.'
The October CPI rose 0.3% and while that topped the 0.2% expected it was 'well-contained.' Same with the core: at 0.2% it topped the 0.1% expected and matched September's 0.2%. In response Fed Chairman Bernanke signaled that water is safe with respect to inflation, and indeed he is more concerned with deflation. He is a very smart man; he has the wall art and enough letters after his name to clearly show his credentials. His thesis and his expertise is on the Great Depression and its causes and consequences. Thus when he says we don't have to worry about inflation as we come out of a Depression-like recession we should all breathe easy.
Or not. When in doubt, go to the numbers and indicators. Import prices came out Monday. Strip out oil and over the last three months those prices have grown 5% on an annual basis. The diving dollar is not helping, but the stark point is the jump is huge even without surging oil prices. We are importing inflation with our falling dollar.
Tuesday the PPI was out. Pretty tame stuff with the core down 0.6%. Tuesday we looked at the yearly gain and concluded things were more or less under control near term. Today after looking at the CPI, however, we ran everything through a rate of change model similar to the Import price data noted above. Over the last three months we see PPI rising 6%.
Wednesday it was the CPI's turn. Fairly inoffensive at 0.2% on the core. When you look at the 3-month annualized gains, however, inflation is rising at 3.6%. That is well in excess of the Fed's 'speed limit' of 1% to 2%.
The data shows that near term inflation is not contained but is ACCELERATING. Gold is surging, commodities are rallying, the dollar is falling. All indications of inflation issues. Larry Kudlow suggests inflation will be a 2010 problem, much sooner than most pundits. It is coming, the question is how quickly.
If this data holds up over the next three months then we can anticipate inflation to turn as a primary issue mid-2010. How the small and mid-cap indices react at the current levels thus becomes very important: inflation will hurt the US economic recovery attempt as it eats into purchasing power for consumers and small businesses and it will force the Fed's hand with respect to rates, i.e. hiking them. IF those smaller cap indices fail at the October peaks or in that range and head lower, they are forecasting the inflation and the negative impacts and a form of a double dip recession.
October housing starts drop 10.6% versus an expected rise.
The numbers: 529K unites versus 600K expected, 592K prior. Single family fell 6.8%. Multi-family (apartments) tanked 34.5% to the lowest level on record. Homes under construction fell 3.4% to a new record low after hitting a record low in September.
Permits fell 4%, not as much as housing, but that is not necessarily a bonus in the report. Many permits go unused, and thus a drop in permits can mean that next month's starts will continue to decline as in October.
Is it as dire as the numbers suggest? No, there are reasons. Builders are not totally stupid; they wised up after getting burned with the collapse. Recall we called the market top in 2005 when a trio of tanned housing company CEO's appeared on the financial stations crowed of a 10 year demographic that would drive sales higher and higher. Now they are at the opposite end of the scale, highly skeptical and pessimistic. Thus with the housing credit expiring and no word at the time if it would be extended, they backed off starting more homes to see what the government would do. With the renewal and indeed expansion of the credit to all buyers, starts should pick back up.
The drop in apartment starts is another pickle, but one with an explanation as well. Apartments are recession-time staples for builders. Would be buyers don't have jobs or cannot get the needed financing to buy homes so they are forced to rent. This recession, however, is a housing bust recession and there are many, many, many starter homes in foreclosure. Amazingly low interest rates (4.8% for a 30 year fixed) combined with low foreclosure sale pricing and the buyer tax credit, this time around people are still able to qualify for purchases. That is a plausible explanation for the slow multifamily building.
THE MARKET
MARKET SENTIMENT
The VIX is getting a bit interesting, but just a bit. Many often argue that a low VIX necessarily means a selloff is coming. That is incorrect. The VIX can remain low for extended periods (to borrow a Fed phrase) with no ill effects. It traded at extremely low levels in 2005 and early 2006 as the market just chugged right on up. By low I am talking about 10 to 12; that is low.
Thus some have argued this past summer that with the VIX down to 22 to 25 it was getting low enough to be worried about a selloff. Again, a low VIX is not in and of itself sufficient for a selloff. What is the tell tale warning that a selloff may be coming? After a long spell at lower levels as the market posts gains, it is a RISE in the VIX as the market continues to rise. Volatility rising as the market rises shows those pricing in risk are getting nervous that the upside move can continue.
So you watch the VIX and what we see recently is a flattening of the downtrend starting in July and running through October. VIX is definitely trading in a range though the range widened in October. Made a new low and then spiked to a higher high for this leg. It is now making a key test. IF the VIX starts making some higher lows and trends HIGHER as the market continues its upside trend, then you start watching for a reversal.
That makes the recent action only mildly interesting. It broke out from its range on the upside and then came back to test last week, holding above the October low and starting to bounce. Potential higher low after a higher high. Wednesday it threatened to break that up, however, as it closed below last week's close but not the intraday low. So we watch and see if it holds and turns back up and makes more upside moves. That would indicate some more selling pressure is building.
VIX: 21.63; -0.78
VXN: 22.03; -0.11
VXO: 21.37; -0.22
Put/Call Ratio (CBOE): 0.84; -0.04
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: -10.64 points (-0.48%) to close at 2193.14
Volume: 1.951B (+7.23%)
Up Volume: 843.951M (-240.368M)
Down Volume: 1.138B (+356.986M)
A/D and Hi/Lo: Decliners led 1.53 to 1
Previous Session: Decliners led 1.16 to 1
New Highs: 86 (-39)
New Lows: 19 (-5)
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: -0.52 points (-0.05%) to close at 1109.8
NYSE Volume: 1.063B (+9.39%)
Up Volume: 564.153M (+70.228M)
Down Volume: 482.002M (+26.823M)
A/D and Hi/Lo: Decliners led 1.24 to 1
Previous Session: Decliners led 1.19 to 1
New Highs: 244 (-11)
New Lows: 47 (-3)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -11.11 points (-0.11%) to close at 10426.31
Volume DJ30: 166M shares Wednesday versus 158M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The weekly rendition of those who lost their jobs is out pre-market. As proof that hope does not necessarily spring eternal, experts are figuring 504K new claims, still not daring to guesstimate claims in the 400's. If you hit in the 400's that would be worth some kind of short market celebration. Leading Economic Indicators try to make it 7 months straight to the upside, certainly proof that the economic recovery is truly blessed. Give me a break. The LEI is heavily weighted by stock market gains. With liquidity driving this rally you cannot put a lot of stock in what an index driven by market gains tells you. The Philly Fed could prove interesting; it has actually led the turnaround this time around. If it backslides that would be interesting.
Of course in the morning investors will mix all of the economic data in with what the dollar is doing and come up with a game plan for the day. Thus far NASDAQ and SP500 have held the Monday break with modest tests. First things first. The sellers seen in late October have not made much of an attempt outside of Thursday a week back. So we watch for how the indices continue to test and if the smaller cap indices can make a break of their own.
These breakouts in SP500 and NASDAQ came after the two already put in good runs in early November. Thus they could use a bit of testing and resting after the breakout, particularly given the key levels taken out. That is what they are giving right now though it is not a deep enough test to really set up stocks for new, long runs. As for plays on some of these leaders we thus look at shorter moves, using pullbacks to key levels to give us entries for a continued move higher with the trend. Nature of the market right now.
At the same time you keep an eye on how the indices hold the break higher, what the smaller cap indices do with their resistance, whether VIX continues to climb, and if the dollar makes a stand at some prior lows. The dollar is a daily flip-flopper, but that is what indices do as they try to put in a bottom or top; it is working laterally while holding the 75ish level. If it bounces as it looks as if it wants to do then there will likely be pressure exerted on the indices. They have been trying to throw off the inverse relationship with the dollar and at some point they will. It is not likely that this is the level that occurs, however.
It is getting on toward expiration Friday and thus far volume and the day to day moves have been tame. That sets up for more interesting action on Friday. For now we are going to look at some quick hitting plays off of pullbacks and we are still watching the downside on IWM and SPY as well as some potential new downside plays. Want to be ready to move in if the dollar breaks higher and the indices get softer or close them out if that is all illusory. After all the large cap indices made the break higher and it is on the downside to reassert itself if it can.
Support and Resistance
NASDAQ: Closed at 2193.14
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
The 18 day EMA at 2146
2143 is the October 2009 range low
The 50 day EMA at 2107
2099 is the mid-September 2008 closing low
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 1829
S&P 500: Closed at 1109.80
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
The March/July up trendline at 1103
1102 is the 2007 down trendline
1101 is the October high
The 18 day EMA at 1085
1080 is the September 2009 peak
1078 is the October range low
1070 is the late September 2009 peak
The 50 day EMA at 1063
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
The 200 day SMA at 935
Dow: Closed at 10,426.31
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
The 18 day EMA at 10,147
10,120 is the October 2009 peak
9918 is the September 2008 peak
The 50 day EMA at 9882
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
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 8726
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): -0.6% actual versus 0.1% expected, -0.1% prior
PPI, October (08:30): 0.3% actual versus 0.5% expected, -0.6% prior
Net Long-term TIC Fl, September (09:00): $40.7B actual versus $30.0B expected, $34.2B prior (revised from $28.6B)
Capacity Utilization, October (09:15): 70.7% actual versus 70.8% expected, 70.5% prior (no revisions)
Industrial Production, October (09:15): 0.1% actual versus 0.4% expected, 0.6% prior (revised from 0.7%)
November 18 - Wednesday
Housing Starts, October (08:30): 529K actual versus 600K expected, 592K prior (revised from 590K)
Building Permits, October (08:30): 552K actual versus 580K expected, 575K prior (revised from 573K)
CPI, October (08:30): 0.3% actual versus 0.2% expected, 0.2% prior
Core CPI, October (08:30): 0.2% actual versus 0.1% expected, 0.2% prior
Crude Inventories, 11/13 (10:30): -0.887M actual versus 1.76M prior
November 19 - Thursday
Initial Claims, 11/14 (08:30): 504K expected, 502K prior
Continuing Claims, 11/13 (08:30): 5598K expected, 5631K prior
Leading Indicators, October (10:00): 0.4% expected, 1.0% prior
Philadelphia Fed, November (10:00): 12.2 expected, 11.5 prior
End part 1 of 3
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