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us stock market, trade stock
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2/01/10 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: ASH; AMED
Trailing stops: HUM
Stop alerts: None issued
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.html
SUMMARY:
- Market avoids another selloff as last week's down sectors rebound.
- Solid manufacturing data overshadows pathetically weak construction market.
- Income and spending continue to increase at a slightly slower pace.
- New budget, same old rising debt as the entire $1.6T deficit will have to be borrowed. The numbers and projections.
- Market bounced where it had to, but lower trade, narrower breadth compared to the selling internals.
Market once again turns upside after an ugly finish to the previous week.
The market finished last week diving lower once again, raising the specter of a continuation to the downside early in the week. Once again, however, the market fended off further selling to start a new week. An overbought dollar stalled a bit and that gave other markets an opening and they sprang at it. The result: a reversal of the Thursday and Friday roles with stocks, gold, commodities, industrials, oil surging while the dollar faded after 4 very strong upside sessions.
It did not hurt that income and spending continued to rise though at a slower rate, with spending posting its third straight monthly increase. Didn't hurt, but it didn't really help either; the futures were up ahead of the data and they were up the same amount after that data. More of an impact was felt from the January ISM (manufacturing data) that posted a 58.4 reading, better than expected and better than December's 54.9 showing. Coupled with stronger manufacturing data from Australia, China, India, and South Korea, that gave stocks an extra kick in the shorts. That was needed because US construction remains pathetic, falling another 1.2% in December after falling 1.2% in November. December was supposed to fall just a half point while November was doubled up to the downside. Those downside revisions, particularly the 2x kinds, are indications of real weakness.
Stocks were oversold enough, the dollar weak enough, and the data just good enough to trigger some short covering/buying. The major indices had fallen to the next key level, the September peak that was the next in line after they broke the December/November peaks and the October peak just below. At least they used a logical point to bounce. No major reversal, but they held at an important level.
OTHER MARKETS
The dollar sold (1.3931 vs 1.38641 Friday). Down but hardly a selloff. The greenback rallied 4 straight sessions and put in strong gains those sessions. It moved up to resistance at 79.50 and, after that kind of move, it stalled a bit. Hardly the picture of weakness with a four week consolidation and then two strong legs higher off of that rest period. Maybe it dips another day or two, allowing the other markets to rise, but then it is likely back up.
http://investmenthouse.com/ihmedia/dxy0.jpeg
Gold surged back into action (1107.50, +23.70) as that December low held. The dollar was lower and that helped. What about a budget with a larger than anticipated $1.6T deficit attached to it? Maybe a bit of inflation worry as well? A double bottom break starting? Could be. It is heading to the 50 day EMA and will be there Tuesday. There is a trade up to 1150, the January peak or the possible 'hump' in the double bottom. After that you have to see how it responds. That hump was a 50% retracement of the December selloff; a break above that level on the next move back up would be bullish.
http://investmenthouse.com/ihmedia/xgld.jpeg
Oil posted a nice gain as well (74.92, +2.03) as it held the next level of support at 72.50 and rallied higher, trying to put in a higher low after that December V bottom. The dollar helped for sure, the economic data for manufacturing was better, and it was, as with other economy and 'over there' sectors, oversold with a three week plunge straight down. A market cannot go up or down for extended lengths without a bit of giveback. Got a bit of that today.
http://investmenthouse.com/ihmedia/xoil.jpeg
Bonds ran into a bit of headwind Monday as stocks and other beaten down markets bounced. No need to run to treasuries to start the week so they sold back and rates rose (3.66% 10 year versus 3.60% Friday).
http://investmenthouse.com/ihmedia/tip.jpeg
TECHNICAL
INTERNALS
Breadth turned positive to 1.7:1 on NASDAQ and 3.6:1 on NYSE. Lackluster on the NASDAQ, indicating this bounce was mostly limited to large cap techs. Narrow moves suggest short covering or relief moves. NYSE on the other hand posted strong upside breadth even though small caps lagged. Mid-caps made up the difference, however, and that pushed the breadth way up. That does not suggest just a relief rally. Mixed signals, so let's look at volume.
Volume tumbled 30% on NASDAQ, 34% on SP500. That remained above average on NASDAQ and back below average on NYSE. Compared to the sharp selling, that is not a sign of strong buying in response. Buying yes, but it remains to be seen if it builds. There certainly was not a rush of buying on Monday.
CHARTS
SP500 bounced off the September peak after breaking below the November and December lateral consolidation range. That move indeed broke it back up into that consolidation range, though it is still below last week's consolidation level. This bounce was more vigorous than the prior bounce so maybe there is something more here. Recall that we were looking for a bounce to test 1125 or so and perhaps this will be that move. Once day, bounced at some support, still below key levels. One day at a time.
NASDAQ gapped higher after it also held at the September closing peak last Friday. It too is in the November/December consolidation range but below the key 2205 level. NASDAQ was up but it lagged the NYSE indices, mainly because those have so many of the industrials, commodities and 'over there' stocks that benefitted Monday from the first down dollar day in a week.
SP600 (+1.00%) bounced as well, coming off the November and early December peaks. It closed at the September peak. Still plenty of resistance to deal with near term. Small caps will, however, again be key given their economic forecasting, i.e. small caps perform when the economy is improving. The pattern is not bad, indeed no worse than its larger cap brethren. Clearing 330ish will be important for the smaller guys.
SOX (+3.05%) gapped and ran higher to the November peak. Still has the twin tops spanning September and October (333, closed at 325.7) to take back. That will be the key level as SOX recovers.
LEADERSHIP
Industrials. If it was down last week it was up Monday. Thus industrials enjoyed a bounce. Not a strong bounce, but a bounce. A lot of damage was done in the selling. BUCY bounced but it is still below an important level at 55. CAT was up 1.3% but it showed a doji after gapping higher and it has not filled its gap to the downside. Not looking that strong, particularly with its weak volume. DE and JOYG pretty much fall in lockstep with BUCY: up but not impressive compared to the cascade lower.
Metals. A bit more impressive than the industrials with sharper, higher volume bounces. FCX bounced off the 200 day SMA on no real decline in strong volume; a 7.3% move is not chopped liver. MTL (steel) blasted higher almost 12%, clearing some key tops on the move. Silver stocks jumped as well, but the volume was not as strong. Some industrial metals, e.g. RTI look almost good.
Energy. Enjoyed a bounce as well though on lower trade, indeed significantly lower trade, than metals. HAL bounced but is below key resistance, basically showing no change in its struggle below the 50 day EMA. XOM reported strong top and bottom line earnings, but it could not ignite the sector. CVX started some of the sector's issues with its earnings mid-January, and at least it bounced off the 200 day SMA Monday. Perhaps there is something there.
Technology. AAPL bounced off 190 support. Lower volume. Not a very strong move. GOOG gapped higher but closed below its opening price. Not the picture of strength. MSFT gapped higher to a hanging man doji. Not telling you much there in terms of strength; or it is, actually: not very strong move.
In sum, leadership bounced but it was more of a relief bounce Monday than a turn back to serious buying.
THE ECONOMY
Economic data better and worse, sweet and sour.
As noted the January ISM rose more than expected, clocking in at 58.4 versus 55.5 expected and 54.9 prior. That is the sixth consecutive month above 50, and indeed it has not turned back below 50 since crossing threshold to expansion.
Employment expanded for the second straight month (53.3), its highest since April 2006. Production surged to 66.2 from 59.7. You would expect that with orders putting in another strong showing (64.8 in December with those year end tax purchases) at 65.9.
The old problem of prices is still a problem. Prices paid rose to 70.0 from 61.5. 'Rose' is not strong enough; how about 'leapt?' That on top of a 6.5 point gain in December. There is no fear of inflation from the Fed, but there are roots growing. It shows up in these kind of reports, quietly showing jumps not commensurate with economic activity, i.e. much stronger than the economic data would warrant.
Construction spending is the worse, the sour.
Construction spending for December was the sour. After a spike higher in October 2008, it posted back to back 1.2% losses, more than doubling expectations. November's 0.6% loss was doubled to -1.2%. In the past 8 months only 1 upside month. In the past 15 months only two positive months.
The downside revisions hold the key and they still show construction spending heading down though at a slower pace than the -3.4% in December 2008. Downside revisions show economists and the government are overestimating construction strength, boosting it beyond reality as they look to other economic metrics. Construction is very important but it is also important to note that construction lags recoveries because you cannot get plans on the table overnight when the economy improves. Thus we could start seeing some improvement as the months ahead unfold.
The Budget is a misnomer: just call it the spending deficit.
The Administration's budget was submitted, and after plowing through SOME of the numbers, the trend is disheartening. No surprise, just disheartening.
The deficit from this bill is $1.6T. After paying for all of the so-called 'non-discretionary' costs for unconstitutional programs the US government is involved in, we will have to borrow $1.6T to pay for all 'non-discretionary' areas such as defense which is, ironically, one of the few enumerated powers the federal government has. We don't have enough money to pay for this or the interest payments so we will be borrowing to pay for interest payments.
In years 7 and 8 from today the interest payments alone will be as much as our defense budget in those years.
Tax rates are set to rise from 14.8% of GDP in 2009 to 19.6% of GDP in 2020, well above the historical average.
The highest debt level we have ever had, prior to now, was 122% of GDP during WWII. With forecast spending amounts, by 2020 it will be 77% of GDP (23.7% in 2009; estimate); that is the highest since 1950 when we were working off and paying off the WWII debt. In 2040 it will be 300% of GDP. By 2050 it will be 400%. Our GDP in 2009 was low compared to prior years of course, coming in at $14.25T (estimate; it could be lower at 13.9T).
The numbers this implies in out years (and even today) is staggering. It will never, ever get lower if we continue these trends, and we will hand our progeny lower and lower standards of living as the US declines, either slowly or very rapidly if some unexpected event occurs (and it usually does when a country starts to descend into this kind of debt hole). What a nice legacy.
THE MARKET
MARKET SENTIMENT
VIX: 22.59; -2.03
VXN: 24.33; -1.47
VXO: 21.31; -3.15
Put/Call Ratio (CBOE): 0.75; -0.25
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: 40.0%. After peaking at 53 on this move the bulls are running again . . . to the downside for now. This is a low since July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. 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: 23.3%. Rising as briskly as bulls are falling, up from 16%ish on the lows this leg where it held for several weeks. Peaked near 28% in November, falling short of the 35.6% hit in July 2009. 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: +23.85 points (+1.11%) to close at 2171.2
Volume: 2.147B (-30.6%)
Up Volume: 1.795B (+1.145B)
Down Volume: 441.838M (-2.021B)
A/D and Hi/Lo: Advancers led 1.73 to 1
Previous Session: Decliners led 1.82 to 1
New Highs: 36 (-8)
New Lows: 20 (-13)
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: +15.31 points (+1.43%) to close at 1089.18
NYSE Volume: 1.039B (-34.29%)
Up Volume: 919.661M (+424.612M)
Down Volume: 111.929M (-963.585M)
A/D and Hi/Lo: Advancers led 3.58 to 1
Previous Session: Decliners led 2.21 to 1
New Highs: 81 (-2)
New Lows: 37 (-24)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: +118.2 points (+1.17%) to close at 10185.53
Volume DJ30: 198M shares Monday versus 316M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
The Monday move was upside, releasing some oversold pressure when more bad news didn't emerge over the weekend and actually some decent news hit, coupled with a weaker dollar. Solid 1+% bounces on the indices; they sell hard, build up pressure, and when it is released they pop.
Volume was anemic. Breadth was mixed. Patterns are still in disarray thanks to the quite sharp selling. We are looking for some upside bounce plays to take advantage of a move up to just below the prior peaks in the indices. Also, there are still stocks in solid position, having held up well during the selling, just going about making their own patterns. Those are good bets to the upside as the market rallies and we were picking up some Monday, e.g. ASH: great pattern, nice break higher, good test, and now on the way back up on volume. There are others out there and we will continue looking at those.
With respect to those stocks battered in the selling that didn't quite turn the tide the other direction Monday, we are going to consider those for downside plays as they bounce a bit more and stall below resistance, e.g. CAT. Lots of damage done in the selling. Sure they can turn back up and never look back: if the liquidity hits again it is an almost irresistible force.
All of that means we continue to look for positions, upside or downside, in good risk/reward positions that can rally or sell well, but if they go against us we have good stop points to avoid any big losses while we let those plays that work for us run.
Support and Resistance
NASDAQ: Closed at 2171.20
Resistance:
2177 is a low from March 2008
2191 is the October 2009 peak
2205 is the November 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2218 is the August 2005 peak
The 50 day EMA at 2221
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows
2292 is a low from January 2008
2319 from the September 2008 peak
2326.28 is the January high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2453 is the August 2008 peak
Support:
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
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
S&P 500: Closed at 1089.19
Resistance:
1101 is the October high
1106 is the September 2008 low
The 50 day EMA at 1107
1114 is the November 2009 peak
1119 is the early December intraday high
1133 from a September 2008 intraday low
1150 is the January 2010 peak
1156 is the Sept 2008 low
1185 from late September 2008
1200 from the July 2008 low
Support:
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak
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 200 day SMA at 1014
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
Dow: Closed at 10,185.53
Resistance:
10,285 is the late December consolidation peak
The 50 day EMA at 10,345
10,365 is the late September 2008 low
10,496 is the November 2009 high
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
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
The 200 day SMA at 9438
9430 is the early October low
9387 is the mid-October peak
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
February 01 - Monday
Personal Income, December (08:30): 0.4% actual versus 0.3% expected, 0.5% prior (revised from 0.4%)
Personal Spending, December (08:30): 0.2% actual versus 0.3% expected, 0.7% prior (revised from 0.5%)
Construction Spending, December (10:00): -1.2% actual versus -0.5% expected, -1.2% prior (revised from -0.6%)
ISM Index, January (10:00): 58.4 actual versus 55.5 expected, 54.9 prior
February 02 - Tuesday
Pending Home Sales, December (10:00): 1.1% expected, -16.0% prior
Auto Sales, January (14:00): 4.14M prior
Truck Sales, January (14:00): 4.49M prior
February 03 - Wednesday
Challenger Job Cuts, January (07:30): -72.9% prior
ADP Employment Change, January (08:15): -40K expected, -84K prior
ISM Services, January (10:00): 50.9 expected, 50.1 prior
Crude Inventories, 1/29 (10:30): -3.89M prior
February 04 - Thursday
Initial Claims, 01/30 (08:30): 454K expected, 470K prior
Continuing Claims, 01/30 (08:30): 4600K expected, 4602K prior
Productivity-Prel, Q4 (08:30): 6.0% expected, 8.1% prior
Unit Labor Costs - P, Q4 (08:30): -2.5% expected, -2.5% prior
Factory Orders, December (10:00): 0.6% expected, 1.1% prior
February 05 - Friday
Nonfarm Payrolls, January (08:30): 13K expected, -85K prior
Unemployment Rate, January (08:30): 10.0% expected, 10.0% prior
Average Workweek, January (08:30): 33.2 expected, 33.2 prior
Hourly Earnings, January (08:30): 0.2% expected, 0.2% prior
Consumer Credit, December (15:00): -$9.5B expected, -$17.5B prior
End part 1 of 3
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