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world stock market, us stock market
SUMMARY:
- This Monday fails to yield a gain.
- Failed Spanish bank offsets positives in US.
- Existing home sales rise 7.6%, but inventories rise 12%.
- LIBOR, commercial debt, CDS all showing market stress, but nowhere near 2008 levels.
- Selling yes, but substantially lighter volume.
- Downside momentum remains but the February lows are quite close as well.
Same European problems greet investors but this Monday could not yield a gain.
For weeks each Friday has been followed by an up Monday. Didn't matter what the news was out of Europe; the market traded higher. There was more news out of Europe of course, this time the Spanish national bank having to close a regional bank. That raised fears of a spreading contagion and US futures were lower.
Even so, futures bounced toward the open, and indeed US stock indices turned positive midmorning on into lunch. Nothing big mind you as the NYSE indices lagged all session, but it was a low to high move that held some promise despite yet more lackluster EU news. Perhaps solid April existing home sales helped.
The zenith was at lunch, however. Stocks tried to hold the modest gains off the early lows, but in the last 1.5 hours the duress grew and in the last 15 minutes stocks lost all semblance of a bid and dove to close at session lows. The NYSE indices led lower with 1.25%+ losses. NASDAQ looked rather tame at -0.69% while NASDAQ 100 gave up just 0.41%. What strength. Volume was extremely low, however, and that took a lot of the sting out of the move. Lots of gloom on the after hours financial stations. That is good as well. With so many now looking for more selling and the indices holding some support, that test of the February lows may get a bit of a reprieve. Maybe. Volume was lower but that means there are no bids, i.e. no big buyers out there to take the other side of the trade yet.
OTHER MARKETS.
The deflation trade took a back seat Monday though nothing changed significantly in the world markets. The dollar was up, bonds rose, oil was flat, and gold, after its pullback, started to bounce once more.
Dollar. After a normal pullback following a big surge to brush next resistance, the dollar bounced Monday (1.2373 versus 1.2564). As noted last week, the pullback was not a peak in the dollar, just a test of a good run, taking a breather below next resistance. So far the action is quite logical an rather normal.
http://investmenthouse.com/ihmedia/dxy0.jpeg
Bonds. Bonds were mixed though the US 10 year posted another gain with a yield at 3.21% versus 3.23% on Friday. The incredible bond rally continues, driven by the unknowns of Europe. Again, even with the $1T baby in place there is a lack of confidence, underscored by the press given the failure of the Spanish regional bank. As long as that disquiet remains, US treasuries have a flight to safety bid under them.
http://investmenthouse.com/ihmedia/tlt.jpeg
Oil. Oil closed flat at 70.60 (+0.02). It is news that oil did not sell on the day, and indeed oil is trying to but in a near term bottom at the lower reaches of its 7 month trading range. As with the other markets, this is a logical attempt by oil given the sharp selloff the past month from the top of its range to the bottom of the range.
http://investmenthouse.com/ihmedia/xoil.jpeg
Gold. After tapping at the 50 day EMA on Friday following just over a week of selling that began as the US reported a 0.1% CPI decline and touched off a wave of deflation worries, gold bounced Monday (1193.50, +17.40). With US existing home sales rising perhaps the deflation worries subsided in favor of inflation again. The chart shows a pullback to the 50 day EMA after the breakout from a 6 month base. A bounce here is logical if the overall drivers of the move remain in place, and with the US Fed on the sidelines for the foreseeable future, inflation remains a serious risk and thus worthy of driving gold higher.
http://investmenthouse.com/ihmedia/xgld.jpeg
TECHNICAL PICTURE
INTERNALS
Volume. This was a very important piece of the puzzle for us on Monday. Even though the market sold, volume fell sharply on both NASDAQ and NYSE, dropping almost 40%. Yes that is after strong expiration Friday volume but trade has been no less than average for over two months. Indeed, average volume has been the low trade. NASDAQ trade fell below average on the session. SP500 volume fell to average, but that was the low trade for more than a week. NYSE volume has only traded average twice in the past 1.5 months. The lower trade on the selling suggests the day was not as negative as some pundits are advancing. Not a great day of course with gains given up, but it was not a total downside rout with surging volume.
Breadth. Pretty tame at -1.9:1 NASDAQ and -1.6:1 on NYSE. Not the sharply skewed breadth typically seen on this move, and as with volume, not an indication that the selloff was a downside rout.
CHARTS
SP500. Gapped lower but then recovered to a modest gain by lunch. That was it. Financials led the index back down and to a 1.3% loss on the day. That left SP500 holding a long-term support level marked by the 2004 first half lows and indeed all the way back to 2001. Lower, average volume on the selling, trade much lower than the trade of the prior three weeks. That keeps us watching for SP500 to hold here. There is still the February low not far away, but this little double bottom at old support might try to launch a bounce. Of course it has been set up to do this a couple of times in the past week and failed. Now it is at key support, however, so we look to see if that can make a meaningful difference and brings some bids into the market.
NASDAQ. NASDAQ rallied further through the 200 day SMA after giving it up on the open, but by the close that early rally was spent and NASDAQ lost 0.69%. As with SP500, that still keeps NASDAQ over long term support with something of a double bottom, trying to set up a bounce. Thus far that hasn't led to a significant number of bids so we wait to see how this second test of this level plays out. A bounce to test the January peak would be an interesting move, allowing more short positions for the run to the February low after a bounce.
SP600. Very similar action on SP600 though it is at its January peak, having not violated that key area. SP600 has its own double bottom at that point and is in position to make a solid bounce without the need to go back and test the February low as the larger cap indices seem bent upon doing.
SOX. SOX is similarly situated as it holds long-term support running through the September and October 2009 peaks, the January to March 2008 consolidation, the July 2008 low, the September and October 2001 lows, and the September 1997 peak. That does not even include the 200 day SMA that has risen up to meet it.
All are in position to bounce, some more than others, but to this juncture the bids have not shown up in enough quantity to send stocks higher.
LEADERSHIP
Some retail along with individual names here and there are providing what upside leadership there is. Outside of that the leadership is more to the downside. Financials were hammered late in the Monday session, aiding in the dive lower on SP500, and indeed helping push volume on the NYSE up to average. Before the start of that late fall volume was quite tame.
Retail. DLTR, in the extreme discount sector, is performing well. OSTK, TJX , ROST, ARO are all in similar patterns, holding up better than most of the market, but still having yet to prove they are going to hold up.
Precious metals. The ETF's for precious metals are trying to bounce along with the metals.
Semiconductors. Still looking good as SOX tries to double bottom. RMBS, LSCC, and NVLS continue looking good.
THE ECONOMY
April existing home sales top expectations, but momentum is waning.
At 5.77M sales of April existing homes rose 7.6%, beating the 5.65M expected closed deals. Year over year the median price rose 4%. Improvement no doubt, but as with the overall economy, from terrible levels improvement is easy. Moreover, you know stimulus played a role, and you just are not sure how that is going to play out now that the stimulus is being withdrawn.
Well, we do know to a certain extent what will happen. April was the last month of the $8K buyer's tax credit though it does operate for contracts that are closed through June. Thus there will be some residual impact after the April sales.
Problem is, the impact is waning. When the program was originally set to expire in November 2009, existing home sales jumped to 6.49M units. This time around the expiration mustered 700K fewer units (annualized). The credit's mojo is running out as not as many buyers are excited by it.
A potentially significant problem is in inventories. They rose 12% to 4.4M units, the highest since July 2009. The backlog of existing homes at the current rate of consumption is 8.4 months, up from 8.1 months in March. It is very unusual to see inventories increase this time of year, a traditional buying time as families start to buy as they get ready to move over the summer break from school.
Maybe this is just a blip, an anomaly. Maybe it is just the stimulus that was propping up the market running out. In places where the market collapsed before any of the credits and facilities designed to keep owners in place were initiated, the housing market has shown promise. In Las Vegas the market dove ahead of all others. It basically healed itself with buyers moving out and the usual cycle of speculators coming in to pick up properties cheap in order to sell them when prices firmed started. Indeed the housing market firmed. It isn't great, but the worst is behind it.
Can you say that for the rest of the country? Some pundits say the worst is over, but most agree (outside the homebuilders that were all excited last week) that the worst being over is not the same as a rebounding market. Case/Shiller says housing will 'bump along' just over the lows for longer than most want to admit. The fact that the homebuilders are so optimistic after the recent housing starts report (of course starts are a result of homebuilders deciding to build) only makes us more wary of any real bottom, or more accurately, any real recovery. Heck, even a bottom is questionable given it is artificial, having been created by the feds as they poured money into the system to try and prop up prices. The hope of the Feds is that they have created a floor that can stick and the market can in fact bump along until overall economic momentum eventually causes a rise. With inventories of existing homes at 8.4 months that could take awhile.
LIBOR continues its rise, corporate debt costs surge. Still below 2008 levels but showing serious worries nonetheless, forcing companies to hold more cash and reducing the zest of the recovery.
Corporate bonds, interbank lending, swaps spreads. They all point to a return of the anxiety that led to a credit and financial freeze in 2008. Well, that is overstating it a bit (or quite a bit), but the return to the same fears and worries as evidences in these instruments so soon after the 'end' of the 2008 and 2009 crisis is quite troubling.
Corporate bonds are set to post their worst monthly performance in 10 years as yields rise the most since LEH collapsed in September 2008. April saw $183B in corporate debt issued while heading to the end of the book for May the amount is just $47B. The interest required by investors on that debt is about to reach the biggest monthly increase since October 2008. Yields on corporate debt rose from 142 BP on 4-21 (the low this year) to 188 BP today, the fasted widening of the spread since 10-2008 (they jumped 108 BP that day to a crushing 467 BP spread).
The worries about the EU's ability to handle the Greece and other debt problems combined with the US bank regulation that limits credit and cuts bank profits is driving up interbank lending. The cost just doubled since February and are over 0.5 for the first time since July 27, 2009. Citi is predicting it could reach 1.5 over the next several months after the US financial regulation bill.
As noted, risk aversion is rising across many different asset classes. Companies are still reluctant to fully buy into any US recovery. Worse initial jobless claims, the LEI turning negative last week, and the CPI turning negative raise concerns over the economic recovery's sustainability. Consequently companies are keeping a lot of cash. 70% reduced their leverage ratios in Q1, up from 50% in Q3 2009. Cash remains at 23% for investment-grade companies, a multi-year high, despite the recovery. That is one of the most telling figures of them all: companies considered the best in the markets are unwilling to put all of their cash to work, and that means a continued lukewarm recovery, if it can indeed hold on in the face of the European problems.
THE MARKET
MARKET SENTIMENT
VIX: 38.32; -1.78
VXN: 39.84; -2.97
VXO: 35.19; -2.46
Put/Call Ratio (CBOE): 0.94; -0.38. Back below 1.0 after three straight sessions over 1.3. Not quite enough to make the turn on its own but other sentiment indicators were at extremes last week.
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: 43.8% versus 47.2%. Continuing the drop though not quite as precipitous as the prior week that saw a fall from 56.0%. Looks as if that was the high on this move, falling short of the 60% to 65% considered bearish, but not that short. As with horseshoes, it was close enough. This move started at a low of 35.6% in February, the lowest it has been since July 2009. Over the 35% threshold level below suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- 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. 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.
Bears: 24.7% versus 24.7%. Holding steady after the strong surge higher from 18.7%. Hit a high of 27.8% level on this leg in February. Over 35% is considered bullish for the market; definitely at the lower end of the scale. 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: -15.49 points (-0.69%) to close at 2213.55
Volume: 2.007B (-39.45%)
Up Volume: 548.259M (-1.929B)
Down Volume: 1.474B (+630.318M)
A/D and Hi/Lo: Decliners led 1.87 to 1
Previous Session: Advancers led 1.83 to 1
New Highs: 15 (+5)
New Lows: 58 (-75)
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: -14.04 points (-1.29%) to close at 1073.65
NYSE Volume: 1.314B (-38.76%)
Up Volume: 317.412M (-1.748B)
Down Volume: 988.75M (+765.963M)
A/D and Hi/Lo: Decliners led 1.58 to 1
Previous Session: Advancers led 2.91 to 1
New Highs: 54 (-23)
New Lows: 50 (-110)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -126.82 points (-1.24%) to close at 10066.57
Volume DJ30: 211M shares Monday versus 438M shares Friday. Much lower, average volume here as well.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Yes the close was not a strong one and it had the pundits talking about a massively weak market. That is fine. As noted, volume was significantly lower and the indices are holding over the May 6 flash crash as well as long term support. Negative sentiment after an already good run lower is a good upside combination.
Of course, the bids have yet to support any bounce attempt. Not enough buyers are ready to step up yet to the plate and keep a bounce going. At the same time the indices are a bit sticky at this support level. Oh what intrigue.
The overall bias is still negative and ultimately the indices may have to test the February lows. In the case of SP500 that is not that far away at just 16 points. The negative sentiment is a good indication the market may try to bounce from this support, but sentiment is not a timing mechanism: it sets the stage and we have to watch for stocks to hold at this long term support. There are plenty of stocks at support that can bounce. To this point they have not had the buyers, but the sellers are not taking them down further.
At this stage the market is in a tough position to open new downside positions. Better to see a bounce off this support fail than to try and short at support. Why? Often the market undercuts support, sucks you into shorts, then rebounds and makes the bounce.
So we will, again, continue looking for some upside plays that can make us a good run higher in a market bounce. As noted, there are plenty of them out there though leadership is overall tattered. Not looking for long-term relationships here, just making some money on a market bounce and then reevaluating at that point as to more upside or if the move is stalling. The market is still in correction mode so this is more trading now than longer term position trades. As always you take what the market gives, and right now it is not wanting us to get married to anything. That a good entry point with good risk/reward. If it moves for you and you get a gain, take it. If it doesn't work, get out.
Support and Resistance
NASDAQ: Closed at 2213.55
Resistance:
The 200 day SMA at 2224
2245 from July 2008 through 2260 from late 2005.
2275 - 2278 from the February 2008 and April 2008 lows
2273 to 2282 marks bottom of January 2010 lateral peak
The 10 day EMA at 2294
2292 is a low from January 2008
2319 from the September 2008 peak
2320 to 2326.28 is the January 2010 high
2324-2370 is a range of resistance from early 2008
2382-2395 from 2008
The 50 day EMA at 2370
2412-2415 represents a series of peaks and lows in 2007, 2008
2434 is the May 2010 high
2453 is the August 2008 peak
2535 is the April 2010 peak
2546 from July 2007, February 2007, November 2007: a level touched many times as a high and low.
2725-2730 from the July 2007 and May 2009 peaks
Support:
2210 (from September 2008) to 2212 (the July 2009 closing low)
2205 is the November 2009 peak
2185 to 2195 represent support points for years: December 2004 peak, July to October 2005 consolidation, January, March and July 2008 lows, and 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
2100 is the February 2010 low
S&P 500: Closed at 1073.65
Resistance:
1078 is the October range low
1084 to 1080 (September 2009 peak)
1101 is the October 2009 high
The 200 day SMA at 1103
1106 is the September 2008 low
The 10 day EMA at 1113
1114 is the November 2009 peak
1119 is the early December intraday high
Bottom of the January 2010 consolidation 1131 to 1136
1133 from a September 2008 intraday low
1151 is the January 2010 peak
The 50 day EMA at 1151
1156 is the Sept 2008 low
1170 is the prior March 2010 high
1174 is the May 2010 high
1181 is the April selloff low
1185 from late September 2008
1200 from the July 2008 low
1214 is the first April peak, 1220 is the second high.
1240 is the key July 2008 interim low.
1293 from a March 2008 low
1298 is the November 2008 rebound high that made a lower high. Also part of the Q1 2008 double bottom.
Support:
1070 is the late September 2009 peak
1044 is the October 2008 intraday high AND the February 2010 low
1020 is the bottom of the late summer 2009 consolidation
946 from June 2009
Dow: Closed at 10,066.57
Resistance:
The 200 day SMA at 10,266
10,285 is the late December consolidation peak
10,365 is the late September 2008 low
The 10 day EMA at 10,411
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
The 50 day EMA at 10,706
10,730 is the January 2010 peak
10,920 is the recent May high
10,963 is the July 2008 low
11,100 from the 7-08 low
11,205 is the April closing high
11,734 from 11-98 peak
Support:
10,120 is the October 2009 peak
9829 is the September 2008 closing high
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
May 24 - Monday
Existing Home Sales, April (10:00): 5.77M actual versus 5.65M expected, 5.36M prior (revised from 5.35M)
May 25 - Tuesday
Case-Shiller 20-city, March (09:00): 3.0% expected, 0.6% prior
Consumer Confidence, May (10:00): 58.3 expected, 57.9 prior
FHFA Housing Price I, March (10:00): -0.2% prior
May 26 - Wednesday
Durable Orders, April (08:30): 1.4% expected, -0.3% prior
Durable Orders ex Trans, April (08:30): 0.7% expected, 3.5% prior
New Home Sales, April (10:00): 425 expected, 411 prior
Crude Inventories, 05/22 (10:30): 0.162M prior
May 27 - Thursday
GDP - Second Estimate, Q1 (08:30): 3.3% expected, 3.2% prior
GDP Deflator - Second iteration, Q1 (08:30): 0.9% expected, 0.9% prior
Initial Claims, 05/22 (08:30): 455K expected,
Continuing Claims, 05/22 (08:30): 4600K expected
May 28 - Friday
Personal Income, April (08:30): 0.4% expected, 0.3% prior
Personal Spending, April (08:30): 0.3% expected, 0.6% prior
PCE Prices - Core, April (08:30): 0.1% expected, 0.1% prior
Chicago PMI, May (09:45): 60.0 expected, 63.8 prior
U. Michigan Consumer Sentiment, May (09:55): 73.2 expected, 73.3 prior
End part 1 of 3
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world stock market
us stock market
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