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money investment, investment help
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5/26/10 Investment House Alerts
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MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: FCX; IWM; SNDK; SSO; TEN
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Market extends Tuesday reversal . . . until it gives it up.
- Wednesday was not great but the indices are still hanging on above a key level.
- Inflation trades bypass deflation trades of last week.
- Durable goods orders fly on Boeing's deliveries. Ex-trans they fall, along with business spending.
- April new home sales surge as buyer's credit expires.
- Gave up the gain but still holding at a key level, still oversold, still looking for buyers.
For once the market rallies after an upside reversal. It still gave up the move, however.
Wednesday looked to be the day. After a ferocious reversal Tuesday after SP500 undercut a key level at the February low, the futures were up sharply. No immediate reversal this time around as the indices looked to extend the Tuesday reversal.
Durable goods orders surged 2.9% overall, but if you stripped out transportation (read Boeing deliveries) they fell 1.0%. That weighed a bit on the futures, but as the opening bell rang they were still well above fair value and the indices all jumped higher. The dollar was a bit stronger, bonds were weaker, oil was up, and gold rallied again. The deflation trade that popped up last week on the negative US CPI gave way to strength trades, i.e. US strength, as the economic data indicated the US recovery was still in progress. That bolstered the inflation argument again given all of the trillions of dollars printed and put in circulation by the Fed and Treasury. That helped gold and oil rally, though you could say oil was simply bouncing off the bottom of its range. Split the baby: the inflation trade paved the way for oil to bounce off the bottom of its range. How about that?
Stocks gapped higher and rallied through midmorning before testing over lunch. They started back up in the afternoon session, showing the buyers had not abandoned the early move. Okay, they hadn't abandoned it at that point. As stocks approached the last hour, however, they started to backslide. Still holding gains, but some selling. Nothing unusual; the sellers certainly had to take a shot as they have been in charge of the market for a month. They took their shot. The buyers vanished like a pack of cockroaches when the kitchen light is turned on. The indices lost their bid and of course stocks sold. By the close stocks had, once again, given up their gains, at least outside of the small caps and the SP600 only managed a gain of less than a point.
Back to the drawing board for the bulls. Once again a promising reversal, this time coupled with an early follow through the next session, was lost. On the other hand the indices are still above a key level that should act as some support and there is some leadership. Yes, yes, hope springs eternal, right? We truly do hope for a bounce: we would like a better entry point for some new downside versus this action right over key support levels. The overall bias of course remains lower, but the entry points to play in line with that bias are not that great after this selloff and rather meager upside bounce.
OTHER MARKETS.
Dollar. Up again, rebounding on the fear trade as the greenback posts its third straight gain after three sessions of a pullback (1.2180 versus 1.2343). The gain pushed the dollar to a new closing high on this rally though it remains below last week's intraday peaks. Don't think the dollar is about to roll over at this point even as it bumps those prior highs.
http://investmenthouse.com/ihmedia/dxy0.jpeg
Bonds. Bonds sold some (3.19% versus 3.17%) though pre-market the 10 year yield was up to 3.23%. Thus they had a bit of trouble holding their gains. Hard to say the US bond is in trouble, but there was a bit more of an inflation trade coming back to the market and with no major news out of the EU to push them higher, US bonds sold back modestly. Still in a very solid uptrend despite the continued upside movement in the US economy.
http://investmenthouse.com/ihmedia/tlt.jpeg
Gold. Another upside session for gold (1212.60, +14.60) as the inflation trade returns and gold puts in three consecutive gains. This comes after a pullback to the 50 day EMA last week as the deflation trade took precedence. Now that some more US economic data is out and looking promising, the deflation worries sparked by a negative CPI are abating and the inflation a few trillion extra dollars in circulation can cause is moving back up on the worry chart. The move was solid with a gap upside and a rally to the December 2009 peak. Important point for gold but thus far there is nothing to indicate it cannot retake that level.
http://investmenthouse.com/ihmedia/xgld.jpeg
Oil. The black stuff is getting a bounce as it spent about a week at the bottom of its 7 month range. Good reversal off the bottom of the range Tuesday and a continued rally Wednesday (70.98, +2.23). The move took oil to its 10 day EMA where it failed last Thursday after a gap higher. Has a bit more of a shelf of support under it given the extra trading days here, and thus it still has room and looks to have the legs to continue higher. A worry of inflation is much better for oil than a worry of deflation.
http://investmenthouse.com/ihmedia/xoil.jpeg
TECHNICAL PICTURE
INTERNALS
Breadth. Advancing issues managed to hold the lead into the close (1.2:1 NASDAQ, 1.5:1 NYSE), but as the indices reversed sharply off their highs very late in the session, breadth did not catch up. The big names drive the bus and the others follow. They had not caught up by the close.
Volume. Trade was strong Tuesday on the reversal off the lows. That is always good. Trade was even stronger Wednesday on the reversal . . . off the highs. Not huge gains at 5% on NASDAQ and 3% on NYSE, but with trade already elevated Tuesday, the fact that trade rallied higher as the indices rallied then rolled over was not comforting. It indicates the sellers came back into the market and simply overran the attempt at buying.
CHARTS
SP500. Reversed off an undercut of the February low on Tuesday and followed through on that move, clearing the Friday and Monday highs. Of course that didn't last as SP500 managed to give it all up and close lower on the day. Still near some long term support, still above the February lows, but that is not all that comforting. About the best you can posit from that action is perhaps a regrouping above the February low and a new try at a rally. Not out of the question given it is still above that level and trying to work laterally, but SP500 is certainly making it hard for itself to give us just a simple, plain relief bounce to the January peak. Heck it is likely to fail there anyway so why not just give it up, right? We will see.
NASDAQ. NASDAQ held above the February low on its Tuesday selloff and reversal. Wednesday it was rallying again, moving through the 200 day SMA with ease. Didn't last. The last hour selling hit and NASDAQ went from nicely positive, to nicely lower and well below the 200 day SMA. Couldn't hang onto the gain; fumbled it away. Now it is still at some long term support at the where it held on the May flash crash, and despite the Wednesday reversal it can find support there as it tries to build a shelf of support. As with SP500 we will see. Really want it to bounce because this is not a really good place to try a new short.
SP600. Same story: Tuesday reversal, Wednesday reversal. One upside, one downside. At least SP600 hung onto a modest gain. It also hung onto its ABCD pattern, and given the small caps led the move higher and are showing relative strength now, we are watching the smaller guys closely to see if they can hold and generate a move upside.
SOX. Chips rallied nicely as well but they ended up giving it all back to flat. Still holding a double bottom at long term support at 335, and the chips looked pretty darn good on Wednesday despite the market weakness. Very interesting and watching closely as the chips and small caps could still lead this move higher.
LEADERSHIP
More of the same story: fragmented and few sectors are in actual 'leadership' position. Retail took some body blows the past month but mostly used the selling to test and try and set up new patterns such as the ABCD that even the RTH is showing. Semiconductors are not uniformly solid, but there are a lot more solid chips than there are stocks in other sectors. Outside of these areas leadership in the sense of stocks that are still trending higher and in good tests are few right now.
A dearth of leaders tells you a lot about the market. No surprise the market is in correction mode, struggling to make any upside move hold. Of course this is a good place to spot leaders: they are able to hold up. If they can hold and the market does bounce they will of course be out in front. We have many on the report, so if the bounce comes we are ready for it.
THE ECONOMY
New home sales spike on the credit expiration.
The rush to take advantage of the expiring buyer's credit pushed new home sales to the highest level since May 2008. That of course blew away expectations by 79K.
Great headlines, but how sustainable given the expiration of the credit was pushing buyers into the market? After a surge of buyers getting off the fence, there will be few left to fill the void over the next several months.
The push has been to build smaller, lower end homes versus the big mansion-like homes that are now difficult to afford given strict lending requirements, down payment requirements, and generally higher rates for the jumbo loans. 51% of the April holds were less than $200K in value, rising from 44% in February. Two years back only 38% of the market was $200K or less homes.
Still, despite homebuilder shifts to less expensive homes, the rush to buy before the credit expired cannot help but eat into sales through the summer. That is the result of incentives: they are designed to get people to act. The bigger question is whether the economy has recovered enough by their action that it can then be self-sustaining. That question with respect to the housing market is still an open one.
Durable goods orders are up, but not really.
The headline was impressive with a 2.9% gain versus the 1.5% expected. The revision looked solid as well at flat versus the -1.2% originally reported in March. If you take out transportation, however, durables lost 1%, more than the 0.7% anticipated gain.
The revisions, however, are the key. In all economic reports revisions tell the real story due to more accurate information, replacing a lot of the guesswork contained in the first iteration. Further, they tell you just how positive or negative a turn is. The experts coming up with the expectations tend to move in one direction until proven badly wrong, again and again. Revisions point out how strong the turn is by how off the experts were. Durables are stronger than expected.
Of course gains are good, revisions better, but we also have to remember where they are coming from. Percentage gains are nice, but relative to what? A year ago things were not that great. Comparisons now are easy. At least, however, they are heading in the right direction.
THE MARKET
MARKET SENTIMENT
VIX: 35.02; +0.41. Easing back up after testing lower intraday, trying to make yet another higher low. That can suggest more downside but it is just one factor of many. Note that it has hit levels that could easily lead to a market reversal. As discussed before, however, the move often comes quite a bit AFTER the big jumps in volatility. In other words the big moves don't mark the bottom, they just indicate that a bottom can be coming.
VXN: 36.32; +0.04
VXO: 34.21; +1.38
Put/Call Ratio (CBOE): 1.05; -0.09. Note that the put/call ratio remains above 1.00, falling below that level only once in the past week. The 1.0+ days are piling up, showing more are seeking protection than looking to the long side of the equation, and that helps contribute to a bottom.
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: -15.07 points (-0.68%) to close at 2195.88
Volume: 2.954B (+5.06%)
Up Volume: 1.258B (+50.051M)
Down Volume: 1.786B (+147.158M)
A/D and Hi/Lo: Advancers led 1.26 to 1
Previous Session: Decliners led 2.01 to 1
New Highs: 20 (+9)
New Lows: 59 (-121)
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: -6.08 points (-0.57%) to close at 1067.95
NYSE Volume: 1.941B (+3.11%)
Up Volume: 1.042B (+99.771M)
Down Volume: 880.805M (+72.702M)
A/D and Hi/Lo: Advancers led 1.51 to 1
Previous Session: Decliners led 1.87 to 1
New Highs: 75 (-5)
New Lows: 55 (-152)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -69.3 points (-0.69%) to close at 9974.45
Volume DJ30: 316M shares Wednesday versus 317M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Well, we have been here before no doubt: the old intraday reversal off the lows at a logical level, and then the sheer lack of follow through. Now this time the market did make that attempt, something it did not even bother with the prior three attempted reversals.
In addition, the indices remain above important levels, working laterally as they attempt to form a shelf to bounce from. Modest moves at this stage and they could quite easily be upset with another surge of worry from the EU, Iran sneezing, a dog barking.
The market remains oversold and there are stocks in position to bounce, but this far bids have not held together long enough to put together a positive session after a good reversal.
Given the indices are at support, initiation new shorts is a bit precarious, though it would seem no more precarious than initiating upside plays. If the market breaks sharply lower again from here with SP500 falling through the February lows, well, that indicates a more severe correction and casts questions on the ability of the US recovery to hold. After the uptrend from March 2009, that kind of breakdown would be the first time the market has made a significant new low as it would undercut a prior test the market rallied from.
That makes this indeed an important level to either break or hold. We ventured some upside positions Wednesday and they were pushed back at us, but there were no breakdowns. As noted, the indices are trying to carve out a shelf of support to rally off, and that longer term support on NASDAQ, SOX and SP500 is helping that effort.
Given the point is not decided we are going to remain careful and cautious. Don't really want to initiate a lot of new shorts though there are some that we can play if the selling continues. We have some upside and are not crazy about initiating a lot of new upside plays, but there are some very good stocks in good position to bounce.
We won't ignore either. We will see which wins out, nibbling at positions as the opportunity presents itself. In that way when the market makes its break we can move more in that direction. The beauty of this (had to find a silver lining) is that given the indices and stocks are at support, there is a clearly defined stop loss for any play, and if we are right we stand to make a lot of money while those that we are wrong on we can cut off with minimal losses.
Putting probabilities in your favor, stacking the deck, gaining an edge, whatever you want to call it, you always look for plays with big payoffs versus small loss risks. That is where we are now so we will keep looking both ways and see which way the market breaks. With so many negative on the market, the extremes in the internals of late, and the decent support for the indices and individual stocks, we would anticipate an upside bounce. BUT, the market will do what it does regardless of what we think. So we are ready to go either way. And as Seinfeld would say, not that there is anything wrong with that.
Support and Resistance
NASDAQ: Closed at 2195.88
Resistance:
2205 is the November 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
The 200 day SMA at 2226
2245 from July 2008 through 2260 from late 2005.
The 10 day EMA at 2264
2275 - 2278 from the February 2008 and April 2008 lows
2273 to 2282 marks bottom of January 2010 lateral peak
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
The 50 day EMA at 2357
2382-2395 from 2008
2412-2415 represents a series of peaks and lows in 2007, 2008
2434 is the May 2010 high
2453 is the August 2008 peak
Support:
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 1067.95
Resistance:
1070 is the late September 2009 peak
1078 is the October range low
1084 to 1080 (September 2009 peak)
The 10 day EMA at 1099
1101 is the October 2009 high
The 200 day SMA at 1104
1106 is the September 2008 low
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
The 50 day EMA at 1145
1151 is the January 2010 peak
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
Support:
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 9974.45
Resistance:
10,120 is the October 2009 peak
The 200 day SMA at 10,273
The 10 day EMA at 10,277
10,285 is the late December consolidation peak
10,365 is the late September 2008 low
10,496 is the November 2009 high
10,609 from the Mid-September 2008 interim low
The 50 day EMA at 10,652
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:
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): 2.4% actual versus 3.0% expected, 0.7% prior (revised from 0.6%)
Consumer Confidence, May (10:00): 63.3 actual versus 58.3 expected, 57.7 prior (revised from 57.9)
FHFA Housing Price I, March (10:00): 0.3% actual versus -0.4% prior (revised from -0.2%)
May 26 - Wednesday
Durable Orders, April (08:30): 2.9% actual versus 1.5% expected, 0.0% prior (revised from -1.2%)
Durable Orders ex Transportation, April (08:30): -1.0% actual versus 0.7% expected, 4.8% prior (revised from 3.5%)
New Home Sales, April (10:00): 504K actual versus 425K expected, 439K prior (revised from 411K)
Crude Inventories, 05/22 (10:30): 2.46M actual versus 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, 471K prior
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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