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world stock market, us stock market
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6/07/2010 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
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SUMMARY:
- Wherefore art thou, Monday rebound? Two day SP500 selloff is worst in over a year.
- Gold jumps, dollar up, US bonds surge. Same old story of the fear trade.
- Some holdout leadership sectors starting to crumble as the Friday selloff turns into a second day selloff.
- European issues continue to pile up with rather serious implications.
- Put/Call ratio strangely low the past two sessions.
- New correction closing lows for SP500, NASDAQ, and SP600, leaving the intraday lows from May the last chance for a bounce. Possible, but . . .
Sellers are winning out - - again - - thwarting a couple of upside moves Monday.
The old sell on Friday, recover on Monday pattern tried to take shape once more Monday, and pre-market on into lunch stocks were making an attempt at it. An early bounce pushed the indices positive, and then after a midmorning dip a second run took them positive again. It was nothing all that powerful, however, nothing compared to the Wednesday move higher last week.
That relative weakness in itself was a clue as to what was coming. After the bounce through lunch the indices sold back to the morning lows just ahead of the last hour, tried to hold, and even broke back up through that level, trying to show a 'false bottom.' It was not. They rolled back over and fell to session lows with all indices hitting new closing lows for the correction. Still above the intraday lows (outside of SP600), but still a significant milestone in the selling.
There wasn't a lot of scheduled economic data to drive the action, just more anecdotal items that came out as the day progressed. First Germany said that exports were up more than expected thanks to the weaker euro, and that actually aided stocks in Europe and here. That gave way to other issues, however, as the credit and debt market internals and direction impacted the action. The news is not good re swaps (prices rising, spreads widening), European credit willingness (country after country moving to cut back spending to the chagrin of the US and Bernanke), and bank reserves in the EU (piling up as banks do not trust one another and refuse to lend interbank, just what happened here in 2008). That had a dampening effect on the stock market. Just when you think you know about Europe and its huge bailout, the data suggest it is likely not enough and too late to boot.
Hell, it did more than that; it affected a sharp tumble, particularly in the growth sectors. NASDAQ, SOX, and SP600 tried to assume leadership last week on the upside, and even showed relative strength Friday as stocks sold. That went out the window Monday as the growth areas were the downside leaders. NASDAQ -2%, SOX -3.6%, SP600 -2.3% compared to the -1.35% on SP500. The oversold bounce is dead. The only thing the indices are doing now is determining if they can hold the February lows on this second test.
OTHER MARKETS.
Dollar. Not a big gain at least in terms of recent moves (1.1920 versus 1.1967 Friday), but the move itself is important. The dollar was very strong overnight (1.1877 euro) then gave it up early in the session, moving down against the euro after the German export news, only to recover strength as the day wore on. As it did stocks lost momentum and rolled over. Safe haven versus the euro is still the play as investors fear what is ongoing with the euro. So much so that the dollar has tapped the early 2009 closing high that marked the peak in the prior run. Very important point yet the dollar after a three week lateral move just below that prior level made the breakout last week, namely Friday.
Indeed, some economists are predicting the euro goes down in five years, i.e. will be no longer viable at that point. At the same time when you look at the relative performance of the euro versus the German mark the euro is outperforming the mark even in the euro's weakened condition. Maybe that changes down the road, maybe the mark doesn't make it either. Right. I would bet on the mark because even if the EU collapses, Germany is still the strongest and will remain the strongest if it continues moving away from socialism.
http://investmenthouse.com/ihmedia/dxy0.jpeg
Bonds. A quick correction after China's reiteration of its backing of the euro and EU bonds in a statement hauntingly similar to the Bush administration's propaganda about supporting a strong dollar, and then back up. Two sharply stronger back to back sessions pushed the bond up to May closing high (not intraday) for treasuries. Important level as it marks the gap down point, but it shows how the safe haven/fear trade is working to drive bonds right back up after the 'affirmations' by China. Part of the continuing fear trade.
http://investmenthouse.com/ihmedia/tlt.jpeg
Gold. Gold blasted off again, just missing a new closing high (1248.80, +26.90). Gold is flirting with the peaks hit three weeks back and frankly looks more than strong enough to take them out. Gold has been more of an inflation trade, and each time worries of deflation rose it sold back. Now it is rallying on the worries of Europe going under, and that is another step beyond. It is now fear of major weakness around the world that is driving price higher even in the face of possible deflation.
Why? Because with so much money outstanding, if the world does slip into another recession/depression (this may be a continuing depression) then hyperinflation is the worry similar to the Great Depression because the world central banks don't have any ammunition left to fight a slowdown yet the money printed in the last collapse is still out there.
Not a pretty situation and yet our Fed is trying to push Europe to be looser. Someone is right, but at this juncture there are not a lot of good answers involving government intervention. Unfortunately we are finding out what it is like to reach the point where there is so much government intervention and subsequent skewing of the markets that without it a collapse and reset will occur, and yet the central banks and governments may not be able to do any more intervention.
http://investmenthouse.com/ihmedia/xgld.jpeg
Oil. Oil is trying to make a higher low in its bounce attempt off the bottom of its trading range. Sharp selloff Friday from a good bounce attempt, but it was trying to hold up again Monday. Just not too successfully (81.44, -0.21). Oil pricing is struggling with the notion of a slowdown beyond Europe, but it is still holding inside its range nonetheless, and that is a signal of some strength for a continued attempt to rebound in its range.
http://investmenthouse.com/ihmedia/xoil.jpeg
TECHNICAL PICTURE
INTERNALS
Breadth. -2.6:1 NYSE, -4.7:1 NASD. Hefty downside breadth again, particularly on NASDAQ that is now looking to be a downside leader versus the upside leader it looked to be trying last week. Once more downside breadth trumps the upside, showing the downside market bias.
Volume. Declining volume, down 5% on NASDAQ and 12% on NYSE. Still strong on NYSE, coming in well above average. That shows continued distribution even though the NYSE indices were relative strength leaders in terms of price. Still share dumping ongoing, particularly in financials. Hard for SP500 to rally if the financials are under pressure, but in reality, pretty much everything was under pressure Monday. Interesting how NASDAQ volume has been lower on this last selling. That can be an indication it is getting sold out.
CHARTS
SP500. Worst 2-day stint for SP500 in 14 months. Undercut the February closing low and has just the February intraday low (1044) and the May intraday low (1040) ahead of it. Now that 1040 level is very important support as it coincides with the series of late 2009 lows that held and bounced the market in February. Beyond that it is iffy. 946 from last summer and 930ish are the next support levels. As noted over the weekend, we cannot assume this current support at 1050 will fail. It has real support here so we will see if this can hold.
NASDAQ. Driven hard lower to a new closing low in this correction. It undercut the May 6 flash crash low but is still easily above the February low (closing 2125). Maybe it is simply playing catch-up with SP500. Trying to do it in a hurry from the looks of it. NASDAQ is still in that range of key support that has held the past 10 years, but next is that February low. After that 1894 to 1855ish. Plenty of downside from here if the February low gives, but still room to catch itself before it breaks February.
SP600. Sad to see a leadership index take a dive. The small caps broke to a new correction low, undercutting the May low and the 200 day SMA, not to mention the key January peak. Still some support from September and October 2009 (323 and 329 respectively) as SP600 tries to hold the bottom of the January 2010 range. Have to see where it comes to land; with this kind of selling SP600 is still seeking its low on this move.
SOX. Chips are under some pressure as well, making a new closing low on this correction though above the May lows. SOX is right at the September and October 2009 twin peaks. Very important level for the chips as they were relative strength losers on Monday.
Overall the indices are still at important levels, not entirely destitute even after Monday. On the ropes, at the point they need to hold, and now we see if there is any gas left in the upside tank.
LEADERSHIP
Some of the recent key leaders, e.g. retail and semiconductors, are becoming relative strength laggards. What was a one-day sharp decline Friday became two with the Monday selling and started to degrade their patterns.
On the other hand health related stocks continued to improve, a definite defensive flavor to the market. Utilities were also stronger, a sure sign of defense. Didn't hurt healthcare (pharma) at all that a couple of companies announced good results with some cancer drugs.
You always see who is the strongest in a correction. If the selling is pernicious enough, however, no areas escape the selling. The market tears them down one by one until none are left. The market is working on retail and semiconductors. Some internet is still holding. They are not torn down yet, but as with the indices, they are at levels they need to start making a stand if they are going to hold their uptrends and not go the route of those stocks that crashed and need to rebuild.
THE MARKET
MARKET SENTIMENT
VIX: 36.57; +1.09. Up but not screaming higher on a nasty session, though perhaps not as nasty on SP500, DJ30. That it is not spiking, however, is another indication that the selling maybe a it overdone.
VXN: 37.29; +3.13
VXO: 35.4; +1.02
Put/Call Ratio (CBOE): 0.96; -0.01. Interesting action, i.e. remaining below 1.0 and lower on the second day of selling. Two sharp downside sessions with the ratio below 1.0, meaning more calls than puts traded. Typically the ratio tops 1.0, i.e. more puts than calls, when things are dicey. Now they are indeed apparently dicey but the ratio is lower. It was very strong just over a week back with several consecutive closes over 1.0, indeed 1.3 to 1.4. This is an indication that perhaps, just perhaps, the selling is getting overdone. Extremes are the key in all sentiment indicators. Many are turning extreme.
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: 39.8% versus 39.3. Holding rather flat after some substantial drops from 43.8%, 47.2%, and 56.0% before that. This move started at a low of 35.6% in February, the lowest it has been since July 2009. 35% is the threshold level 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: 28.4% versus 29.2%. Surprising drop, but given the market's attempt to move higher, understandable. Still a big move up from 24.7% the week before where it held for a couple of weeks. Fell to 18.7% on the low. Hit a high of 27.8% level on the prior 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: -45.27 points (-2.04%) to close at 2173.9
Volume: 2.149B (-5.03%)
Up Volume: 137.005M (+43.626M)
Down Volume: 2.067B (-173.937M)
A/D and Hi/Lo: Decliners led 4.77 to 1. 7.5:1 Friday, almost 5:1 Monday. Getting extreme.
Previous Session: Decliners led 7.47 to 1
New Highs: 12 (-6)
New Lows: 148 (+50)
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: -14.41 points (-1.35%) to close at 1050.47
NYSE Volume: 1.424B (-12.85%)
Up Volume: 218.099M (+205.651M)
Down Volume: 1.194B (-427.519M)
A/D and Hi/Lo: Decliners led 2.63 to 1
Previous Session: Decliners led 6.97 to 1
New Highs: 65 (-12)
New Lows: 123 (+42)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -115.48 points (-1.16%) to close at 9816.49
Volume DJ30: 223M shares Monday versus 256M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
No Monday bounce, at least not one that was strong enough to last. No doubt negative action and the likelihood is for more selling, but we keep looking at the sentiment (put/call ratio, VIX, breadth) as well as the hard indicators, e.g. volume that is drying up more on NASDAQ as it sells. At some point it all stacks up and delivers a reversal.
At some point. The indices are certainly at levels to be thinking about that, but so far upside has been met with selling. Even the relative strength leaders, and indeed leaders, are taking fire and are a threat to break lower. If a bounce for them is coming, it has to come soon to keep the patterns in decent enough shape for a sustained move.
We have picked up some downside on this move and banked some of that gain; comes quickly when the market sells. We also jettisoned several positions that could not hold support Monday; part of that problem with leadership stocks starting to break down. There is the risk they rebound on you, but if they are breaking support you cannot count on them recovering it in this kind of selling.
That leaves the possibility of a bounce but thus far no bounce has held. Usually when it gets to a point that everyone gives up on bounce chances they succeed. Gloom is pretty high once again and the indices are in position, so . . . we still look for some upside positions that can hold their trends and continue upside as well as those that have fallen to the bottom of the range and haven't given it up.
As for the downside we will let positions we have run. Hard to initiate new ones after this kind of tail kicking the past two sessions that has taken the indices down to the lick log. A bounce Monday without further selling would have made the possibilities more interesting. Now we see how the indices hold this support. If they break it and fail the test, that is the entry point for new downside given the important support levels.
As for Tuesday, overseas markets are actually up tonight, riding some Bernanke comments about raising US rates before employment turns around as unemployment may be 'sustained' at 'higher levels' for an extended period. Okay, the 'extended period' was my addition; if the Fed is going to take that phrase out of its statement we would like to keep it around in other areas.
The overseas action leaves us watching for those upside stocks that are still in position to hold their trends and continue higher. Want to see the indices reverse off more selling and stick the move to the close. Good volume as well. Given the failed bounces thus far any new bounce needs to show some internal strength. The sentiment indicators are getting extreme, indices are at important support. They either move here or fail, and if they fail that is not a good sign for the economy ahead.
Support and Resistance
NASDAQ: Closed at 2173.90
Resistance:
2177 is a low from March 2008
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.
2205 is the November 2009 peak 2210 (from September 2008) to 2212 (the July 2009 closing low)
The 200 day SMA at 2235
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
2292 is a low from January 2008
2319 from the September 2008 peak
2320 to 2326.28 is the January 2010 high
The 50 day EMA at 2330
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
2434 is the May 2010 high
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
2100 is the February 2010 low
S&P 500: Closed at 1050.47
Resistance:
1070 is the late September 2009 peak
1078 is the October range low
1084 to 1080 (September 2009 peak)
1101 is the October 2009 high
1106 is the September 2008 low
The 200 day SMA at 1107
1114 is the November 2009 peak
1119 is the early December intraday high
The 50 day EMA at 1130
Bottom of the January 2010 consolidation 1131 to 1136
1133 from a September 2008 intraday low
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
1040 is the May 2010 low
1020 is the bottom of the late summer 2009 consolidation
946 from June 2009
Dow: Closed at 9816.49
Resistance:
9829 is the September 2008 closing high
10,120 is the October 2009 peak
10,285 is the late December consolidation peak
The 200 day SMA at 10,302
10,365 is the late September 2008 low
10,496 is the November 2009 high
The 50 day EMA at 10,514
10,609 from the Mid-September 2008 interim low
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:
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
9774 is the May 2010 intraday low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
June 07 - Monday
Consumer Credit, April (15:00): $1.0B actual versus -$2.0B expected, -$5.4B prior (revised from $2.0B)
June 09 - Wednesday
Wholesale Inventories, April (10:00): 0.5% expected, 0.4% prior
Crude Inventories, 06/05 (10:30): -1.90M prior
June 10 - Thursday
Initial Claims, 06/05 (08:30): 450K expected, 453K prior
Continuing Claims, 06/29 (08:30): 4600K expected, 4666K prior
Trade Balance, April (08:30): -$41.2B expected, -$40.4B prior
Treasury Budget, May (14:00): $154.0B expected, $189.6B prior
June 11 - Friday
Retail Sales, May (08:30): 0.2% expected, 0.4% prior
Retail Sales ex-auto, May (08:30): 0.1% expected, 0.4% prior
Michigan Sentiment, June (09:55): 74.5 expected, 73.6 prior
Business Inventories, April (10:00): 0.5% expected, 0.4% prior
End part 1 of 3
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world stock market
us stock market
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