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money investment, financial investment
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6/09/2010 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: ARO; OSIS
Trailing stops: None issued
Stop alerts: CME
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SUMMARY:
- Market ED: Stocks extend the Tuesday reversal, but again have a hard time keeping it up.
- China export news rallied markets across the globe for a bit.
- Bernanke has Fed ready to do what is necessary to stave off EU debt related issues. What, print more money and get our debt to GDP equal to Greece now?
- Bernanke says gold is not sending an inflation signal. Seems I recall Greenspan saying an inverted bond curve was not signaling a recession as well . . .
- Mortgage applications fall to 13 year low
- Yes market is oversold but even so the bids are not sustained, leaving the market struggling to hold the key support.
Stocks wake up Wednesday raring to go, but cannot perform in the afternoon.
Stocks reversed intraday Tuesday at key support and once again, yes again, looked ready to bounce further after the selloff through May and now early June left the indices very much oversold. Some stories out of China that its exports rose over 50% helped stoke the optimism as investors figured if more cheap China goods were being purchased then the rest of the world economies had to be improving. Texas Instruments held its mid-quarter update and raised the midpoint of its guidance, indeed expressing some Cisco-esque optimism.
More than enough to get stocks up hard early. Wholesale inventories were not a flop and Bernanke, talking the House Budget Committee, said the Fed was ready to handle any contagion from the EU debt crisis. Stocks rallied through lunch with all indices posting solid gains. Then they hit the 10 day EMA and that was it. Perhaps the dollar's recovery off its early weakness was the catalyst. Pick your reason, but once again stocks lost their drive and frittered away gains into the close, indeed closing negative with 0.5% to almost 1% losses (NASDAQ 100) with only SP600, indeed an important index, holding a 0.11% gain. Again, the bids dwindled. Lack of volume on NASDAQ or rising volume on the NYSE? Or was it just a continuing theme about worry regarding the US' economic future? That is all still playing out, leaving the indices at support but fighting just to hang onto it.
OTHER MARKETS.
Dollar. The dollar slipped slightly (1.1989 versus 1.1946), but it was up to 1.2028 and more on the China export news. The greenback showed its strength again, however, bouncing off near support at the 10 day EMA, and though it posted a loss, this modest pullback after hitting the prior peaks from 2008 and 2009 is very healthy action. There is no indication the dollar is going to selloff EVEN with Bernanke indicating the US is ready to print more money to fight off any EU debt issues. The irony of that is thick as we would, of course, be exacerbating our debt issues in so doing. That shows you how bad things are in Europe.
http://investmenthouse.com/ihmedia/dxy0.jpeg
Bonds. As discussed in the Economy section, Bernanke may believe there is no inflation coming but bonds disagree to a certain extent. Now if there was inflation coming bonds should be selling. Right now they are rising back up, even after the China affirmation of the EU debt that sent US bonds lower: if the EU economies are okay then US bonds are less needed as a safe haven and inflation may be an issue with all of that demand robust economies create (if you believe the Phillips Curve that, unfortunately, a lot of Fed heads do). But then why are the TIPS, the US Treasuries that account for inflation, holding support after a consolidation and starting to rise again? They rise when there is an inflation threat because that is what they are designed to do: you can own bonds in an inflationary environment and make money with these. It just so happens that regular bonds are rising because of fear while TIPS are rising because of inflation concerns. A two-fer.
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Gold. Gold was down on the day, falling back after hitting an all-time high Tuesday (1230.20, -15.40). A double top as one analyst called it? Always a possibility, but there is no reason for gold to fall. How can that be when on Wednesday Bernanke said gold was out of step with every other commodity? He is partly right: gold is in part rising, at least in recent moves, due to fear, namely fear the EU will go under and take everything else, including the US, lower. That was shown last week when the Hungary news hit and scared investors around the world that the contagion was occurring: gold rose on the news when it had been falling when there was a fear of deflation.
To see the rest of this discussion, go the 'The Economy' section.
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Oil. Oil continued its bounce off the bottom of its range, reinforcing that higher low after the Friday plunge (74.38, +2.39). It is hurricane season so there is a bit of premium built in thanks to the fairly outrageous predictions by the national hurricane agency. We cannot predict the weather in two days hence yet we think we know the extent of global warming and its cause, as well as think we can predict how many and how strong hurricanes will be. Maybe I am full of bunk and flirting with the fates, but that is a bit of a stretch to me. Anyway, oil is primed for a bounce and it looks to be starting back upside. DIG anyone?
http://investmenthouse.com/ihmedia/xoil.jpeg
TECHNICAL PICTURE
INTERNALS
Volume. Volume fell back below average on NASDAQ as it tried to rally but failed. Perhaps not enough trade to drive and hold the gains; at least it did not reverse on high volume. Still, upside volume is lacking on the techs and that makes it hard to hold the gains. NYSE trade numbers are conflicting after hours. Some show trade rising 3% to 1.7B, others show it falling to 1.5B. Either way trade remains easily above average as the NYSE indices fight at key support levels. The battle is still rather pitched on NYSE with no decision yet, though the bias remains down given the indices' inability to hold any bounce.
Breadth. Mediocre given the reversal at -1.1:1 NASDAQ and +1.1:1 NYSE. Doesn't tell us much other than indecision as the indices again failed a bounce. That in itself, however, says quite a bit.
CHARTS
Tuesday's reversal started the clock on a follow through countdown. While the Wednesday action did not obviate the new rally attempt, it did it no favors. The surge and reversal is not bullish. Still, the indices have Thursday to play with, i.e. they can do nothing, and as long as they don't undercut the Tuesday low the chances for a follow through session (another strong session that shows the buyers are coming back in after that initial surge upside) are still on the table. Not saying it will happen, but it is still on the table.
SP500. Rallied to the 10 day EMA and other resistance at 1078 and reversed. Oh sure it wasn't routed, but it was the thought that counts: unable to hold yet another rally attempt and now back at the February lows having to grunt it out and try to find bottom once again. At some point you wear that bottom out and it gives way. Not good action for the bulls even if the index is still above the February low.
NASDAQ. NASDAQ also rallied toward the 10 day EMA and just missed it. Didn't matter as it reversed for a loss as well, indeed posting a new closing low on this selling. Still above the February low (2125) but as with SP500, it is hardly a good story for the bulls. Important support continues to hold more or less, but even as oversold as the index is, it cannot hold a bounce. It is down four straight sessions as the Tuesday reversal didn't stick positive on the close. Not promising, but at this juncture kind of hard to short without a bigger bounce that fails or a breakdown that undercuts support, tests, and then rolls over again. Same for SP500 for that matter.
SP600. Rallied as well, gave just about all of it back. Oh sure it was up 0.11% but it lost all its upside and a move back above the 200 day SMA. It is also just below the bottom of the January range and the February small consolidation. Key index to watch: the small caps are the harbinger of the economy. How they hold or fold here tells us plenty about the economic future.
SOX. Trying to hold but also slipping to a new closing low on this selling. This even with TXN's somewhat optimistic mid-quarter update. Semiconductors are at the lick log in terms of long term support. If they hold they show strength and hope for the economy. If they don't they sell to the February low.
LEADERSHIP
Retail was again showing some leadership, more with relative strength than anything else. Same with energy given oil is rebounding in its range. Also some healthcare continues to look solid for a break higher, and those are represented on the report.
Outside of that the ranks of leadership is thinning as noted. Semiconductors are losing their battle. Metals are trying to hang on but they are in the same gain as the indices, i.e. trying to hold the bottom of their ranges. Lots of work needs to be done, and as noted Tuesday, leadership is the key element of a market. If there are not enough leaders in position to lead, rallies tend to die out. But for goodness sake, we are not looking for a new rally to move to a new rally high, just an oversold bounce, and that is damn hard to come buy.
THE ECONOMY
So it's different with gold this time, eh? (continued from the 'gold' discussion above).
But on Wednesday Bernanke steadfastly told Congress that gold was rising for some other reason, one he could not pinpoint at this juncture. It reminded me of Greenspan's last few months when he had the Fed hiking rates even as the bond yield curve inverted. Greenspan's reasoning: the inversion was different this time, caused by foreign investment in the safety of the US, not the potential of a weaker US economy, as has been the case in every prior inversion. And as it turns out, it was the case in THAT inversion as well. Greenspan was wrong: it, once again, was NOT different that time. The economy ended up in the toilet.
So are we to believe another Fed chairman saying that historical truisms are 'different this time?' In other words, Bernanke says gold is rising not because of a hedge against inflation but for some other unknown reason. What is more likely? Every watch 'Contact?' The concept of Occam's Razor is discussed, loosely explained as meaning the most logical and simple explanation is usually the correct one. Thus do you believe some unknown reason is causing gold to rise or that the time-proven reason, inflation fears, is the motivation? In the 2000's gold's rise was explained away as China and India consumption as their population's became wealthy. No, it turned out to be inflationary policies spawned by overly loose Greenspan and other central bank money as rates were kept much too low for much too long. It took a housing bubble and the subsequent collapse in the financial industry to fight off inflation. The irony: it likely only deferred it because that forced Bernanke to continue the same easy money policies.
Heavy stuff, but not that hard to fathom, UNLESS you listen to the government 'experts' as they try to confuse the issue and lead you astray so they can print more and more money in order to pay for socialist policies, and ironically, to bailout the socialists in Europe when their economies collapse.
The ultimate irony: we are going to have to do exactly what they did to try and prevent our collapse (after all we have socialized medicine coming, a socialized financial industry coming, socialized school loans, etc.), and with no ammunition left to fight a slowdown other than printing money, how indeed is that going to work? Our debt to GDP ratio is 90% right now, rising much faster than anticipated. It was thought in another 5 to 10 years we would be in Greece's shoes. It looks as if that was wishful thinking. It could be 2 years at this rate. At that point will our bonds look so safe? Sure we are not Greece; we have always had the ability to grow our way out of holes. Now, however, we have such a massive federal government with private wages only making up 42% of those paid, another 1/6 of our economy going public (healthcare), and more to turn that direction if our government gets its way, our ability to grow out of trouble and rescue the rest of the world is greatly diminished. We could very well be just a bigger, more massive Greece that wrecks the entire western world economy. Comforting.
Mortgage applications continue falling like stones.
Seems every week a new record in declines in mortgage applications hits. Wednesday it was reported applications fell 12.2% to levels not seen since February 1997. The first time buyer's credit looks to have pushed sales, leaving no one interested in the wake of its expiration.
If ever there was an example of how government policies that don't set up the environment for growth fail, this is it. This incentive did nothing but try to hold up a market that had to fall. Housing was artificially supported for too long. It was bolstered by 9-11 and never faded when it should have. Then when the Fed stimulated the economy further, the President and Congress made it policy to try and get 100% home ownership, and the Fed also kept rates at 1% for years, housing never corrected even when the economy faltered.
Then when the financial crisis hit, and the culprit being crap for mortgages banks were holding, the government felt it could not let the mortgages fail because then all the banks would fail for lack of any real assets. Thus the attempt to artificially keep prices up. Now that the credit is gone there are no buyers. They figure the government will bring it back just as automakers continue to bring back incentives. The government probably will bring it back given the hideous numbers, but it won't cure the problem. There is no reason for home prices to rise. Thus no matter how long there is a credit, prices won't rise, they will just muddle along. That is what the 1930's and the 1970's taught us, but no one is listening. They just want to make the same mistakes and throw money at it.
The market needs to find a bottom on its own. Maybe it will without the credit, but as noted, lawmakers would panic and extend the credit just as they have extended everything whether it be jobless benefits, medical coverage, citizenship, etc. When you know your uncle will always ultimately give in and fund your indiscretions, why change?
THE MARKET
MARKET SENTIMENT
VIX: 33.73; +0.03
VXN: 34.82; -0.4
VXO: 33.32; +1.31
Put/Call Ratio (CBOE): 1.06; -0.1. After two days of selling that saw the ratio dip below the key 1.0 level, it has put up two sessions above 1.0 again. They are still piling up, still getting more extreme, and that is typically a good indication for a bounce. Not sufficient in itself anymore (used to be a very reliable indicator), but it is part of the puzzle.
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: -11.72 points (-0.54%) to close at 2158.85
Volume: 2.21B (-14.4%)
Up Volume: 900.825M (-82.604M)
Down Volume: 1.343B (-310.395M)
A/D and Hi/Lo: Decliners led 1.1 to 1
Previous Session: Decliners led 1.46 to 1
New Highs: 14 (+6)
New Lows: 129 (-58)
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: -6.31 points (-0.59%) to close at 1055.69
NYSE Volume: 1.699B (+3.22%)
Up Volume: 832.343M (-406.344M)
Down Volume: 847.618M (+451.241M)
A/D and Hi/Lo: Advancers led 1.09 to 1
Previous Session: Advancers led 1.5 to 1
New Highs: 80 (+10)
New Lows: 65 (-93)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -40.73 points (-0.41%) to close at 9899.25
Volume DJ30: 223M shares Wednesday versus 259M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Initial jobless claims (450K expected; why not? That is where they have been for weeks) and the trade balance (likely to be worse given the dollar strength). Jobs are important; look at what 500K jobs did for the market last week: massive selloff. After some hope a few months back that jobless claims would fall below 400K, forget it.
The market finds itself in, sadly, familiar territory, at least for the bulls. For the bears as well, at least if you are looking to expand your downside positions. The market remains oversold and at support. You want to see a bounce of some significance in order to initiate more shorts, or a breakdown through support and a failed test. Those are not going to happen tomorrow, though they could over the next several sessions. That still leaves us waiting on those as we let our current positions ride.
There are stocks bucking the trend and still in position to move higher and not just an oversold bounce but a position of strength. As long as those are present and the indices are holding key support then we can pick up a few positions here and there and ride them higher if the market cooperates.
Have to be patient right now and let the plays come to us. With the indices bouncing around all over the place at this support, we need to see how they fare and whether they can sustain a bounce (not so far, eh?) or if they give it up. We are fairly light in positions so if presented with opportunity we will take it, but we have to know that right now the market is at a near term inflection point given this bouncing around support, and it is going to have to break it or bounce off of it to get some serious near term direction. As it has done neither yet, that keeps us lighter in the plays and looking at just a few possibilities upside and maybe a few downside that are set up individually.
Support and Resistance
NASDAQ: Closed at 2158.85
Resistance:
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
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 10 day EMA at 2218
The 200 day SMA at 2237
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
The 50 day EMA at 2317
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
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:
2155 is the March 2008 intraday low
2100 is the February 2010 low
S&P 500: Closed at 1055.69
Resistance:
1070 is the late September 2009 peak
The 10 day EMA at 1075
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 1124
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 9899.25
Resistance:
10,120 is the October 2009 peak
10,285 is the late December consolidation peak
The 200 day SMA at 10,307
10,365 is the late September 2008 low
The 50 day EMA at 10,468
10,496 is the November 2009 high
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:
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
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): 0.4% actual versus 0.5% expected, 0.7% prior (revised from 0.4%)
Crude Inventories, 06/05 (10:30): -1.83M actual versus -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): -$41.3B expected, -$40.4B prior
Treasury Budget, May (14:00): $142.0B 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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money investment
financial investment
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