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money investment, day trading
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6/12/2010 Investment House Daily
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MARKET ALERTS:
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Stop alerts: None issued
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SUMMARY:
- Market tries to add to the rally ends mixed as SP500 hits the 200 day SMA and fades for the third time in as many tries.
- EU industrial production tops expectations, helping boost stocks early. Then Moody's downgrades Greece to junk and stocks fall off their bid.
- Fannie Mae/Freddie Mac 'fix' hits $160B . . . and counting. A LOT of counting.
- Third time at the 200 day SMA for SP500 the charm? Better be ready just in case it is not.
Mixed finish as SP500 again mulls the 200 day SMA.
The fear trade was again taking a back seat to the Oversold Bounce, Part 2 Monday morning with futures up, the dollar down, oil up, bonds and gold lower. Stocks overseas rallied on better than expected EU industrial production, and with the US up three of four sessions, investors bid prices up again pre-market.
Stocks gapped up pretty much across the board with solid breadth to start, suggesting more than just a relief bounce. Of course things in this market can change quickly in the volatility marking the past 5 weeks, and sure enough they did. In the early afternoon Moody's cut to the chase and downgraded Greece to Junk, skipping four interim steps in the process. Think of it as going from double dog dare to triple dog dare, skipping the triple dare along the way ('A Christmas Story'). A slight breach of etiquette, but everyone understands the gravity of the situation and the need for Moody's to catch up to the other ratings agencies so they can all be uniform, just as they were uniform about how rock solid Fannie and Freddie were ahead of the crisis.
That was enough to stymie the upside, though it just so happens that the upside move hit a brick wall with SP500 hit the 200 day SMA again, just as it did in late May and early June when those bounces stalled out and sold back to the February lows. Chicken or the egg (Greece downgrade or technical tap at the 200 day SMA)? It doesn't really matter; SP500 hit the 200 day SMA and it reversed to negative along with DJ30 and even NASDAQ 100. It doesn't mean that Oversold Bounce, Part 2 is over, but it was enough to get us to take some nice gain off the table and, as the Boy Scout motto goes, be prepared.
OTHER MARKETS.
Dollar. A bit more pressure on the greenback on the better production data out of the EU (0.8% in April, topping expectations). That set the stage for the session, and while the dollar recovered off of its session lows it never came close to retaking Friday's levels (1.2225 versus 1.2098). Still a rather normal pullback, but it did close below the 18 day EMA, something the dollar has not done since early April, and those kind of changes are always worth noting and watching to see if there is a quick recovery.
http://investmenthouse.com/ihmedia/dxy0.jpeg
Bonds. Gapped lower on the EU news but did not fare poorly, closing at 3.26% on the 10 year (3.24% Friday). That was up from the 3.30% pre-market ticker. Still a fairly normal pullback in bonds as well during this week long recovery in the European markets.
http://investmenthouse.com/ihmedia/tlt.jpeg
Gold. Gold lost ground (1223.50, -6.70), but on the low it again held the 18 day EMA and above the late 2008/early 2009 peak, the prior high before its breakout in early May. It is still bumping that below that May peak, and while some are saying it is in trouble, the action is fully consistent with just a pullback testing the former high and trying to set up for a new high.
http://investmenthouse.com/ihmedia/xgld.jpeg
Oil. Oil continues to hold its gains while it sizes up the 200 day SMA just ahead. Very respectable gains (75.12, +1.34) on the session as it continues the bounce off its range low starting four weeks back. The 200 day SMA is significant resistance, but thus far oil is acting as if it is simply testing the move off the lows, sizing up the next resistance.
http://investmenthouse.com/ihmedia/xoil.jpeg
TECHNICAL PICTURE
INTERNALS
Volume. Volume ticked higher on both NASDAQ and NYSE, but was still way, way below average. Silver lining given the intraday reversals on the indices: at least no high volume selling, and that is one thing that still keeps the Oversold Bounce, Part 2 in play until it shows otherwise.
Breadth. Was great early on the gaps higher, then as the selling started in the afternoon and accelerated in the last hour breadth finished up mediocre at best at 1.3:1 NASDAQ, 1.75:1 NYSE. Okay, not mediocre; just blah. Matched the session basically, and is not telling us anything contrary to the action, i.e. no divergences such as big breadth but no movement or vice versa.
CHARTS
SP500. This is the chart that tells the biggest story with its run to the 200 day SMA and reversal to negative. Third time in the last 2.5 weeks and at least on Monday, it was the third time it has failed at that level. Now is the lick log for the large caps: just a pause during Oversold Bounce Part 2 before a break over the 200 day SMA, or a fade back down to the February lows once more. Don't think it is going to fall back to that level just yet, i.e. still looking for a move on up to that January range. The action Monday and the two other failures at that level, however, warrant caution for another downside move. Thus we took some gain, left the SPY position on, and are looking to see what kind of downside we can give us some bang for the buck if the market stalls and sells again toward the February lows.
NASDAQ. Friday NASDAQ just managed a close over the 200 day SMA and Monday it gapped nicely higher. by the close it just managed to hang onto that Friday break; just managed, squandering a 35 point gain. NASDAQ is still below the June peak, not bumping it as is SP500. Still looks as if it has the ability to move on up to that January peak at 2325ish after testing the 200 day SMA.
SP600. Very similar action as the small caps gapped higher, rallied, then reversed to close with a most modest of gains, showing a tombstone doji on the candlestick chart. A gap lower would not be a good indication that the move was going up before it goes down and tests again. On the high it came close to the 50 day EMA but stalled out and faded. Not in terrible shape but still fighting the short downtrend from the April high, moving through it intraday Monday, but unable to hold the break.
SOX. Ho-hum, same pattern: gap higher, rally, reversal to close well off the high. Still a positive close (0.70%), but SOX hit the 50 day EMA on the high and failed. Below the prior peak in early June that touched the bottom of the January peak range. Still very much in its recent 4 week range, churning up and down below the January peak and of course the May peak in the rally off the 2009 low.
LEADERSHIP
Technology. Talking technology we are talking AAPL. It gapped higher as well and rallied, but it stalled and fell back, still below the 78% Fibonacci retracement of the April to early May selloff. Very importantly, it moved above the April gap up point but then sold back below it on the close. Last week it bounced up off the point where it gapped higher. Definitely important areas and it is trading inside right now. A break from either one is key and will like take a lot of techs with it.
Healthcare. Down just a bit on Monday, but still overall in very good shape. As noted over the weekend, a defensive sector that has garnered money the past several weeks as ILMN, HNT, etc. attest. A pullback could very well be a decent entry point.
Energy. Bounced the past couple of weeks but now is the lick log. Look at HAL: a gap lower a couple of weeks back and then a steady recovery to the 18 day EMA Friday and Monday, tapping at the upper gap point both sessions. Primed for the downside? Could be.
Financials. Not looking great with many big names down on Monday, e.g. GS, JPM, MS. Down but not out as they are for the most part holding support as well, but unlike the rest of the market some of the big names did not bounce much on this last move. Again, the SP500 has a hard time moving without the financials pitching in.
THE ECONOMY
Fannie and Freddie are going to cost us a so much more than the 1980's savings and loan meltdown.
Fannie and Freddie, the holders of the bulk of the nation's mortgages and now owned by (and burdening) US citizens. Well, we say citizens, but all they do is foot the bill; any profits go to the two entities and if they do repay any loaned money it will go to the federal government and be spent on some new entitlement or otherwise wasted.
Recall that they both received 'unlimited' backing from the feds, a carve out from the TARP because they are, in the words of the Administration, so important to the nation and given the problems we still face, the world. As professor Shiller (of the Case/Shiller home price index) said today, they cannot go under. If they do the ramifications will ripple across the globe and send many economies lower.
Of course this was not a problem. Congressman Barney Frank is on tape saying that FRE and FNM were totally fine and in no danger. There is also recent tape about a month old where he forgets he said that, saying that he, himself, all along was warning of the problems. Maybe he was doing it in private; there is no video of any warnings.
This 'non-problem' has already cost US citizens $145B. That is more than AIG, GM, and Citigroup, all of which are currently repaying their loans. How much will it ultimately cost us given the 'unlimited' funds being made available? In August 2009 the Congressional Budget Office estimated $389B. The White House in February said, 'no, no, no,' just $160B. If housing, as some of the sharper minds are predicting, drops another 20%, however, the number balloons to $1T. That is the worst case scenario estimate, but as some trusted industry experts say, that would be a "totally reasonable" estimate of the potential damage.
Even if it doesn't get to that point, and we can only hope it does not (another one of the 'how the hell can we pay for that?' issues; simple: we cannot), FNM and FRE are going to be hard-pressed to make any money back. They are supposed to pay the US citizens a 10% dividend on the money loaned, but they are already $14.5B in arrears on that and not making any income. Indeed what they owe in a dividend on what has already been loaned is more than they made in their most profitable years . . . ever. They had to sell $1.4T of junk to the Fed since 9-2008 to make their balance sheets palatable to the rest of the world.
They are basically operating solely to keep up appearances and not look as if our housing market is still on the edge and could tumble again, setting off another round of panic. If the US is not a safe place to invest, then nowhere is. Just look at how our bonds have performed, rallying when they should be selling, all caused by the fear trade.
Odds of the 'worst case scenario': Things getting worse.
As of March 2009 borrowers were in arrears of $338.4B, up from $206.1B a year earlier. Loans over 3 months past due are up to 9.6%, rising every quarter for more than a year. Delinquencies are likely to rise. Mortgages where owners owe more than 90% of the property value total $402B. As banks are mandated to rewrite loans, the two entities go further into the hole. 600K loans have been modified and 300K refinanced, often for greater than the houses are worth.
Again, the government is using these entities to buy time, hoping the country and economy can grow out of this hole as it has managed to do in other recessions. I hate to say this time things are different, but with these numbers, FNM and FRE will NEVER make the money to pay it back. It will take massive growth to overcome this problem, and this is just ONE of the problems we face in terms of spending money we don't have. Medicare, Social Security, the new healthcare bill, cap and trade are all going to siphon trillions of dollars we don't have.
Right now the 'programs' to rewrite and refinance are simply a diversion, an attempt to show Europe, the rest of the world, and particularly China that we are 'doing what is necessary' to solve the problem. In reality we are kicking the can down the road and praying, though you are not supposed to do that in government apparently. That is a whole other issue we have messed up, but tonight let's just take on FRE and FNM. And cry.
THE MARKET
MARKET SENTIMENT
VIX: 28.58; -0.21
VXN: 28.94; +0.14
VXO: 27.98; +0.08
Put/Call Ratio (CBOE): 1.1; +0.02
Bulls versus Bears:
This past week the bearish number of investment advisors topped bullish advisors. That is a rare event and thus very noteworthy. It falls into our theme that the sentiment indicators have hit extremes and are at levels sufficient for at least a more sustained bounce in the indices.
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: 38.5%. Falling as the last rally attempt failed, down from 39.8% the prior week. Down substantially 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: 39.9%. Huge spike from 28.4% shows a rare crossover as bears top bulls. It continues a sharp rise 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: +0.36 points (+0.02%) to close at 2243.96
Volume: 1.841B (+3.44%)
Up Volume: 942.49M (-596.682M)
Down Volume: 909.13M (+687.823M)
A/D and Hi/Lo: Advancers led 1.27 to 1
Previous Session: Advancers led 2.53 to 1
New Highs: 55 (+14)
New Lows: 32 (-6)
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: -1.97 points (-0.18%) to close at 1089.63
NYSE Volume: 1.14B (+9.48%)
Up Volume: 573.128M (-122.423M)
Down Volume: 507.279M (+172.671M)
A/D and Hi/Lo: Advancers led 1.75 to 1
Previous Session: Advancers led 2.66 to 1
New Highs: 98 (+14)
New Lows: 25 (-14)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -20.18 points (-0.2%) to close at 10190.89
Volume DJ30: 178M shares Monday versus 188M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
The afternoon action and the patterns on the close for SP500 and DJ30 were not that encouraging as those and indeed all of the indices pretty much stalled at resistance and faded. Thus it behooves us to be ready for a pullback once again. That means we look at some downside plays and watch for positions that cannot hold key support.
That said we still like the look of NASDAQ and there is still upside potential as the indices held support again and rallied, showing that improved traction noted over the weekend. After all the negatives and the somewhat extreme sentiment there is some traction and there is also some leadership stepping up. Not waves of stocks lining up, but some definitely good stocks in some pretty solid patterns. Indeed, we picked up some partial upside positions Monday as they held early moves upside.
Once again the indices are at an important level and will be tested yet once again. The market will do what it wants regardless of what anyone thinks, but even with the setback Monday, it still looks to us as if the indices are in position to continue the move back up.
Support and Resistance
NASDAQ: Closed at 2243.96
Resistance:
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 2308
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:
The 200 day SMA at 2240
2205 is the November 2009 peak 2210 (from September 2008) to 2212 (the July 2009 closing low)
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 1089.63
Resistance:
1101 is the October 2009 high
1106 is the September 2008 low
The 200 day SMA at 1108
1114 is the November 2009 peak
1119 is the early December intraday high
The 50 day EMA at 1120
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:
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 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 10,190.89
Resistance:
10,285 is the late December consolidation peak
The 200 day SMA at 10,317
10,365 is the late September 2008 low
The 50 day EMA at 10,437
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:
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
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 15 - Tuesday
Export Prices ex-ag., May (08:30): 1.4% prior
Import Prices ex-oil, May (08:30): 0.5% prior
Empire Manufacturing, June (08:30): 20.0 expected, 19.11 prior
Net Long-Term TIC Fl, April (09:00): $140.5B prior
June 16 - Wednesday
Housing Starts, May (08:30): 655K expected, 672K prior
Building Permits, May (08:30): 631K expected, 610K prior
PPI, May (08:30): -0.5% expected, -0.1% prior
Core PPI, May (08:30): 0.1% expected, 0.2% prior
Capacity Utilization, May (09:15): 74.4% expected, 73.7% prior
Industrial Production, May (09:15): 0.8% expected, 0.8% prior
Crude Inventories, 06/12 (10:30): -1.83M prior
June 17 - Thursday
Initial Claims, 06/12 (08:30): 450K expected, 452K prior
Continuing Claims, 06/5 (08:30): 4475K expected, 4462K prior
CPI, May (08:30): -0.1% expected, -0.1% prior
Core CPI, May (08:30): 0.1% expected, 0.0% prior
Current Account Bala, Q1 (08:30): -$124.0B expected, -$115.6B prior
Leading Indicators, May (10:00): 0.5% expected, -0.1% prior
Philadelphia Fed, June (10:00): 20.0 expected, 21.4 prior
End part 2 of 3
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