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money investment, investment help
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6/21/10 Investment House Alerts
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MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: WHR
Trailing stops: None issued
Stop alerts: ANN; JMBA
I again want to thank everyone for their thoughts and prayers, and I want to ask one more time for some prayers tonight as my brother is undergoing rather serious brain surgery to alleviate the symptoms of a stroke suffered on Thursday. My family appreciates your patience during this time and your kind words and prayers.
SUMMARY:
- Last week's setup gaps stocks upside, but the bottom of the SP500 January peak stalls the move and stocks close negative.
- China's handling of its currency prompts a rally, but US investors have second thoughts.
- China trying to manipulate its holdings, gold?
- January peak showing it is indeed some resistance. The 200 day SMA held, however, so will there be a second try?
Nice setup for the upside gets a jumpstart, but market reverts to its old ways and cannot hold the gain.
Last week SP500 broke over the 200 day SMA, moved laterally to end the week, setting up for the run to the January high. Monday futures were up sharply and it looked as if that move, the Oversold Bounce Part 2, was ready for the run.
Catalysts? China announced ahead of the upcoming G20 meeting it was allowing more float of its currency versus the dollar. Some said this was an affirmation of the world economic recovery and that ginned up the excitement among the buyers.
Was that a correct interpretation? Dubious. In addition to its dollars, China holds a lot of euro and EU bonds. When they were under a LOT of pressure over the past 4 months, China couldn't take it. It came out and in May stated it had full faith and confidence the euro and ECB bonds. That bolstered those issues and somewhat blunted the steady decline in the euro.
The point: China protects its investments the same as Warren Buffett. Despite his appearance as a kindly old grandfather, Buffett never uttered a word that did not benefit his investments. China must have got the Chinese version of Buffett's book because it is doing the same thing in protecting its investments, speaking up whenever it feels they are getting a bit beaten down and a bit risky.
Thus is it any surprise that China comes out a week before the G20 and does what all other countries were after it to do at the last G20, namely let its currency float more against the dollar. China is accomplishing a few goals at once, primarily avoiding losing any face at the summit AND helping out its investments.
It seems US investors figured this out as the session wore on. After gapping higher stocks peaked in the first half hour and then spent the rest of the session selling back. They really started to tumble in the last hour and one-half, not only giving up the gains but turning negative. Could it also have been the realization that a floating yuan means US inflation rates floating higher . . . immediately? No doubt that was mixed into the action as well.
In the end stocks finished negative with SP500 failing at the bottom of the January peak range. It did test and hold the 200 day SMA on the low, so the break higher over the 200 day SMA last week and the lateral, quiet move remains in place. The action, however, is not what you look for when looking at a bigger move higher, i.e. that gap, surge, and then reversal to negative. The sellers came in at the first hint of the January high. It may not have sunk the rally at the bottom of SP500's January peak range, but that will play out as SP500 tests the 200 day SMA again.
OTHER MARKETS.
Dollar. The dollar performed surprisingly well on the Chinese news. After a two week pullback the dollar gapped lower to the 50 day EMA. It held that point and reversed for a gain (1.2323 versus 1.2388) on the session. After that breakout in early May and solid run up the 10 day EMA to the 2008 and 2009 peaks, it made a deeper test. Technically it looks ready to continue the run higher. The gain kind of flies against the notion of inflation thanks to the yuan, but there will be inflation, at least with respect to Chinese goods.
http://investmenthouse.com/ihmedia/dxy0.jpeg
Bonds. Again bonds are holding their own, losing a bit of ground but recovering from the session low to cut the losses (3.25% versus 3.22% Friday) but closing well off the pre-market levels at 3.30% on the 10 year. Bonds sell on inflation worries, and there were definitely worries in the pre-market. But as the session wore on and stocks recovered, so did bonds. They are holding in their month long range for now.
http://investmenthouse.com/ihmedia/tlt.jpeg
Gold. After breaking to a new high Thursday and Friday gold was jolted Monday by the Chinese announcement (1236.90, -25.40). As noted, many viewed the Chinese story as an affirmation of the world economies in recovery. That took some of the fear trade off the table and that is likely why gold fell. Gold is an inflation hedge, however, and thus you would expect it to rise. As with the other markets, however, it was lower on the session. Investors are not totally buying into that story, but short term they can be had.
http://investmenthouse.com/ihmedia/xgld.jpeg
Oil. Oil prices continued to rise, gapping higher on the news after that short pullback to end last week. Oil did not hold all of the gains but it did close higher (78.61, +1.43), continuing upside in its range. World economies purportedly better according to China and thus a stronger price for oil is warranted. Other commodities rose as well, but they also closed off of their high as well so it was not a complete affirmation of strong economies to come though it was certainly good enough for Monday.
http://investmenthouse.com/ihmedia/xoil.jpeg
TECHNICAL PICTURE
INTERNALS
Volume. Volume remained light overall. After spiking higher on NYSE to just over average Friday, it was back down well below average Monday, falling 40%. NASDAQ trade was down again, still well below average in a rather low volume bounce. That means it is still an oversold bounce, and the action of SP500 and NASDAQ around their January peaks Monday shows the move is still to be classified as just a bounce.
Breadth. -2:1 NASDAQ, -1.3:1 NYSE. Indices gave up their gains and closed flat with NASDAQ leading the downside. Thus it was fitting its -2:1 breadth lead the market.
CHARTS
SP500. As discussed the large caps gapped higher and rallied right to the bottom of the January range. Stalled and waffled. Then in the afternoon the sellers took over and drove it down below the 200 day SMA it broke and held last week. It managed to recover that level, and for now that keeps it in the lateral move, but it is clear the sellers were ready to pounce as the January lows were tapped. Those are those bears trying to play a head and shoulders pattern. How SP500 responds here is key for the oversold bounce and whether it can remain viable.
NASDAQ. NASDAQ was closer to the January peak and it gapped over that level to start the trade. Didn't last, however, not at all. That was the high and it fell back below that level and kept selling into the close. It too managed a modest bounce but it was only a modest bounce off the lows. This gap was met with sellers as well, and now NASDAQ as well as SP500 have to regroup and try the January highs again.
SP600. Tapped the bottom of its next resistance as well, the March consolidation. The small caps also fell back from that level, managing to hold the 18 day EMA on the close. That keeps the small caps in their lateral test as well; one step at a time.
SOX. Similar action, gapping higher and then reversing to close lower with a 0.85% loss. Still in its lateral range as well and though it sold, still in the range of the January high.
LEADERSHIP
All of the areas that have been leading were up Monday, e.g. semiconductors, retail, metals and other commodities, industrials . . . until the reversal. Then everything gave it up including some retailers such as ANN. Metals such as MTL gapped and reversed. Common theme throughout the market, but outside a few exceptions, even though the day was a sharp downside one, for the most part they did not break up their patterns of late.
THE ECONOMY
Our government wants China to float its currency. Why?
I have talked about this for several years each time the US gets to demanding that China float its currency. China pegs the yuan to the dollar, so its value rises and falls with the dollar. Thus we can readily afford Chinese goods because there is never any disparity in the ratio between them.
When the yuan is allowed to float to its natural level, however, it will rise. That means each dollar buys fewer products because they are at a higher price. That means as soon as the yuan rises against the dollar the price of all of those Chinese products starts to rise. Overnight.
Now you might wonder why our federal government would want to raise your cost of living. The answer: it wants to inflate its way out of its debts, whether trade or budget. With the yuan higher versus the dollar, the dollar is worth less and thus we effectively pay our debt back with cheaper dollars. There is an old adage: pay off your debts in times of inflation as dollars are less dear. If the US prints more money and the money circulating is worth less, we can pay our way back with cheaper money, and then when the inflation cycle is over our money is then worth more if we want to go buy more stuff or programs.
It is an old trick and one that we are trying again. Of course we have massive amounts of debt and as with Greece and other EU nations, there comes a point where the currency is too weak and debts too great, so much so no one wants any part of your instruments.
Will floating the yuan make the US more competitive with China? That is the hope, i.e. US goods can start looking cheaper to Chinese consumers, in theory boosting our exports. Then we further help the trade deficit. Last time this happened: Japan and the yen. A notable impact on a notable industry: autos. After the yen was floated versus the dollar, Toyota became the dominant power, even surpassing GMC in the US. More competitive? Didn't seem to help did it?
THE MARKET
MARKET SENTIMENT
VIX: 24.88; +0.93
VXN: 25.57; +1.42
VXO: 23.43; +0.9
Put/Call Ratio (CBOE): 0.93; +0.05
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: 37.0% versus 38.5%. Still falling even as the market tries to find footing, not an unusual occurrence. A steady slide and 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: 32.6%. Continuing its steady climb as the 39.9% from last week was revised lower to roughly 31.5%, so no crossover yet with bears topping bulls, but still approaching that rather rare occurrence. Solid rise from the mid to upper 20's. 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: -20.71 points (-0.9%) to close at 2289.09
Volume: 1.896B (-1.81%)
Up Volume: 492.491M (+492.49M)
Down Volume: 1.381B (+1.381B)
A/D and Hi/Lo: Decliners led 2.01 to 1
Previous Session: Advancers led 1.2 to 1
New Highs: 77 (+21)
New Lows: 49 (+19)
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: -4.31 points (-0.39%) to close at 1113.2
NYSE Volume: 1.067B (-39.55%)
Up Volume: 461.378M (-488.845M)
Down Volume: 599.651M (-152.393M)
A/D and Hi/Lo: Decliners led 1.29 to 1
Previous Session: Advancers led 1.32 to 1
New Highs: 148 (+45)
New Lows: 30 (-10)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Stats: -8.23 points (-0.08%) to close at 10442.41
Volume DJ30: 165M shares Monday versus 338M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Okay so the sellers came in as SP500 and NASDAQ started working on their January peaks. We were looking for a run to the January range and as soon as they go there the sellers flexed a bit.
The sellers might ultimately win out here and stall the oversold bounce, but given the setup to this point we would not be surprised to see the buyers come back in once again and try to drive the indices into the January peak. Reversals don't typically happen with a knifepoint, so we watch to see if the 200 day SMA holds and can bounce the indices back up for a further run.
We still see many good stocks in position to move up. We have to see if they can shake off the sellers from Monday that used the strong early moves to sell into. The action at the January peaks, however, tells us that the upside is getting challenged and thus the January peak, if reached on SP500, may very well be the peak. If so we don't want to load up with too many more upside positions, but instead let our current ones ride higher as the market tries to take the January peak with another try. If it cannot do it then we take what gain we can off the table and protect the other upside with good stops. Of course that also means looking at some downside plays if the January peaks prove to be an impasse.
Support and Resistance
NASDAQ: Closed at 2289.09
Resistance:
2292 is a low from January 2008
The 50 day EMA at 2307
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:
2273 to 2282 marks bottom of January 2010 lateral peak
2275 - 2278 from the February 2008 and April 2008 lows
The 200 day SMA at 2247
2245 from July 2008 through 2260 from late 2005.
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 1113.20
Resistance:
1119 is the early December intraday high
The 50 day EMA at 1119
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:
1114 is the November 2009 peak
The 200 day SMA at 1111
1106 is the September 2008 low
1101 is the October 2009 high
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 10,442.41
Resistance:
The 50 day EMA at 10,436
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:
10,365 is the late September 2008 low
The 200 day SMA at 10,341
10,285 is the late December consolidation peak
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 22 - Tuesday
Existing Home Sales, May (10:00): 6.10M expected, 5.77M prior
FHFA Housing Price I, April (10:00): 0.3% prior
June 23 - Wednesday
New Home Sales, May (10:00): 427K expected, 504K prior
Crude Inventories, 06/19 (10:30): 1.69M prior
FOMC Rate Decision, June 23 (14:15): 0.25% expected, 0.25% prior
June 24 - Thursday
Durable Orders, May (08:30): -1.4% expected, 2.8% prior
Durable Orders ex Transportation, May (08:30): 1.25% expected, -1.1% prior
Initial Jobless Claims, 06/19 (08:30): 458K expected, 472K prior
Continuing Claims, 06/19 (08:30): 4580K expected, 4571K prior
June 25 - Friday
GDP - Third Estimate, Q1 (08:30): 3.0% expected, 3.0% prior
GDP Deflator, Q1 (08:30): 1.0% expected, 1.0% prior
University of Michigan Sentiment, June (09:55): 75.5 expected, 75.5 prior
End part 1 of 3
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