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world stock market, us stock market
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12/15/04 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Wednesday: INOD
Buy alerts issued: PKI; CPRT
Trailing stops issued: DGX
Stop alerts issued: VION; HLEX
SUMMARY:
- More of the same as volume jumps but stocks can only creep higher.
- New York PMI surges but given its volatility no one really cared.
- Oil rallies $2/bbl on colder weather, failure to build heating oil inventories.
- Foreign investment shifting some near term, Bush opines as to reason for Fed rate hike.
- Stocks drift higher again as rally takes baby steps, keeps caution flags out.
- Quiet action may give way to volatility approaching Friday expiration.
Oil rise puts a lid on stock gains.
Stocks started higher, posting modest (repeat modest) gains in the first hour. Then the oil inventory data hit, showing distillates flat versus the 1M bbl build expected. That sparked oil futures buying, and oil rallied almost $2 following the report. Stocks stumbled on the news and continued to struggle as oil continued to climb. Once more stocks show they are still tied to oil prices, and tied much closer than you would think.
Stocks sold into lunch, managing a modest rebound in the afternoon when oil trading ended. It was still a struggle despite the afternoon rebound. There was no surge, just a slow drift higher. Small caps were the exception, performing quite well along with mid-caps, posting 0.7% and 0.6% gains respectively. That was welcome to see after they had lagged of late. Maybe they will take the lead and the large caps will follow, but the rest of the market will have to get in line with them. Once more we see decent gains in one part of the market but mediocre action elsewhere.
Volume was up once more, putting in a strong showing early on. You always like to see gains on high volume, but the large cap indexes posted quite modest upside given the volume as both NASDAQ and NYSE turned in some very strong trade. High volume, low point ranges can be good or they can be bad. Good if they occur at the bottom of a base or pullback; bad if they occur after a run higher. The latter indicates investors playing hot potato with stocks, passing them to new buyers trying to get in and chase a move. You hear a lot on the financial channels about fund managers 'chasing performance' into year end, and churning is a sign of this as those getting out sell to those trying to get in on the move; it has a tendency to pump up volume and it is not a great sign.
Friday is also expiration Friday, and thus some of the higher trade can be attributed to position squaring ahead of that day. Tuesday was muted because of the FOMC meeting, so Wednesday was reserved for more expiration related trades that helped push up volume. Thus we don't view all of the increase resulting from churn.
Again, the small and mid-caps were leading, and they moved to new all-time highs. With that action the glass was at least half full. The large caps were basically stuck in the mud, and once again stocks could not rally well together, but the good small cap gains and continued trend higher were positives. In short stocks did it again, i.e. scratched out another modest gain as the holiday rally edged further up. Yesterday one of our traders asked if this was as good as it gets for this rally, and Wednesday it certainly looked that way.
THE ECONOMY
Oil rises as heating oil fails to rise.
Oil posted its largest gain in three weeks with a $2.37/bbl rise, topping $44/bbl. The move started when US oil inventories showed heating oil flat when expectations were for a rise of 1M bbl. With weather cooling north to south across the US, there is a bit more demand on heating oil inventories. Oil started to rise on the numbers and stocks started to fall.
This was most likely an overreaction and not a sign of a steady rise back to prior highs. Bigger picture, a cold snap in the US uses more oil but it is not like Clark Griswold powering up his Christmas light display requiring the nuclear auxiliary boost. It is not the same as China jumping imports 49% as it did in July. Thus we don't expect prices to stay at this level. When the sun comes back out prices will see their shadow and fall back some.
New York Empire Index surges but no one notices.
December jumped to 29.9 versus the 20.0 expected and the 18.86 in November. New orders surged to 40.2 from 16.9. Shipments hit 38.5 from 21.5. Employment rose to 37 from 26. Prices were up to 57.7 from 53.3.
Strong numbers but no one seemed to notice, investors in particular. The problem is the NY survey is new and it is volatile. It was useful as an early harbinger of a general trend toward manufacturing recovery, but even then it was as volatile as a taxi driver in rush hour. Good to see it higher again, but it needs to put together another couple of strong months. By that time, of course, the other regions will have already shown us what the trend is. Thus the muted reaction to the strong numbers Wednesday.
Bush speaks to the dollar as foreign investment in US still a hot topic.
The economic summit is in full force and some interesting items are coming out. Lots of talk about the deficit, particularly the longer term ones brought about by the major entitlements of social security and Medicare. Rectifying the huge deficits in the future is the main focus as opposed to the short term deficits caused by economic stimulus designed to increase economic activity and thus lead to enough growth to substantially cut those deficits. The administration is taking the 'pay me now versus pay me a lot more later' approach. No one every wants to do that and thus no action has been taken for decades despite known problems. Maybe this time something will get done.
Bush went on to say that the dollar decline could be rectified by a reduced deficit. Indeed, his budget grows spending by just 1/2 of 1%. That is below the inflation rate. Credible studies show that if you limit spending growth to 1%, a growing economy such as currently in the US (thanks to tax cuts and investment incentives) would eliminate the deficits in 10 years. Bush is phrasing it a bit differently, saying that they will be cut in half in 5 years. Six one way, half a dozen the other (not quite, but pretty close for government work).
More than that, however, he is taking that longer term approach as well to getting future generations out from under the yoke of an entitlement program run amok. Social security was never supposed to be a subsistence level payment but instead simply a stipend, a modest augmentation to your own savings. There are so many new straws stuck into the drink now, however, that it is being sucked dry. The current ratio is 3 workers to 1 recipient; there is no trust fund. The money goes from the checks of workers to the pockets of retirees. This plan wants to take part of that money taken out of the check and put it into an account for the worker, creating a true fund for the future. That way the numbers work as opposed to a system designed with there were more youngsters than oldsters and when the expected life expectancy ended BEFORE benefits would kick in. In short, you had to outlive the norm to even collect. It is way, way, way out of balance now and only getting worse with the aging of the US population.
Many are screaming about short term costs. As a sound principal, most sensible and reasonable people would spend $1 now to save $5 in the future. That is basically what changing over the system is designed to do. Those same people screaming about the 'transition costs' are the same ones screaming about the deficit, something, as you know, we think is a baseless argument made by a lot of newfound budget hawks who have become so because it is politically expedient. They are also screaming about the dollar decline as a dangerous thing as well. That is another issue that, while important, has not hit the critical level it is made out to have hit. As we have noted, the dollar is just getting back toward reasonable after an artificially created run higher that still has it above historical norms.
Meaningful change means improvement now not later.
What many don't seem to understand is that once definite, credible plans are undertaken, the financial markets will respond now, not when the anticipated results occur. Financial markets, including currency markets, look to the future. When a real plan is put on the table and enacted, the market reacts. Already the dollar has started to firm the past week as serious talk about social security reform has dominated the economic news. A budget that only raises spending 0.5% shows a serious and methodical approach to eliminate the budget deficit. We will see quick responses when serious plans are enacted.
Foreign investors buying treasuries furiously but slowing securities purchases.
New numbers are out for October and November, and they show two divergences. First, treasury purchases jumped from $15.7B in October to $18.3B in November. There seems to be no loss of appetite for US treasuries even with the lower dollar value. Second, foreign investment in US securities fell $20B from October.
The treasury purchases show foreign investors still more than happy to fund the US trade deficit. The securities purchase drop shows some tribulation about the US deficit, the dollar, and the future liabilities caused by entitlements. It is almost ironic give that Europe and much of the rest of the world is socialist and has much higher entitlements. The concern, however, is that the US does not take action and actually follows in the more socialist trend, thus reducing productivity and growth prospects. Again, a strong plan that is put in place regarding future entitlements and deficits will cause financial markets to start adjusting now versus later.
In summary, the key to continued US economic prosperity is growth and reduced federal spending. Policies promoting investment in and thus the growth of the US economy provide the foundation to cut near term spending and make meaningful changes that cut that long term spending as well. When that is done confidence in the US future soars and the problems perceived today are greatly reshaped into manageable issues. Bold steps are planned to do just this, and we hope for our futures and the next generations that the attempt is successful.
THE MARKET
Another struggle to post a gain in the continuing holiday rally. Volume was up, probably due to pre-expiration positioning, but with the modest gains, it shows some churn as stocks rapidly change hands. Again, when it occurs after a run, it is a sign of a potential pullback.
It helped that small and mid caps led the market, posting new highs. It helped that breadth cracked back over 2:1 on NYSE, made possible by the rebound in small and mid-cap stocks. That works to offset somewhat the churn on the large cap indexes. NASDAQ is showing a doji again, DJ30 basically ran flat on continued strong volume, and SP500 scratched out a small gain as volume rallied as well.
In short, we continue to ride the rally higher because the trend is higher and it is still definitely in place. At the same time we see some more flags out there with some potential churn and the continuing inability to make any kind of strong break higher. Sounds like a lot of moaning and griping, but at the same time we are riding this horse as far as it will take us while we watch out for low branches and gopher holes. In short, another day in the market.
Market Sentiment
Bulls versus bears. Well, bulls hit another high on this run, moving to 62.9%. That is the highest since January 1987. Hmmm, 1987. Seem to recall a big drop in October of that year. But, that was 9 months after bullishness hit that high. Just goes to show that while we should watch sentiment indicators to give us an idea that there may be trouble, they are poor timing devices. They tell us to watch the price/volume action and leaders closely for signs of trouble, but you often get burned by investing based on sentiment indicators. Useful but not determinative.
VIX: 12.35; -0.38
VXN: 18.77; +0.19
VXO: 13.16; -0.29
Put/Call Ratio (CBOE): 0.63; -0.14
NASDAQ
Volume rallied again as NASDAQ posted another modest gain after cracking over the January 2004 peak, but showed a doji as it did so. Not great action but still trying to rise.
Stats: +2.71 points (+0.13%) to close at 2162.55
Volume: 2.388B (+5.65%). Volume jumped back to last week levels but NASDAQ barely moved. That indicates a lot of running in place or high turnover as stocks got a workout from buyers and sellers that were roughly evenly matched after this bounce off the 18 day EMA.
Up Volume: 1.246B (+7M)
Down Volume: 1.098B (+154M)
A/D and Hi/Lo: Advancers led 1.4 to 1. Another lukewarm breadth session, matching the overall price action. Unable to put together any decent breadth on this move, a very telling internal weakness to this bounce.
Previous Session: Advancers led 1.52 to 1
New Highs: 175 (+28). Moved to a new 2004 high following the breakout, but new highs are really lagging given the index is hitting highs not seen since 2001. Another internal weakness in this move and another caution flag.
New Lows: 19 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ rallied early to a solid gain (2171) but then gave back most of the move on the close. It even came back from negative to post the gain. The result on the candlestick chart was a wide ranging doji on rising volume. That action last week led to a dump down to the 18 day EMA, so we have to be on our toes, particularly with the poor breadth and low new highs even as the index moves to new highs. We are riding it higher but we are also very cautious with this action. NASDAQ has run well from August and has made a breakout, but the breakout thus far is merely in form with no clean, strong break higher.
The large cap techs were the only large caps to close lower as a group, dropping 0.2% and showing an even tighter doji than NASDAQ, right at the early December high. Even more of a caution indicator for us.
SOX tried to clear the 200 day SMA (434.55) early, but after trading over that level it could not hold the move into the close. Doji right below that level. Don't want to see it fail here and make a lower high.
SP500/NYSE
Large caps posted another modest gain, this time on sharply higher volume. Not as clear that this was churning as on NASDAQ, but the break above the December high is slowing as the gains have decreased the past two sessions after a good surge Monday.
Stats: +2.34 points (+0.19%) to close at 1205.72
NYSE Volume: 1.691B (+7.69%). The strongest volume since the month started, and a bit better action given SP500 closed near the high and did not show a doji. Unlike NASDAQ, SP500 did not show the high volume selling early in the month as the indexes came back to test their 18 day EMA. Large caps continue to look decent, particularly when compared to NASDAQ.
Up Volume: 1.109B (+127M)
Down Volume: 542M (+16M)
A/D and Hi/Lo: Advancers led 2.11 to 1. Solid action from the small and mid-caps pushed breadth back to respectable levels on a gain. With NASDAQ struggling on low breadth, this was needed.
Previous Session: Advancers led 1.63 to 1
New Highs: 338 (+66). A better showing on NYSE than NASDAQ, again helped by the small and mid-cap gains to new all-time highs. That may be all it takes to get buyers back into NASDAQ as well. We will have to see the move, however.
New Lows: 5 (-8)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Modest gain but closed near the high and on very strong trade. Unlike NASDAQ, no doji though a smaller gain as the move runs a bit low on gas. Nothing nearly as nefarious as NASDAQ as the large caps continue to move higher in their strong uptrend. Not a bad run off the 18 day EMA (1186) bounce, breaking out over next resistance at 1200.
Small caps rallied to match the early December highs while the mid-caps put on the dog and posted yet another all-time high. Impressive action and given the somewhat languishing large caps it gave the market the boost for the session.
DJ30
Another strong volume session, but stalled almost on cue at 10,700, about 50 points below the top of the 2004 base. Good strong break higher Tuesday and now trying to make the next logical move if this recovery is going to remain on track for a breakout from the base. Similar to SP500, after a strong move off of the bottom of the range at 10,400 (a 300 point move), the upside gains are declining as it runs out of some gas. May see it test 10,600 to recharge and then try the breakout again.
Stats: +15 points (+0.14%) to close at 10691.45
Volume: 305 million shares Wednesday versus 303 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Housing starts, Philly Fed, and current account balance are out Thursday, but you can bet that oil prices will be as much or more of an influence on stocks. Expiration is Friday, and we could see some more volatility given the Tuesday FOMC meeting took some of that out of the market that day.
We continue to gripe about the rally, but it is a rally. Stocks overall continue to move higher, though sometimes by a relatively small margin. Some sectors show signs of tiring (e.g. NASDAQ) while others move solidly (e.g. small and mid-caps). Still others are in between, posting modest upside moves but better internals than NASDAQ.
When all is said, the market has continued to move higher. That is the final litmus test. We see some potential problems and are thus watching for reversals, distribution, and leadership breakdowns, but we are not letting our shadow scare us out. As long as stocks continue to hold support and provide decent gains we will let them run and we will look for opportunity from stocks setting up well and showing strong moves. We pass up more than a few plays that move but show no strong support from buyers. We are at the party, having fun, but we also have an eye on the door.
With this market the leadership remains but the new moves can come from any sector on any given day. Thus we are continuing to scan the entire market for stocks that are testing their moves or ready to breakout to new runs. It takes a while but it provides us a good play list for the changing emphasis of investors. What would be nice to see is NASDAQ and techs start up again; may be wishful thinking but we are looking for such stocks setting up again. With this market, a days rest is all a lot of stocks need to begin the move again.
Support and Resistance
NASDAQ: Closed at 2162.55
Resistance:
2250 - 2260 from January/February 2001 highs and lows.
2282 from 5-01 high.
Support:
January high at 2154 (early 2004 high).
The 18 day EMA at 2121
2110 - 2112, the top of the November consolidation.
Price support at 2090.
The April high at 2079
The 50 day EMA at 2052
2050, prior resistance and the June high.
S&P 500: Closed at 1205.72
Resistance:
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1200 acted as resistance on the way up.
The 18 day EMA at 1186
1180 to 1185, the top of the November consolidation range.
1175 second high in that double top that spanned late 2001 is trying to hold.
The 50 day EMA at 1163
January highs at 1158
1142-1146 are the June highs and the October high (1142).
Dow: Closed at 10, 691.45
Resistance:
10,754 is the February high
10,975 - 11,000 from Q4 2000, Q1 2001
Support:
Price consolidation at 10,600 level
10,570 is the early April high
The 18 day EMA at 10,540
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the recent range.
The 50 day EMA at 10,382
September high at 10,342
The 200 day SMA at 10,237
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 13
Retail Sales, November (08:30): 0.1% actual versus 0.0% expected and 0.8% prior (revised from 0.2%)
Retail Sales ex-auto, November (08:30): 0.5% actual versus 0.3% expected and 1.1% prior (revised from 0.9%)
Business Inventories, October (10:00): 0.2% actual versus 0.5% expected and 0.0% prior (revised from 0.1%)
December 14
Trade Balance, October (08:30): -$55.5B actual versus -$53.0B expected and -$50.9B prior (revised from -$51.6B)
Industrial Production, November (09:15): 0.3% actual versus 0.2% expected and 0.6% prior (revised from 0.7%)
Capacity Utilization, November (09:15): 77.6% actual versus 77.8% expected and 77.5% prior (revised from 77.7%)
FOMC Meeting, (2:15): 25 basis point rate hike to 2.25%. No change in statement or removing policy accommodation at a measured pace.
December 15
NY Empire State Index, December (08:30): 29.93 actual versus 20.0 expected and 18.86 prior (revised from 19.76)
December 16
Housing Starts, November (08:30): 1980K expected and 2027K prior
Building Permits, November (08:30): 2010K expected and 2018K prior
Current Account, Q3 (08:30): -$171.0B expected and -$166.2 prior
Initial Jobless Claims, 12/11 (08:30): 342K expected and 357K prior
Philadelphia Fed, December (12:00): 20.5 expected and 20.7 prior
December 17
CPI, November (08:30): 0.2% expected and 0.6% prior
Core CPI, November (08:30): 0.2% expected and 0.2% prior
End part 1 of 3
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world stock market
us stock market
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