|
|
trade stock, stock watch
* * * *
01/06/05 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: ENER
Buy alerts issued: ASTM
Trailing stop alerts: EBAY (nearer position); PETM; HAE
Stop alerts: MRGE; MNDO
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Stocks fritter away another bounce attempt in last hour.
- Jobless claims jump, but seasonal adjustments are the culprit.
- Oil surges $2/bbl, dollar posts fourth straight gain.
- Bond curve flattened but has steepened ahead of jobs report.
- Small caps lead bounce, but rebound lacks punch as 50 day MA fails to ignite stronger buying.
- Putting the jobs report in the books could help market get off the 50 day MA one way or the other.
Another bounce attempt, another weak finish.
Once more stocks started subdued but managed a modest early bounce. Solid December retail sales helped spur the early upside activity. Retailers were solid and small caps were leading the upside; once more we see the market performing better when small caps perform better. Unfortunately that early move failed within 30 minutes though many retailers held their early gains. NASDAQ fell back below the 50 day EMA, that brought in some short covering, and stocks rebounded. Another pullback and stocks rebounded again, SP500 making a higher high. That put stocks in good shape heading into the final hour.
Once more, however, the last hour brought in sellers and gains were squandered. The market finished mixed with small caps fading into the pack by the close with a 0.4% gain. NASDAQ and SOX turned in negative performances (-0.1%, -0.5%). Volume was lower, breadth was mixed with NYSE slightly positive given the small cap rebound.
The action was very much characteristic of a relief bounce: modest gains, choppy trade, lower volume, narrow breadth. One thing is clear: the hard selling down to the 50 day EMA has not yielded to a recovery that even approaches the selling strength. Higher oil, an apparently more hawkish Fed, and a stronger dollar have kept a lid on any rebound following the first of the year reallocation selling. Perhaps when the jobs report is in the books the yoke will lift. As of the Thursday close, however, at best the market looked ready for a consolidation versus a quick rebound.
THE ECONOMY
December sales mostly solid.
An impressive list of gains in retailers: CHS 16%, BEBE 28%, AEOS 32%; URBN 15%, PLCE 21%, ANF 10%. WMT said its sales were 3% and its January guidance moved up to 2% to 4%; that was considered good news. Online sales rose 25%. Not all were winners: HOTT -6%, WTSLA -12%, WLSN -5%. In all, roughly two-thirds of the retailers reporting beat estimates and one-third missed. It was hit or miss with little in between.
The results were a positive for a season that was supposed to be modestly stronger at best. A very strong last week in the season and an anticipated solid January due to gift cards and later after Christmas sales has optimism higher. All in all this was a good season, very similar to the overall economy: very solid though not blockbuster.
Jobless claims jump but it was due to the how adjustments are applied.
In October and November it was reported that retailers were not taking on as much seasonal help as in prior years, and the past four months have seen in excess of 100K job cuts per month. Thus the payrolls were a bit slimmer heading into the holidays. How the system of adjustment works, however, can really skew the results. A certain level of jobs or claims are expected. If they do not meet that level then the adjustments act inversely, kind of like adding a negative and a positive. The perverse result is a jobs report that inflates the numbers.
Thus the 364K new claims, the largest jump since Q1 2002, was mostly viewed as an aberration, particularly after the extremely solid 321K the prior week (revised from 326K). How does this play into the Friday jobs report? Weekly claims have been holding a pretty tight line toward 300K, a level that indicates solid jobs growth. Private surveys and the regional manufacturing reports, however, show layoffs escalating the past several months and hiring tapering a bit. Last month 112K jobs were created, and there has been no reversal of the trends that produced that low number. Thus expectations this time are lower. As always, that often means the opposite; while a stronger report would be good longer term, the market, particularly the bond market, has built in lower expectations. Anything stronger could see bonds in turmoil Friday. As for stocks, with the Fed already harping on how good the economic recovery is, a stronger jobs report would only add more ammunition to its rate hiking campaign.
Bond yield curve steepens a bit ahead of jobs report.
Speaking of bonds, the yield curve the past few months had flattened as short term rates rose faster than long term rates. A flattening yield curve means short term money is becoming more valuable vis- -vis longer term money. The general explanation for that phenomena is an anticipated future slowing of the economy.
When the Fed raises rates, it is raising the Fed Funds rate that directly impacts short term rates. Long term rates typically respond as well, but not always. The Fed was lowering rates in the recession but long term rates at first refused to budge toward the downside. Right now the Fed is raising short term rates but long term rates are slow to respond to the upside. Thus the yield curve has flattened. Apparently the bond market is not as convinced as the Fed that the economy is sure to continue expanding well into the future. Oil holding over $40/bbl (now at $45), a falling dollar (except for the past four sessions), a potentially slowing China are factors that still weigh on the long end as they impact future economic growth.
Up to this point the flattening has not approached the level that would warn of a coming serious economic slowdown. Indeed in the past two sessions the curve has started to steepen ahead of the jobs report. Bonds were rallying (and thus yields dropping, particularly at the long end) ahead of the jobs report as most traders/investors viewed the report as being light given those reports cited above. The past two sessions some caution has crept back in as positions are covered on the chance of an upside surprise (when everyone agrees on an outcome, it often is different). Again, this is just the curve gyrating within a range that has yet to show a definite signal of any slowing.
Oil refuses to break down and the dollar rises.
Oil is in a head and shoulders pattern. It has come down to the neckline that is near $40, an important psychological level as well. The OPEC production cuts were timed pretty well as oil was set to break below the neckline. That has strengthened oil, bouncing it again Thursday over $2/bbl to close at $45.35/bbl. We suspect that once the production cuts news runs its course and more supply data is released oil will again weaken and flirt with that breakdown through the neckline. That would be significant indeed.
The dollar posted its fourth straight gain Thursday versus the euro. Gold and commodities have struggled during the same period. As we can see, it is not just stocks reallocating to start this year. They have not broken down; similar to stocks they are correcting to support.
THE MARKET
The market was able to bounce with the small caps coming off the mat, leading the upside most of the day. After closing just below the 50 day EMA Wednesday, NASDAQ moved back up off that level. There was no strength in the move, however, as volume was lower and the sellers took over late once more. NASDAQ closed below that level once more.
The volume was lower on the rally attempt, a clear signal that buyers were not committing to the move in significant numbers. Thus far buyers have not responded to the selling with any strength. If this is reallocation you would expect a sharper recovery when it starts. Instead stocks have stammered around at this support, making a couple of half-hearted attempts to bounce the past two sessions, both failing.
Once again it was better action than the sharp open to close high volume selling that marked Monday and Tuesday. Stocks did try to rebound and we saw some stocks in good patterns make smart, high volume moves. Overall the action was bearish, however, as stocks could not hold a modest gain into the close. For now there is a modest attempt at consolidating, but the overriding bias is still negative as about all that has happened Wednesday and Thursday is that sellers have backed off some.
Market Sentiment
Bulls versus Bears: The weekly survey of investment advisors shows little change in the extreme levels of bullishness. Bulls rose a hair to 62.9, another 5 year high, while bears held basically steady at 20.6%, edging slightly higher above the 20% level considered bearish. No significant change even with the selling this week. That is not the best prognosis for stocks.
VIX: 13.58; -0.51
VXN: 20.13; -0.05
VXO: 14.17; +0.2
Put/Call Ratio (CBOE): 0.8; -0.15. The 0.95 reading Wednesday triggered a modest bounce, but not nearly enough pessimism has been raised to support a strong move, at least based on the sentiment indicators.
NASDAQ
Another bounce attempt flits away in the last hour as NASDAQ closed below the 50 day EMA once more. Hanging around in a bad neighborhood can result in bad things.
Stats: -1.24 points (-0.06%) to close at 2090
Volume: 2.199B (-8.24%). Lower volume again, but still above average as stocks rallied and then rolled over. The upside volume earlier was lower once more.
Up Volume: 933M (+267M)
Down Volume: 1.25B (-463M)
A/D and Hi/Lo: Decliners led 1.02 to 1. Basically flat on a day that was basically flat.
Previous Session: Decliners led 2.47 to 1
New Highs: 36 (-4)
New Lows: 26 (+6)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ rallied early, fought off some selling, and rallied into the early afternoon. It never had the strength it needed, however, as volume was not moving higher with the stocks. It was a target for late selling once more, and the sellers took advantage of it. This is the second close just below the 50 day EMA (2093); NASDAQ is struggling to find enough buyers to hold it at this key level. Thus far the sharp drop has not yielded to a sharp recovery with buyers rushing back in. As noted, NASDAQ is hanging out in a bad neighborhood, unable to muster the strength to rebound. It is still fish or cut bait time; in short, it has to show some better action such as some bullish intraday moves (low to high that holds to the close, good upside volume) to start turning the tide. Otherwise the 50 day EMA won't hold.
NASDAQ 100 edged lower below its 50 day EMA (1567). There is still some support at 1550, but if NDX does not bode well for the overall NASDAQ.
SOX remains in the tank though the selling has slowed. Thursday it edged closer toward some support at 400, trying to slow the drop and find a shelf at that level to recover on.
SP500/NYSE
Large caps posted a modest, lower volume gain that held above the 50 day EMA on the low. Not bad for consolidation, but hardly a strong move as it too gave back much of the upside in the last hour.
Stats: +4.15 points (+0.35%) to close at 1187.89
NYSE Volume: 1.567B (-9.81%). Volume fell as NYSE stocks put together a modest rally. There were more buyers of NYSE stocks for the session, but compared to the recent selling, they were definitely the minority.
Up Volume: 952M (+523M)
Down Volume: 588M (-694M)
A/D and Hi/Lo: Advancers led 1.35 to 1. Modest to match the modest price move.
Previous Session: Decliners led 2.59 to 1
New Highs: 36 (+5)
New Lows: 16 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
NYSE stocks found a little backbone Thursday as both the SP500 and SP600 posted matching percentage gains. At most, however, it was a small victory, still best described as a lack of selling as opposed to any resurgence in buying. It was a start, holding over the 50 day EMA (1180) and managing to hold gains into the close. There I support from the 50 day EMA down to 1175 where the late November to early December consolidation range made its lows.
The small cap index rallied to its 50 day EMA (315.82) on the high, leading the market the run to the early afternoon. That is where it stalled and slid back to close with a smaller 0.4% gain. This tap at the 50 day EMA and fade on lower volume is never a good sign. It beats a further savage drop as seen the prior three sessions, but it typically is just a stopover to further selling. Some support just over 310; that will most likely be tested.
DJ30
Of the gainers, DJ30 was the laggard, bouncing early but failing to tap its 18 day EMA (10,686) before sliding back to a very tame 0.2% gain. Volume was lower as it tried to bounce, another sign that the rebound attempt was a relief move on Thursday. Still above 10,600, the top of the November to December lateral consolidation range. As with the other indexes, it was an upside move, but a rather weak one that did not change the character from the recent negative bias.
Stats: +25.05 points (+0.24%) to close at 10622.88
Volume: 232 million shares Thursday versus 263 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The jobs report will receive all of the attention early Friday. The bond market will definitely be watching, and stock investors will watch as well given the Fed's minutes showing some dissenters wanting more hawkish action with respect to interest rates. A strong upside surprise could do more damage to stocks with its implications that the Fed would move full speed ahead with further rate hikes. Some are even talking of 50 basis point hikes. If the Fed's goal was to get the FF rate to 3%, we would not mind two 50 basis point hikes and then an 'all clear.' As the Oak Ridge Boys used to sing, "Dream on." Greenspan is back in the sleuth game and he enjoys playing it.
While the jobs report was not the cause of the harsh selling this week, it could be a focal point for the market to trade off of. Once it is in the books investors can get to work. The issue is which way. It is trying to hold the 50 day EMA on NASDAQ and SP500, but small caps, a key leader in the 2004 rally, are struggling below their 50 day with a classic kiss of that level on the Thursday high.
In short, the bias sure looks down: sold hard, unable to bounce with any vigor, bearish intraday action. The market is a bit oversold after this week, but that is never a guarantee of a rebound. Modest bounces Wednesday and Thursday failed. The market can still rebound if this was an allocation issue to start the new year. You have two of the leading 2004 indexes below their 50 day EMA. They will have to recover and/or the money taken from them will have to go into other areas to get this rally back on track. Given the moves to this point, however, it looks more like a consolidation as the best case scenario, and that still has to overcome the continued negative intraday bias.
Support and Resistance
NASDAQ: Closed at 2090.00
Resistance:
2110 - 2112, the top of the November consolidation.
January high at 2154 (early 2004 high)
2250 - 2260 from January/February 2001 highs and lows.
2282 from 5-2001 high.
Support:
The 50 day EMA at 2093.48 is still trying to hold.
Price support at 2090.
The April high at 2079
2050, prior resistance and the June high.
S&P 500: Closed at 1187.89
Resistance:
The 18 day EMA at 1197.66
1200 acted as resistance on the last trip higher
Q1 1999 lows at 1215
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1180 to 1185, the top of the November consolidation range.
The 50 day EMA at 1180
1175 second high in that double top that spanned late 2001.
Dow: Closed at 10, 622.88
Resistance:
The 10 day EMA at 10,696
10,754 is the February high
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
Price consolidation at 10,600 level
10,570 is the early April high
The 50 day EMA at 10,540
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the November/December range.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 03
Construction Spending, November (10:00): -0.4% actual versus 0.4% expected and 0.3% prior
ISM Index, December (10:00): 58.6 actual versus 58.5 expected and 57.8 prior
January 04
Auto Sales, December: 5.2M expected and 5.1M prior
Truck Sales, December: 8.3M expected and 7.8M prior
Factory Orders, November (10:00): 1.2% actual versus 1.0% expected and 0.9% prior (revised from 0.5%)
January 05
ISM Services, December (10:00): 63.1 actual versus 61.0 expected and 61.3 prior
January 06
Initial Jobless Claims, 12/31 (08:30): 364K actual versus 330K expected and 321K prior (revised from 326K)
January 07
Non-farm Payrolls, December (08:30): 175K expected and 112K prior
Unemployment Rate, December (08:30): 5.4% expected and 5.4% prior
Hourly Earnings, December (08:30): 0.2% expected and 0.1% prior
Average Workweek, December (08:30): 33.8 expected and 33.7 prior
Consumer Credit, November (15:00): $6.0B expected and $7.7B prior
End part 1 of 3
|
trade stock
stock watch
|
