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us stock market, trade stock
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1/12/05 Stock Split Report Update
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Stock Split Report Subscribers:
Next full report is Thursday.
MARKET ALERTS
Targets hit alerts issued Wednesday: None issued
Buy alerts issued: WAT; OMC
Trailing stops issued: CHS; UPS
Stop alerts issued: None issued
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. You can sign up for Stock Split Report alerts at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- SP500 undercuts 50 day EMA, sparks start of short covering bounce.
- Trade deficit expands further.
- Stocks poised to continue rebound after finally showing some positive upside action.
- AAPL earnings give investors another solid report to ponder and sets up a further bounce.
Intel fails to spark market, but stocks find strength to rebound on their own.
Intel earnings had futures higher, but after the trade gap figures the pre-market action was fading back into the opening bell. Stocks opened higher but immediately started giving back the gains. NASDAQ moved up to the 50 day EMA on the open, but even with semiconductors leading the market, it did not have the strength to push through. It slipped and so did the rest of the market, turning negative before midmorning. Same story, different session.
Oil inventories were mixed but a bit better than expected overall, but that did not bail stocks out. They sold further. SP500 undercut the 50 day EMA. NASDAQ undercut next support (having already broken back below its 50 day EMA Tuesday). SP500 solid to next support at 1175. That set the bottom for the morning. As discussed this week, when a stock undercuts an important support level that triggers further immediate selling and then a rebound to test that breach. Whether it can recover or not gives you some idea of the strength of the rebound. SP500 rebounded to the 50 day and fought with that level for almost 4 hours before a last half hour run pushed it past the 50 day to close. Even NASDAQ made a run at its 50 day EMA, but at the close it was short of the mark.
That does not mean it was a failed rebound. The fact that stocks were able to rebound from the lows, hold an intraday consolidation, and then rally into the close was a major shift in the intraday bias (though only for the day thus far). There was also better volume (slightly) on both NASDAQ and NYSE. Both NASDAQ and SP600, leaders up to January 1, rebounded and showed a doji after cutting through the next support. That suggests a change of momentum, and that can provide a rebound. Can is the operative word. It is an alert, a signal to watch for change. The index still has to show us the money so to speak.
On the other hand, breadth was pretty weak at 1.4:1 on NYSE and 1.1:1 NASDAQ. There were not a lot of new breakouts; much of the action was rebounds in stocks that were throttled in the recent selling. As noted in the Tuesday report and intraday alerts, the narrow breadth, rising volume, and few new breakouts are signs of a short covering rebound as opposed to broad new buying of stocks. Of course most rallies start with short covering; the shorts reel in their positions and wait for another opportunity. If the buyers step in with some strength they will overpower the sellers. That is what is called the follow through session to the initial reversal. It occurs on stronger volume, strong breadth, and breakouts or rebounds from leading stocks. Wednesday was a possible start to this process, but at this point you cannot call it more. It does provide some opportunity that we will not ignore, but we just have to recognize it for what it is and be ready to reaction and get the heck out of the way if it does not pan out and look for downside opportunity if the selling resumes.
THE ECONOMY
Trade deficit hits another record.
The November gap between exports and imports grew to $60.3B in favor of imports, more than the $54B expected and the $56B in October. Another milestone. Another data point for economic Chicken Little's to pounce upon. The prior gap showed a narrowing between imports and exports as did the Q3 GDP report. That was not happening in November as Canada and Japan really backed off US goods. For once we cannot blame China for the gap.
It was a month where the US bought a lot of foreign goods, e.g. Japanese cars while the other countries bought fewer US goods. Given the US was moving into the Christmas period and wanted flat screen TV's and Lexus cars (we all went out and put them under the tree just as instructed in those commercials, right?) it is not surprising that the gap with those countries expanded some. When the US economy is strong US citizens consume a lot of goods both domestic and foreign. They are consuming.
The worry is that at some point the trade deficit will deter foreign investment in the US as the dollar further weakens because of trade deficit and the federal deficit. This is another one of those economic theories that sounds plausible and could be right, but just does not have any empirical evidence to support it. It theoretically makes sense there is some point where a government becomes so indebted that it is considered a credit risk that deters lending or investment just as a person becomes so indebted they are considered a credit risk. For a government no one knows what that point is. There are examples of impoverished countries that have always been a risk, but they are not the same as a thriving economic giant.
So you want to encourage saving?
The main complaint is that US citizens do not save enough, instead spending their disposable income on those cars and flat screen televisions. Of course, this does not take into account investments in the US in the form of 401k plans, IRA's, and other stock investments. Nor does it include investing in homes, raw land, income producing realty, etc. It is simply a calculation of how much they take in versus how much they don't spend or invest elsewhere. It is therefore a flawed figure to being with; US citizens have become investors, and in large part are invested in the financial markets in order to provide for the future. That is exactly what we are told to do, yet this is not taken into consideration as to whether the US citizenry is saving.
If you want to encourage the kind of saving that is supposedly more desirable, one way is to do away with the income tax and replace it with a national sales tax. We are not convinced it will solve all of the problems regarding the tax code, but if you had another 15% to 20% tacked on to big purchases (even not so big purchases) you would ask yourself if you really needed that Lexus with the red bow in the driveway. It would encourage keeping the money from leaving the US, but it would have a counter effect of reducing consumption as well, something the economy needs to keep running well or help it out of slow times. We can see the government endlessly tinkering with the sales tax rate to fit whatever spending it had in mind for that session. As opposed to changing the current tax rates, micromanaging our lives with one sales tax rate seems too easy.
As with most economic issues, if you want to encourage a certain behavior, provide incentives to act in accord with the behavior you want. With the federal government that typically means tax incentives. You have to make it economically more desirable for someone to put money into what is considered traditional savings versus investing it for a better return or spending it on a desire item. It has worked over and over again in helping the US out of recession (1960's, 1980's, 2000's). Again, however, you retain a complex tax code and still have all of the obtuse rules and regulations that you have to navigate in order to take advantage of the incentives, not to mention the many 'favorite son' tax breaks strewn throughout the code that favor special interests at the expense of most taxpayers.
Fix the real problems and forget the band aids.
Again, the real issues with respect to the dollar, foreign investment and savings lie elsewhere. Government should not be in the business of trying to micromanage or influence where consumers and businesses spend or save their money. The private citizen and US business has proved for over 200 years that they know how to best utilize resources to produce the best economy in the world.
The real concern for foreign investors as articulated by Alan Greenspan are the huge entitlements overhanging the economy and all citizens, entitlements that he correctly assesses that we mathematically cannot meet in the future. Looking not far down the road there is a $12T shortfall in social security. Even sooner than that there is an even larger deficit in Medicare to be reckoned with.
Foreign investors are long term oriented. They see those problems on the horizon. That is what will influence their investment decisions. If the US takes serious action to rectify those problems, the outlook for US investment improves overnight. Just as with the stock market, they will act on the potential versus the actual event. With concrete steps to eliminate these liability overhangs (and if you invest in the US they become your liabilities as well), any distortions in trade balances and currencies will start to self-adjust. Trade deficits will not be seen as the bogeyman they are today. They are only a problem because the US has all of those other outstanding IOU's that dwarf the trade issues. Solve them and let the citizens and businesses invest and spend where they feel it is best to do so.
THE MARKET
The indexes have played some tennis the past three sessions: up, down, back up, all in a fairly tight range between the open and close prices. As we have noted over the past few reports, the overall action has also improved slightly as the intense selling has faded, leaving the indexes trying to work laterally and consolidate. No big rebound, no surge in buyers, but hanging on near the 50 day EMA. It has been more of a drop in selling intensity than an increase in buying, but it has been enough to hold the indexes near the 50 day.
Wednesday the market appeared to have some better news with the Intel earnings, but that was not enough to spur buyers in any numbers to action. Instead stocks sold with SP500 breaking its 50 day EMA as well, joining NASDAQ and SP600 in that dubious distinction. It was only intraday, however, as that move triggered short covering and recovered the 50 day.
It had the look of a last shakeout in the current down leg as stocks touched lower and then recovered on a bit better volume. NASDAQ rebounded, closing just below the 50 day EMA. SP600 undercut support at 310, but it too rebounded, moving back above that support level on the close. The stage is set for an oversold bounce, and it may turn into something more. We will know more based upon the action of leading stocks, volume, breadth, and the intraday action when the next sessions unfold.
All we have at this point is a recovery of support after a rocky day that started with stocks unable to make use of good news. If it continues it can provide good opportunity, but after this short covering induced following SP500 breaking the 50 day and holding next support the true indication of whether long term buyers are back in the market won't show up until early next week. At that point if the market can rally on strong volume and good breadth that is a good indication the big money is back to accumulating stocks in general.
Market Sentiment
VIX: 12.56; -0.63
VXN: 19.28; -0.39
VXO: 12.79; -0.24
Put/Call Ratio (CBOE): 0.93; +0.07. The ratio climbed even as the indexes tested lower and turned back up for gains. As noted before, in 2004 when the put/call ratio hit this level it tended to rebound in its bounces within the base. The ratio has closed in the 90's three times in the past week.
NASDAQ
Gapped up to the 50 day EMA but failed at that point and sold only to rebound in the afternoon and last hour in particular to close just below that level.
Stats: +12.91 points (+0.62%) to close at 2092.53
Volume: 2.288B (+0.33%). Solid trade and improved volume as NASDAQ rebounded for a gain. This shows more buying activity even if it is short covering related. Again, all rallies start with short covering.
Up Volume: 1.661B (+1.16B)
Down Volume: 584M (-1.176B)
A/D and Hi/Lo: Advancers led 1.11 to 1. The index recovered but the larger techs posted the better gain as the overall NASDAQ and small caps lagged a bit. That accounts for the narrow breadth and is often a sign of short covering. No real big deal at this point, but it has to spread out when and if stocks attempt a follow through session next week.
Previous Session: Decliners led 2.27 to 1
New Highs: 51 (+3)
New Lows: 48 (+11)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped higher and even cleared the 50 day EMA by a hair intraday. On the close it failed to hold that level, but it was an impressive 26 point reversal off the lows on some slightly rising but very solid volume. Excellent recovery, and the positive close and rising volume indicates a further upside bounce ahead, particularly with the AAPL earnings after hours shooting that stock higher and giving a general lift to techs.
As noted NASDAQ 100 scored a better percentage gain (0.8%) but they too failed to close above the 50 day EMA though they are right at it. As with NASDAQ overall they are ready to bounce from here.
With Intel's help SOX rebounded and recovered some support at 400. That is about all it did. It is still below the 10 day EMA (409.15) and has the look of an index in a new downtrend. We will see how far this bounce carries the index and see if it can challenge this downtrend.
SP500/NYSE
A reach below the 50 day EMA to test next firm support and then rallying back 15 points in an impressive, higher volume reversal.
Stats: +4.71 points (+0.4%) to close at 1187.7
NYSE Volume: 1.562B (+4.94%). Volume posted a very nice advance, moving well above average as SP500 tapped 1175 support and rebounded for a gain. This short covering move sets up a further upside bounce.
Up Volume: 924M (+565M)
Down Volume: 607M (-508M)
A/D and Hi/Lo: Advancers led 1.39 to 1. Swung from negative to positive late, still weighed down by the lagging performance of the small caps. Needs to improve early next week on a follow through attempt to show us this was more than a short covering bounce.
Previous Session: Decliners led 1.75 to 1
New Highs: 61 (+9)
New Lows: 22 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
The break through the 50 day EMA (1181) brought on some more short term selling, but as is typical, a breach of important support gives way to a short covering move. It has happened many times since the market top in early 2000, and even in this recovery that pattern has not changed. The shorts never hang around too long, at least with all of their positions, and when they start covering the snowball starts rolling; more and more shorts cover and then some longer term buyers step in to pick up some positions at lower prices. The key to the upside longer term is if they continue to buy after the shorts finish their covering. SP500 left itself in a good position to continue the rebound. A break through the 18 day EMA (1193.74) gives it some legs.
The small cap SP600 sold and rebounded as well, showing that hammer doji with tail with a close just above support at 310. The index is still not in the best position, riding well below its 50 day EMA (315.13). A long road ahead, but if the small caps bounce the market will perform better overall.
DJ30
Similar action by the blue chips, undercutting the 50 day EMA (10,548) and rebounding to close positive as volume expanded and moved above average for the first time in over a week. It recovered the 10,600 level one session after breaking it, a good sign of strength in that level.
Stats: +61.56 points (+0.58%) to close at 10617.78
Volume: 293 million shares Wednesday versus 255 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Retail sales and more earnings Thursday, both very important. After a shaky start earnings are topping expectations, expectations that were lower due to hard comparisons after the strong growth the prior two years. Intel posted a good report and helped the chip equipment makers as its cap ex spending is anticipated to rise sharply. After hours AAPL blew through its earnings expectations, rising $8 in after hours trade. After that early year sharp pullback to the 50 day EMA, stocks are set up to rebound on some earnings. The shorts will definitely cover some more on this kind of news as they don't want to risk positions getting away from them if stocks resume the late 2004 breakout from that long base.
We will know more about the strength of the move next week when the dust clears from this covering and see if the longer term buyers take up the torch with strong volume and solid breadth moves. That shows the buyers are again accumulating stocks, a good sign for a continued rally.
Leaders are called leaders for a reason. They lead the rest of the market, and thus we are looking for strong stocks that are rebounding from the selling with strong moves and stocks that minded their own business in the selling and continued to work on their bases. Those will provide at least some short term opportunity even if this bounce turns out to be nothing more than a short covering run that lasts a few sessions.
Support and Resistance
NASDAQ: Closed at 2092.53
Resistance:
The 50 day EMA at 2093
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:
Price support at 2090.
The April high at 2079
2050, prior resistance and the June high.
S&P 500: Closed at 1187.70
Resistance:
The 18 day EMA at 1193.74
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 1181.37
1175 second high in that double top that spanned late 2001.
Dow: Closed at 10, 617.78
Resistance:
The 18 day EMA at 10,655
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
The 50 day EMA at 10,548
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 10
Wholesale Inventories, November (10:00): 1.1% actual versus 0.7% expected and 1.1% prior
January 12
Trade Balance, November (08:30): -$60.3 actual versus -$54.0B expected and -$56.0 prior (revised from -$55.5B)
Treasury Budget, December (14:00): -$3.4B actual versus -$0.0B expected and -$17.6B prior
January 13
Export Prices ex-ag., December (08:30): 0.4% prior
Import Prices ex-oil, December (08:30): 0.7% prior
Retail Sales, December (08:30): 1.1% expected and 0.1% prior
Retail Sales ex-auto, December (08:30): 0.4% expected and 0.5% prior
Initial Jobless Claims, 01/07 (08:30): 340K expected and 364K prior
January 14
Business Inventories, November (08:30): 0.6% expected and 0.2% prior
PPI, December (08:30): -0.2% expected and 0.5% prior
Core PPI, December (08:30): 0.2% expected and 0.2% prior
Industrial Production, December (09:15): 0.5% expected and 0.2% prior
Capacity Utilization, December (09:15): 78.9% expected and 78.7% prior
End part 1 of 2
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us stock market
trade stock
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