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us stock market, trade stock
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1/13/05 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts issued Thursday: None issued
Buy alerts issued: PRFT
Trailing stops issued: GOOG
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:
- Two up, two down. Friday is the rubber match.
- Retail sales decent, holiday sales strong.
- Oil gears up for higher prices.
- SP500, DJ30 join NASDAQ and SP600 with a close below the 50 day EMA.
- Good earnings news unable to energize the market, another negative chord for a struggling market.
Stocks give flip side of Wednesday, sell into close.
AAPL earnings were strong and retail sales were not bad, but no offering right now appears to appease the market. Stocks opened softer, not bad after a rally to the close as it often provides buyers another entry point if they are ready to take it. Typically that works in an upside market, something that this year has not seen. The modest bounce Wednesday found no buyers ready to pick up the torch Thursday. That weak start tried to consolidate all morning and into early afternoon. Stocks even started to bounce some after lunch. Then the selling resumed in earnest. Not much volume but with the quiet action it took relatively few sellers to send stocks plummeting into the close.
Once more the market lacked the buying strength to put together a second consecutive upside session. Indeed it was unable to fend off some light volume sellers. Same story from Monday and Tuesday: decent upside Monday followed by downside Tuesday. Want to go further? Upside the prior Thursday then down on Friday. As the indexes were moving laterally near the 50 day EMA during that lower volume up and down action, that was not that bad. That relatively narrow range and light volume shows the process of weeding out the sellers.
Thursday was a bit different, however, leaning toward the negative aspect. Volume was lighter which is good, but SP500 and DJ30 closed below the 50 day EMA for the first time this year, joining NASDAQ and SP600, the early whipping boys in this early 2005 correction. It was not a clear breakdown, but NASDAQ is starting to sag lower below its 50 day, and with the recent relative strength leaders (the large caps) slumping as well, the negative bias got a bit more negative Thursday even though volume was lighter.
THE ECONOMY
December retails sales solid on the back of auto sales while holiday sales are strong.
Retail sales rose 1.2% in December versus the 0.1% November gain, topping expectations. Auto sales were strong; without them sales rose 0.3%, slightly less than the 0.4% anticipated. Autos rose 4.3%; apparently people were putting cars under the tree. Furniture and gardening sales were strong. The weak sectors were apparel and electronics.
A very big winner was non-store retailers, i.e. internet and mail order. They rose 1.9% as more and more consumers adopt internet shopping as a safe and convenient method to buy and send holiday gifts.
One thing to remember regarding how retail sales are calculated: it is not units sold but dollars. Thus if prices are falling in an area, it will appear as if retail sales are down for those goods. Thus electronics were down, but that is dollars; we know that flat screen televisions showed dramatic price drops last year. It could be lower prices, lower sales in units overall, or a combination of both. Indeed, retail sales would have been higher if energy prices had been rising. That is the perverse factor in retails sales you have to take into account. Some elements that would increase the reported retails sales would actually act to reduce sales of other items. If you spend more on gasoline you have less to spend on other discretionary items. Thus as with all reports you have to realize that there are times it does not reflect reality. With this report energy prices were a bit softer and retail sales were still stronger. That is a good indication overall.
Analysts so wrong about holiday sales.
Our surveys showed the holiday season was a solid one with retailers able to sell goods without a lot of deep sales and discounts. That was despite what we heard daily about how retailers had to slash prices to get consumers in the stores. The National Retail Federation released its holiday sales results Thursday and at 5.7% they squashed predictions of 4.5%. They also handily beat 2004 (5.1%). They were the best in 5 years (1999 saw an 8.1%).
This is not the 'mediocre' season that we heard so much about. Once more analysts failed to use common sense in looking at the real world. They finally accepted that in an economic expansion Wal-Mart did not have the economic clout in the holiday season as it did during the recession when discounters took over holiday sales. Analysts finally realized that the higher end would do better. They would not let go of the supposed need for the higher end to provide massive discounts. News flash: if you feel good enough to shop higher end you don't need a 60% off sale to do so. Indeed, retailers offered very few such sales before or after Christmas. There were one-day sales where they dropped prices on merchandise that did not move. If you missed them the deep discounts were replaced the next day by more modest cuts.
In sum, sales were much better than expected, but the signals that they would be were there to see.
Jobless claims post a second surprising jump.
After trending lower and close to 300K benefits jumped to 367K from an already high 357K the prior week. Expectations were for a drop to 340K; at least it would have been a drop but for a 37K upside revision in the prior week. The 4 week average rose to 344K from 331K.
As with the prior week the seasonal adjustments are as much to blame as any rise in the claims. When there are seasonal adjustments to be made and the number misses expectations it is similar to adding the opposite. It distorts the numbers even more than they would be. Thus we are waiting to see how the end of January pans out when the adjustments from holiday hiring and firing are slowed.
Oil is a problem that just won't die.
In the movies the villain always toys with some creative form of death for James Bond instead of just blowing him away. Of course Bond wiggles off the hook and ends up using his license to kill on the villain. The moral: until you see the job done, don't assume it is done. Case in point is oil. Oil was ready to crash, having formed a head and shoulders pattern and selling down to the neckline in late 2004. It bounced but looked ready to crash back down and through the neckline, opening the bomb bay doors. Then Saudi Arabia said it would cut its production this year in accord with OPEC agreements. In addition some cold weather hit, and despite builds in heating oil inventories the past two weeks prices have continued to rise. It is apparent now that OPEC wants $40/bbl as the floor. They are addicted to that money flow the higher prices have brought and they don't want to give it up.
This reality has pushed oil to $48/bbl after it was teetering at $40/bbl. Oil has cleared the interim December high, setting the stage for oil to rally further from here. That as much or more than anything else is impacting the current stock market action. Oil could easily break $50/bbl here. If it does it could easily hit a new high based on the chart. That would most likely lead to another crash down the road, but the implications ahead of that crash are not all positive. If oil runs to say $60/bbl, that will do a lot of damage to consumption. Already high steel and materials prices will further impact consumption as they rely on energy in their creation. Confidence is still high, but $60/bbl oil will raise out of pocket costs and have an impact on what money is purchased.
Thus we are watching oil closely as it approaches $50/bbl. Overall stocks are sagging as oil makes its rebound, but energy stocks are recovering nicely. Once more oil has emerged as a factor in determining stock prices, and the implications if it moves past $50/bbl are not good.
THE MARKET
The market has alternated positive to negative this week, indeed even the final two days of last week. If this 'pattern' holds, Friday should be upside. Gee, how easy.
Problem is, SP500 and DJ30 closed below the 50 day EMA, joining NASDAQ and SP600 below that important support level. Additional pressure on a market already under pressure. SP500 and the small caps held next support, both solid levels. They need to hold these levels, but the NASDAQ is sagging lower and the patterns are taking on even more of a toppish look as they were unable to rebound from the 50 day EMA and could not capitalize on the Wednesday rebound.
Volume was lower, indicating that sellers did not surge back in and pile on top of the Wednesday bounce. There were simply no buyers there to step in and continue the rebound. Stocks fell into the close, reversing the positive intraday action from Wednesday. The indexes can still rebound from here and continue the rebound attempted Wednesday, but again, the SP500 and DJ30 close below the 50 day EMA did not improve the prospects.
In sum even though the selling pressure eased, stocks overall have been unable to bounce. Indeed they broke to new closing lows for the year in some cases. The market was simply unable to capitalize on some good news from earnings and solid retail sales. That keeps the market technically under pressure even though selling volume has backed off this week.
Market Sentiment
The tone on the financial stations has started to shift. Thursday we were hearing comments such about how the end of 2004 and the start of 2005 found investors 'over-enthused.' Many of the commentators were asking guests where investors should 'hide.' Not a huge shift but a definite switch from the idea the market was going to turn and surge. We said the indexes had to rebound sharply from the 50 day EMA or slip into a deeper correction. They are doing that not because sellers are shoving them lower, but because buyers are not stepping up to buy.
VIX: 12.84; +0.28
VXN: 19.09; -0.19
VXO: 13.07; +0.28
Put/Call Ratio (CBOE): 0.9; -0.03. Hanging at the high end but lower even with the late session plunge lower.
NASDAQ
Unable to retake the 50 day EMA and indeed falling to a "new 2005 closing low." Volume was lower but looking for more consolidation.
Stats: -21.97 points (-1.05%) to close at 2070.56
Volume: 2.13B (-6.88%). Lower volume so no increase in sellers. Still above average and with the point loss and distribution to this level, that is little salvation for the Thursday action.
Up Volume: 676M (-985M)
Down Volume: 1.366B (+782M)
A/D and Hi/Lo: Decliners led 1.75 to 1. Not a rout but not a good session.
Previous Session: Advancers led 1.11 to 1
New Highs: 67 (+16)
New Lows: 29 (-19)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Tried the 50 day EMA (2092) but even with the INTC and AAPL earnings topping expectations, techs can find no buyers. There were some shorts covering Wednesday, but buyers have yet to step into technology this year. As a result the bottom fell out again at the end of the session, pushing NASDAQ to a new closing low for 2005 but holding above the Wednesday low (2069); technically that leaves the door open for a rebound next week that would be follow through to the reversal attempt Wednesday. At this junction it will have to show that move. Looks to be heading toward next support at 2050.
Same action on NASDAQ 100, failing at the 50 day EMA and struggling to hold some support near 1550.
SOX is failing to hold support at 400, even failing to move back up to the 10 day EMA on the one day rebound attempt. Even with Intel's forecast and its cap expenditure forecast it could not ignite a fire in semiconductors.
SP500/NYSE
Slipped below the 50 day EMA in late selling on lower though still above average volume. Testing some key support at 1175.
Stats: -10.25 points (-0.86%) to close at 1177.45
NYSE Volume: 1.51B (-3.33%). Volume slipped lower as well but remained above average and the second strongest trade level for the week. Thus there were not a lot of new sellers, but it was not a completely benign drop in volume terms. Certainly the price drop through the 50 day EMA was not benign.
Up Volume: 545M (-379M)
Down Volume: 944M (+337M)
A/D and Hi/Lo: Decliners led 1.19 to 1. the small caps were the relative strength leaders Thursday, and that kept breadth at modestly lower levels.
Previous Session: Advancers led 1.39 to 1
New Highs: 92 (+31)
New Lows: 20 (-2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 fell below the 50 day EMA (1181) on the close Thursday after cracking the ice Wednesday when it sold and then rebounded. For the second session it held 1175 support on the low, a second important support level backing up the 50 day. Volume was lower but above average. Not a fatal breakdown given the next support level and lower volume, but not a show of strength by an stretch.
The small cap SP600 was positive until the late selling. It led the market with a 0.5% gain at its high, but once again it failed to cross the 50 day EMA and solid back to close near the session low. It is still holding support at 310, not giving up new ground on the close as did NASDAQ. Trying to make a stand but the pattern, even more so than the other indexes, has a toppy look.
DJ30
The blue chips broke the 50 day EMA (10,547) on the close as well after clearing the way on the Wednesday low. No rebound Thursday and now it has slipped back into the middle of the November to December consolidation range that preceded its breakout from the 2004 base. It has given up that move and now has to undergo more consolidation along with the other indexes to attempt to set up another point where it can attempt the next run.
Stats: -111.95 points (-1.05%) to close at 10505.83
Volume: 271 million shares Thursday versus 293 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
PPI is the primary economic report out Friday and it is released before the open. After hours there were earnings reports that failed to meet expectations (SUNW, CREE). If the market did not rally on the stronger INTC and solid AAPL earnings and guidance it will find it hard to use Thursday's after hours offerings as a call to arms. It may help flush out the last bit of selling on this downside, but in and of itself the news was not great.
That brings us to just how much further this selling has to go. As noted, the talk shows were asking pundits where investors should take cover, etc. Pretty sharp change toward an expectation of a longer downside than just a pullback and knifepoint turn. Perhaps the undercut of the 50 day EMA will trigger buying interest and a rebound; the market will have to show us that move with some strong upside volume and better breadth. The likely leaders would be SP500 and even SP600 as the small caps showed relative strength Thursday and held some key support. NASDAQ and SOX are the weak links as SOX is slipping into a full-fledged downtrend and NASDAQ is sagging toward a further fall, unable to take advantage of some solid earnings results from some big names. The market's best shot at a recovery from that sharp early 2005 selling was a sharp rebound off of the 50 day EMA. That has not occurred.
There is potential for more downside on NASDAQ and SOX and that can open up some downside plays. As noted earlier in the week, the market has been trying to bounce and we wanted to see a better price bounce to set up some downside in the event that move was weak. The Wednesday bounce was a start, but before stocks could set up better the selling resumed. We are looking at some potential downside plays that appear to have additional room lower from here but for the most part we still would prefer to see a rebound to better set up those moves.
Support and Resistance
NASDAQ: Closed at 2070.56
Resistance:
The 50 day EMA at 2092
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:
2050, prior resistance and the June high.
S&P 500: Closed at 1177.45
Resistance:
The 50 day EMA at 1181.21
1185, the top of the November consolidation range.
The 18 day EMA at 1192
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:
1175 second high in that double top that spanned late 2001.
1166 is some support.
1157 is solid support from January through March consolidation tops.
Dow: Closed at 10, 505.83
Resistance:
The 50 day EMA at 10,547
Price consolidation at 10,600 level
The 18 day EMA at 10,639
10,754 is the February high
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
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): 0.1% actual versus 0.4% prior
Import Prices ex-oil, December (08:30): 0.5% actual versus 0.7% prior
Retail Sales, December (08:30): 1.2% actual versus 1.1% expected and 0.1% prior
Retail Sales ex-auto, December (08:30): 0.3% actual versus 0.4% expected and 0.4% prior (revised from 0.5%)
Initial Jobless Claims, 01/07 (08:30): 367K actual versus 340K expected and 357K prior (revised from 364K)
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 3
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