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us stock market, trade stock
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01/18/05 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts issued Tuesday: None issued
Buy alerts issued: DUSA; AVN; ESLR; STEM; DADE
Trailing stop alerts: None issued
Stop alerts: 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. To subscribe to the Daily alert service you can sign up at the following link:
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SUMMARY:
- Nice price bounce, but only half the market was really in the game.
- Boat Show indicator reveals impact of energy prices, commodity rise.
- Foreigners still more than ready to invest US.
- Bifurcated follow through fails to quell concerns about market despite some nice isolated moves.
- Earnings results mixed, producing mixed responses.
Stocks continue rebound, hold gains into close.
Once again stocks managed to hold gains into the afternoon and on to the close. Cause for celebration indeed as the indices put together their first back to back up sessions for 2005. Good intraday action once more, but when the dust cleared the move was mixed. Small caps and large caps led the action as stocks rose broadly. Techs rose as well (0.9%), but volume could not match the NYSE increase.
Thus you had a modest follow through on one hand (SP500 showed rising volume, decent 2:1 breadth, but just a 1% gain) and a lower volume relief bounce on the other. One follow through is enough to continue stocks higher, but with the split market you would prefer to see a stronger follow through on that one index. That usually does not happen, however; if one part of the market is weaker it tends to hold the other areas back some as well. On the other hand, with a modest follow through you would like to see everything move together modestly with all indices showing a modest follow through. That did not happen either.
In the end it was not a great follow through move but there were quite a few good individual moves all over the market. NASDAQ and SP600 recovered their 50 day EMA. SP500 bounced sharply off of its 50 day EMA. It was not a doormat session, but it was not a clear follow through to the Wednesday reversal session. Not a lot has been clear with this market, however, since the sharp early year selling. Since it has shown steady (though sometimes barely perceptible) improvement. Not strong upside, just a lack of that hard selling and a better close here and less selling volume there while mostly holding near the 50 day EMA. Nothing to put you at ease stocks were going to rally.
Then last week we started hearing the turn in after market comments, another indication that the selling was having an impact on the bullishness. It didn't do much to turn the overall bullish sentiment, but there was an impact. Kind of like the action Tuesday; a move in the right direction, just not the ideal move. That still provided many solid moves in the Tuesday session.
THE ECONOMY
Boat Show indicator shows consumer hitting balking point on price increases.
Houston held its boat show the past two weekends, and across the nation other cities are doing the same. One theme we heard from all shows: low traffic and sticker shock. The St. Louis show expected 140K visitors; 40K showed up. Sales were down 50% across the board versus 2004.
High gasoline prices were frequently cited by dealers as making hard to even get people in to look at boats with gas tanks holding 50 gallons or more (and needing all of that for a day of boating). China's usage was supposedly heading lower, but its oil usage rebounded in November. Oil prices have rebounded as well, approaching $50/bbl Tuesday before reversing intraday and closing lower. Many potential boat buyers opted to forego this show and see if prices break back down. Remember, oil was on the verge of a major breakdown, but it recovered from the brink and has since posted a run close to $10/bbl. Buyers were adopting a let's wait and see approach and stayed away.
Those that did show up were taken aback by prices. A $25K fishing boat in early 2004 cost $29K to $30K in 2005. The steel that goes into the boats is up four-fold. The petrochemicals used to make the resins in the hulls and nearly every other part of the boat shell have at least tracked oil prices. Benzene, an aromatic used in hull manufacturing, is basically unavailable. Most dealers indicated they were just waiting for the next price increase.
You can see the impact of the inflating commodities prices on two fronts: some consumers already made up their mind they were not going to buy (cost of running the boat?) and others that were willing to buy, but not at the higher prices.
Hearing similar stories from auto dealers.
Auto dealers are running into a similar problem: higher prices making it harder to meet consumer pricing expectations. The auto dealers have been in the incentives game a bit longer than the boat dealers, and they are trying out a strategy in hopes of keeping a relatively steady stream of buyers. Prices are going up, but the auto makers are also continuing incentives. Raise the price and at the same time slap an incentive on it. The overall price goes up, just not as fast. And of course, margins are lower. For the consumer it is that same old question about any sale: a rebate off of what? If you raise prices, $3000 cash back declines in value. How long it can continue remains to be seen.
Foreign investors still quite happy to buy US.
We have written several times before regarding the economic topic since the election, i.e. foreign funding of the US trade deficit given a declining dollar and widening gap. In theory a weakening dollar and widening gap will, at some point, cause foreign investors to look elsewhere to put their money to work.
We have also written several times about how that 'point' has yet to ever be demonstrated in history. It makes for a good discussion as at some point it certainly seems plausible. Moreover, there are very good reasons that foreign governments, the primary 'investors,' continue to more than willing to hold US currency and investments. Many of their economies depend upon the US consumer, having geared their industry toward that end during the lean economic years when only the US economy was strong enough to buy their exports. At this level they are more than happy to hold US investments, even more so given that the US economy will be one of the strongest of 2005.
Tuesday more data came out in support of this premise. In November foreign investment hit a 9 month high with $81B flowing in, well above October's $48.3B. The dollar rose on the news as fears were alleviated that the $60.3B November trade deficit might top investment. A big jump in stock purchases ($14.5B versus $3.5B in October) was a highlight though US investors sent $16.1B overseas into foreign stocks. Some cited that as a problem (offsets the inflows) but it begs the point: foreigners are still willing to invest in the US at these trade gap levels, and they are still willing to do so in a big way. Again, a 3.5% to 4.5% 2005 growth rate (the Fed said this again Tuesday) is a strong incentive to invest US despite concerns about gaps and deficits. Again it goes to show that solid growth pretty much outstrips all other concerns. If the US can add to that growth forecast some serious spending reductions and entitlement restructuring we would see even more US investment. Of course, the latter is going to be a real fight.
THE MARKET
The large caps and small caps, intermittent bedfellows at best in 2004, teamed up Tuesday to produce the best moves in the market. SP500 bounced off its 50 day EMA on rising volume and SP600 retook its 50 day EMA on that strong NYSE trade as well. Mid-caps were strong as well. If large caps and small caps team up, that is powerful medicine for the market.
NASDAQ was not strong. It retook the 50 day EMA but it could only muster average volume, lower than last week and the lowest of the year. That was the key disappointment in the Tuesday move, but it was also a heavy tech earnings session after hours with YHOO, IBM, MOT and AMD among the names reporting. That kept the action under wraps somewhat, and perhaps those results will provide the impetus to push NASDAQ up on rising trade as well.
The relatively light NASDAQ volume and narrow breadth suggest some short covering on that index but still not a lot of longer term buying commitment. Thus while we saw some good volume breaks higher Tuesday, NASDAQ will have to join the party for this SP500 and SP600 break higher to have staying power.
Market Sentiment
VIX: 12.47; +0.04
VXN: 18.75; +0.18
VXO: 12.67; -0.18
Put/Call Ratio (CBOE): 0.86; +0.14. Moved higher on an upside session. This indicates some continuing covering of short positions that started last week.
NASDAQ
Recovered the 50 day EMA but volume barely made it to average by the close.
Stats: +18.13 points (+0.87%) to close at 2106.04
Volume: 2.009B (-3.97%). Volume started slow with the early selling, but picked up as the index recovered off the morning lows. That is exactly what you want to see and volume looked to be on pace to match pre-Friday levels. It went dormant over the afternoon, however, and was unable to surge into the close. Thus a disappointing volume session, the lowest of the year.
Up Volume: 1.292B (-43M)
Down Volume: 608M (-122M)
A/D and Hi/Lo: Advancers led 1.72 to 1. As with volume, breadth could never get to the level of a solid follow through (minimum of 2:1).
Previous Session: Advancers led 2.05 to 1
New Highs: 104 (+39)
New Lows: 24 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
Good price break through the 50 day EMA (2092) and through some resistance at 2100. Again, volume did not match pace with the price gain. Needs to put another upside move on the table, taking out 2114 (50 day SMA) on 2.1B or better volume.
NASDAQ 100 cleared the 50 day EMA (1565) as well but that lower volume leaves it in the same position as NASDAQ overall. Large cap techs were lagging some ahead of the first series of big tech reports of the earnings season.
SOX bounced up a bit further after retaking some support at 400. This index is still in an ugly pattern, and the AMD earnings miss after hours is not going to help.
SP500/NYSE
Excellent move by the large caps, springing off the 50 day EMA on the best trade of the year outside of the second and third session of January. Significant upside for both the large caps and the small caps.
Stats: +11.46 points (+0.97%) to close at 1195.98
NYSE Volume: 1.607B (+20.35%). Excellent volume jump as SP500 finally broke off of the 50 day EMA with a decisive price and volume move. A fine performance and would love to see NASDAQ do the same Wednesday.
Up Volume: 1.2B (+258M). No question as to the buying Tuesday.
Down Volume: 370M (+9M)
A/D and Hi/Lo: Advancers led 2.15 to 1. Not great, but good enough for a follow through.
Previous Session: Advancers led 2.08 to 1
New Highs: 164 (+61)
New Lows: 23 (+3)
The Chart: http://www.investmenthouse.com/cd/^spx.html
After 8 sessions on the 50 day EMA (1182) and a shakeout late last week as SP500 spent a close below the 50 day, the large caps really found traction Tuesday, surging off that level and clearing the 18 day EMA (1192) on a strong, refreshing shot of volume. Breadth was good enough to show it was not just a short covering move. SP500 provided the follow through move, leading along with the small caps.
SP600 was the leader Tuesday (1.2%), rising on that strong NYSE trade. A leader in 2003 and 2004, SP600 has been struggling even before the start of 2005 and the selling that brought. A solid move back through the 50 day EMA (315.06) for the first time in 8 sessions. A very solid break higher on strong NYSE trade, and a good start to a recovery. The Friday and Tuesday moves, however, have not broken up that toppish pattern that started forming in December. That left shoulder is at 326.22, still a long way out.
DJ30
The blue chips posted a 128 point reversal from low to close, reaching back below the 50 day EMA (10,550) on the low and then rallying furiously to close just below the 18 day EMA (10,631). Volume rallied as well, moving back above average. Back through 10,600 is an important move but it still has to take out the 18 day and continue to move upside with volume. IBM posted an impressive quarter and was up after hours; it could provide the impetus for a continued move.
Stats: +70.79 points (+0.67%) to close at 10628.79
Volume: 267 million shares Tuesday versus 223 million shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Earnings were the focus after hours Tuesday, and they will continue to garner their fair share of attention Tuesday. Interest rates and oil will not fade from the spotlight, however. Tuesday no less than four FOMC members were out on the stump with comments covering the waterfront from growth estimates at 3.5% to 4.5% to an idea that inflation targets may not be a bad thing. Perish the thought. Greenspan, despite periodic lapses (and unfortunately at key points in history) has maintained that a flexible approach based on what the numbers tell you is the way to go. That lingo may not have been practiced at all times (the Fed always starts out a hiking campaign that way but ends up getting impatient and jettisoning that approach), but it helps keep the market calm.
What is happening is a power struggle forming up to fill the void when Greenspan leaves. Heck, the Fed is even keeping track with its own scorecard as to which FOMC members have the most impact on rates by just talking. Obviously Greenspan is way out in front, but Bernacke is a distant second (says little, but when he does it supposedly means something) along with a couple of others bringing up the rear. With McTeer gone to Texas A&M to relive his corps cadet days, there is some risk the Fed may get one of the more old school, Phillips Curve followers in the chair. Not really likely, however, as the Bush administration's short list includes mostly outsiders that take a more flexible approach. What we would really like is for someone who would say this is where we want the rate to be and then move it immediately. How did that Oak Ridge Boys song go? Dream on . . .
That was a long way of saying the CPI is out Tuesday and that despite the lower PPI, consumer prices are the real Fed focus. This has direct impact on Fed policy as that talk about the potential need to jettison the 'measured pace' in favor of more intensive rate hikes has been hinted last week. No gain is expected overall, but as with PPI, we know energy prices have moved back up. Thus a negative read would be better as it give more leeway with respect to other prices. Sounds good in theory, but as the Boat Show indicator demonstrated, prices are rising because commodity prices are at points where they cannot be passed on further. If they were producers would lose money on each sale. As we were instructed by the judge in the MSFT case, companies are not supposed to do that.
As for oil, it started the session stronger, moved over $49/bbl, but then faded as the stock session wore on. It reversed its gains and closed negative. That hardly takes the pressure off. After coming close to completing its head and shoulders pattern it has rallied almost $10/bbl.
Earnings really started after hours with IBM, YHOO, MOT, AMD and others. IBM posted a nice quarter and was up after hours. YHOO is still printing money as its ad business is strong; it too was up after hours. MOT beat but warned about Q1; it was down. AMD just missed; not much of a surprise as it warned last week and was pummeled at that time. It may pressure the chips, but they were already expecting the worst given that prior warning. Problem is, where is the chip sector going to get help? INTC had a decent report but did not help chips. Maybe it was the timing as the market was not ready to rally at that time.
What stocks need to provide Wednesday is a continued move with NASDAQ joining with volume and breadth to help bolster the solid SP500, SP600 gains. A softer open would not be bad as some profits are taken, but then a resumption of the move on volume. Much depends upon how the marquis earnings reports are received. Results were fine, but the outlook was mixed as with MOT, and how that shakes out overnight will tell us more. As noted, NASDAQ was quiet before the earnings, and if we get some stronger upside volume we are going to continue moving into solid positions as they move higher.
Support and Resistance
NASDAQ: Closed at 2106.04
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 2092.38
2050, prior resistance and the June high.
2023 from the early June 2004 high.
S&P 500: Closed at 1195.98
Resistance:
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:
The 18 day EMA at 1191.73
1185, the top of the November consolidation range.
The 50 day EMA at 1181.92
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, 628.79
Resistance:
The 18 day EMA at 10,631
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 10,550
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 18
NY Empire State Index, January (08:30): 20.08 actual versus 25.0 expected and 27.07 prior (revised from 29.93)
January 19
CPI, December (08:30): 0.0% expected and 0.2% prior
Core CPI, December (08:30): 0.2% expected and 0.2% prior
Housing Starts, December (08:30): 1905K expected and 1771K prior
Building Permits, December (08:30): 1985K expected and 2028K prior
January 20
Initial Jobless Claims, 01/14 (08:30): 345K expected versus 367K prior
Leading Economic Indicators, December (10:00): 0.2% expected and 0.2% prior
Philadelphia Fed, January (12:00): 25.0 expected and 25.4 prior
January 21
Michigan Sentiment-Preliminary, January (09:45): 97.5 expected and 97.1 prior
End part 1 of 3
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