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world stock market, us stock market
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2/17/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts issued Thursday: CNF
Buy alerts issued: None issued
Trailing stops issued: ZICA; JAH; WAT; AAPL (sold some calls)
Stop alerts issued: UNFI; PFCB; CHT
SUMMARY:
- Stocks start weak, finish weaker.
- Greenspan pushes private accounts as questions ignore the economy.
- Bond yields move up at Greenspan prompting.
- Leading indicators slip, but still trending higher.
- Jobless claims fall to 4 year low.
- SP500 falls back from prior highs as volume starts higher, downside breadth jumps.
- NASDAQ undercuts its 50 day EMA, making it tougher to form its base.
- Looking harder to make it three in a row for Friday.
Market turns back from prior highs on second day of Greenspan.
After moving up to tap at the late 2004 highs, SP500 and its NYSE brethren turned back down on some rising volume. Stocks started flat, sold off, and then failed a modest rebound attempt. NASDAQ undercut the 50 day EMA, tried to recover that level, but then dove lower into the close.
The overall lower volume rise to the prior highs was suspect given that mediocre trade, and with the higher volume selling Thursday the ground is even shakier. More than that breadth and new highs were modest as well on the rise. Thursday breadth expanded, but of course that was on the downside. The internals continue to show the same problems of late.
Some good earnings from TGT, WMT and several other stocks could not advance stocks further. You can blame the weaker leading indicators report, but the overall market rise was not that strong. Lots of good individual leadership, and the market gladly followed. Now it is testing that move, trying to set up for the next run at the highs. Thursday it was not a great test and the market has its work cut out for it if it is to hold the gains and make the next run at those year end highs.
Market is listening to Greenspan as it reads between the lines.
Market commentators once again spoke of the market ignoring what Greenspan said. If you take a view that the 'market' is comprised of floor traders, you could get that impression. They tended to downplay what Greenspan was saying with respect to the sluggishness the market was showing.
The reality is that the market is listening to what Greenspan is saying and it is reacting. Greenspan said it was a 'conundrum' as to why the long end of bond market was falling as the Fed raised the short end. He all but said the Fed was going to continue to raise rates and force the long end higher. The market has completed the thought for Greenspan: continue to raise rates and force the long end higher OR until something breaks.
That last phrase is what the market is reading into the Fed's actions over the past two sessions. We said it takes awhile for the import of his words to sink in, and we concluded Wednesday that Greenspan was making the case for ongoing rate hikes that could also increase in intensity if he saw no results. That is nothing new for Greenspan at all, and Thursday it looked as if the big money was withdrawing some capital at the prospect of more and stronger rate hikes and SS reform problematical. Couple that with continuing strong oil prices and you have some reason to take some long term money off the table.
Money was coming off the table Thursday as NYSE volume rallied as an afternoon rebound attempt failed. It was not a total reversal, but as it occurred right at the prior peaks after a mediocre volume advance. Indeed, volume on the NYSE selling was stronger than the upside sessions as it rallied this month. That is not an automatic kiss of death, but it is waiving that caution flag and is not a sign of health after a rebound that was on lower volume than the January selling and the Thursday selling. NASDAQ was part of the problem as well, selling back through its 50 day EMA. Volume did not show as sharp a rise as it came in below average, but there was distribution as it broke back through the 50 day.
The markets are typically smarter than the Fed or other government agencies or officials empowered to regulate the markets. We heard financial reporters parroting the childish analysis that the Fed would raise rates if the economic data continued to show improvement and would back off if the data started to show weakness. Go back to your textbook, sonny. The Fed has an agenda to get rates significantly higher. It is going to do that until it gets there or something actually breaks first. Interest rates work slowly, and when they do start to impact economic activity it is all at once as the cumulative weight crashes down on financial markets. It is like dropping bombs from high altitude on a target. You drop one and it is falling but you get impatient and drop another. Then another and another. Finally the fist bomb hits and does the job. Then the rest rain down on the target and damages everything else as well. The Fed's track record is pretty remarkable in its consistency. There is always the chance it will change its ways just as it is possible that geese won't fly south for the winter.
THE ECONOMY
Greenspan talks to the bond market.
As part of the Fed's agenda, Greenspan has to have long rates respond to the short end rate hikes. Wednesday and Thursday he was talking conundrums, but the message was clear to the treasury market: the Fed wants rates higher.
In the short run that had the desired affect. Treasuries sold some and the long yield rose. It has risen to the 4.16% level after dipping below 4% just a week ago. Thus Greenspan is having some impact with his 'rates better rise' tough love talk.
That works short term. It won't work long term. Markets always respond to immediate stimulus, but unless that stimulus is long term the will revert to the path they were already taking. That path is the conundrum Greenspan wonders about, and his words this week are not going to change that path. The larger forces of economics are at work. Again, it is close to amazing to us that Greenspan said the same conundrum was occurring in other world financial markets yet from what we read, people are only looking at the US markets and the trade gap to explain it
Greenspan clarifies support for private accounts.
There was more of the same as Greenspan gave his second day of testimony before Congress, but this time there was a very clear statement regarding private accounts. Wednesday Greenspan gave both sides something to argue about regarding private accounts. Thursday he made clear that he favors private accounts.
It was interesting how the statement came about. For once a representative asked a question that was purely economic in nature and she received a purely economic answer. Well, sort of. The question asked why private accounts versus just setting aside the money with the government after collected in taxes. The answer was what we have been saying and hoping someone in Greenspan's position would say: private accounts are important because it keeps the money in the hands of the citizens and is thus saved. If it goes to the government it goes into the general fund and will be spent. There is no trust fund for SS in the form that people think or the Al Gore 'lock box.' By keeping it out of the government's hands the money is truly saved for those capital investments needed to produce the real assets that will support seniors' retirement. The problem is not private spending; the problem that reduces national savings is government spending. Greenspan was being practical by stating the obvious: the only sure way to curb government spending is to keep the money out of the government's hands in the first place. When asked if it was risky to proceed with private accounts or other fixes, Greenspan's response was the most telling: it is risky to do nothing.
He went further. He said this would further create the sense of ownership among the poor as well as the well off, a sense that they have a stake in the republic. Greenspan noted this was actually imperative for the success of the US; citizens have to feel they have a stake in the future of the country as well as their own futures.
This was vintage stuff. Imagine a system of government with a limited central government that empowered the individual over the state. Novel idea. Something called the United States of America as founded under the Constitution.
The usual malarkey is spread like fertilizer.
In addition to the SS questions, there was a lot of coloring the record with misinformation. A lot of big numbers were thrown around regarding the deficit and Medicare to try and belittle the need to look at SS right now. As with the "imminent threat" misquotes that were made regarding the Iraq war, opponents of private accounts say that the SS problems have been incorrectly identified as a crisis. When private accounts or any fix of SS was proposed by Bush, he expressly said it was not a crisis now but this was the time to tackle the problem before it became a crisis. Politicians often adopt the notion that if you say something enough it becomes the truth. They also like to drop qualifiers such as 'not'. Thus the statement that SS is not a current crisis becomes SS is a current crisis. Repeat it enough and everyone forgets what was really said.
The deficits were another area of massive misinformation. Largest in history, job losses, high unemployment, etc. Greenspan took exception to some of this, but Greenspan has also adopted the tactic of not getting into heated exchanges with Congress when they are hell bent on painting the record for political purposes. For example some kept trying to get Greenspan to say whether or not SS was a crisis. He said it was serious and needs to be fixed well before 2008. You make the call.
The problem with all of these hearings is the politics. Asking a straight question that is not dripping with political overtones seems impossible. What actually happened when such a question was asked on Thursday? A straight answer was given, and it was not one that the questioner wanted to hear. It was, however, the only really genuine exchange of the session and it crystallized what Greenspan views as the problem facing SS. That can be extrapolated to the Medicare problem as well. As Greenspan said before the Senate (and as was said by the alien race in 'Contact'), small steps at first. Bold moves, but small steps to start and get everyone to see the benefits. Then move more aggressively.
January Leading Economic Indicators sag.
The year started with a 0.3% drop in the six month forward looking indicators (-0.2% expected). That represents a 0.6% swing from December that was revised higher to +0.3%. The notable weak indicators of the 10 that make up the report were stock prices and weekly jobless claims. That pushed declining indicators to 6 versus 4 rising. In February, however, stock prices have rebounded to recapture the January losses. In addition, jobless claims are tanking, hitting a 4 year low this week.
Thus the February indicators are most likely going to show a turn back up. This emphasizes the need to not pick any one particular data point, but look at the trend. Leading indicators are still trending higher but we note that the trend is flattening the past few months. As of yet they are still predicting growth down the road, but suggests the pace will slow.
Weekly jobless claims testing 300K.
For the second consecutive week new jobless claims are tapping at the 300K level. Thursday they came in at 302K (315K expected). The prior week was revised to 304K from 303K. This is the lowest reading in 4 years, and the 300K is viewed as some magical level of job growth. To the point, the Fed was obsessing over jobs when they were in the 300K range during the boom.
The 4 week average fell 4000 to 311,750. This is starting to trend significantly lower as well, as the lower weekly claims become more entrenched. That signals that the jobs market is stabilizing, at least with respect to job losses. It also suggest that job creation is picking up. Of course, topping the 150K per month job production would not seem to take a lot of economic growth. Greenspan noted this in his testimony, at least that job creation had lagged, apparently due to corporate America unwilling to add jobs except as the absolute last resort.
THE MARKET
It was not a positive session for stocks in more ways than just the price losses. Those were within reason for a pullback. The problem was the rise in volume, substantially so on NYSE, as stocks fall back. Breadth expanded on the downside. NASDAQ undercut the 50 day EMA.
Further, the point at which stocks turned adds intrigue to current conditions. There was a lot of talk on the tube today about a double top once the selling started. Low volume rebounds to former highs are indeed a problem as we have been pointing out. When stocks rolled over that caused a bit more of a stir than usual.
When you total up the move to this point it shows the weaknesses we have detailed in recent reports. The Thursday selling put them into sharper focus. NASDAQ, the laggard in the move, broke a key level though its volume was not surging. How SP500 and the small cap SP600 respond to this higher volume selling as the continue to pullback off the highs will tell more. The move up was not bullet proof, and this move down started with some selling vigor.
Market Sentiment
VIX: 11.77; +0.67
VXN: 17.53; +0.12
VXO: 11.68; +0.37
Put/Call Ratio (CBOE): 0.9; +0.16. Quickly back up to 0.90 on a resumption of selling. Two back to back closes above 90 helped set up the last rebound. If volume backs off on further selling and the ratio shows us another close above 0.90, that is a signal for us to look for an attempt to hold the line downside.
NASDAQ
Undercut the 50 day EMA on rising though below average volume. Lower high here is not a great signal.
Stats: -26.09 points (-1.25%) to close at 2061.34
Volume: 1.975B (+3.65%). Volume did not surge on the downturn, but it rallied as the index sold off late in the session. Not a sharp reversal, but distribution nonetheless as NASDAQ turned down from the 50 day SMA and cut through the 50 day EMA.
Up Volume: 361M (-459M)
Down Volume: 1.6B (+533M)
A/D and Hi/Lo: Decliners led 2.11 to 1. Decliners jumping higher on the selling, easily topping the upside breadth shown recently.
Previous Session: Advancers led 1.05 to 1
New Highs: 100 (-6)
New Lows: 32 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ remains within its range for the month even with this turn lower Thursday. We were not too upside about its action given its continued below average volume, though we did not like the spike in trade as the index moved lower in the afternoon. It tried a move through the 50 day SMA (2100) Tuesday on stronger volume, but it gave most of that move back. A lower high has formed right at some prior resistance at 2100 from the early January trading range, and that is part of what held it in check on the last bounce higher. That along with the break back below the 50 day EMA (2076) on some rising volume is the biggest problems associated with the session. It can sell to 2040 and still be within the February lateral range. Looks as if it will do that after filling the mid-January gap lower.
NASDAQ 100's break above its 50 day EMA (1539) was short-lived as it rolled over as well at the early January consolidation range near 1550. It too tapped at its 50 day SMA (1561) Wednesday before this turn down; two tries at two resistance levels failed. The gap lower form mid-January is filled and it looks like at test of the bottom of the recent range at 1500 is pretty much in the cards. We note that this is the second failure at the 50 day EMA since the index peaked in late 2004, potentially indicating a trend in the making.
SOX was selling as well but it did not undercut any support levels Thursday. It fell back to test its 10 day EMA, closing right at the 420 level that represents some price support from prior interim highs. Still well above the 200 day SMA (419.31) it broke over last week.
SP500/NYSE
Not in any major trouble upon the Thursday close, but the turn lower from the late 2004 highs on the strongest volume in two weeks shows that some of the recent buyers were taking some money off the table.
Stats: -9.59 points (-0.79%) to close at 1200.75
NYSE Volume: 1.575B (+6.24%). Volume on the selling topped the upside volume the past two weeks. Not only was volume higher than the previous session, but it was also higher than any of the accumulation sessions since the first week of February. Relatively weaker upside in the latter stages of the move as SP500 approached the prior high. Rallying to a former high on lower trade indicates less enthusiasm. Neither peak in this pattern was on strong volume, indicating that the accumulation has remained tentative even as the market recovered during this month.
Up Volume: 456M (-266M)
Down Volume: 1.094B (+352M)
A/D and Hi/Lo: Decliners led 2.01 to 1. No downside blowout but more stocks sold Thursday than rallied in the recent upside sessions.
Previous Session: Advancers led 1.07 to 1
New Highs: 297 (+7). Still managed a net positive overall, but the new highs have not shown the levels that would indicate widespread strength as an index approached its old high.
New Lows: 16 (+2)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 was down from the start, unable to continue the push toward the late 2004 high (1218). Volume rose in the afternoon as the index sold further and slightly undercut the 10 day EMA (1201) on the close. It is still near the top in its pattern, and if it had shown a couple of more low volume lateral moves it would be set to continue higher. Instead the sellers entered and took money off the table, dumping some shares they just recently acquired. There are still several significant support levels close at hand, but the two low volume rises to peaks and the resumption of higher volume selling is the overriding picture.
The SP600 sold to the 10 day EMA (327.23) Thursday on that rising NYSE volume. It is still set up quite nicely in its pattern, working laterally along the 10 day EMA as it tries to form a handle to its double bottom. Looks as if a shakeout to the 18 day EMA (325) is needed to fully set up the move. This index continues to look solid overall even as SP500 sold lower on rising volume. SP600 sold lower on rising volume as well, so it will need to hold the 18 day EMA and start the next leg from there.
DJ30
DJ30 sold to the 10 day EMA as well but volume remained below average. It also has turned back from the late 2004 highs (10,686), but again, volume was lower so the move more resembled a test. A pullback to the 18 day EMA (10,693) would be a normal test to reset the index for another try at the prior high.
Stats: -80.62 points (-0.74%) to close at 10754.26
Volume: 257 million shares Thursday versus 257 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Greenspan is finished talking for now, and Friday the PPI is the next important data point for the economy. The PPI gives a read on potential inflation from rising materials costs to producers, but the Fed focuses on consumer prices in the CPI as the more important read. Of course, Greenspan sees a conundrum to the falling long end of the yield curve. As usual the market will make up its own mind.
The key to the continuing action is whether the selling volume backs off. The indices are still in uptrends, and one session of higher volume selling after Greenspan speaks for two days is almost understandable. There is still room for SP500, DJ30 and the small caps to pullback and set up for another try at the recent highs. Volume will have to contract to show the selling is dying off as quickly as it started. Further, the past two Fridays have been solid upside sessions that were preceded by so-so moves.
That is the positive view. There are still a lot of problems with this second run toward the prior highs. The higher volume selling on SP500 suggests the low volume assent is failing. Until it shows it can hold support on lower volume we are going to be cautious with upside positions.
Support and Resistance
NASDAQ: Closed at 2061.34
Resistance:
2066 to 2070, the bottom of the January lateral move.
The 50 day EMA at 2076
The 50 day SMA at 2100
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:
2050-54, prior resistance and the June high
2047, the June high.
2000
The 200 day SMA at 1981
S&P 500: Closed at 1200.75
Resistance:
Q1 1999 lows at 1215
December high at 1218.
October 1999 low at 1233
Q2 2001 peak at 1310.
Support:
1200 acted as resistance and now may hold as support.
1196, the mid-January high and the early December peak in the left shoulder.
The 50 day SMA at 1193
The 50 day EMA at 1188
1185, the top of the November consolidation range.
1175 second high in that double top that spanned late 2001.
1157 is solid support from January through March consolidation tops.
The 200 day SMA at 1139
Dow: Closed at 10, 754.26
Resistance:
10,868 from the December 2004 high.
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
10,754 is the February high
The 10 day EMA at 10,744
The 50 day SMA at 10,643
The 50 day EMA at 10,606
Price consolidation at 10,600 level is a key level.
The late April, June peaks at 10,478 to 10,512
10,400, the bottom of the November/December range
10342 the early September peak.
The 200 day SMA at 10,302
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
February 15
NY Empire State Index, February (08:30): 19.19 actual versus 20.0 expected and 20.08 prior
Retail Sales, January (08:30): -0.3% actual versus -0.5% expected and 1.1% prior (revised from 1.2%)
Retail Sales ex-auto, January (08:30): 0.6% actual versus 0.4% expected and 0.3% prior
Business Inventories, December (10:00): 0.2% actual versus 0.2% expected and 1.1% prior (revised from 1.0%)
February 16
Housing Starts, January (08:30): 2159K actual versus 1925K expected and 2063K prior (revised from 2004K)
Building Permits, January (08:30): 2105K actual versus 2000K expected and 2069K prior (revised from 2032K)
Industrial Production, January (09:15): 0.0% actual versus 0.3% expected and 0.7% prior (revised from 0.8%)
Capacity Utilization, January (09:15): 79.0% actual versus 79.3% expected and 79.1% prior (revised from 79.2%)
February 17
Export Prices ex-ag., January (08:30): 0.1% prior
Import Prices ex-oil, January (08:30): 0.5% prior
Initial Jobless Claims, 02/12 (08:30): 302K actual versus 315K expected and 304K prior (revised from 303K)
Leading Economic Indicators, January (10:00): -0.3% actual versus -0.2% expected and 0.3% prior (revised from 0.2%)
Philadelphia Fed, February (12:00): 23.9 actual versus 17.5 expected and 13.2 prior
February 18
PPI, January (08:30): 0.3% expected and -0.7% prior
Core PPI, January (08:30): 0.2% expected and 0.1% prior
Michigan Sentiment-Prel., February (09:45): 95.5 expected and 95.5 prior
End part 1 of 3
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world stock market
us stock market
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