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world stock market, us stock market
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3/05/05 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: PTEN; FLIR; VMSI
Trailing stops: None issued
Stop alerts issued: CCMP
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:
- Jobs report helps propel a modest follow through on SP500, DJ30, SP600.
- 'Just right' jobs data has economists crowing about low inflation.
- Factory orders rise unexpectedly as business spending remains strong
- ECRI indicating stronger economy, but rising inflation.
- NASDAQ lags, but it is building its base, cleaning up behind the breakouts.
- Market defying oil prices and Fed rate hikes, maintains 2004 base and breakout.
NYSE stocks breakout with boost from jobs report.
Despite oil prices hitting $55/bbl, the Fed still clearly on a rate hiking campaign and long end interest rates finally on the rise, stocks found reason to rally last week. For the second week it was a slow start and then a nice price recovery. It was no rip roaring rebound, but a steady rise once again in the face of spiking oil prices and gasoline prices set to jump about $0.25/gallon over the next couple of weeks. Yes energy got a bit speculative last week as gasoline futures hit a record high even as gasoline inventories hit record highs. Still stocks sucked it up and kept going up.
Friday's gains broke SP500 to a new post-2001 high, same with DJ30. SP600 and SP400 (small and mid-caps) moved to new all-time highs once more with the small caps leading the entire market. They look pretty darn good for a sector that was supposed to be on the skids by now as the recovery transitioned from, well, a recovery, to a sustained expansion. The large caps were going to take over and deliver the gains in the future. Sound familiar? This was the same thing many analysts were saying in January of 2004 after a strong stock rally and GDP surges in 2003. Friday we were hearing the same thing from more analysts even as the small caps broke to another all-time high, finally able to coax the reluctant large caps to a breakout as well.
The catalyst was indeed the jobs report. We were worried about a too hot report, surmising that now that everyone had given up on bigger gains that one would pop up. It did, but it was a 'just right' report, handily beating expectations but not a huge blowout. With the wage figures flat, many viewed the report as nirvana. Stocks responded but not in a nirvana-like manner. Their action was much more blue collar, just going to work, punching the clock, and grinding out a gain that just happened to be some new multiyear highs for SP500 and DJ30.
Indeed, it was questionable whether volume was going to rise on the session. It started strong but was fading intraday. In the end NYSE managed to edge volume higher, adding some accumulation on the breakout move. It was a minimal breakout with gains around 1% (would like to see stronger price gains) and slightly higher volume. Breadth was huge on NYSE (over 3:1) as the small and mid-caps led higher. A follow through but not a barnburner. It was mixed as well. NASDAQ lagged far behind in gains, volume and breadth. It barely managed to hold the 50 day EMA it broke over early in the session as it was selling back toward the close. Breakouts on NYSE, but techs are lagging, still forming their base. If this rally holds, techs may just be in position to provide important backup, the next wave of breakouts after the energy, materials, retail, healthcare and other better performing sectors have their runs.
In short, there was a breakout and follow through, but it was the same action we have seen all along: making the moves but without a lot of power that is a clear sign of major interest. It has made the upside break even in the face of selling that, on individual days, was stronger than any upside action shown in the rally. A breakout, but one similar to watered down light beer. Hard to complain with the price move, and there was some punch in the upside break. It may not be textbook strength, but non-tech, more 'industrial' stocks are responding more to the worldwide demand for commodities and materials and what that means for the world economy as opposed to worrying over what $50+/bbl oil does to the economy. That is why techs are lagging thus far, and whether they can complete their base and breakout versus failing will tell a lot about where the market ultimately ends up.
THE ECONOMY
February jobs report scratches the itch.
262K versus the 225K expected even as the unemployment rate rose to 5.4% (5.2% expected). December and January jobs were revised modestly higher as well. Seems the weekly jobless claims and other anecdotal evidence was showing the true story. The fact that most of the predictions were for the under was another sign it was time for a good number. The power of sentiment.
It was the largest gain in four months with gains spread across the economy. Manufacturing gained 20K for its first rise since August. Service led the pack with 207K, business services 81K, construction and retail 30K each (the best retail gains in a year). The wide-ranging gains are a sign of a general pickup in the entire economy.
It was not all strength, however. The workweek held steady at 33.7 hours, making it four months in a row at that level. The factory workweek fell to 40.5 from 40.7. These typically strengthen right before and during a period of job expansion: when the current workers are having to put in so much extra work they start to grouse then management hires. That they are holding steady or even fading is not a good sign for continues, steady jobs growth.
Wages flat.
Moreover, even with solid jobs gains average hourly wages were flat over January. That was the first time since late 2003 that there was no growth in wages. Not that the growth has been huge, rising 2.5% year over year.
This was enough to make the economists happy with respect to the theory of wage-led inflation. Supposedly, if workers start making significantly more money they go out and spend it on a finite number of goods and that drives up inflation: more money chasing the same amount of goods. When wages broke a long string of modest month to month rises, the economists that buy into this bogus theory were happy. Problem is, the Fed and Greenspan both buy into this theory so it is something we have to watch.
Factory orders rise unexpectedly.
Even if that wage-led inflation theory held any water, this economy is surprising us and others with its ability to generate supply. January's 0.2% gain easily topped expectations for a 0.1% drop. December was revised higher to 0.5% from 0.3%. Love to see those upward revisions as that shows growing strength.
As for supply, non-defense capital goods ex aircraft (a.k.a. business spending) rose 2.9% on top of a 3.4% gain in December, also an upwardly revised number. Just coming up roses all over the place. This really is good news, however, because we were very concerned that 2005 would see a significant slowing in business spending after the incentives started to phase out. Congress did a good thing in extending the expensing at $100K even if they did remove SUV's from that provision. That has helped drive further capital investment, and that is the lifeblood to the ability to provide supply adequate to meet demand.
Many of you know one of our main worries behind the rising inflation is how demand has led supply on this entire recovery because demand never really slacked off and the first incentives (i.e. tax cuts) were demand side. That only fueled more demand at a time when there was no business investment. It was not until the expensing and accelerated depreciation hit that businesses found it more cost effective to invest in their businesses as opposed to sit on the cash. It was behind from the start, however, and that sparked the first hints of inflation in a long time.
If business investment remains strong through the ups and downs of the economy then supply may just catch up with demand and give us a buffer on inflation. You can talk all you want to about wage-led inflation and other Phillips Curve theories, but inflation is caused when supply does not meet or exceed demand. Supply is continuing its expansion, in part thanks to corporations' willingness to invest in productivity and profits versus people. Ironic. Everyone is focusing on the jobs report for signs of economic strength the real story is in the factory orders and business' willingness to do what it can to maximize profits after a nasty decline and recession.
ECRI shows rising economy and not surprisingly, continued inflation pressure.
That supply side investment needs to continue. The Economic Research Institute (ECRI) weekly indicators is still on the rise, up for the week following an upwardly revised reading the prior week. This is a 'faster' indicator than the Conference Board's LEI, and it tends to be quite accurate in calling downturns and turnarounds. ECRI also has a good inflation indicator. It was down in February from a downwardly revised January. That would appear to indicate inflation slacking, but the index is at a level that indicates rising inflation even though some of the upward pressure has recently backed off.
Strong indicators in the face of potential problems.
All of this ties in to how much potential inflation, how the Fed responds, and how oil prices impact the economy. As discussed last week, rates are still at levels that are not impinging economic activity. Money supply has been sharply curtailed the past three weeks, however, and that is where the economy gets its real lifeblood. The Fed may be moving at a measured pace with rates, but money supply is retreating with some haste.
And there is also oil near $55/bbl, the recent move on a somewhat speculative spike, but nonetheless it is over $50/bbl and no downside pressure in the near future. As noted last week, the market is ignoring it for now, but high oil prices to the economy are like a prizefighter going to the body of his opponent; eventually it takes its toll.
That is historically how it works, and up until recently the bond market was indicating something to that effect with the short end rising while the long end slipped lower. That suggests a potential slowing down the road: demand for longer term money does not command significantly higher rates than short term money, and that means the futures holds less need for money to invest, etc. The past week to ten days, however, the long end has reversed and has moved smartly higher with respect to yield. Friday bonds rallied and pushed yields lower, but if the ten year not breaks through 4.45 or so, it could give another sharp bump higher. Overall, however, it is just recovering from the recent flatter curve, and thus is not really signaling anything other than a continued expansion.
THE MARKET
Lots of talk after the close about the Dow making a new post crash high, SP500 as well. The small cap and mid-cap indices made all-time highs, but they are old hat at this point as they have made new highs all along. One index of note that received little press was the Dow transports (DJ20); it hit an all-time high itself. With DJ30 moving to a multiyear high it was something of a one-two combination.
NASDAQ is being left behind and SOX has started to struggle again. No breakdown on SOX as it tries to make a higher low off the 18 day EMA. NASDAQ rebounded Friday, but volume was lower as it did. Volume has struggled all along of late as NASDAQ struggles to get over the 50 day EMA. The problem: NASDAQ is in a base. The rest of the market is comparatively having no problem breaking higher while NASDAQ cannot gain traction. Its volume is overall lower as it works laterally, and that is a sign of basing.
We were fretting over NASDAQ a few weeks back, but given the price/volume action and the look of the pattern, it is pretty clearly basing. Best to let it work through this; when it is ready it will make the move. As noted above, whether it does or does not will tell us more about how far SP500 and friends can go. The market can move in split fashion for awhile, but when NASDAQ finishes its base it will need to join the party. That looks to be still a couple of weeks down the road.
Market Sentiment
VIX: 11.94; -0.99
VXN: 18.13; -0.63
VXO: 12.05; -0.51
Put/Call Ratio (CBOE): 0.81; -0.01. Holding surprisingly high given the breakouts.
NASDAQ
Showed a doji right at the 50 day EMA on lower volume. It spent the week moving laterally on low volume, working on its base versus a breakout.
Stats: +12.21 points (+0.59%) to close at 2070.61
Volume: 1.84B (-4.29%). Lower below average volume once more indicates basing action. Volume has been lower for over a month now. Again, that is not bad basing action.
Up Volume: 1.059B (+421M)
Down Volume: 687M (-563M)
A/D and Hi/Lo: Advancers led 1.36 to 1. In contrast to NYSE, extremely blas breadth, and it has been that way on up and down sessions.
Previous Session: Decliners led 1.13 to 1
New Highs: 139 (+39)
New Lows: 47 (-2)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
More of the same with a gain to finish the week, but basically an offset to the Thursday selling. Low volume as it continues its 10 week base. Trying to form a double bottom but running out of steam below the 50 day SMA (2082). For a base the action is not bad: low volume lateral move along the 50 day EMA and holding above the 200 day SMA (1988).
NASDAQ 100 is showing similar action, sliding laterally just below the 50 day EMA and above the 200 day SMA. It too is in a 10 week pattern, still needing to break through the 50 day EMA and form the right side of the base.
SOX sold again, but very modest selling and trading inside the Thursday trading range. Held above the 18 day EMA (431) as it made the test, trying to make a higher low on this test. A strong move off the 18 day here is a good indication the breakout over the 200 day SMA is going to hold.
SP500/NYSE
Very nice looking breakout to a new post-crash high on stronger, above average volume. A decent follow through.
Stats: +11.65 points (+0.96%) to close at 1222.12
NYSE Volume: 1.635B (+1.19%). Volume crept higher Friday, putting in another solidly above average session. After the Monday distribution it recovered nicely and ended the week with a couple of accumulation sessions. While the accumulation volume was a bit lower than the distribution, they are starting to outnumber the fewer but quite sharp distribution sessions.
Up Volume: 1.205B (+433M)
Down Volume: 406M (-416M)
A/D and Hi/Lo: Advancers led 3.26 to 1. Tremendous breadth as all of the NYSE stocks were hitting stride.
Previous Session: Advancers led 1.14 to 1
New Highs: 427 (+229). Some very respectable new highs finally showed up. It only took a breakout from almost all of the indices.
New Lows: 16 (-7)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Good looking break higher even if volume could not outdo the prior distribution. About everything else was hitting on all cylinders. The other complaint: the price gain was not quite as huge as we wanted it. Otherwise a pretty break higher from a nicely formed 10 week base that used the 50 day EMA as support.
SP600 posted a new all-time high. Yawn. Nice break higher, easily clearing 332 and looking surprisingly well for an index that is ready to turn over leadership and decline. It was showing some shakiness in December and that led to the January selling, but it held and formed a base, and Friday broke out of that base yet again.
DJ30
The blue chips were, as usual, talked about the most on the financial stations as if those 30 stocks are the best representation of the overall market. Its proximity to 11,000 was the focus, but the key was it broke over the post-crash highs (10,868) and held the move as it closed near its session highs. Volume was even up, but it was a rather anemic below average tally. It was not a powerful move, but this whole move has lacked power.
Stats: +107.52 points (+0.99%) to close at 10940.55
Volume: 240 million shares Friday versus 233 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THIS WEEK
For now the market continues to defy spiking oil prices and gas prices that are to follow shortly. The economic numbers continue to show surprising improvement in Q1 when some of the economic stimulus has previously expired. That indicates a more sustainable advance in the future, and as we know, the market looks toward the future and not what has already happened.
With sharply higher oil prices and the Fed on an open-ended rate hiking campaign the market has plenty of obstacles ahead. The market started the year selling hard as some of the positives to end 2004 evaporated: lower oil prices and a Fed that appeared to be on the wane announced it was not only continuing rate hikes but potentially more intensive rate hikes were on the table. After the late year breakout from the 2004 base by SP500 was given back as oil gained and the Fed maintained its rate hiking stance, things did not look too great for 2005.
While it has stumbled along, the market, however, has not given up the breakout. SP500 and the small and mid-caps held their gains, forming a new base on top of the 2004 base. That 2004 base is something we have discussed before, and its similarity to 1984 and 1994 has been noted. The Fed was hiking rates in those years and the market formed a big sideways base. When the Fed had done its work the market made the breakout. With that long base in 2004, the market had consolidated the late 2002 through 2003 market rally and was set to continue higher if the economy was going to continue. In short, history repeating itself in strikingly similar fashion.
With oil prices rising and a still active Fed, that was in question to start the year. It has been a stumbling, less than pretty base. There was more distribution than accumulation at first, and even as the indices recovered and built the last part of the base there was no clear accumulation. Bucking the headwinds the market has broken out again. Just as with the base, however, the move was not a powerful breakout as it seemed to almost back into the breakout. It was not a great breakout, but the market often just 'gets by', overcoming that wall of worry. Volatility is extremely low and the bulls/bears sentiment is near bearish levels, but the market made the breakout. Ultimately you have to take your cues from the market and the leaders, and that is why, despite the misgivings regarding the quality of the move we have been taking positions as stocks gave the buy signal.
Once more Friday proved to be a winner for stocks. The breakout was delivered. It was less than powerful, however, and the pattern had been a test of the breakout early in the week. We anticipate some sort of test this week as buyers did not pour in when DJ30, SP500 and the SP600 broke higher once more. As always we don't want to see any volume reversal that pushes the breakouts right back down. Buyers are less than dominant so we can expect to see continued ragged action unless Friday rang the dinner bell. Again, we are not counting on that.
The strength remained in the same spots: energy, materials, homebuilders, healthcare. What about NASDAQ? It is still closer to the bottom of its 2005 base than the top. It is lagging, but it is not selling. It is forming that base and when you look at a year and one-half chart you still see a double bottom trying to form up. On a weekly chart the past six weeks looks like a nice flat pattern on declining volume with a resumption of upside volume last week. Thus it is not holding back the rest of the market as much as it is building up to provide support down the road. Indeed, looking at tech sub-sectors such as data storage you can see some decent patterns building. That is the positive for the market ahead.
Support and Resistance
NASDAQ: Closed at 2070.61
Resistance:
The 50 day EMA at 2069.55 is not completely cleared.
The 50 day SMA at 2083
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:
2066 to 2070, the bottom of the January lateral move.
2050-54, prior resistance and the June high is stronger
2047, the June high is minor support.
2023, an early October 2004 peak.
2000
The 200 day SMA at 1988
S&P 500: Closed at 1222.12
Resistance:
October 1999 low at 1233
May 2001 interim peak at 1266.
Q2 2001 peak at 1310.
Support:
The 10 day EMA at 1208.
December high at 1218.
Q1 1999 lows at 1215
1196, the mid-January high and the early December peak in the left shoulder.
The 50 day SMA at 1195
1185, the top of the November consolidation range.
1175 second high in that double top that spanned late 2001.
Dow: Closed at 10,940.55
Resistance:
10,975 - 11,000 from Q4 2000, Q1 2001
11,350 from the May 2001 highs
Support:
10,868 from the December 2004 high.
The 10 day EMA at 10,811
10,754 is the February high
The 50 day SMA at 10,672
The 50 day EMA at 10,667
Price consolidation at 10,600 level is a key level.
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.
March 07
Consumer Credit, January (3:00): $4.8B expected and $3.1B prior
March 10
Initial Jobless Claims, 03/05 (08:30): 310K expected and 310K prior
Wholesale Inventories, January (10:00): 0.7% expected and 0.4% prior
Treasury Budget, February (2:00): -$91.5B expected and -$96.7B prior
March 11
Trade Balance, January (08:30): -$56.7B expected and -$56.4 prior
End part 1 of 3
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