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world stock market, us stock market
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3/10/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: None issued
Trailing stops: CENT
Stop alerts: ATI; MATK; DPTR; PMTI; XTO
SUMMARY:
- Stocks sell further, rebound on lighter volume in afternoon session.
- Fed: oil can rise to $80 - $100/bbl before it causes appreciable economic problems.
- Japan's past and present in our future?
- Market rebounds as anticipated, but the force is not with it yet.
- NSM/Intel combination tries to get stocks back on track
Follow through selling reverses for afternoon recovery, but volume lags.
After a 5 minute bounce on the open, stocks continued the downside momentum Thursday morning. NASDAQ and SP500 both undercut next support on that further selling with oil stocks and materials suffering the most once more. Indeed, SP600, home to many smaller cap oil stocks, was the downside leader all session whether the market was selling or rallying back. Yes, the market did rally back in the afternoon, retaking those support levels that were cracked earlier in the session. Indeed, SP500, DJ30 and SOX all rebounded and closed positive with NASDAQ and the mid-cap SP400 just missing a positive close.
Looked like a good reversal, but volume lagged on the recovery. NYSE volume was running stronger on the early selling, but by the time the afternoon rebound had pushed stocks back up, volume had tapered and came in lower. That made the promising looking price reversal somewhat punchless from a technical sense. Buyers came back in, but they did not overwhelm the previous sellers. It was not bad NYSE volume as it was still solid and above average; indeed, XOM traded was 30 million less, one-third of the volume decline. As a general rule, to clear up any questions, you want to see volume jump sharply on a reversal.
NASDAQ volume was lower as well, but NASDAQ closed lower. It too rebounded, but it is still working on a base, and its continued below average volume is perfectly normal for an ongoing base. NASDAQ continues to go about its business working on its base even as the money leaves oil and materials stocks. Some quiet accumulation as money moves around the market. It will have to ultimately make the breakout, but for now it is keeping its head down and working on its next breakout.
After hours Intel provided some better news about its revenues and margins and the stock shot higher, adding to the better than expected news from NSM earlier in the session. That popped the stock higher along with other tech indicators, but late in the after hours session the gains were eroding quickly. Whether the news from the chip sector is strong enough to lead the market is questionable. What needs to happen is the NYSE indices to hold support and resume the leadership they showed last week. The modest break higher has failed for now, but the patterns have not failed. That leaves room to recover, but the money moving out of the oil and materials stocks will have to be put back to work before that will happen.
THE ECONOMY
$55/bbl oil? No problem for the Fed.
Just when you thought the hype had already hit hyperdrive, the Fed one-ups everyone else. $55/bbl? Make it $60. Even better, make it $70/bbl. The head of the Dallas Fed came out with some pretty startling commentary Thursday, indicating that the Fed believes oil would have to move into the $80/bbl to $100/bbl range before there would be a serious threat to the US economy. Wow. That makes you wonder about all of these statements made by OPEC ministers and countries recently saying get used to higher oil prices was just part of a behind the scenes 'understanding' between the parties as to just where oil would be allowed to go.
We have all heard the argument how the economy can squeeze more out of a barrel of oil and thus higher prices don't hurt as much, but have we tripled our efficiency? In the past $35/bbl oil in real dollars for a sustained period was all it took to significantly slow the US economy. According to the Fed, you could double that and we would still be okay. Only if you get in the ballpark of triple that amount would the economy start to significantly suffer. Nothing we have read or heard until today suggests that is the case. Of course there was no report cited, just that good old belief of the Fed that we hear about on a lot of issues that are at best controversial in their conclusions.
Oil fell back over $1/bbl Thursday. Connection? You would have to be quite a conspiracy theorist to come up with any relationship. Given the hype around oil of late that rivals that of the fall coupled with the high volume selling of the oil stocks, one has a better stance to argue that oil has peaked temporarily and needs to retrench just as would any other thing that is traded in the market. It rallied 20% in short order, and when that happens there is typically some backfilling at least. As we have said it does not mean oil is going to tumble. Oil was quite happy with its new digs in the mid-forties before this last fear-induced spike higher, and we doubt it will fall below those levels or significantly slow on any retracement of this recent sharp upward move.
The US needs to look to the present of others to see our future.
We heard a snippet today warning how the US needs to get its fiscal house in order or suffer the fate of Japan. Back in 1998 and 1999 we discussed the coming problems of an aging population and the death of the most powerful demographic in our economic history, the Baby Boom generation. We noted that Japan's demise and prolonged depression (still ongoing) was not caused by excesses in the 1980's but by a giant demographic hole. In WWII Japan lost two generations of men, those that started the war and those teenagers that finished the war. Unlike the US, there was no surge in pregnancies and births after the war because there were simply not the same number returning from war.
Thus when the war survivors started to die in large numbers in the 1980's, Japan's consumption engine started to sputter. Since then they have suffered a major economic depression, and we continually hear about the Japanese consumer saving versus spending. They do save more, but they do so because fear things won't get better. And they are right because there are not enough earners in their prime to drive the economy by virtue of their consumption. When you don't have the consumption at home you have to rely on foreign consumers. Thanks to the US and its consumers, Japan has been able to advance its economy at least some.
In 1999 we were saying the US needed to solidify its technological lead over the world so when the Baby Boomers started retiring and dying the US would have the rest of the world as our consumers, ready to buy our technology and that would continue to drive our economy. Instead the Fed purposefully hobbled the economy and that of course backfired into the market and tech bust. We gave away a lot of our lead (sometimes literally in the case of China) and a lot of our jobs because of the major upheaval the bust caused and the fight companies had just to stay alive.
Now we face the retirement of the baby boomers and their eventual deaths. They won't be driving the economy anymore, just going quietly into the sunset. There is no similar big demographic group behind them. For the past 50 years we could rely on the boomers to consume us out of recessions. With the lower fertility rate in the US and the lopsided demographics between elderly and young workers, the consumption demographic won't be there and we don't have a lot that the rest of the world has to have. That means a lower standard of living because we don't have the growth we previously enjoyed to drive our earnings higher.
You think social security is a problem now? Try paying for it when we cannot even generate enough GDP to hold ground economically. Tax hikes won't bring economic prosperity and won't provide the revenues needed to pay for social security alone without even considering Medicare. We have embarked upon the path that will ultimately turn the most powerful economy the world has ever seen into an also ran. Those who look down the road see these problems and realize major changes have to be initiated with retirement savings. Greenspan realizes this, rather late in the game, and that is why he is pushing for private accounts so we can at least have some capital to make the investment in the capital goods that can help generate more economic activity than raising tax rates on the 1 or two remaining workers for every retiree.
This is the very dark side of the hole we have dug for ourselves by trying to make the federal government the benefactor for every citizen. No one wants to discuss it because the implications are truly monstrous to our way of life. This is one the Congress cannot tax its way out of because the tax base simply won't be there and the economic output won't be as great. If it raises taxes to the level needed to pay for the programs, the burden will be so great that there will either be a tax revolt or the economy will simply slip into depression as what money that is left for investment is sheltered and removed from the economy.
History is not without a sense of irony: the very programs that were born out of depression could ultimately be what put us back into depression. We need to act now. We needed to act 10 years ago when things were flush. Each day that passes and nothing is done the mountain ahead grows higher. Those fretting over the transition costs are worrying about petty cash when the company is heading into bankruptcy. Time to wake up and grow up and view the problem as an adult, not as a politician.
THE MARKET
After two and one-half days of selling stocks rebounded. NASDAQ and SP500 managed to retake support they broke early in the session with a somewhat impressive rebound. NASDAQ continued its base. SP500 and friends on the NYSE continued to fight to hang onto some semblance of leadership after their leadership groups in the energy and materials sectors tumbled.
The move off the lows was impressive point-wise, giving the look of a reversal. Volume was solid on NYSE but lower. As noted, the volume was skewed Wednesday, so the rebound was not weak. It just left inconclusive whether the buyers really took any control back. NASDAQ continued its base on lower volume. In this market that steady action is good to see. It is not enough, however, to turn things around near term. Stocks will have to show another good Friday session to do that. As they left things, the sellers were still in control of the NYSE.
Market Sentiment
Bulls versus Bears: Bulls rose to 55.7% last week, moving past the 55% level considered a bearish indication. Bears slipped ever so slightly to 21.6%, holding just over the 20% level considered bearish. After coming within 10% of each other in August (bulls at 40%, bears at 30%), the two have gone in opposite directions, and we have seen choppy trading since for the most part. Stocks did breakout to end 2004 and just recently attempted another breakout move, but none of the upside has been steady as each move higher is met with selling from those bears.
VIX: 12.49; -0.21
VXN: 17.88; +0.08
VXO: 12.53; -0.06
Put/Call Ratio (CBOE): 1.01; +0.04. The ratio moved over 1.0 on the close after a solid move into the nineties Wednesday. This has been a pretty reliable indicator of upside moves.
NASDAQ
Techs undercut 2050 but then rebounded for a modest loss on lower, below average volume.
Stats: -1.57 points (-0.08%) to close at 2059.72
Volume: 1.841B (-3.75%). Volume declined on the selling and rebound, giving the reversal left punch. As NASDAQ is still in its base the action remains decent.
Up Volume: 859M (+200M)
Down Volume: 954M (-261M). Pretty evenly matched up to down volume Thursday.
A/D and Hi/Lo: Decliners led 1.46 to 1. Very modest negative breadth .
Previous Session: Decliners led 1.97 to 1
New Highs: 44 (-37)
New Lows: 70 (-1)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Techs were well into their third day of selling, undercutting the next support level at 2050 but rebounding to retake that level as well as 2054. It remains below the 50 day MA (2070 EMA, 2075 SMA), but it also continues its base and the rebound continues its formation of the handle, the lateral and slightly lower move that shakes out the last sellers. Yes NASDAQ is under-performing the rest of the market, but it is also working on a below average volume base; you would expect a bit of underperformance. We want to see it continue to hold 2050 on the close and then work toward a breakout above 2103, the February intraday high.
NASDAQ 100, the larger cap techs, posted the better gain, a 0.2% move. It reached all the way down toward 1500 on the low before rebounding. Volume remained low and below average on the move as the large cap techs continue to base as well.
SOX continued to show the most strength, helped by NSM's better than expected earnings results. It undercut the 18 day EMA (433.41) on the low and rebounded for a decent gain. It is still in its 16 week reverse head and shoulders and is looking for the breakout. INTC may not help it, however. It was up early after hours but then gave it all back late in the session as the conference call wore on.
SP500/NYSE
The large caps sold through the 18 day EMA, tapped at 1200, and rebounded for a modest gain on some decent volume. Good recovery but needs more.
Stats: +2.24 points (+0.19%) to close at 1209.25
NYSE Volume: 1.602B (-5.92%). Significant drop in volume but still well above average. There was more selling in the oil sector but a lot of the volume could not match the Wednesday levels, and thus the volume comparison is not apples to apples. Would like to see better volume as it continues the rebound. Note how NYSE volume continues to rise more proportionate NASDAQ.
Up Volume: 769M (+392M)
Down Volume: 810M (-509M). As with NASDAQ, pretty even volume.
A/D and Hi/Lo: Decliners led 1.4 to 1. Very modest downside.
Previous Session: Decliners led 3.96 to 1
New Highs: 61 (-64)
New Lows: 27 (-6)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Nice test toward some support at 1200 and then a rebound to close positive, holding the 18 day EMA (1207.62) on the close. Not bad action, basically it did what it had to do to stay alive. That is something the market has done this year, often pulling out of a dive just before the crash. Volume was lower but still above average. Would have liked to see stronger reversal volume, but after trade was skewed higher Wednesday by some huge selling in some big energy names the result was not bad. Looks ready to try a rebound, and Friday has been its session.
The small caps continue to flop around like a carp out of water ever since hitting that new all time high last week on what looked to be a good breakout move. As noted above, the small and mid-caps are home to a lot of small oil and gas companies, and those stocks have been tattooed the past few sessions. SP600 took another 0.9% licking Thursday, breaking through the 18 day EMA (329.52) on the way toward the 50 day EMA (324.45). It has to hold the 50 day and make its rebound move.
DJ30
After a sharp drop Wednesday on strong XOM volume the blue chips managed a recovery off the 18 day EMA (10,805). Volume faded to its usual below average level of the past two weeks. Still no real power on DJ30 but that is nothing new.
Stats: +45.89 points (+0.42%) to close at 10851.51
Volume: 224 million shares Thursday versus 267 million shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Intel had some decent things to say regarding the current quarter, but after surging most of the after hours market it fell like a stone in the last half hour of late trade. That late trade can be deceiving so we have to see where it opens Friday.
Fridays have been good for the market of late, and it will need one tomorrow to get things back on track. The breakout by the NYSE indices has failed as the energy and materials stocks rolled over. The indices are still in solid patterns, however, and that reversal Thursday was a start after some harder selling.
Again we see many stocks that have pulled back to the 18 day EMA and are still holding that near support, looking for an upside catalyst. We saw similar patterns Wednesday, but that failed to produce a move Thursday. Stocks did sell a bit more as anticipated and then they rebounded to hold that support once more. That keeps many in position to continue upside if they do indeed get that catalyst.
As noted, it is uncertain if the INTC news will provide the catalyst. It was up then it was down after hours. With many stocks still holding up in their patterns and holding near support, the outlook for a resumption of the upside move still has potential. Thursday was a start but it did not have the force. It may recover Friday, but we would be surprised to see a sharp increase in volume.
Support and Resistance
NASDAQ: Closed at 2059.72
Resistance:
2066 to 2070, the bottom of the January lateral move.
The 50 day EMA at 2070
The 50 day SMA at 2076
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 is stronger
2047, the June high is minor support.
2023, an early October 2004 peak.
2000
The 200 day SMA at 1990
S&P 500: Closed at 1209.25
Resistance:
Q1 1999 lows at 1215
December high at 1218.
October 1999 low at 1233
May 2001 interim peak at 1266.
Q2 2001 peak at 1310.
Support:
1200 held as support on the Thursday low.
1196, the mid-January high and the early December peak in the left shoulder.
The 50 day SMA at 1195 and the 50 day EMA at 1197.
1185, the top of the November consolidation range.
1175 second high in that double top that spanned late 2001.
Dow: Closed at 10,851.51
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:
The 18 day EMA at 10,805 held again on the Thursday close.
10,754 is the February high
The 50 day EMA at 10,698
The 50 day SMA at 10,677
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): $11.5B actual versus $5.2B expected and $8.7B prior (revised from $3.1B)
March 10
Initial Jobless Claims, 03/05 (08:30): 327K actual versus 310K expected and 310K prior
Wholesale Inventories, January (10:00): 1.1% actual versus 0.6% expected and 0.4% prior
Treasury Budget, February (2:00): -$113.9B actual versus -$100.0B expected and -$96.7B prior
March 11
Trade Balance, January (08:30): -$56.8B expected and -$56.4 prior
End part 1 of 3
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world stock market
us stock market
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