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world stock market, us stock market
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3/15/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: MDY; NMGA
Trailing stops: None issued
Stop alerts: MRVL; OPTN
SUMMARY:
- No late rally to rescue stocks.
- Retail sales in line, January revised sharply higher.
- Foreign investors buy up everything US.
- Greenspan reiterates stance on social security, states his idea of a lockbox.
- Oil speculation continues to run wild.
- Distribution reappears as modest buying off the 50 day EMA evaporates.
- Many stocks still holding near support but market overall acting top heavy once more.
Stocks still finding no buyers at the 50 day EMA.
Some decent news Tuesday had stocks set to continue the Monday rebound. Retail sales were in line with January revised higher, good earnings by LEH in the financial sector, and some more growth in regional manufacturing. That was enough to start stocks out upside along with the momentum for the Monday last hour rebound.
The bounce ran out of gas in about 15 minutes. Stocks trended lower the rest of the session. A short double bottom set up mid-afternoon on SP500, but unlike Monday there was no catalyst to set off a rally. Instead the indices sagged into the close. Volume ran higher, negative breadth took control. After failing the breakout but coming back to test and hold the 50 day EMA, the test of this important level is not generating enough buy interest, and that has opened the door for the sellers.
The sellers started stepping in some Tuesday as volume, still low overall, picked up as stocks slid back. Rising volume on a 50 day EMA test can be a good thing, but given that one bounce attempt has already failed, the rising volume as it rolls back over is not a positive. The longer you hang out in a bad neighborhood, the more chance you have of getting into trouble.
THE ECONOMY
February retail sales not quite as strong as expected, but January revised sharply higher.
The headline number was basically in line with expectations (0.5%, 0.6% expected), but ex-autos was quite a bit lower (0.4%, 0.8% expected). Seems in February consumers lost interest in autos as gasoline prices jumped. This is not new territory; over the past couple of years the retail sales figures have fluctuated significantly around expectations based on whether consumers were or were not buying cars that month.
The eye catcher was the January revision to +0.3% from -0.3% overall, and 1% versus +0.6% ex-autos. Strong revisions of prior reports shows the economists are underestimating economic strength, something that has happened ever since the recovery started. Seems no one really wanted to believe the rebound was starting even when the data point to it, and even today the economy is viewed as weak by many. Not too long back we still heard some of the more left commentators stating the economy was in 'tatters.' No matter which way you slice it, 'tatters' is hard to come by. It is not sterling silver, but it most certainly is not in tatters.
Electronics, clothing and food made up the bulk of the purchases, but we cannot forget gasoline. Sales of petrol rose 0.9% in February as cost drove the gains. Also, remember that retail sales are measured in aggregate dollars spent. Thus if prices of a good are rising (e.g., gasoline, food), that does not mean people were feeling great and spending more to joy ride down to the Pizza Hut and order a few more large pies. It can mean that, but in this environment it also means that it cost more to buy the same goods as last month. That is not always the best news. Overall the report was good and the trend remains higher: consumers are spending freely still though they are having to spend more on gas and food, something you would rather spend less on and spread the rest elsewhere.
Foreigners again fighting to invest in the US.
Every day you hear the worries in DC about when the foreign investors will pull out of the US and how that will cause a major collapse. Or you hear about how in a few years outside ownership of the US will top US ownership of our own assets. This is the same thing we heard in the 1970's and early 1980's when Japan was buying land, buildings, and just about any other real asset they could in the US. We seemed to have survived that quite well, and this fear of foreign investors wanting to own US is somewhat misplaced.
In any event, they were back at it in January (the most recent available data), buying across the board. $91.5B in US securities were purchased, the second largest on record after the May 2003 level. Billions in bonds as usual, but even a $16B bump in US equities (stock) ownership. US investors are running overseas even as foreign investors are starting to run to the US. Kind of like the two fishermen who live on opposite sides of the lake; they speed past each other on the lake as they head to the other's dock to fish.
In short, foreign investors, i.e. central banks, are still very ready to buy US in exchange for US consumers buying the products their countries produce. It may not be recognized as such, but this is the new world trade. It is not good for good trade but is a step removed: we buy their goods, but they cannot because their economies are not as strong. Thus they take the US dollars and then buy US treasuries and stocks, keeping the deficit funded, just in a further step removed.
Foreign hedge funds holding more US securities.
One more interesting and possibly troublesome development. Hedge funds located in the Cayman Islands and other Caribbean nations jumped their investment by $23B to $93B overall. Unlike central banks, hedge funds are here today and gone tomorrow with respect to their holdings. The more they hold the more volatility is injected into the system and the more likely of disruptions, i.e. not so orderly moves in the dollar. Everyone says as long as the dollar moves are orderly there is no panic created.
Thus the rise in these holdings is something of a concern. We have no basis for the following idea, but one wonders how much of this may be terrorist related activity with the ultimate aim to disrupt the dollar and thus the US economy. These funds are tracked pretty rigorously now and it is harder to hide the source of the money, but it is something to watch over the next several months to see if it continues to build. If it gets to a high percentage of the outstanding securities ownership, that is something that can be manipulated.
Greenspan reiterates need for private accounts but Congress hardly seems to care.
Many argue private accounts are a dead issue, and if it is, that is okay as well. The Social Security system is dying and if nothing is done it will die. Tax hikes won't save it; if they are hiked up to cover the shortfall the economic impact will be crushing. There won't be enough tax revenues to pay the difference and our standard of living will fall. If it fails then maybe we adopt a system that actually works.
Just look at all of the former communist satellites and the tax systems they are adopting: flat tax systems that are low enough that it is no longer worthwhile to spend the effort to evade the system. In addition, everyone pays the same so there is no feeling that anyone is getting a free ride. They are embracing capitalism and only hope that they have to pay more taxes under the flat rate system. They were under a system that did not work. Now they want a system that works and they know that capitalism and fair taxes are the way versus what they had before.
If the social security system ultimately fails then maybe we will set up a system that will work for future generations. It will be miserable during that period, but no one wants to seem to deal with a real fix to the system that will give us the real assets needed to generate the income to pay for the Boomers' retirements. We have called social security a Ponzi scheme before, and our continuing research has found another person in history who called it one as well. In 1967 economist Paul Samuelson called such programs Ponzi schemes as he lauded how a growing nation could use them because they were politically expedient. As Greenspan and anyone who looks at the tables knows, the US demographics no longer support the scheme. As with all Ponzi schemes, it has hit its limits and is destined to fail.
A major problem and what will most likely be the copout of this Congress will be that it focuses on solvency and won't fix the problem. Solvency would deal with raising taxes, raising the income cap that is taxed, 'add-on' accounts. All of these don't get the money out of Congress' spending hands. That means it will be gone when it is needed. Greenspan said worrying about solvency is a 'mistake'. He said that private accounts can indeed be structured to foster national savings, i.e. keeping the money out of Congress' hands. Again, very few seemed to be listening, and the 'solution' if any, will likely not be a solution as long as we are all apathetic about it. People spend more time planning their next vacation than they do planning for retirement. The same lack of concern regarding finding the facts is occurring with social security reform.
Leaving the retirement era before it really gets started?
Post WWII has brought about an age of prosperity. Many are enjoying long and prosperous retirements. They made supreme sacrifices that ensured the US would survive and then worked hard again to build the prosperity we enjoy. They worked hard, saved, made a better country for their children. That was before a lot of the entitlements went out of control. They saved for retirement at a time when the US was emerging as a world power, and it is paying off for them.
Now we have programs for just about anything you can think of. That crazy fellow on television hawking his government giveaway book just shows how much the government gives to any cause. We will go over some of the pork that is still around at a later date, but it is growing even as Bush says he is trying to shrink the budget. If nothing major is done with social security and Medicare they will suck up most of our tax dollars in the next 30 years. Add on to that the many welfare programs and other federal programs that are really state issues, you have a tremendous strain on the economy to produce enough to pay for it all.
As Greenspan noted Tuesday, in 1940 we retired on average at 69. Or course, the lifespan was only to 67 to 68, so you basically died working. In 2005 the average retirement age is 62, and now we live well into our seventies, and that is just the average. That keeps rising as well. So we have more people living longer and retiring earlier and relying on what used to be a stipend as a subsistence level payment for much longer. It is the same math problem we noted above.
Without the serious ability to save for your retirement without sending the money to the government to be frittered away AND the discipline to actually save the money, there will be no way for the next generations to retire as our parents have done. People will be working until they die once more, and that dream of living in a seaside house with no worries will be replaced by working, once more until we die. Maybe it will be in that seaside house, but working nonetheless.
It won't happen overnight, but as the entitlements take more and more from a smaller and smaller work force and a more and more strained economy, the dream of retiring early will fade. There has to be real savings that the government cannot spend or else there won't be any funds there. Again, there is no 'trust fund' with billions of dollars in it. SS goes from worker to retiree in real time. Soon there won't be enough workers. We have to build up savings or we will see the retirement dream end in a nightmare.
More oil speculation gone wild.
Today we heard two divergent opinions regarding oil prices. On the one hand, $100/bbl oil was forecast over the next year. On the other, it was mid-twenties. Now that is a divergence. It is also something we have heard before. Times change. Obviously. Supply and demand changes. Elementary, Watson.
But so does technology and our ability to find more oil and alternative sources. In the 1970's and 1980's we all learned in college that we were going to run out of oil in ten years. Oil was most certainly going to $50/bbl in short order on its way to $100/bbl. Five years later it was $9/bbl.
The times are different. New technologies allowed us to find more oil, but now we think once more we have found it all, and the oil traders are all lathered up about how high it can go. We hear 'the sky is the limit' and $100/bbl oil. Just as with the market in any stock, bond, commodity, etc., extreme views are often the sign that a top is setting up. A lot of building plans were made and foundations poured in the late 1970's when oil peaked and then plunged. Huge buildings built for energy companies were vacant and had floor space auctioned off for pennies a square foot. Oil got too high, the sentiment was too high, the economy rolled over, and everything went with it.
The key now is how high and for how long the current economy can withstand these prices. The sentiment tells us that oil prices are overdone for the near term. From what appears to be its new niche around $45/bbl it made this latest run to $55. It was able to avoid a major decline and rebound to that $45 level, and that makes that a solid support. We think it is going to come back to that range after this spurt runs out of gas, and the sentiment indicates it has done that. Down to $25/bbl? Man, that would be a hell of a drop and that would likely indicate that the US economy and other world economies had fallen into recession. That is not the scenario we necessarily want. Thus, if the low is correct then that most likely means oil was too high for too long and caused recession. We would prefer $40 to $45/bbl if that is indeed sustainable.
THE MARKET
NYSE indices have tested the 50 day EMA twice in the past three sessions. That is not good. You want to see an index test the 50 day EMA, rebound, and continue back up. What has happened is the indices have tested, tried a bounce, and then fell back to the 50 day EMA. Moreover, this last test was on rising volume; still below average, but rising. It is clear that thus far stocks have not been able to attract any real buying on this 50 day EMA test. After failing the breakout move they had a second chance here at the 50 day. The inability to generate any upside bounce on volume shows the weakness that led to the breakout failure remains. Still holding the 50 day EMA, and they can still generate a rebound as long as they do, but hanging out in a bad neighborhood is risky business.
NASDAQ and SOX certainly did not help out. NASDAQ slid back below 2050, making a lower low on this dip back from 2100. SOX sliced through its 50 day EMA on its way back to the 200 day SMA. Volume was up for NASDAQ as well. It obviously still needs more work on its base.
The return of distribution is a growing problem. Not a breakdown yet as the NYSE indices are still holding key support and NASDAQ is still basing. The overall action, however, is losing momentum, and if selling volume increases a breakdown won't be too difficult.
Market Sentiment
VIX: 13.15; +0.76
VXN: 18.68; +0.33
VXO: 12.85; +0.23
Put/Call Ratio (CBOE): 0.85; -0.16. The ratio fell even as the market fell. There are obviously some expiration factors at work here that pushed the ratio higher Monday as stocks rallied and lower Tuesday as stocks fell. As with much of the expiration week, indicator action is skewed whether it is put/call ratio and volume.
NASDAQ
Techs turned back at the 18 day EMA, unable to make it back to the 50 day EMA before rolling over on rising though still below average volume.
Stats: -16.06 points (-0.78%) to close at 2034.98
Volume: 1.85B (+6.95%). Volume edged higher as tech stocks fell, but was still below average, very much as it has been during this entire base. Thus we are not too worked up about it at this stage. NASDAQ simply needs more time to complete its base.
Up Volume: 574M (-485M)
Down Volume: 1.166B (+520M)
A/D and Hi/Lo: Decliners led 1.68 to 1. Breadth did not get out of hand, but we note it was much stronger than the recent upside breadth.
Previous Session: Advancers led 1.14 to 1
New Highs: 77 (+23)
New Lows: 73 (-10)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ tapped at 2100 again on its last high, the same top in February and mid-January. It failed that move and is now making a new low on this recent pullback. It is still above the late February low (2023) and the January low (2008). This it has not made a lower low and is still in its 10 week base. It is really struggling at the 50 day SMA (2067), unable to crack that level and sustain the move since early January. That shows the sellers still in control for now as it forms its base. Looks ready to test those prior lows before it is ready to try another move.
NASDAQ 100 was again on par with overall NASDAQ in its losses (-0.9%) holding at the key 1500 level. This is not the absolute bottom of its 10 week base but it is a level that has held this month. The 200 day SMA (1482) is not far below.
SOX broke through its 50 day EMA (424.75) though it is still holding above the 50 day SMA (417.87) and 200 day SMA (417). This keeps it in its pattern; as long as it holds the 200 day it will be in the base, but it is getting lopsided on this recent drop. Ever since INTC gave its update semiconductors have been on the decline.
SP500/NYSE
Large caps thudded down to the 50 day EMA on rising though still below average volume. It has given back the breakout and is threatening to do more.
Stats: -9.08 points (-0.75%) to close at 1197.75
NYSE Volume: 1.521B (+5.39%). Volume was up on the selling though still below average. This is the first day of distribution logged since last Wednesday when it sold hard. That lone distribution session was not that significant. This higher volume return to the 50 day EMA is noteworthy. It can mean that buyers entered as it hit this level, but given the double test of the 50 day EMA in three sessions that is less likely. Typically you see a clean bounce off the 50 day on volume if the buyers are at the ready to move in at this support level.
Up Volume: 404M (-585M)
Down Volume: 1.099B (+667M)
A/D and Hi/Lo: Decliners led 1.99 to 1. The small and mid-caps were the relative leaders, but they were still lower and that dragged breadth lower as well. Breadth is starting to reach more serious levels.
Previous Session: Advancers led 1.12 to 1
New Highs: 111 (+29)
New Lows: 32 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
No last hour recovery and SP500 closed at the 50 day EMA (1197) on some modest distribution (higher volume selling). Its second trip to the 50 day in three days puts it at risk of breaking down through this support, particularly after it reversed its breakout and has been unable to produce any upside off this key support level. Critical level for SP500.
SP600 tried a move over its 10 day EMA (329.42) but reversed there and closed lower for the session. It is still holding near its highs, but the 330 level is important as it represents highs from late December and February. Holding above the 50 day EMA (324.83) and still in good shape. If NASDAQ and SP500 break down further, there could be some serious pressure and testing by SP600.
DJ30
The blue chips fell below 10,754 support though volume continued to run well below average. Basically DJ30 has failed to hold its breakout as with SP500. It is still above the 50 day EMA (10,706) on light volume. That does not necessarily suggest any real problems, but it is clear it was not ready to hold the breakout and needed more basing. It is doing that right now.
Stats: -59.41 points (-0.55%) to close at 10745.1
Volume: 237 million shares Tuesday versus 237 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
More economic data hits Wednesday with the current account, housing starts and industrial production. All contain important information, but it is also all rather dated. The market is concerned with the impact of oil prices and a Fed raising rates and lowering money supply. Those are much more germane as to what will happen to the economy than one to two month old data.
Speaking of oil data, the weekly inventories are out at 10:30ET, and we want to see how oil reacts this time. The past reports have shown solid oil builds, and while oil stalled out some after the releases, it recovered and has held near $54 to $55/bbl. We want to see it start to waffle on the stronger inventories and of course, start a fall back below $50. Sentiment appears to have peaked, but as we know, sentiment and timing of moves are not necessarily directly correlated. The hype can get extreme yet it still can take time for price to turn down.
When oil does crack the market will have some breathing room to recover. Last year there was a correlation between oil jumps and stock prices. This latest jaunt to $55/bbl has roughly coincided with the market's failed breakout and subsequent selling. NASDAQ lagged all the way, and instead of the NYSE indices making a breakout and paving the way for a later NASDAQ breakout, they have fallen back and now it looks as if there is more consolidation ahead. That is, if SP500 can hold the 50 day EMA. NASDAQ is still in its base, but that does not make it immune from selling further toward the bottom of its base as well.
SP500 is at an important point and this quick return to the 50 day EMA shows some growing weakness. The smaller cap indices are still in decent shape, but NASDAQ and SOX are still working on their moves and now SP500 looks to need more work itself. Nothing necessarily more nefarious than that at this stage. SP500 can still rebound here at the 50 day EMA, but the likelihood of a quick reversal with some serious volume after this second quick drop to support has diminished.
Just going to be patient here and let it work this pullback through the system. No major selling and still holding above support. We note that SP600 and SP400 still remain in good shape and we are going to continue to look for the leaders that are making modest pullbacks and are holding near support.
Support and Resistance
NASDAQ: Closed at 2034.98
Resistance:
2050-54, prior resistance and the June high is stronger
2066 to 2070, the bottom of the January lateral move.
The 50 day EMA at 2066
The 50 day SMA at 2067
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:
2023, an early October 2004 peak.
2000
The 200 day SMA at 1992
S&P 500: Closed at 1197.75
Resistance:
The 10 day EMA at 1207
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 is being broken.
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 10,745.10
Resistance:
10,754 is the February high
The 10 day EMA at 10,811.
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 50 day EMA at 10,706
The 50 day SMA at 10,676
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 15
NY Empire State Index, March (08:30): 19.60 actual versus 19.9 expected and 19.19 prior
Retail Sales, February (08:30): 0.5% actual versus 0.6% expected and 0.3% prior (revised from -0.3%)
Retail Sales ex-auto, February (08:30): 0.4% actual versus 0.8% expected and 1.0% prior (revised from 0.6%)
Business Inventories, January (10:00): 0.9% actual versus 0.9% expected and 0.2% prior
March 16
Current Account, Q4 (08:30): -$183.0B expected and -$164.7B prior
Housing Starts, February (08:30): 2030K expected and 2159K prior
Building Permits, February (08:30): 2070K expected and 2132K prior
Industrial Production, February (09:15): 0.4% expected and 0.0% prior
Capacity Utilization, February (09:15): 79.2% expected and 79.0% prior
March 17
Initial Jobless Claims, 03/12 (08:30): 315K expected and 327K prior
Leading Economic Indicators, February (10:00): 0.1% expected and -0.3% prior
Philadelphia Fed, March (12:00): 20.0 expected and 23.9 prior
March 18
Export Prices ex-ag., February (08:30): 0.7% prior
Import Prices ex-oil, February (08:30): 0.2% prior
Michigan Sentiment-Preliminary, March (09:45): 94.9 expected and 94.1 prior
End part 1 of 3
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world stock market
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