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3/29/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: MHP
Buy alerts: AV; FAST
Trailing stops: NMGA; LCAV; CSX; PRZ
Stop alerts: GPRO; KOMG; COGN; PWI; VLO; WDC
SUMMARY:
- Market tries one more move higher but the buyers are gone & stocks roll over.
- Confidence lower but hanging in at good levels given high gas prices, rising rates.
- Small caps lead up then down, SP500 breaks definitively below its post-crash up trendline.
- Late week economic data may rescue market, but room to fall ahead of that.
Early bounce fades and then indices break definitively lower.
The repeated bounce attempts had been using up the buyers, but once more they were in the mix Tuesday morning, trying to rebound the market. There was no real news, but hope springs eternal. Stocks rallied with NASDAQ and SP500 topping near resistance. The large caps even put some distance between themselves and the March up trendline, showing some decent strength. When consumer confidence came out not as bad as some had presupposed, the market found some more legs.
NASDAQ was up 10 points on the high, moving past 2000. It reversed, however, and sold into the close, giving up almost 30 points high to low. Same story on SP500, SP600, etc. Volume rose across the board, particularly on NYSE as trade moved well above average. The breaks were clean; after three and one-fourth sessions trying to bounce the buyers were used up and the bottom opened. NASDAQ fell away from its 200 day SMA while SP500 dropped sharply from its post-crash up trendline.
The economy may be throwing off solid data for now, but the market is not pricing it in for the future. Indeed, with the Fed on a rate hiking campaign with unknown boundaries and oil hanging in well over $50/bbl despite a recent price decline, the two issues hanging over the market to start the year are taking stocks lower through significant levels. Perhaps by the jobs report on Friday there will be enough taken out of the market for a rebound ahead of earnings, but the breaks lower from former support on rising volume and widening negative breadth show the big money institutions and funds unloading stocks, pricing in a slower economic future as the Fed continues its rate hiking. Not a great vote of confidence for the FOMC, though dealing with high oil prices as a result of a low dollar does not make its job easy.
THE ECONOMY
Consumer confidence slides but still at significant levels.
The 102.4 reading was off the 103 expected, but January was revised higher from 104 to 104.4; gives with one had, takes away with the other. Not much of a takeaway, however, as confidence remains at levels that are still well in the 'safe' zone where consumers are not about to stop spending. Indeed, despite two months of decline, confidence is still at levels that exceed much of the 2004 readings.
That does not mean they are not worried about $2 to $3.50/gallon gasoline; they are. They are nervous, but they are still optimistic as the present conditions rose as did expectations. Now if both of those rose, how did the overall number fall? Because those thinking current conditions and expectations were worse rose as well. Not all is well with the consumer, but it is still very much in the game.
Consumers are a bit nervous about gasoline and somewhat about jobs still. If prices remain high into summer and push gasoline to a $3/gallon average (now at $2.13 nationally), confidence will take some serious hits. Until then nervousness typically does not translate into a consumption decline. Unfortunately for the market Tuesday, stocks did not take that same view.
Same store sales fall from prior week but show a nice year over year boost.
Depending upon what survey you look at, sales fell 1% or 0.7% from the prior week. Year over year, however, sales rose 4.5% and 3.9% respectively. An early Easter received the most credit though there were still complaints the weather was adversely impacting sales. Even with the weather, however, March sales are expected to post 3.5% to 4.5% year over year gains, still very solid and very hard to complain about. Growth in the face of $2+/gallon gas is strong testament to the current economic strength. The market is not pricing in a continued surge through the summer, however, given the recent breakdowns.
THE MARKET
The small caps are a good example of the Tuesday action: they were leading upside as the market rallied early. After testing near resistance, however, they rolled over and gave back twice what they gained in the early move higher. In doing so they broke sharply lower from the 50 day EMA broken last week, widening the breach and confirming the small head and shoulders base. Similar action in the large cap SP500 as it fell away from its March 2003 up trendline on volume, and in NASDAQ as it tanked from the 200 day SMA.
The market ran through its buyers with its failed rally attempts, and now the sellers are taking control once more. Volume has increased on the selling, showing more sellers than the buyers. Breadth moved sharply negative, and the advance/decline line that has flattened out.
Those weaker internals are just a symptom of some serious problems. NASDAQ gave up its March 2003 up trendline already, and now SP500 is crashing through on rising volume. SP600 is still holding its trend, but it also was still holding its 50 day EMA but was unable to hold back the overall market tide. Indeed, as noted above, it is starting to lead the downside, at least with respect to the size of the gains.
Overall it is a weak picture right now even in the face of strong economic data. That is the market telling us that it has no confidence in the future with an active Fed, threats of further inflation, expensive US oil prices, and gasoline that is threatening to get out of control long before the driving season arrives. The market may be overreacting; it always overshoots when it moves back and forth, but after this initial drop we will have to see where it finds its trend. Thus far 2005 has started much as 2004, i.e. a significant drop through the first quarter. As with 2004, at least it will be set up to rebound with some decent earnings in April.
Market Sentiment
Volatility was one topic of discussion again Tuesday, but in the bigger picture it is still very low. It is below last week's high near 15, below the January high, and off last August's spike near 20 in that selling. The bigger picture indicates there is a long way to go to get to a level where a serious rally is in order again. To get there, however, means more selling.
VIX: 14.49; +0.74
VXN: 17.99; +0.25
VXO: 13.93; +0.78
Put/Call Ratio (CBOE): 0.97; +0.31. Back up to the nineties as the indices broke sharply lower from former support. To this point in this selling, however, high readings have not yielded even the kind of interim rebounds seen throughout 2004. There is something more afoot here, and it is no mystery: the Fed continues its rate hiking started in 2004, it is ready to increase the pace, and it has been joined by oil prices pushed to uncomfortable levels by a falling dollar.
NASDAQ
Techs tried a move once more but then broke sharply lower below the 200 day SMA on rising trade. Still lackluster volume, but that does not change the distributive action that has cropped up.
Stats: -18.64 points (-0.94%) to close at 1973.88
Volume: 1.842B (+19.82%). Volume rallied sharply, and though still below average, it was a sign of distribution in the techs as big money tossed out more shares than they were buying of late.
Up Volume: 430M (-337M)
Down Volume: 1.401B (+688M)
A/D and Hi/Lo: Decliners led 2.71 to 1. Breadth is expanding to the downside, complimenting in a perverse way the distribution.
Previous Session: Decliners led 1.18 to 1
New Highs: 44 (-10)
New Lows: 129 (+44)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ rallied once more, tapping the 10 day EMA on the high before rolling over and selling off on twice as many points as it gained in the early morning session. It fell further from the 200 day SMA (1993), widening the break from that key support level. The fact that volume rallied on the move is further indication that the selling is much more intense than any of the recent buying. NASDAQ had tried to base above the 200 day SMA through the first quarter, but it is giving up the base, at least with respect to holding the key 200 day SMA. When indices break through the 200 day on rising volume, that is an indication that the big money investors are not stepping up to buy their favorite shares, but they are actively selling them. After a breach of a key level there is typically some accelerated downside but then a relative quick test of the breach. Thus we look for more selling near term and then a test later in the week as the additional economic data issues.
NASDAQ 100 has already made the test of the breakdown from its 200 day SMA (1482) and it has failed, falling on rising volume. There is some support near 1445 from the late 2003 tops before the year end breakout.
SOX broke back through the 200 day SMA (414), managing a late bump higher to hold some support at 410 where it found bottom just last week. That it is so quickly back at that level is not a good indication it is going to hold, particularly given that it broke the 200 day last week, rebounded to tap the 50 day EMA on some weak attempts Thursday and Monday, and then rolled back through as the market suffered some distribution.
SP500/NYSE
Sharp break lower from the post-crash up trendline with expanding, above average volume. Looking for a quick ride to the 200 day SMA.
Stats: -8.92 points (-0.76%) to close at 1165.36
NYSE Volume: 1.815B (+33.75%). Sharply stronger, above average volume as it peels away from an important trendline. Close to NASDAQ volume (1.84B) and definitely stronger on a relative basis. That would indicate the market is getting a bit sold out, but the fresh break lower after a few attempts to rebound indicates there is more downside ahead.
Up Volume: 546M (-222M)
Down Volume: 1.653B (+745M)
A/D and Hi/Lo: Decliners led 2.11 to 1. As with NASDAQ, the downside breadth expanded as the small and mid-caps led to the downside.
Previous Session: Decliners led 1.3 to 1
New Highs: 25 (-11)
New Lows: 89 (+17)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Three weeks of a sharp downtrend took a pause and started anew Tuesday with a strong volume spike as the selling resumed with force. SP500 has slipped to the January low (1163.75). It could find some support there, but it is more likely to more fully test the 200 day SMA (1150). It is clearly not in great health at this stage.
SP600 was another index that broke sharply away from a support level that it recently broke and could not retake (the 50 day EMA at 324.15). This completes a short 7 week head and shoulders pattern, and the culmination of the pattern takes it down near 305; with the 200 day SMA at 303, that adds up to a pretty good target. There is some support at 310 from the January lows, and the index will likely try to pause there. If it does that does not rescue it; that would just form the neckline of a larger head and shoulders base that started in December with that peak as SP600 struggled as it worked higher in December.
DJ30
The blue chips sold harder as well after a modest bump Monday. Volume jumped above average on the selling, something it did not come close to on the Monday bounce. DJ30 has a very toppy pattern, but it is already just over the 200 day SMA (10,376) and the January lows (10,368). That double layer could help it hold the line, but with the other indices selling hard it likely will undercut the 200 day and then make a rebound attempt.
Stats: -79.95 points (-0.76%) to close at 10405.7
Volume: 301 million shares Tuesday versus 213 million shares Monday. Volume returned to above average as the selling resumed, a more familiar pattern to DJ30 since peaking in early March.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Final Q4 GDP is out Wednesday, but there will likely not be any surprises that will impact the market one way or the other. At this point the market is ignoring news, good or bad. Sure some stocks were rewarded Tuesday with some news, but many that were also got sold back as the selling grew in intensity through the session.
The bigger news items hit Thursday and Friday, and by that time the market may be primed to try a rebound, particularly if the selling continues this sharp pace. Of course the market was primed for a bounce last week as well, and all it provided was a few lukewarm hops to the edge of the cliff before starting to fall over it on Tuesday.
More than likely we see further selling toward SP500 and the 200 day SMA. From there we may get the test of the move that takes it a bit higher. Better than expected economic data Thursday and Friday could actually be good news at that point given the market has been roughed up considerably and has been unable to provide any relief bounce. Things are getting negative in the technical pattern and in the sentiment (though overall sentiment indicators are not at extreme levels). That is typically all it takes to spark an interim bounce in a continuing downside move.
Indeed, after any further selling the next session and into Thursday will raise pessimism to a level that will spark a bounce. Now that some key support has been broken and the selling is taking the indices lower, that will spark more selling that will work to flush out the sellers near term. That will lead to a rebound to test those levels. For now we anticipate further sharp downside but then a quick bounce back as well heading into the jobs number. The spiking pessimism, the break lower below key support that often lead to rebounds, and the desire of short sellers not to be short ahead of the jobs report will lead to a rebound ahead of that number.
Where it goes from there depends upon the number to some extent. A strong number could have the effect of resuming the downside bias as it would only stoke fears the Fed is going to further ramp up its attack on interest rates. A lower than expected number would tend to give any rebound a bit more life, but that would only be shorter term; a softer number is not going to cause the Fed to announce it is ending its rate hikes. No, the Fed will proceed as planned, i.e. until it gets to 4% to 4.5%; from there it will look around and see what it wants to do.
Support and Resistance
NASDAQ: Closed at 1973.88
Resistance:
The 200 day SMA (1993).
2000
The 10 day EMA at 2002 and the 18 day EMA at 2018.
The 50 day EMA at 2045
The 50 day SMA at 2049
2050-54, prior resistance and the June high is stronger
2066 to 2070, the bottom of the January lateral move.
2100 from February and March.
January high at 2154 (early 2004 high)
Support:
Early October high at 1971.
Late 2003 highs from 1960 to 1970.
1921 at the September 2004 highs.
S&P 500: Closed at 1165.35
Resistance:
1175 second high in that double top that spanned late 2001.
March 2003 up trendline at 1178.
1185, the top of the November consolidation range.
The 50 day SMA at 1193 and the 50 day EMA at 1192.
1196, the mid-January high and the early December peak in the left shoulder.
1200
Q1 1999 lows at 1215
December high at 1218.
Support:
1163 is minor support.
1154-1157 tops from early 2004.
The 200 day SMA at 1150
Dow: Closed at 10,405.70
Resistance:
The 10 day EMA at 10,540
Price consolidation at 10,600 level is a key level.
The 50 day SMA at 10,660
The 50 day EMA at 10,649
10,754 is the February high
10,868 from the December 2004 high.
10,975 - 11,000 from Q4 2000, Q1 2001
Support:
10,400, the bottom of the November/December range
The 200 day SMA at 10,376
September high at 10,342.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
March 29
Consumer Confidence, March (10:00): 102.4 actual and 103.0 expected and 104.4 prior (revised from 104.0).
March 30
GDP-Final, Q4 (08:30): 4.0% expected and 3.8% prior
Chain Deflator-Final, Q4 (08:30): 2.1% expected and 2.1% prior
March 31
Initial Jobless Claims, 03/26 (08:30): 320K expected, 324K prior
Personal Income, February (08:30): 0.4% expected and -2.3% prior
Personal Spending, February (08:30): 0.5% expected and 0.0% prior
Chicago PMI, March (10:00): 60.5 expected and 62.7 prior
Help-Wanted Index, February (10:00): 41 expected and 41 prior
Factory Orders, February (10:00): 0.5% expected and 0.2% prior
Apr 01
Auto Sales, March (00:00): 5.4M expected and 5.3M prior
Truck Sales, March (00:00): 7.8M expected and 7.6M prior
Non-farm Payrolls, March (08:30): 220K expected and 262K prior
Unemployment Rate, March (08:30): 5.3% expected and 5.4% prior
Hourly Earnings, March (08:30): 0.2% expected and 0.0% prior
Average Workweek, March (08:30): 33.7 expected and 33.7 prior
Michigan Sentiment-Rev., March (09:45): 92.5 expected and 92.9 prior
Construction Spending, February (10:00): 0.6% expected and 0.7% prior
ISM Index, March (10:00): 54.9 expected and 55.3 prior
End part 1 of 3
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