* * * *
04/05/05 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: LMT; ATYT
Trailing stop alerts: SYNC
Stop alerts: SRNA
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. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Stocks continue to stumble laterally, posting a second gain on light volume.
- Greenspan places faith in market to correct recent "frenzy" in oil prices.
- Jobs market continues to show few signs of increase in traditional jobs.
- Market refuses to rally but refuses to give in as well.
- Important session as market responds to two low volume bounces.
- Earnings reports start; RIMM pounded after hours.
Stocks put together back-to-back gains as they try to consolidate.
It is hardly a pretty picture with stocks jerking back and for the past two weeks, and Tuesday was no exception. Stocks posted a second straight upside session, only the second time since the early March interim high. Interestingly, both occurred in the past two weeks as the market stumbled laterally following the March drop. The action is still distributive, but the market has refused to give in, and Tuesday was another example.
The indices posted a gain, but as typical of late there was no strength. Volume edged higher on NASDAQ but was still way, way below average. NYSE volume was much lower as its indices posted gains. Breadth was very light. NASDAQ recovered the 200 day SMA and survived an intraday test. SP500 edged past the March 2003 up trendline and held that on the close. Indeed that was the best part of the session: for the second straight day stocks held their gains into the close. Back to back upside closes, the second since this 'lateral' move started just over two weeks back. There is some potential here, but it needs work.
As for the day, stocks bounced up and down through the end of lunch, entering the afternoon session in the top half of the range and looking good for the afternoon. Greenspan gave the market a bit of a boost with an 'all is well' speech to the petrochemical industry in San Antonio. Basically Greenspan said the market would take care of the oil price spike on its own. The market seemed to swallow that premise, though it did not surge on the words. Oil fell, but stocks did not surge.
They held steady until word hit that GM's credit rating was cut to near junk on its long term paper. The market lurched lower with NASDAQ making a quick run down to the 200 day SMA. It felt it, made sure it was still there, then as quickly rebounded. By the close it was back to the pre-GM levels. Once more stocks managed to close near the session high, this time fighting back from some bad news. Slight shift in the intraday action shows a bit more bullish inclination. Just a bit. This low volume rebound the past two sessions has not turned back the distribution, but it is fighting the selling and trying to transition the market from selling into once more basing. With it holding on ahead of earnings it is trying to position itself for a bounce on good news. Thus far the early results have not delivered anything such as good news (e.g., RIMM after hours).
THE ECONOMY
Greenspan speaks, tries to sooth the savage beast of oil.
Greenspan made his first of three speeches this week, this one delivered to the National Petrochemical and Refiners Association. No mention of inflation, no mention of interest rates. Lots of talk about oil, but not in the sense that it is a tax on the economy or that it could be inflationary.
Instead Greenspan told the group that all will be well with prices. In describing the current state of oil prices he used adjectives such as "spiking," "soaring," and "frenzy." It was pretty clear that Greenspan thinks the price is overdone. He noted the spot market price was lower than the futures contract price and that would allow suppliers to build inventories at the lower price in anticipation of a higher price. More supply typically means lower prices.
Greenspan also referenced the current state of refineries, but the only thing he said was that they were "worrisome." Yes, they are worrisome, enough so that Saudi Arabia said today that it was going to increase its refining capacity. Good thing because here in the US there won't be any major refining capacity added because of environmental and liability concerns. Refining capacity is also worrisome in its impact on supply and demand. We have heard the XOM CEO say that supply was not a problem. There is plenty of supply in the world right now but prices are not falling.
As we noted earlier this week, it is not the current supply that is the problem but the future supply. That is the VERY REASON that the spot price is lower then the futures contract as Greenspan cited. There is plenty of supply so spot prices are lower than future prices when it is expected we will burn through the current supply and find a squeeze. The refining capacity only works to exacerbate prices because gasoline is rising even as crude supplies (and indeed gasoline supplies) rise past last year's levels. Thus with a stagnant refining capacity, increasing crude inventories would have to be downright huge to put a big enough dent in oil and gasoline prices. Even at that point gasoline prices would still be problematical because of refining capacity. Crude could be backed up for miles at the refineries, but they can only push through so many barrels per day. Talk about bottlenecks, and as we know from the Fed's harping back in 1999 (when, of course there were no bottlenecks in any part of the economy), those can create price spikes.
In sum, Greenspan put his faith in the market to lower prices, but with the regulation curtailing refining capacity, the market has been skewed. No refineries have been built in the US in the past twenty years and even if they are contemplated they won't be on line in time to help us this year or even next. The oil market sold on the Greenspan speech with light crude prices falling 0.97 to $56.04/bbl. That appears to be a momentary pause in the price. Maybe his words will kickstart a decline, but that remains to be seen.
Challenger reports fewer layoffs.
86K job cuts in March was the lowest number since last August as each successive month reported in excess of 100K in cuts. The number would tend to support a growth in non-farm payroll jobs, but even the Challenger people said the employment picture is 'confused' at this time. Responses from the survey indicate that while business is increasing, costs are much higher as materials and fuel rise as a lower dollar and inflation cut into their buying power.
The confusion or conservative approach to hiring is reflected in the plans to hire. They fell by half from 42K in February to 18.5K in March. That was the weakest planned hiring since October. Thus there are fewer layoffs but there are also fewer planned hires. The result is a marginal non-farm payrolls job market as companies continue to strive to implement cost-saving technologies in order to offset rising costs associated with materials, inflation and a weaker dollar.
THE MARKET
Another gain but no strength as market stalemating near support/resistance.
Stocks posted another gain Tuesday and did so by coming back from a mid-session crisis on the GM debt downgrade. They are showing some tenacity that was not evident in the recent selling with this ability to hold the gains into the close.
That said, the moves are not very strong with the lower upside volume and weak breadth, and they are not enough to turn the tide on the distribution of the past month. What has happened, however, is that the push lower has been stymied as NASDAQ tries to hold the 200 day SMA and SP500 tries to hang onto the March 2003 up trendline that started at the end of the long downtrend.
The action is still volatile, but it always is as a transition tries to shape up. It is also holding a rough lateral line the past two weeks even as it bounces up and down. The action is still distributive, however, as the downside volume continues to outstrip the upside sessions. That shows more sellers are still dumping stocks than accumulating them, but they are unable thus far to push the market as a whole lower after the March selling that was the second leg of the current selling wave.
It is trying to make a stand and trying to convert the action from distribution to neutral and then to accumulation. It is still in the first stage as volume remains weak on the up sessions and there was just another fresh distribution session last Friday. Indeed, the current rebound this week is a low volume response to that sharp selling in what are still quite toppy patterns in SP500 and DJ30. NASDAQ continues its attempt to build a base, though after the recent selling at a lower level. In short it is still in the process of attempting to hold the line on the selling and start rebuilding. It is showing some renewed tenacity, but it has not done anything yet to change the character from the recent distribution.
Market Sentiment
VIX: 13.68; -0.43
VXN: 17.67; -0.4
VXO: 13.29; -0.2
Put/Call Ratio (CBOE): 0.85; -0.03
NASDAQ
Recovered the 200 day SMA and held the gain to the close, rising on some slightly higher though still below average volume.
Stats: +8.25 points (+0.41%) to close at 1999.32
Volume: 1.714B (+5%). Volume was up on an up session, something NASDAQ has not done since the March selling began. Trade was still well below average so the move had little buyer strength. If NASDAQ can continue to work more or less laterally and stop the distribution, that helps turn the tide from negative to more of a positive base building character once more.
Up Volume: 904M (+63M)
Down Volume: 745M (-31M)
A/D and Hi/Lo: Advancers led 1.11 to 1. Very modest once more as the move was still weak overall.
Previous Session: Decliners led 1.19 to 1
New Highs: 50 (+8)
New Lows: 119 (-16)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ posted its second up session on slightly rising volume, moving up through the 200 day SMA (1993) and knocking at the moderately important 2000 level. This continues the volatile two week move along the 200 day SMA, still showing overall distributive action but with some improvement Tuesday. As noted with the market overall, NASDAQ has shown some tenacity in hanging onto the 200 day SMA despite the inflation and oil fears. It is a long way from making a breakout, or at least it has yet to show any signs it is ready for a strong move. A couple of low volume up sessions tacked onto some distribution is not a change of character. The fact that it has hung in there near the 200 day SMA is a start.
NASDAQ 100 rallied as well on slightly rising volume and closed just over the 200 day SMA (1482.71). It too has moved laterally along this key level, trying to fight off the distribution, the most recent last Friday. Not a strong move yet and still struggling to simply hang on, but trying to stretch the move out laterally and base more as opposed to breaking lower.
SOX held 410 again, showing a nice hammer doji at this important support level. It too has moved laterally the past two weeks along this support level and just below its 200 day SMA (413). As with NASDAQ the SOX is stretching the move laterally while refusing to give in to the selling.
SP500/NYSE
The large caps moved back above the March 2003 up trendline, but it had no volume on the move.
Stats: +5.27 points (+0.45%) to close at 1181.39
NYSE Volume: 1.493B (-10.69%). Major drop off in trade as SP500 made its second consecutive gain of the week. Declining volume both sessions this week in response to the Friday high volume selling. Again, this action does not counter that hard selling.
Up Volume: 1.105B (+81M)
Down Volume: 749M (-274M)
A/D and Hi/Lo: Advancers led 1.31 to 1. Another weak breadth session shows little broad support for these two modest moves this week responding to the Friday sell off.
Previous Session: Advancers led 1.08 to 1
New Highs: 74 (+15)
New Lows: 38 (-19)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 moved up through the March 2003 up trendline (1181) but volume backed off to below average levels for the first time in 6 sessions. After all of the above average volume recently, this drop off shows no support the move. SP500 tapped the 18 day EMA (1183) on the high and then eased back to the close. Even more volatile than NASDAQ in its recent up and down moves. It is still quite weak to the upside and showing more distribution and no accumulation. The lack of volume as the answering move to last Friday indicates SP500 is not ready for the big time move back up.
The small caps are similar to SOX in their action, holding tough at support at 320. A big dip to end the month was met immediately by a recovery and then the current lateral move. The pattern is still toppish and it is still struggling below the 50 day EMA (323.57), but as with the rest of the market it is stretching the move laterally as opposed to turning lower.
With the weak volume on NYSE this all may be moot tomorrow after two weak volume sessions bounced stocks higher may be met with a barrage of selling. The change is slight, but there is a modest change. How the sellers respond after this modest 2 day relief bounce to the Friday high volume selling will tell more of the story. For right now the rebound has done nothing to turn back the distribution last week.
DJ30
DJ30 continued its bounce off the 200 day SMA (10,379) Tuesday though volume was even lower (back to average) as it continued the move. Monday volume was lower as well as the rebound started, so there has been no accumulation as the index bounced. You want to see strong volume on a bounce off of key support, and thus this lower volume relief move is at best indicative of a further lateral move along the 200 day SMA.
Stats: +37.32 points (+0.36%) to close at 10458.46
Volume: 271 million shares Tuesday versus 293 million shares Monday. Volume continues to show weak action, i.e. distribution and no accumulation.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Still no scheduled economic data out Wednesday, but there will be more FOMC members on the campaign trail, selling their views on rising inflation and the need to get interest rates higher. We have to remember the Fed is on a mission to get rates higher and as in 1999 and 2000, it is going to color things the way it needs to in order to garner the support from the pundits and weak economists to get it done. Case in point is Greenspan's speech on oil today. He says the market will solve the current pricing problem, thus implying it is something that the Fed does not have to worry about. No mention that higher prices are a tax on the economy and will slow it down. No real acknowledgement that without refining capacity gasoline prices will hit $3/gallon this summer and really hammer the consumer. The market will handle it and thus the Fed does not have to factor it in as it continues to hike rates back up to 4.5% or so. Sure the market will ultimately handle it, but as discussed above, Greenspan's very example as to why it will handle it has thus far not worked. The market has to believe that there is enough supply in the future. Moreover, even if it does impact price, will it be enough? At $56/bbl it has to fall about $15 to even start to make a difference.
Thus we are not expecting anything that will be really positive for the market, i.e. indicating the Fed is going to soften its stance. We still hear many talking about how the Fed is going to do that, but Greenspan today implied pretty clearly that oil was no problem, at least not one that would forestall the Fed's rate hiking. Make no mistake. The Fed is ready to continue hiking rates to get to a certain level, and it is not 2.75% (the current federal funds rate), 3%, 3.5%.
Wednesday is going to be an important session to us. How will the sellers respond to the two low volume bounces in response to the heavy Friday distribution? The recent history has been to sell hard into the bounce. The market is hanging on and the sellers have been unable to put it away. That is why the next few sessions will be telling.
In addition, RIMM reported earnings after hours, and while its top line was very strong it was hammered hard after hours as investors were ready to find fault with its report. After selling ahead of earnings stocks are primed for some rebound on better than expected earnings. The RIMM results indicate investors will have to warm up to the results.
There continue to be solid upside plays developing as leaders in specific sectors (e.g., retail, defense) continue to shine. With this market there are also a lot of stocks that are in trouble, having breached support and then rebounding the past two sessions to test that breakdown. With the market overall still in a distributive stance, we are also looking hard at these plays for fast moves lower. Some industrials that were in trouble tried to rally on the Greenspan 'no worries, be happy' oil speech, and how they respond when reality comes back in will also be telling. Both of these areas provide fertile ground for profits.
Support and Resistance
NASDAQ: Closed at 1999.32
Resistance:
The 18 day EMA at 2009
The 50 day EMA at 2037
The 50 day SMA at 2043
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:
The 200 day SMA at 1993
Early October high at 1971.
Late 2003 highs from 1960 to 1970.
1954 from October as well.
1921 at the September 2004 highs.
S&P 500: Closed at 1181.39
Resistance:
March 2003 up trendline at 1181
1185, the top of the November consolidation range.
The 50 day EMA at 1189 and the 50 day SMA at 1192.89
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:
1175 second high in that double top that spanned late 2001 and early 2002 is being boxed around of late.
1163 is minor support.
1154-1157 tops from early 2004.
The 200 day SMA at 1152
Dow: Closed at 10,458.46
Resistance:
The 10 day EMA at 10,487 and 18 day EMA at 10,547
Price consolidation at 10,600
The 50 day EMA at 10,615
The 50 day SMA at 10,655
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 10,379
September high at 10,342.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 07
Initial Jobless Claims, 04/02 (08:30): 330K expected and 350K prior
Wholesale Inventories, February (10:00): 0.7% expected and 1.1% prior
Consumer Credit, February (3:00): $7.5B expected and $11.5B prior
End part 1 of 3
|
