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world stock market, us stock market
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04/13/05 Investment House Daily
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SUMMARY:
- Lower oil unable to offset concerns of slowdown, Fed.
- Retail sales slide even with higher gasoline prices.
- Oil flirts with $50/bbl as gasoline inventories show a surprise rise.
- Volume mixed as stocks fall back in the trading range.
- AMD misses big, AAPL sales strong, but earnings have yet to provide positive impetus.
Stocks sell as Fed news was not that positive and retail sales burned by gasoline.
The Tuesday rebound on the FOMC minutes, triggered by short covering and some buying on the idea the Fed was less hawkish, lasted until the close Tuesday. Wednesday the market started lower on weaker March retail sales data and buyers' remorse from Tuesday, tried to rally on some rising oil and gasoline inventories (that sloshing you hear is from the full oil storage facilities), but lost its bid. Once more lower oil prices (closed at 50.22/bbl, -1.64) approaching a psychological (though not economically significant) level failed to provide a real spark to the market. Stocks turned lower after the oil news and accelerated to the downside as the afternoon wore on. By the close stocks gave up all of the Tuesday rebound and more.
Stocks fell from the top of their recent trading range to well back in the attempted consolidation. Volume fell back below average on NASDAQ, but moved higher on NYSE as the small caps led to the downside. The NYSE indices continue their toppy patterns and are threatening a more serious breakdown as volume rises as they fall from their recent peak that looks very much like the right shoulder to a head and shoulders pattern. Unlike Tuesday where breadth was not of follow through caliber, Wednesday breadth was ugly, approaching -2.5:1. There were not a lot of positives other than NASDAQ moved lower on lighter trade.
Lower oil was nice, but that alone is not enough. The problems for the market are a 1-2 punch from energy prices and the Fed. Despite what was thought to be less hawkish Fed minutes and slower retail sales, there is nothing that has changed the Fed's position that it is going to raise interest rates further. If it was going to move to 3.5% and stop AND the market sensed that, the market would be happy. The market is not happy. The market views the Fed as pushing rates up too high into a slowing economy and causing a recession. In other words, SFOP (standard Fed operating procedure). Thus the struggle to move forward; it is more a fight to keep from falling. Remarkably, at least for now, the market is still trying to consolidate.
THE ECONOMY
Retail sales in March further feel sting of gasoline even as February revised higher.
February retail sales ex-autos rose to 0.6% versus 0.4% after revisions, but that was hardly enough to take the sting out of the 0.3% March gain, well off the 0.4% expected. Take out autos and the gain fell to 0.1%, far off the 0.5% expected. Consumers bought more autos in March than in February, something we have seen for the past three years as economists wrung their hands over month to month retail sales figures. Some months consumers buy vehicles while in others they do not. If you see significant differences ex-autos, that tells you that is at work.
It was not a huge difference in March, but there was more vehicle buying. What is worrisome is that retail sales were down even as gasoline (+2.1% in sales) was a larger part of the retail pie. In other words, gasoline sales rose (because price rose; retail sales measures sales in dollars, not quantities) even as sales overall declined. More was spent on items that do not add to GDP while less was spent on those items that do add to GDP.
For example, department store sales fell 0.7%. Specialty closing fell 1.9%. Electronics down -0.3%. It is clear that gasoline prices continue to eat into retail sales. We noted this in February as that month missed expectations as well; the revisions to that number do not offset that decline. It has not taken $80/bbl (the Fed's claim) oil or even $60/bbl oil (VP Cheney) to start curtailing consumer activity.
As we have reported the last couple of weeks, the economy has been slowing even with talk of the 'red hot' housing market and 4% GDP growth. Q2 may just be a seasonal slowdown; the economy can easily grow at 4% or better and still have a down quarter. Last year there was the 'soft patch' that the economy recovered from, and it could be doing the same here.
Still that one-two punch in the way.
Problem is, it is not just oil. Oil hitting near $60/bbl is recessionary enough in itself. Simultaneously we have the Fed hiking rates to fight inflation that has sparked up some on this demand led recovery. The recovery did not really get started until the supply side tax incentives were passed, but supply has lagged all the way up and thus some inflation that the Fed is dealing with. It has help with higher energy prices; they will slow the economy themselves. In real dollars they are high enough and have been there long enough to result in an economic slowdown even if the Fed held pat. The Fed knows high energy is a tax on all segments of the economy, yet it also need rates higher in the event of some other catastrophe, and there are always catastrophes. This time it might be the dollar. The Fed simply wants some ammunition to shoot at any problem, and the ammo box is pretty low.
That means higher energy and a Fed that, despite the Tuesday FOMC minutes, is still going to raise rates and still may very well hike them at a 50 BP clip. Those are rarer, but they always seem to come just at the end of the campaign and right before the big slowdown. In 2000 Greenspan launched a 50BP torpedo at the economy in May even after the stock market had rolled over hard and there were plenty of signs the economy was following. There were no more rate hikes in that series; of course that lead to a recession before things really got ugly with 9-11, corporate malfeasance, etc.
You can go back and look at any period you want. In the 1970's the Fed fought high interest rates, high unemployment, and high energy costs with rate hikes. Go figure. I guess if you have just one club in the bag that is the one you always use. It did the same in the early 1980's: higher oil? Better hike rates to keep inflation under control. Yes, it did; we got a nice, deep recession before the Reagan tax had a chance to work. You can go even further. The 1929 Fed shadow boxed the specter of inflation, assuming it had to show up given the strong 'roaring twenties' economy. It raised rates, raised them some more, and then in frustration, launched a 100BP hike at the economy. It worked. There was no inflation. The stock market crashed, the economy crashed, the world economy crashed. No inflation by golly. Just global deflation. Good call.
You can now understand why the market has zero faith in the Fed and its ability to fine tune the economy using interest rates. Might as well try neurosurgery with garden shears and a string trimmer. When you finish you can clean up by firing up the gas powered blower and the power washer. The Fed does not have the tools to fine tune, and it uses the tools it has with a surprising lack of restraint. As we said in January, the Fed always talks a good game, talking of 'measured' approaches, but it always gets tunnel vision and starts viewing targets regardless of what the economy is saying. By the time it figures out it has gone too far it is too late. It cannot recall the torpedoes. It cannot slow the super tanker it has revved up to flank speed on a dime. Many of the rate hikes in the current hiking bout have not even had an impact on the economy, but there is slowing from other sources. That is not good at all looking out to the fall with high gasoline prices only going higher this summer and then the rate hikes falling out of the sky like WWII buzz bombs over London.
Oil is testing $50/bbl.
Oil prices continued their slide as it looks as if the spike form $45 has run out of steam. $50/bbl is a psychological level, and oil will likely try to hold that level after an $8 drop the past week. That is a steep drop and a slight bounce or hold there for a bit is normal. It needs to crash through after that and get back down into the forties. It has a support shelf at $45-$46/bbl. It needs to get down to $42/bbl to really start making a difference for the economy as it heads into the summer. That is another $10 from here, however, and the fade won't be as easy as it was coming off this recent top. Indeed, it may not move below $46/bbl on a continued decline. Ultimately it probably will, however, because higher energy prices and a rate hiking Fed usually guarantee some form of recession, and when the US slows down so does its energy consumption and that takes pressure off prices. In a roundabout and painful way it is self-correcting.
That is why we always have problems with the Fed hiking rates when oil prices are high. As outlined above, its track record is pitiful in such situation as it just increases the slowing effect of higher energy prices on the economy. It fears inflation if it does not, but this is the 'burn the house down to save it' mentality. Of course the Fed has no help. Congress is spending hand over fist on everything but items that really stimulate economic growth on the supply side that actually helps decrease inflation. If supply is there to meet demand there is no inflation. The Fed cannot fight the battle alone and there won't be any more supply friendly tax incentives passed in this Congress. Thus the market is wary of the Fed's action. It only has to look at history to be so.
THE MARKET
NYSE indices continue threatening formations, NASDAQ tries to continue consolidation.
Stocks turned right back over after a gain, continuing the choppy action of the past three weeks following the March selloff. Gains then losses, losses then gains. That is consolidation action to a certain extent, particularly with lower volume as seen the past two weeks. Typically quieter price action is better consolidation; volatility indicates the consolidation action is not yet prime.
You could say that about this market, particularly with respect to SP500, SP600 and the NYSE indices. They are all still in the recent lateral range, but NYSE volume ramped higher Wednesday, showing some distribution immediately after an accumulation session. Tuesday some shorts covered and some buyers moved in and then Wednesday the sellers jumped back in. As with price volatility, volume volatility indicates the continued fight between buyers and sellers. The action was quieting down but has picked up the past two sessions as the news level picked up and stirred up both sides.
Overall the action retains a negative bias. The NYSE indices sport toppy patterns and continue struggling just to hold the range of the past two weeks, a range that more resembles a right shoulder to a head and shoulders than a lateral consolidation. NASDAQ most closely resembles a base as it holds near the 200 day SMA though it fell through that level and back to the bottom of the range. Volume rose on NYSE, an above average volume selling session, i.e. a new distribution session after they had turned neutral. NASDAQ volume eased back; again more of a sign of consolidation than selling.
NASDAQ will have to be the supporting index as SP500 is selling hard once more, falling back from resistance. SOX broke lower as well, falling through the 410 level that had held as support the past three weeks. Another indication the action is weakening once more after a mediocre attempt to consolidate. The action has never turned positive from the selling; it just got to somewhat neutral as the volume faded and stocks traded in a range laterally. It will take some seriously good earnings to hold stocks higher and reverse this renewed selling. Some good earnings after hours may be a start.
Market Sentiment
Volatility vaulted higher off the recent dump lower. It was talked about on the financial stations as a big move, and it was compared to recent moves. Nonetheless it needs to get much higher. Thirteen is not nearly enough and still below the recent end of March highs at 14.50. Historically it takes thirties or forties to show real fear that can lead to a reversal.
VIX: 13.31; +2.01
VXN: 16.07; -0.17
VXO: 12.99; +1.35
Put/Call Ratio (CBOE): 0.97; -0.21
NASDAQ
Massive price dump back to the lows of the range. Lower volume helped some, indicating that NASDAQ is still trying to consolidate.
Stats: -31.03 points (-1.55%) to close at 1974.37
Volume: 1.742B (-10.62%). Nice volume fade helped some. Still no distribution giving NASDAQ some room to continue its consolidation.
Up Volume: 271M (-1.072B)
Down Volume: 1.463B (+885M)
A/D and Hi/Lo: Decliners led 2.49 to 1. Breadth ramped up to the downside on the move as the small cap techs suffered.
Previous Session: Advancers led 1.21 to 1
New Highs: 36 (+6)
New Lows: 100 (-41)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Broke through the 200 day SMA (1993) once again, a common occurrence during the lateral move the past three weeks. It held recent support at 1970, keeping the consolidation alive. NASDAQ is attempting to keep this a base as opposed to turning lower for the third down leg in this 2005 selling. It is fighting the other indices that are struggling. Low volume shows no new distribution but it has its work cut out for it.
NASDAQ 100 dove below the 200 day SMA (1482) as well but on lower overall volume as with NASDAQ. The large cap techs struggled a bit more than overall NASDAQ, surprising since the small caps were the downside leaders. Some big name chips were under fire, however, and that helped drag NASDAQ 100 lower. It is also working on its lateral consolidation, trying to hold the line along with the overall NASDAQ.
SOX broke below 410 and closed well below that level where it has found support during the recent lateral move. Some big name techs were struggling ahead of earnings. After hours AMD missed big; the thing that pushed it higher after its earnings was its spin off of the flash memory unit. Otherwise it was a pretty grim report.
SP500/NYSE
The large caps cut lower again, falling on stronger, above average volume. Still in the range but the distribution gives it a weaker look.
Stats: -13.97 points (-1.18%) to close at 1173.79
NYSE Volume: 1.671B (+3.52%). NYSE met a volume gain with higher volume selling. That shows much of the action Tuesday was short covering, and once the buyers did not pick up the sellers came back in and sold hard. Distribution rears its head again after a hiatus since the first of the month. The higher volume dive from the 50 day EMA resistance is not good action.
Up Volume: 389M (-875M)
Down Volume: 1.609B (+902M)
A/D and Hi/Lo: Decliners led 2.35 to 1. The small caps led lower as the NYSE stocks rolled back over in their patterns.
Previous Session: Advancers led 1.75 to 1
New Highs: 52 (-11)
New Lows: 53 (-36)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Diving lower from the 50 day EMA (1188) and the March 2003 up trendline (2005) on rising volume. Some signs of life Tuesday were snuffed as sellers moved in and sold the large caps and the small caps in more quantity. SP500 is still in the 1185 to 1165 range of the past three weeks and is still near support at 1175, but this return to distribution just after an upside volume move signals the negative character is still very much alive along with the head and shoulders base that continues to build.
The small caps turned over sharply again, just as they did last Thursday when they fell from the 50 day EMA (322.71). This time they are rolling over without returning to the 50 day, an indication that they are weakening further. They also closed at a new lows since the January bottom at 310. The small caps are leading downside, something that is not good for the market.
DJ30
Stalled at the 18 day EMA (10,510) and rolled back down to the 200 day SMA (10,381) on slightly higher, above average volume. Some accumulation Tuesday, some stronger distribution Wednesday. Higher volume buying met with even higher volume selling. Not a sign of strength, and now DJ30 is back at the 200 day SMA and trying to set up for the next move higher, but is going to have a struggle with SP500 selling harder as well.
Stats: -104.04 points (-0.99%) to close at 10403.93
Volume: 274 million shares Wednesday versus 267 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The economic news dies down with initial jobless claims and business inventories, but that is just in time for earnings to really ramp up. After hours Apple stuffed earnings; it was down at first but then fought back up to flat in late trading. AMD struck out, again, but it managed to rally after hours based upon its decision to spin off a unit. Surprisingly other chip stocks were higher as well even though AMD's earnings were poor overall.
More earnings besides AMD hit Thursday as the season really gets underway. Stocks are still in an overall weak character, still trading in a three week range after the March sell off. Good news could send them higher once more, but the sustainability of any upside move is questionable as they are still volatile both in price and volume. In short, the bulls and bears have not reached a decision as to who wins this round. The bears pushed stocks lower in March and they have stalemated since. The action picked up a notch the past two days, and after day two the bears were back in charge at least with respect to NYSE indices. Thursday is a rubber match, but we doubt it will give a resolution to the battle.
For now stocks are weaker and looking for a savior. Earnings have thus far more than failed to satisfy. They are basically the last great hope of the current lateral move in an overall negative market technical picture and fundamental picture with oil still high and the Fed still raising rates.
That is not a pretty picture but there are also a lot of stocks on the report that continue to hold in their recent range, holding above key support and basically consolidating. With NASDAQ moving laterally and doing the same, that provides a crack for stocks to recover. Those leaders remain our focus, but if SP500 and SP600 and the other NYSE indices continue to sell from here, the leaders will come under pressure to hold up and then move higher. Any early pop Thursday as a result of the AMD and AAPL earnings slop-over will have to viewed with skepticism as probably a relief bounce before a resumption of downside.
Support and Resistance
NASDAQ: Closed at 1974.37
Resistance:
The 200 day SMA at 1993
The 18 day EMA at 2003
The 50 day EMA at 2028
The 50 day SMA at 2038
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.
1954 from October as well.
1921 at the September 2004 highs.
S&P 500: Closed at 1173.79
Resistance:
March 2003 up trendline at 1185
1185, the top of the November consolidation range.
The 50 day EMA at 1188
The 50 day SMA at 1194
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 trying to hold
1170 has been some recent support.
1163 is minor support.
1154-1157 tops from early 2004.
The 200 day SMA at 1153
Dow: Closed at 10,403.93
Resistance:
The 18 day EMA at 10,509
The 50 day EMA at 10,585
Price consolidation at 10,600
The 50 day SMA at 10,658
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 10,381
September high at 10,342.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 12
Trade Balance, Feb (08:30): -$61.0B actual versus -$59.0B expected and -$58.5 prior (revised from -$58.3B)
FOMC Minutes, March 22 (2:00)
Treasury Budget, March (14:00): -$71.2B actual versus -$69.8B expected and -$72.7B prior (revised from -$72.9B)
April 13
Retail Sales, March (08:30): 0.3% actual versus 0.8% expected and 0.5% prior
Retail Sales ex-auto, March (08:30): 0.1% actual versus 0.5% expected and 0.6% prior (revised from 0.4%)
April 14
Initial Jobless Claims, 04/09 (08:30): 330K expected and 334K prior
Business Inventories, Feb (08:30): 0.5% expected and 0.9% prior
April 15
Export Prices ex-ag., March (08:30): 0.1% prior
Import Prices ex-oil, March (08:30): 0.2% prior
NY Empire State Index, April (08:30): 19.6 expected and 19.60 prior
Industrial Production, March (09:15): 0.3% expected and 0.3% prior
Capacity Utilization, March (09:15): 79.6% expected and 79.4% prior
Michigan Sentiment-Prelim., April (09:45): 91.7 expected and 92.6 prior
End part 1 of 3
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world stock market
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