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world stock market, us stock market
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4/19/05 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: FTO; USNA; AYE; GPN
Trailing stops: None issued
Stop alerts issued: None issued
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. You can sign up for Stock Split Report alerts at the following link:
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SUMMARY:
- PPI gives shorts and longs a reason to buy, drives relief bounce higher.
- Energy pushes overall PPI sharply higher, but core remains tame.
- March housing starts plummet, cold weather blamed.
- SP500 tries to retake 200 day SMA and fails while SP600 small caps rebound off that level.
- YHOO, INTC energize stocks further after hours.
Rebound continues, finding support from PPI and earnings.
Investors took heart from a modest core PPI and some better earnings results from TXN, JNJ, MER, and friends. Futures bolted higher on the PPI core (0.1%), ignoring a big drop in housing starts. Stocks opened higher, fended off some selling attempts, and managed to close near session highs, keeping the modest rebound from the recent harsh selling in place. Many of the leaders that eased back during the selling bounced higher once more, adding to their rallies. SP600 continued its rebound off its 200 day SMA after a quick shakeout below that level.
Those were the high points. SP500 tried to move through the 200 day SMA, succeeding in the afternoon, but then waffling and closing just below that level. Volume was solid, but it was again lower, falling below the Monday relief bounce levels that were themselves lower than the high volume selling from last week, even excluding the Friday expiration volume. A few more such sessions, however, and it will show buyers growing in numbers. It was good to see the leaders rebounding; indeed most stocks were rebounding, but overall most stocks are coming back from a pretty tough tail kicking and their patterns look like it.
This is a rebound from a serious down leg, and almost always such a sell off will have to be tested. The best thing that can happen for a more sustained upside move down the road is a two week run higher here, a drop to test the recent lows, then a strong rebound. That will set up a follow through session, and those stocks that held up during the second leg lower will be the leaders on the rebound. As noted Monday, still a lot of work to do, but the Tuesday action shows the market is getting to the task.
THE ECONOMY
PPI spikes overall on energy and food, core less than expectations.
March producer prices rose 0.7% overall, topping the 0.6% expected. Energy was up 3.3%, gasoline +5.3% and food up 0.3%. Take those out and the core rose 0.1%, less than the 0.2% expected and the same rise as in February. Year over year prices rose 4.9%, the highest since the 5% in November 2004. The core was the focus again, however, rising 2.6% year over year. Quite tame pricing.
Thus if you don't drive or eat and buy a computer and large screen television each week you realize how wonderful prices are. The big question is whether you starve or die from too many soap operas first. There is inflation, it is just focused in some key areas.
It was enough to calm fears of a spike in inflation that would cause the Fed to accelerate its rate hikes. Investors have feared an overly aggressive federal reserve, pushing stocks lower given higher energy prices and a Fed acting as if it was just starting to get tough on inflation. That is the one-two punch we have discussed since the start of the year, and it really took hold the past 6 weeks. While the CPI, the more important of the two as it shows whether higher prices are actually making it to the consumer, will tell the larger part of the tale, the PPI was enough to continue the modest Monday rebound beginning.
Housing starts don't.
March housing starts fell 17.6%, somewhat beating the 4.8% drop expected. Cold weather for the month was blamed, and it was undoubtedly a messy month. So we attribute some of the slowdown to weather. The housing lovers wanted to say all of it. No way.
The market has been slowing for months, and in the past four months starts and sales have bounced around in a big surge of volatility as they have flattened. Volatility is an indication of a season change. Housing is an early cycle sector, meaning it recovers early in economic recoveries. It never slowed much during the recession given the cocooning effect after 9-11. Thus it has held up much longer than typical, fostered by continued low interest rates. Now that rates are rising and the growth is in a slowdown period, housing has been declining. It is declining modestly from record levels, so it is no collapse. It is an orderly fade as rates slowly rise. There are still hot pockets all around the country. Again, this is no collapse, but a continued plateau and slowdown as the economic upturn matures and interest rates rise. That is perfectly normal action.
So blame the weather all you want. Permits were still strong and that continues to suggest that the housing market will remain solid. Again, no sharp drop off, but at current interest rate levels demand remains solid. Of course if there are major economic problems that develop, housing will go into the gopher hole as well. That too would not be atypical. Thus we are not too worried about the slowing in the housing market. It is not new but a continuation of what has been ongoing the past several months.
Bonds hinting Fed is closer to being through than the Fed thinks.
Last weekend we discussed how the Fed could stand to pull a 1998 after a few more hikes, realize it should not be raising rates, tell the world it was stopping, and then do so. That would get the fed funds rate up to 3.5%, a respectable level, giving the Fed some room to maneuver in the event of trouble.
We have been watching the bond market, and the past few sessions it rallied as more and more economic evidence points to a slowing economy in the face of surging gasoline prices and a general caution that infects any businessperson when the Fed is out on the hunt to take down inflation. A rallying bond market means lower interest rates are expected Yet, the Fed, even on Tuesday, was suggesting that though growth had slowed to basically nothing of late (another 'soft patch'), the economy was still strong and would continue to grow and that inflation is still a threat.
The fed funds futures contracts are traded based on what investors think interest rates will be down the road and thus they handicap everything impacting interest rates including and importantly the Fed's actions. Back when the Fed was hiking rates in 1999 and 2000, and then cutting them thereafter, we kept a close watch on what the fed funds futures contracts were showing with respect to rates because they were so critical; people wanted the Fed to stop, and the market was a good place to look to handicap the odds. What the futures are showing us now is a slight shift toward the Fed backing off from further rate hikes. It is not at the level that would start getting anyone really excited, but there is a shift ongoing, and we have seen this during other rate campaigns: the FFF contracts started telling the story before the Fed knew it was going to slow or at least before it made any such indication to the world.
For now the Fed is keeping a stiff upper lip, eager to tout the company line about growth in the economy, jobs, wages, etc., and thus the need for continued rate hikes. Again, we saw that Tuesday with the San Francisco fed governor parroting the line regarding the need for hikes to keep inflation in check. In the FOMC minutes, however, we note that the Dallas Fed wanted NO rate hike this last meeting. Of course another Fed wanted a 50 basis point hike. Ouch. The point: there is a LOT of divergence in the FOMC itself as to whether the Fed even needs to be raising rates right now. That shows there is conflicting data, and the more that comes in slower will pressure the Fed to start holding pat. We are going to keep a close eye on this as the next few weeks unfold before the next FOMC meeting. At this juncture there is no doubt in the numbers that there will be a 25 BP hike. As we move closer, however, we will keep an eye on how the odds change.
Oil getting ready to roll over for next leg lower.
We said last week that oil would try a bounce at $50 before it would continue the selling. Monday oil undercut $50/bbl briefly and recovered modestly. Tuesday oil jumped sharply to 52.29/bbl, +1.92. It may be heading back up to the stratosphere, but we don't think so. Not a fall to $30 or $25/bbl, but a slip below $50 into the mid-forties, maybe even lower.
After getting blasted the past three weeks energy stocks are rebounding, picking up some lost ground. Many of the patterns we see, however, are showing lower volume rebounds that are simply relief moves to test the prior drubbing. Take OIH, the oil services ETF. It double topped in early March and early April and crashed the 50 day EMA. It has rebounded sharply the past two sessions, but on lower, below average volume. It has just about reached the 50 day MA, and when it does it will like struggle once more. If it rolls over again it is going much lower. That pattern is in other oil related stocks or energy proxies, e.g., IOC, XLE, COP, BP, APC, etc.
Now oil may show tremendous resilience once more and just push the patterns to the side, but patterns indicate what investors think of a stocks future, and these are weak patterns. They suggest this rebound is weak, a kind of last gasp attempt to rally, but being below resistance and not finding much volume, they run out of gas. We will be watching for them as the week progresses to see if they do roll over. If so we are going to be looking at the downside on them once more.
THE MARKET
Monday's tentative rebound gained some strength Tuesday, but it was not across the board as far as the indicators were concerned. Breadth was solid, the price gains were good as well, and leaders were running higher on volume. Overall volume, however, was lower on both NASD and NYSE. Not much lower, but as Monday was lower than the selling volume, Tuesday's trade shows the buyers were still weaker than the recent sellers. Not milk toasts, but weaker.
That keeps this rebound in the relief bounce category. SP500 struggled a the 200 day SMA and could not clear it, but there was some leadership from other areas, particularly the small and mid-caps as those two indices bounced off of their 200 day SMA, the SP600 actually undercutting its 200 day before starting this rebound. With those indices leading and technology ready to provide some much needed support on the back of the INTC and YHOO earnings, the relief bounce can get the legs it needs to sustain itself for a week or two before it runs its course (investors decide earnings are not enough) and come back for the test that will work to set up the bottom.
Of course in 2004 NASDAQ never came back after it bottomed in August. That is why we always are watching the leaders, how they respond, and we take positions if they tell us to do so. Tuesday there were a few that were telling us just that.
One comment about the 200 day SMA. When SP500 broke its 200 day that invited further selling. It will probably still come. Lots of people watch these levels and when they are breached many throw in the towel. That is why you see an index or stock accelerate to the downside when the breach is made. Once those sellers are through, however, the stock or index typically rebounds as shorts cover positions; it usually takes some doing to get down to the 200 day SMA and then break it; after that amount of selling the shorts don't want to hang around too long and they start to cover. Thus while the breach of the 200 day SMA is a sign of weakness, nearer term it often can be a trap if you buy into the downside on the initial break lower, particularly if the stock has dropped significantly before it hits that level. If it has tried to hold it for a week but fails, that is a different story.
What we are seeing with SP500 is an immediate recovery from the 200 day SMA breach, at least back up to the MA itself. With the INTC and YHOO news it will likely move on through for now before it loses momentum and comes back once more. SP600 undercut its 200 day SMA as well, but it immediately rebounded as well. In short, these are key levels to watch, but they have to be put into context as well. A breach invites more selling immediately, but then a quick rebound. It is often followed by further selling after the rebound on covering and bargain hunting, but that rebound can sustain for several sessions before failing. A breach means big money is dumping shares, but just as with an upside breakout, there is typically a test before the move resumes. There is symmetry to both the long and short side of the market.
MARKET SENTIMENT
Volatility is dropping fast after the Friday spike to 18.50. It was enough to get the indices bouncing, but it was not really high enough for a sustained run.
VIX: 14.96; -1.6
VXN: 19.11; -2.27
VXO: 14.43; -1.69
Put/Call Ratio (CBOE): 0.98; -0.01. Hanging tough at high levels as it has for the past month.
NASDAQ
NASDAQ gapped higher and rallied to close at session highs as volume backed off slightly. Showing good leadership in this rebound, and with the after hours numbers they will get better.
Stats: +19.44 points (+1.02%) to close at 1932.36
Volume: 1.892B (-0.25%). Volume was basically a push, slightly above average but still lower than the Thursday selling volume. Buyers are still in the minority BUT several consecutive sessions of strong volume, even if no individual day tops prior selling, can show buyers taking control. Sustained above average volume on up days has the effect of overwhelming a couple of volume spikes to the downside. Throw in a high volume confirmation session on Friday or next week and maybe there is a knifepoint turn in place. Okay, back from Never Land. Still a lot of work to do but volume is not bad.
Up Volume: 1.443B (+355M)
Down Volume: 431M (-354M)
A/D and Hi/Lo: Advancers led 2.34 to 1. Very good breadth as the small caps helped pace the index higher as the large cap techs lagged.
Previous Session: Decliners led 1.03 to 1
New Highs: 29 (+4)
New Lows: 116 (-105)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Sure doesn't look like much on the chart, a gap higher and close at the session high, but dwarfed by the big downside moves last week that gobbled up real estate at 30 and more points a session. Its first test is the gap lower at 1946, then the late March low at 1975. So much work to do and just getting started. Takes a bit of patience, and tomorrow NASDAQ is going to make another good move on the open as INTC and YHOO managed to charge up the hardware and internet sides of tech.
NASDAQ 100 struggled with a 0.8% gain, falling behind NASDAQ overall. The large caps probably won't have difficulty keeping pace Wednesday, however, as INTC and YHOO will charge up the old household names many investors still wistfully reminisce about. That will help the recovery attempt that sets up the next test. Or maybe not; as noted above, last summer NASDAQ hit bottom and just kept on going.
The chips were leaders as well Tuesday, continuing their bounce form an equally ugly tail kicking last week. They overcame some crappy NVLS earnings and focused on the big name INTC. It is going to pay off; at least SOX will take back a bit more of the 30 points it reeled off to the downside last week. It held near the January low and is bouncing. This is a trading range from 380 to 450.
SP500/NYSE
Second upside session that tried to take out the 200 day SMA but failed. Volume was a bit lower but still above average. Good try. Needs improvement.
Stats: +6.8 points (+0.59%) to close at 1152.78
NYSE Volume: 1.696B (-3.11%). Fifth consecutive session of above average volume though lower than the selling volume Thursday. As with NASDAQ volume shows fewer buyers, but if it remains strong as the index moves higher that shows buyers taking over. Probably won't happen on this run and will likely need another test, but this is decent upside volume after a pretty harsh shellacking.
Up Volume: 1.577B (+285M)
Down Volume: 547M (-316M)
A/D and Hi/Lo: Advancers led 3.01 to 1. Excellent breadth with the small and mid-caps plowing the ground for the market to follow.
Previous Session: Advancers led 1.43 to 1
New Highs: 18 (+8)
New Lows: 67 (-71)
The Chart: http://www.investmenthouse.com/cd/^spx.html
Tried the 200 day SMA (1153.73) all afternoon. Got dicey, fell through it in the last hour, but then rebounded. It did not recover that level on the close, but it did not back off. Want to see it break above this level and move toward the March low (1165) and the January low (1164). That will be a key test for the index on this rebound as it is the bottom of the head and shoulders pattern. SP500 may even gap higher above the 200 day SMA Wednesday. It will likely test intraday and it needs to hold and rebound from there.
Very nice blast higher by the small cap SP600, coming off the 200 day SMA (305.17) and closing above 310, the bottoms of the January double bottom. Next resistance of note is 315, then 320 at the 50 day EMA (320.47). In short, a lot of upside work ahead but it is doing the deed.
DJ30
The blue chips struggled once more, posting a modest gain on lower, slightly above average volume. Every day DJ30 has a new story, most of them bad of late. Wednesday it will have some positives from INTC. As noted Monday, DJ30 came within 70 points of 10K. A bounce up to 10,250 t0 10,350 would likely send it back for a real close and personal visit to that level.
Stats: +56.16 points (+0.56%) to close at 10127.41
Volume: 286 million shares Tuesday versus 301 million shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Tuesday PPI helped provide relief from Fed worries, and Wednesday the older brother will tell the story and really give us more insight as to what track the Fed will take, a track measured by the fed funds futures. In addition INTC and YHOO will provide some spark as earnings are finally acting as a catalyst. Back in March we were looking for a pullback to set up an earnings bounce. Pullback, collapse; mere semantics, right? In any event, the plunge has left a path back to the upside with earnings that are solid and show, as both YHOO and INTC said Tuesday, "accelerated growth rates."
Techs have lagged the entire year, and indeed lagged in 2004 until the year end rally that turned a negative year to positive. They have based this entire year and despite last week's thud to the October 2004 lows that gave away that gain the consolidation has put them in position to rally with less overhead supply than say SP500 with its head and shoulders pattern looming over it. It is a stretch to say it breaks out from a rebound here, but it has paid some dues and is ready to help the relief effort.
Much will depend upon the CPI, i.e. whether it adds to the upside momentum or tosses cold water on it. If things are still a go at the open we need to watch where the gap is tested; SP500 has struggled at the 200 day SMA, and on a gap above that level we will watch for a test toward that level after the open to set the stage for the rest of the session. In other words, it will make some sort of acknowledgement of the 200 day SMA, and then we want to see it turn back up. We will continue to look for leaders breaking higher at that point as opposed to stocks that have been kicked around and are coming back up for air.
Support and Resistance
NASDAQ: Closed at 1932.36
Resistance:
1946 is the recent gap down point.
1950 (top of October to December 2003 consolidation)
1954 from October as well.
The 10 day EMA at 1956.
Late 2003 highs from 1960 to 1970.
Early October high at 1971 and the March low at 1973.
The 200 day SMA at 1991
The 50 day EMA at 2013
The 50 day SMA at 2026
2050-54, prior resistance and the June high is stronger
Support:
1900 from October 2004, March 2004, October to December 2003 (consolidation range bottom) held on this last test.
1876 from the May 2004 low and November 2003 low.
1860 from the late September 2004 low.
S&P 500: Closed at 1152.78
Resistance:
The 200 day SMA at 1153.73
1154-1157 tops from early 2004.
1163 is from January is trying to hold.
1175 second high in that double top that spanned late 2001 and early 2002 is trying to hold
March 2003 up trendline at 1188
The 50 day EMA at 1182
The 50 day SMA at 1191
1196, the mid-January high and the early December peak in the left shoulder.
1200
Support:
1145 to 1142 from March and October 2004
1129 to 1125
1100 to 1095
Dow: Closed at 10,127.41
Resistance:
Some price resistance at 10,250.
The 200 day SMA at 10,377
10,400, the bottom of the November/December range
The 50 day EMA at 10,520
Price consolidation at 10,600
10,754 is the February high
Support:
10,065 from March 2004 lows.
9988 from September 2004.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 19
PPI, March (08:30): 0.7% actual versus 0.6% expected and 0.4% prior
Core PPI, March (08:30): 0.1% actual versus 0.2% expected and 0.1% prior
Housing Starts, March (08:30): 1837K actual versus 2090K expected and 2229K prior (revised from 2195K)
Building Permits, March (08:30): 2023K actual versus 2094K expected and 2107K prior (revised from 2107K)
April 20
CPI, March (08:30): 0.5% expected and 0.4% prior
Core CPI, March (08:30): 0.2% expected and 0.3% prior
April 21
Initial Jobless Claims, 04/16 (08:30): 329K expected and 330K prior
Leading Economic Indicators, March (10:00): -0.3% expected and 0.1% prior
Philadelphia Fed, April (12:00): 12.0 expected and 11.4 prior
End part 1 of 3
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