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world stock market, us stock market
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4/23/05 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: MCK
Trailing stops: OPTN
Stop alerts issued: JAH; CNMD; JOSB
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:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market survives Friday, just barely.
- Fed continues its tough talk about inflation, reiterating its stance after FOMC minutes clouded some minds.
- Oil bounced off $50, and is still bouncing.
- Earnings and a couple upbeat economic reports help stocks bounce, but mixed data and still high gasoline prices are hard to overcome.
- Stumbling along, trying to hold together for the continued rebound.
- Thursday move has set stage for further rebound as leaders hold their ground, but still the same headwinds to overcome.
Stocks sell on lighter volume, hanging on for another fight this week.
After the big gains Thursday some weakness ahead of the weekend was expected. Stocks started off lower and struggled all session. The large cap SP500 and DJ30 were relatively stronger all session, with the blue chips managing to turn positive in the early afternoon. With NASDAQ, SOX, and SP600 selling off more than 1%, however, the overall market found very little traction.
Volume was running lower so there was still opportunity for the afternoon drift higher to continue. Then the quite hawkish text of Fed governor Kohn's speech was released. Further, news of a North Korean shutdown of a reactor in order to collect plutonium for a nuclear bomb test added to the concern. Oil started to rise sharply and stocks started to fall. NASDAQ, one of the weakest indices of the session, fell 24 points in just over an hour. SP500 dropped 15 points. What was a modestly lower session turned into a pretty severe drop.
Volume remained light, and that gave stocks some breathing room to bounce into the close. SP500 pared its losses by 10 points, NASDAQ by 11. That made the close at least respectable, though a 30 point loss on NASDAQ is hardly respectable. More like bearable given the 48 point gain the prior session, lower volume, and still in position to continue higher. Still quite shaky, still feeling its way along, but set to continue the follow through delivered by SP600 on Thursday. All it has to do is overcome fear of Fed and fear of oil, just the two big issues that have, on their own, launched many economic slowdowns and recessions. Now they are teamed up, and the market is trying to deal with them.
THE ECONOMY
Another speech shows the Fed's will (for the moment) to raise rates even if it hurts.
While the Fed funds futures contract is hinting that the Fed may be just three hikes away from completing this round of rate increases, most Fed governors themselves are not yet contemplating that prospect, at least not publicly. The closest they have come is a vote by the Dallas Fed not to raise rates at the last meeting; that, of course, was offset by another region wanting a 50 basis point rate hike. In addition, one governor noted that there would come a time when the Fed would have to remove the 'measured' approach because the Fed simply would not know clearly what needed to be done with rates as it has during the recession and now the recovery. You have to stretch that statement like a fisherman trying to reach a size limit to come to the conclusion the Fed could be contemplating slowing or stopping rate hikes anytime soon.
Friday Fed Governor Kohn did his best to tamp out any idea that the Fed was ready to slow its campaign that the recent FOMC minutes might have sparked. We said right after the FOMC minutes came out that the Fed would hit the road to respond to the notion the market showed that somehow the Fed was taking a softer approach to rate hikes. The title of the speech was enough: 'Imbalances in the U.S. Economy.' It cited the housing market, lack of savings, the trade deficit, the budget deficit, and low long-term rates as the imbalances facing the economy. Wow. That is an impressive list. The only real imbalance we see that the Fed should be concerned about is demand over supply because that is what is causing the current inflation. Inflation is not an imbalance; it is the RESULT of an imbalance. When you think about that basic precept, the whole speech is questionable.
Questionable it may be, but it reflects the opinion of a voting member. No wonder the market had a bit more reason to sell Friday afternoon when this speech hit the wire. Kohn was clear that the Fed had more hiking to do ("we have not yet finished this task") because the FF rate is lower than the level "consistent with the maintenance of stable inflation and full employment". That latter statement is in line with previous Fed statements to the effect that but for the rate hikes inflation would be running rampant. It is also taken right from the Phillips Curve, the old, historically disproved idea that inflation comes from full employment and prosperity. That is hardly comforting, i.e. that the Fed is again looking at demand issues and economic 'slack' as its barometer of rate hiking intensity versus letting the market work.
The speech concluded with additional clear language that the Fed would have to practice tough love if necessary: "But . . . we should not hesitate to raise interest rates to contain inflation pressures just because it might set off a retrenchment in housing prices . . . Nor should we hesitate to raise rates because higher rates mean higher debt-servicing burdens." Why? Because "it is through such actions that we aim to achieve our objective of economic stability." Gee, most people think it is the Fed's job to promote price stability, i.e. keep inflation in check. Now it is taking over economic stability as well. That is no surprise, however, given Greenspan lecturing Congress on social security, Medicare, mortgage programs, and even energy. The Fed, just as the judicial branch, has usurped a lot of territory from the legislative branch that it now calls its own. Now it looks as if we have four branches of government (arranged in order of power): judiciary, legislative, Federal Reserve, executive.
Oil not giving in . . . again.
Oil rolled over from 58/bbl and slightly undercut $50 to start the week. We felt it would bounce back from that level a bit before rolling back through into the forties. The slowing US economy, while not that last say on the world oil market, does impact oil demand. Well, oil did not finish the week close to $50. Wednesday it fell when inventories of crude and gasoline tanked unexpectedly; that looked like a harbinger of a continuing drop. It rebounded into the weekend, however, closing at 55.39, running away from $50 like a burned puppy. $55/bbl is an area of some technical resistance, so this week we will see just what oil is made of so to speak. At these levels, however, the market is still rightfully concerned.
Market trying to figure out just what it wants from the economic data.
The market is at a stage where it does not know exactly what it wants. Just look at the up and down action of last week, lurching back and forth in big point moves. Actually, it knows what it wants, i.e. a Fed that quits raising rates, solid economic data, and lower energy prices. That is not going to happen, however, so it is trying to figure out what is the best combination of less than perfect indicators it can live with, if any.
The Fed is on the warpath against inflation, something made clear by Fed statements since the recent FOMC minutes where some concluded the Fed was considering slowing the pace. The Fed has come out since and made clear it does not see that as the case, at least not yet. The market knows that the Fed often produces economic slowdowns at the minimum when it takes on inflation or what it perceives to be inflation. Thus it needs something that will cause the Fed to curtail the length of its current campaign. That would be weaker economic data and slowing signs of inflation.
The data last week, however, did not show this to be quite the case. The NY Empire PMI was very weak, housing starts were way down, and the Leading Economic Indicators fell once more. All continuing signs of a slowdown that has shown up in data that started showing up the past three months even before the mainstream caught on. On the other hand the Philly Fed was very strong, the core CPI was much stronger, jobless claims tumbled, and corporate earnings and outlooks were good. That will likely be more than enough to keep a Fed on its proclaimed path. Once the Fed embarks upon a campaign, tightening or loosening, it takes major changes to alter its course. This data is certainly not enough to do that.
The market, however, appeared to cheer the good Philly Fed regional manufacturing report on Thursday after reacting negatively to the data that would suggest less economic growth (and thus a less active Fed) earlier in the week. Yet it sold Wednesday in reaction to the hotter than expected CPI, something you would expect from a market that fears the Fed. Mixed signals: worried about an economic slowdown yet also fearing a Fed that fears there is too much growth and the start of inflation. Thus good economic news is both good and bad, and bad economic news is both bad and good.
Oil prices not enough to slow fed either. It has said that it would take $80/bbl to $100/bbl to really adversely impact the economy. That alone says it all. Oil at $55? No problem according to the Fed. It is a problem, however, as the retail stores are already commenting on changing consumer habits here in April, long before gasoline hits $3/gallon later this summer when demand really climbs. Higher oil is doing part of the Fed's perceived job for it, i.e. quelling demand some as consumers divert discretionary dollars into their gas tanks. History shows us that oil at current prices for such an extended period do cause economic slowdowns. We see it starting to happen with the consumer data coming in (sales, sentiment reports). The Fed, however, is choosing to ignore certain aspects of the real world in order to apply its stated policy just as it did in 1999 and 2000. The Fed wants higher rates. It feels it has to get rates to a point where the next Fed chairman has ammunition to act as he or she feels necessary. Greenspan is also determined not to let inflation take hold as he leaves office. He probably would like to be in the position to let the next chairman lower rates to start as opposed to raising them.
Thus we have a market grappling with energy prices, specifically gasoline, that are only going to get worse in the coming months and divert more consumption dollars. Add that to already slowing economic data and a Fed still saying it is going to raise rates indefinitely, and you have real concern about the Fed tightening into a slowdown as it did in late 1999 and 2000. The data are still strong, but they were also strong back then. Data is often strong until it breaks down, particularly when the Fed is raising rates. Those rate hikes all hit at once. Combined with any natural slowing say due to high energy prices and you can have a real problem.
THE MARKET
The volatile action last week and the strong Thursday upside move might be trying to show a season change that brings in more buying, but that does not mean the last season won't go out without a struggle. Friday volume was lower on the selling, and that took some of the sting out of the session, but the point losses were not modest. Thursday's leading indices sported 1.5% losses Friday, a role reversal and serous price losses despite the lower trade.
The lower volume leaves it room to continue the move higher this week. We are still looking for a further upside bounce for a week or so to set up a test of the recent lows. That is not always the case as in 2004, but it is the typical manner of bottoming, and as surprising as it seems, bottoms set up the same way year after year, decade after decade. Human emotion does not change, and that is what drives the market.
The action is still very volatile and the market has some serious technical issues to face. The SP500 is still playing footsy with its 200 day SMA, and it also is still on the bottom side of the neckline in its head and shoulders breakdown. It has a lot of issues to deal with. So does SP600, though the small cap index is holding above its 200 day SMA. NASDAQ faded at the 18 day EMA, continuing its downtrend.
From that rendition it does not appear as if the market is about to put together a serious move higher. The sentiment indicators moved up well last week with the put/call ratio, bearish/bullish sentiment, and volatility hit their 'best' levels since the August 2004 bottom. That is enough to propel the indices higher on a modest run to set up another test. The market is still in a 'show me' state regarding the upside, however, as the indices are still trending lower after breaking down from bearish patterns.
MARKET SENTIMENT
Bulls versus Bears:
After the bullish and bearish advisors came the closest in their orbits since August 2004 two weeks back, they started to diverge last week. Bulls rose to 48.4% from 46.2% (55% is considered bearish, and last August they hit 40% on the low). Bears fell to 26.9% from 29%, heading back toward that 20% level that is bearish for the market. Those are pretty big drops given the market was extremely volatile last week, and they will probably edge back up this week. Still, even with the rise and the drop, they did hit relative 'extremes' before diverging. Combined with the other sentiment indicators and the follow through, it is likely enough to put together a modest rebound ahead of another test to come.
Volatility rebounded a bit on the Friday selling, but the real move was hit last Friday and Monday when it moved above 18, the highest since last August. It bounced again on the Wednesday selling as well. Not really high by historical standards, but as with the bulls/bears, enough with the other indicators to produce enough bounce to set up a test of the recent lows.
VIX: 15.38; +0.97
VXN: 19.04; +0.52
VXO: 14.65; +1.02
Put/Call Ratio (CBOE): 0.98; +0.13
NASDAQ
Turned back and sold a sharp 30 points after testing the 18 day EMA Thursday. Lower volume helped, but it is still in a downtrend below the short term moving averages for the year.
Stats: -30.22 points (-1.54%) to close at 1932.19
Volume: 1.85B (-8.69%). Volume was lower, about the only positive for the session, and with the high point loss it was not all that much of a pick me up.
Up Volume: 352M (-1.374B)
Down Volume: 1.479B (+1.205B)
A/D and Hi/Lo: Decliners led 2.18 to 1. Once more breadth flip flopped sharply to the side that won the day.
Previous Session: Advancers led 2.68 to 1
New Highs: 46 (+18)
New Lows: 140 (+35)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
The 2005 downtrend continues as NASDAQ gapped lower Friday after tapping at the 18 day EMA (1964) on the big Thursday surge higher. Volume was lower Friday on the selling, but it was also lower on the Thursday rally higher. Thus for NASDAQ nothing has changed even with the big Thursday move in the market. Distribution two Fridays back, distribution Wednesday, and still in a downtrend. Technically it is weak and relying on SP500 and SP600 to pull it higher.
NASDAQ 100 showed the same action but was down more, falling 1.8% to NASDAQ's 1.5%. A bit weaker, but the same story, trending lower below the 18 day EMA after falling out of its lateral consolidation attempt around the 200 day SMA in late March and early April. Support at 1400 that held on the recent low and from last spring and summer.
SOX turned lower as well, unable to move through the 10 day EMA (395) the past three sessions as it rebounded from the prior week's dump lower. It is also just off of the recent lows that matched the January low at 383. As with NASDAQ it needs help; heck as with the whole market it needs help. It is trying to bounce once more in its trading range from 380 to 450, but it needs more of a catalyst. INTC could not provide it, TXN couldn't provide it, and MOT couldn't provide it. The list of catalysts for SOX is growing thin.
SP500/NYSE
The large caps were relative strength leaders Friday, but that is similar to saying one pig is prettier than the others. Gave up the 200 day SMA on the close but volume was lower.
Stats: -7.83 points (-0.68%) to close at 1152.12
NYSE Volume: 1.674B (-8.81%). Volume dropped but was still just above average as the index sold back some of the Thursday gain. Volume took a turn for the better Thursday, but it is still trying to transition, not in any clear turn to accumulation.
Up Volume: 613M (-1.296B)
Down Volume: 1.392B (+1.018B)
A/D and Hi/Lo: Decliners led 1.55 to 1. Not bad breadth given the struggles of the small caps.
Previous Session: Advancers led 2.79 to 1
New Highs: 24 (+1)
New Lows: 113 (+47)
The Chart: http://www.investmenthouse.com/cd/^spx.html
It was no easy session for the large caps either, giving up 18 points on the session low before a late rebound closed it out in the top half of the range. Lower volume so no distribution, but closed below the 200 day SMA (1154). The move the past two sessions took SP500 back up toward the neckline in its 10 week reverse head and shoulders base breakdown (1164). While the 200 day SMA is important and SP500 is doing a dance around that level as it tries to put in a bottom, it has to break back up through this neckline resistance to start putting the kibosh on the downtrend. The continued rebound that we are looking for after the Thursday follow through pushes it up to the 50 day EMA (1179) or 1190; that is a substantial enough rebound to set up a test and put in a better bottom. It is also interesting to note that on the recent lows SP500 held a lower channel line that formed after the March 2003 test of the October 2002 bottom, i.e. after SP500 broke out in late May 2003 above the December 2004 high. It used that level to bounce higher. While it broke through the trendline formed from the March 2003 low, it held the newer channel/up trendline that formed following the breakout. That is another indication SP500 is going to try a further bounce here before coming back to test this low and attempt to set a stronger bottom.
The small cap SP500 took its lumps Friday, leading the downside after being one of the upside leaders Thursday. SP600 was one of the three horsemen in the August to December 2004 run; when it has performed the market has performed and vice versa. Now it is still holding above its 200 day SMA (305) after a quick breach and recovery a week back. A rebound to 320 (50 day EMA at 319) to 325 sets up a good test of the recent drop to test the 200 day SMA.
DJ30
The blue chips were positive for awhile Friday before the Fed and North Korea news hit and sent the Dow to a triple digit loss. A late rebound cut its losses about in half. Volume was lower. Pretty tame, but it stalled out at the 10 day EMA (10,218) for the second session. There is some price resistance at 10,250 and at the 200 day SMA (10,375), the latter is the neckline of its head and shoulders base. That is a logical point for a rally to run out of steam and come back for the test.
Stats: -60.89 points (-0.6%) to close at 10157.71
Volume: 273 million shares Friday versus 287 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
No let up in earnings and economic data this week with some very market sensitive economic reports: consumer confidence (Michigan final as well), GDP chain deflator revision, and personal income and spending. Heavy hitters and an opportunity for the market to take another temperature reading on the economy. Investors are still weighing just what is good for stocks right now with the Fed still talking continued, open-ended rate hikes, the Fed funds futures saying that may not be so, economic data up and down, and oil back on the rise.
Overall the economy remains in solid shape despite the signs of slowing. It is perfectly natural for an expanding economy to have its ups and downs just as it is normal for a rising market to surge and then take a breather. The problem is persistently high energy prices and gasoline that is only going to go higher and a Fed that may pull a 'Fed', i.e. keep raising rates according to a prearranged objective while paying little more than lip service to concerns about what the economy is actually showing us, the US worker, or our savings. Heck, we know that many on the Fed are the same ones that wanted more unemployment and less prosperity back in 2000; they expressly said so. They got more than they bargained for, but that is the Fed's history. It tinkers with the economy, then something unexpected happens and we are all in it deep.
That is the real fear that has hamstrung the market. The economy is doing fine, tax revenues are up 10% from recession levels (the deficit hawks need to realize without the tax cuts that supposedly used up the 'surplus' tax revenues would be even lower than during the recession and the deficit would be bigger), and if Congress and the administration would get serious about cutting discretionary spending, revamping social security, and reforming the tax code, the trade deficits and other 'imbalances' Kohn noted would start to clear up by themselves (growth will do that). The market is trying to decide if the Fed is going to go too far or if the market can venture higher on the belief the Fed is going to do it right this time. Frankly, that sounds and awful lot like the 'this time it is different' talk we always listen for that shows tops or bottoms.
So we have Thursday showing a solid move by SP600 and SP500, with the small caps delivering a follow through to the Monday rally attempt following the plunge lower. While the technical patterns are still in the toilet, Thursday showed the right price, volume and breadth, at least on SP600; NASDAQ lagged with low volume, and that is an anchor chain on the further attempt to move higher. With leaders still holding up well, however, the stage remains set for a further move higher to at least set up the test of the recent lows. A test of that low would better set up a sustained move higher, but as noted last week, in 2004 NASDAQ never looked back after bottoming in August.
We are thus looking for further upside this week barring any serious bad news. With the Fed still talking tough and oil still on the rise again, upside will be hard fought. We are looking at leaders that pulled back in the recent selling, making orderly tests of prior moves and giving us good entry points. With leadership still holding up and the follow through session they will provide good opportunity on a further bounce even if it is just a bounce to set up another run lower to test the recent drop.
There are also still a lot of stocks that used the Thursday bounce to return to resistance but not clear it. Those that are in downtrends will likely remain in downtrends and we are going to look at those for downside plays. The overall indices are still in breakdown mode and have not recovered from the breakdowns themselves. Even though we expect the follow through to buy some more upside here, we have to acknowledge they have yet to recover that breakdown, and until that happens they could easily roll back over given NASDAQ did not follow the NYSE indices higher on volume last Wednesday.
Support and Resistance
NASDAQ: Closed at 1932.19
Resistance:
1950 (top of October to December 2003 consolidation)
The 18 day EMA (1964) is potential resistance.
Late 2003 highs from 1960 to 1970 and the March/April consolidation low at 1974
Early October high at 1971 and the March low at 1973.
The 200 day SMA at 1990
The 50 day EMA at 2004
Support:
1904 is the April low.
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 1152.12
Resistance:
The 200 day SMA at 1154
The 10 day EMA at 1158
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
The 50 day EMA at 1179
The 50 day SMA at 1188
March 2003 up trendline at 1189
1196, the mid-January high and the early December peak in the left shoulder.
1200
Support:
1137 the recent April low.
1129 to 1125
1100 to 1095
Dow: Closed at 10,157.21
Resistance:
The 10 day EMA at 10,218
Some price resistance at 10,250.
The 200 day SMA at 10,375
10,400, the bottom of the November/December range
The 50 day EMA at 10,475
Price consolidation at 10,600
10,754 is the February high
Support:
10,000 the recent lows.
10,065 from March 2004 lows.
9988 from September 2004.
9933 to 9900
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 25
Existing Home Sales, March (10:00): 6.80M expected and 6.79M prior
April 26
Consumer Confidence, April (10:00): 98.0 expected and 102.4 prior
New Home Sales, March (10:00): 1200K expected and 1226K prior
April 27
Durable Orders, March (08:30): 0.3% expected and 0.5% prior
April 28
GDP-Adv., Q1 (08:30): 3.5% expected and 3.8% prior
Chain Deflator-Adv., Q1 (08:30): 2.0% expected and 2.3% prior
Initial Jobless Claims, 04/23 (08:30): 296K prior
Help-Wanted Index, March (10:00): 41 expected and 41 prior
April 29
Employment Cost Index, Q1 (08:30): 1.0% expected and 0.7% prior
Personal Income, March (08:30): 0.4% expected and 0.3% prior
Personal Spending, March (08:30): 0.4% expected and 0.5% prior
Michigan Sentiment-Rev., April (09:45): 89.0 expected and 88.7 prior
Chicago PMI, April (10:00): 62.5 expected and 69.2 prior
End part 1 of 3
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