|
|
world stock market, us stock market
* * * *
05/24/05 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: WOOF; PLCE
Trailing stop alerts: EFX; PEP
Stop alerts: 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. To subscribe to the Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
Seminar Series Sale!
The new seminar series is scheduled to be ready in July, and we are closing out the inventory on the current series CD's at fire sale prices. Save on the best technical analysis, stock splits, covered calls and options seminars and enhance your understanding of market and stock moves and learn straight forward strategies to put that understanding to work and make more money. A great bargain.
http://www.StockSeminarsOnline.com
Seminar Series Sale!
SUMMARY:
- Stocks handle FOMC minutes, post modest gains on rising volume.
- FOMC not ready to slow, ready with more 'measured' rate hikes.
- Existing home sales rise 4.5%, post another record.
- SOX leads the way for eighth NASDAQ gain as market as NYSE indices trying to consolidate laterally.
- Need some more consolidation to set up the next move higher, but many leaders are already doing that.
Eight in a row as FOMC fails to stall bullish sentiment.
Stocks were pretty quiet heading into the FOMC minutes from the meeting just three weeks back. As expected they were trading modestly negative, but as the meeting approached SOX and NASDAQ started pushing positive. It was no major move, just firming up the range for the session. After the announcement stocks were undecided, but then made a definite push upside into the close.
All but DJ30 and SP400 ended up positive for the day. The gains were not anything significant (4.97 pts on NASDAQ, 0.21 pts on SP500), but the point was the action: soft start, overcame concerns about the Fed, moved positive into the close. Volume even ticked higher on both NASDAQ and NYSE, a sign that some buyers moved in after the softer session and picked up some shares, driving them positive into the close.
It is thus far not much of a consolidation. It definitely has not been a pullback; eight up sessions straight on NASDAQ is not what you call a consolidation. SP500 is the closest to a consolidation, but all it has really done is slow the move higher and give the appearance of a lateral move. It is creeping higher, however, and with the low volume it still looks ready for a pullback of some sort. With this move, you have to ask what is a pullback? It may turn out to be a lateral pause before the upside resumes. In strong bullish moves a short lateral move for a few sessions may be all you get.
Is this a strong move? Volume certainly is not exploding higher. Indeed, the only volume of note has come on just three occasions this month. Those were three important sessions, however, as those were the strong upside moves that powered NASDAQ and SP500 higher in this move. It may be sparse, but it was at key times and propelled this rally.
Outside the indices, the leadership has continued to hold up very well. A market can go nowhere without leadership, and the strong stocks we have been moving into since the rally started continue to hold their moves along with the rest of the market. Those that are testing are holding their near support on low volume. That is exactly what you want to see them do when they rest from strong moves. When the indices stall out some, however, they are going to have to hold still. Indeed some of them will need to step up and start leading even as the market overall pauses. The ones we have in mind are those that led the move off the recent low, e.g. the healthcare and medical stocks.
THE ECONOMY
FOMC minutes shows more unity in rate hiking.
The market seemed to take the FOMC minutes in stride, moving higher into the close the last hour after they were released. In doing so investors appeared to view the minutes as nothing new. Things have changed, however, and they may come home to roost later.
First, the vote on the rate hike was unanimous. Unlike the prior meeting there was no contingency questioning in the need for further rate hikes and indeed asking for no additional rate hike. With McTeer no longer heading up the Dallas Fed, it appears that more of the free market spirit of the Fed has left. As there was not much free market spirit in the first place, this is a real concern as to the Fed's viewpoints once Greenspan retires. That is why it is key to have a free market chairman such as Glenn Hubbard appointed.
In any event, the vote for the hike was unanimous, a change from prior meetings. Moreover, there was also unanimity with the idea that more rate hikes are needed in the future to control inflation. The statement expressly stated the current level for short-term treasury rates is too low to be consistent with price stability in the future.
Thus the second point: there was no indication whatsoever that the Fed is going to stop hiking rates anytime soon. As noted, the statement concluded that current rates are too low, thus more hikes are needed. Further, the Fed continued its 'measured pace' stance, stating that phrase characterized its stance moving forward. The Fed noted an uptick in inflationary pressures and that prices were being passed from producers to consumers. It even delved into the housing market, noting that overall things were fine but that some local markets were 'hot.' What the hell the Fed has to do with the housing market is anyone's guess, but the Fed knows no boundaries any more. We would not be surprised if the next round of minutes said something about shorting Google.
All of this adds up to a Fed that is dead set on raising interest rates on into the future. These minutes were from a meeting 3 weeks ago. Since then the economic outlook has improved somewhat with the soft spot receding pretty quickly. There are still issues with the regional manufacturing reports, but that is not enough to forestall or change the Fed's mind. On balance the data of late suggests a stronger economy than three weeks back; all the more reason for the Fed to continue raising rates.
The issue confronting the market is whether the Fed hikes two more times to 3.5% or on up to 4.5% as some suggest. We would love to think two and out, but we also know the Fed's history of hiking one time too many, some times two or three times too many. If the Fed follows its history, it will hike to 4% or better, and that will invert the yield curve. That will usher in a recession just as the Fed has done in 8 of the last 10 rate hiking campaigns. Each time we hope that the Fed has learned how to gauge when enough is enough, but it behaves just like an emotional market: it swings too far both ways, whether in cutting rates or in raising rates.
That eventually would mean more trouble for the market once it starts to figure out the Fed is not nearly through and will tighten into a flat or inverted curve. The mind-blowing aspect of this is that the economy is nowhere near at potential. We still have millions out of work from the last recession. We still have retirement accounts in ruin. We still have not come close to regaining the technological edge we lost when our tech sector crashed. We may not ever get that back, but should we not at least try? Why undercut the power of the tax cuts at jumpstarting major investment in the US and thus growing our economic foundation?
Why not? Because the Fed is too busy worrying about everything in the economy and indeed everything in the world while trying to apply a theory (the Phillips Curve) that only describes a short period in the history of world economics. It looks at the economy recovering in housing, manufacturing, investment, and yes it sees GOOG and SHLD at high prices, and it is drawing the wrong conclusions that things are too hot just as it did back in 1999 and 2000. Yes rates were too low and they probably still are, but as we have often said, the Fed should just go ahead and move rates up to 3.5% or 3.75% at once, keep the money supply healthy, and then say it is going to wait and see how things pan out. That would help the market deal with the future as opposed to the indefinite 'measured pace' water torture that the market is set to endure for at least another two months and possible another seven to eight months.
Existing home sales surge 4.5% and to a new record.
One person's bubble is another person's healthy market. The 7.2M annualized units in April topped expectations. Prices rose over $200K on average, up 7% from March. That jump has the bubble-ites out in force. On the other hand, mortgage rates fell unexpectedly as the 10 year treasury continues to rally, and that fueled much of the activity. One thing is certain: the housing market performs well when rates are low. The Fed is trying to push up long term rates by bumping the short end, but thus far all it has done is manage to flatten the yield curve further.
As noted above, the Fed only works on the short end, and from there it presumes the long end will rise. Greenspan's conundrum is the long end's refusal to move higher. Indeed, the 10 year treasury bumped 4.00% again Tuesday before closing at 4.03%. Despite the Fed's efforts the long end is reacting to market forces, not the Fed. Rates are thus low and the housing market thus still strong.
What worries us deeply now is the Fed's foray into housing prices. They popped up in Greenspan's recent speech. They appeared in the FOMC minutes. The Fed is once again looking for trouble, trying to pick a fight where there is none. It is trying to be our economic parent when we don't need one. Greenspan talks of free markets, but then proceeds in a 'I know what is best for the economy' fashion, ignoring low long rates (calling them an aberration) and gold's complete failure to price in any inflation. Sure Greenspan is still saying it is not a bubble, but when he starts talking about something he fully intends to make it an issue. You can already see the transition in his rhetoric from him blowing it off in questions by Congress just a month ago to now saying there are bubbles cropping up. It is a pattern seen in 1996 to 2000, and it is starting again. That is why we are extremely concerned about how far the Fed is going in this rate hiking campaign.
THE MARKET
It was not going to be much of a session but some chip stocks received an upgrade and SOX took off. That dragged NASDAQ along with it, though the techs were unwilling to follow until mid-afternoon when they recovered from the modest selling and turned positive. What was a modest consolidation session turned into a modest upside session. At this juncture stocks in general are a bit overextended and we would just prefer it get the consolidation over with and set up more upside.
The higher volume as the indices recovered was a good indication, but the move was pretty weak overall. Modest price gains, below average volume, weak breadth. Some of the better gains were in oil stocks as oil as quietly crept back up over $49/bbl. Definitely don't want to go back there; a continuing active Fed and oil back over $50/bbl is not good for stocks.
Even with the indices still creeping higher many stocks have set up well for the next move, pulling back to near support on lower volume. Good action; just wish the overall market was doing the same so they were all on one page. This way these stocks will have to hold pat here or take the lead and rally when the market tests. Never a bad thing for leaders to set up at support, and we will be watching these for their rebound moves to see what kind of strength they deliver. Good volume in these stocks will be good for the market.
MARKET SENTIMENT
Bulls versus Bears: Bulls rose further the past week, up 46.2% from 44.2% two weeks back. This was the second consecutive rise after bottoming at 43.5% on the most recent decline. Bears rose to 28.6% from 28% after hitting 30.4% on the high three weeks back. That was the highest bearish level since August 2004.
VIX: 12.69; -0.26
VXN: 15.84; -0.2
VXO: 11.22; -0.22
Put/Call Ratio (CBOE): 0.76; -0.05
NASDAQ
Another move higher with an afternoon nudge into positive territory. Volume was not super, but it was stronger and approaching average.
Stats: +4.97 points (+0.24%) to close at 2061.62
Volume: 1.739B (+3.7%). Not a bad volume session as trade approached average. Still below average trade; there have been just three above average volume sessions this month. They were on key days to be sure, but there has not been a ton of volume as summer approaches. After this run higher, how stocks hold the test will be key given the lighter overall trade. Summer gets bogged down due to a lack of money and the failure to move that money around.
Up Volume: 1.006B (-83M)
Down Volume: 666M (+146M)
A/D and Hi/Lo: Decliners led 1.13 to 1. Very mediocre breadth, negative on an up session. Given that NASDAQ was rallying or more accurately moving higher in the last hour, breadth was naturally lower as it lags the move in the indices.
Previous Session: Advancers led 1.2 to 1
New Highs: 70 (-11)
New Lows: 49 (+17)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ continued its rise, and for the second straight session volume was higher as the techs moved higher. That suggests some accumulation, but modest accumulation as volume remained below average. All things considered, there are more buyers than sellers in the market right now, and not just on a particular session. This move has been driven by upside volume even if it has been light overall. The key sessions were on stronger trade, and buyers are still in control. That keeps the action healthy and resistant to a big reversal, but if bad news hits the depth of the buying has not shown the power to hold the line. In any event, NASDAQ has moved deeper into the January to early March trading range with 2100 as resistance and with a midpoint right where NASDAQ is now.
NASDAQ 100's 0.3% gain topped overall NASDAQ as stocks such as CSCO and INTC posted gains as the large cap takes pushed the market. That definitely shows techs in the lead, but with some of those large caps it shows some short covering remains even after this rather lengthy move off of the April lows.
SOX was the catalyst for NASDAQ. SOX was up early and it extended its break above 420 with relative ease, heading for the next peaks at 435-436 and then 440. The top of SOX' range is at 450; it has to top that to make a higher high. Not betting it will do that anytime soon as a pretty nasty double top resides at that point. It can continue the run toward that level and give it a challenge, however, before it needs to test back and set up for the real breakout attempt.
SP500/NYSE
The large caps continued their quasi-lateral move on light volume, managing to hold above the April high with the late push higher by the overall market.
Stats: +0.21 points (+0.02%) to close at 1194.07
NYSE Volume: 1.279B (+0.9%). Volume 'surged' on the session. Hardly. It edged higher and was still well below average. Since the follow through last Wednesday volume has fallen off the table once more. If the index would just move laterally with this volume it would be in better shape. As it is, this action can set it up for a deeper pullback than otherwise.
Up Volume: 802M (-322M)
Down Volume: 841M (+322M)
A/D and Hi/Lo: Decliners led 1.04 to 1
Previous Session: Advancers led 1.78 to 1
New Highs: 83 (-19)
New Lows: 24 (+12)
The Chart: http://www.investmenthouse.com/cd/^spx.html
As noted, SP500 is edging higher in very modest steps. It is trying to consolidate but keeps edging higher on low trade. Typically a stock or index in a strong move will rally then move laterally in a narrow range. If it is strong it will test back to near support on low volume, shake out the sellers, and rebound. If it is stronger, it will move laterally, holding its gains, then surging once more. It may do that here, but this creep higher is not working to shake anyone out. The purpose of a pullback is to let the froth abate, get the stragglers that joined late to get out, thus creating that demand/supply imbalance once more. This slow creep higher does not do that. There is some resistance at 1200 and there is that April high at 1192 below. We would not be surprised to see SP500 fall back toward the 10 day EMA (1182) to accomplish that shakeout.
Similar to SP500 the small cap SP600 is edging higher in a pseudo-lateral move as it approaches the April peak at 324.64. If it continues this creep higher that level will likely stall the move. It could use some lower volume consolidation here to reset the move higher.
DJ30
The blue chips could not muster a gain as volume faded to well below average and the Dow posted a slight loss. This action is more of a consolidation than the other indices as there is some downside action with the intraday lows dipping deeper as well. Not bad action as DJ30 moves laterally along resistance here at 10,500, just below the April high at 10,557.
Stats: -19.88 points (-0.19%) to close at 10503.68
Volume: 204 million shares Tuesday versus 225 million shares Monday. Much more like a lateral consolidation move here.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Durable goods orders are out pre-market, and after the 2.3% bomb in March during that slowdown April is more significant. Always volatile, but needs to bounce back here. After that new home sales at 10:00ET and more fodder for the bubble argument.
Those will impact the market, but the key is the move already put in up to this point. Solid upside that is posting lower and lower gains. That is always a sign a move is losing some steam. This market has continued its upside without a pause, and it can continue to do so here, but that is fighting the odds. Suffice it to say the indices have made a good move, they are slowing here, they could use a couple of sessions to test lower at least intraday, and then maybe be ready for the next move.
Overall that is what stocks are doing. NASDAQ rallied on the likes of CSCO, INTC, DELL, AAPL; the large caps pushed that index higher. The majority of NASDAQ stocks were flat or lower. Thus even though NASDAQ and SP500 crept higher, we see many stocks that are testing good moves with a tap back at near support. That is very healthy action that is setting up the next move higher. Thus while the indices look to be extending in an unsustainable manner, a lot of stocks are testing and setting up just as you would expect a healthy, leadership caliber stock would do.
Those are the stocks we will continue to focus on, just being patient here and looking for the next wave to start and move in.
Support and Resistance
NASDAQ: Closed at 2061.62
Resistance:
2100 is a key resistance point.
2151, the early December closing high.
2163, the mid-December closing high.
Support:
2051 from February, March price points.
The 10 day EMA at 2022.
Early April high at 2021, February lows at 2023.
The April high at 2022 is key.
The 200 day SMA at 2001
The 50 day EMA at 1994
1974, the low in the March/April consolidation
Late 2003 highs from 1960 to 1970
1962 is the recent lower high in April.
1950 (top of October to December 2003 consolidation)
S&P 500: Closed at 1194.07
Resistance:
The April high at 1192: still holding over this level.
1196, the mid-January high and the early December peak in the left shoulder.
Price resistance at 1200
The March 2003 up trendline at 1208
December high at 1217.
Support:
The 10 day EMA at 1182.
The early May high at 1178.
1175 second high in that double top that spanned late 2001 and early 2002
The 18 day EMA at 1176
The 50 day EMA at 1175
1164 is the January/March neckline to the head and shoulders pattern.
The 200 day SMA at 1162
1142 is the August 2003/August 2004 up trendline
1137 the recent April low.
Dow: Closed at 10,503.68
Resistance:
The April high at 10,557
Price consolidation at 10,600
10,754 is the February high
10,868 is the December 2005 high.
10,985 is the March high
Support:
The May high at 10,406
10,400, the bottom of the November/December range
The 200 day SMA at 10,399
The 50 day SMA at 10,391
The 18 day EMA at 10,366
The recent April highs at 10,264
10,065 from March 2004 lows.
10,000 the recent 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.
May 24
Existing home sales, April (10:00): 7.18M actual versus 6.90M expected versus 6.87M prior (revised from 6.89M).
FOMC minutes (2:00)
May 25
Durable goods orders, April (8:30): 1.3% expected versus -2.3% prior.
New home sales, April (10:00): 1.328M versus 1.431M prior.
May 26
Initial jobless claims (8:30): 325K expected versus 312K prior.
GDP revision, Q1 (8:30): 3.6% expected versus 3.1% prior.
Chain deflator, Q1 (8:30): 3.3% expected versus 3.2% prior.
Help wanted index, April (10:00): 40 expected versus 39 prior.
May 27
Personal Income, April (8:30): 0.7% expected versus 0.5% prior.
Personal Spending, April (8:30): 0.8% expected versus 0.6% prior.
Michigan sentiment final, May (9:15): 86.0 expected versus 85.3 prior.
End part 1 of 3
|
world stock market
us stock market
|
