|
|
us stock market, understanding the stock market
* * * *
07/02/05 Investment House Daily
* * *
Investment House Daily Subscribers:
Happy Fourth of July!
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: SM; CELL; PXP
Trailing stop alerts: None issued
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:
- Lots of news Friday but little action ahead of holiday weekend.
- National manufacturing index posts a gain, fights off contraction.
- With China syndrome under control for now, oil, the Fed and earnings are front and center.
End of month brings a lot of news but nothing new for the market.
Stocks spent the past week confused, selling and then rebounding after the China trade issues the prior week presented enough uncertainty to cause investors to sell some and ask questions later. Up big on Tuesday, down big on Thursday, modest bounce on Friday. In the end stocks ended basically where they started, at least with respect to NASDAQ, SP500; SP600 posted a nice gain for the week.
Friday had some promise but we were not going to get too excited by the early action given the 3-day weekend ahead. It was the first of the month and some new money was getting pressed into service. That had futures upside and stocks followed them higher early. Stocks were up and then received some more upside help from a stronger than expected Michigan sentiment report and a still expanding ISM manufacturing reading. Volume was decent and stocks were up across the board with the small caps and mid-caps leading the way.
SP500 tested resistance at 1200 at the end of the first hour, however, and that pretty much put the brakes on the upside move. A rebound attempt around 11:30 ET ran out of gas simply because everyone went home. When that happened the bids started to dry up and stocks slipped lower and lower, though modestly, the rest of the session. Volume was of course very light what with only half the normal traders present. Stocks continued to slip on low volume until SP500 hit the 50 day EMA midway through the last hour. That prompted some bargain hunting and short covering ahead of the weekend and bounced the indexes positive for the close.
Low volume, so-so breadth, a $2.25 oil price spike, and small and mid-cap leadership were hallmarks of the session. Oil started soft but just kept on rising all session as Boone Pickens predicted $100/bbl oil at some point in the next year. Since he said it would hit $60 before it hit $40 his prediction carried some weight and oil prices rose up to their close. That jump in oil pushed energy stocks higher, and as many energy stocks populate SP600 and SP400, we saw those indices lead the market (+0.6%, 0.7%).
At the close that left NASDAQ and SP500 just above the 50 day EMA (where they started the week), but SP600 and SP400 made higher lows and look ready to try and take on the recent highs that form something of a double top. Thus we enter next week with the small guys in the lead once more, trying to point the way for the large caps. SP500 needs to turn higher here and follow its NYSE brethren to break up its own double top as well. NASDAQ needs to hold the 50 day EMA so it can continue its handle. DJ30, well, it needs to get the crash cart out as it tries to hold some support well below the 200 day SMA.
THE ECONOMY
National manufacturing index rebounds from flirtation with contraction.
The regional manufacturing reports leading into Friday's nation manufacturing read were mixed, i.e. some were still expanding and some were contracting, and that made the national number problematic. The reason this report was more significant than the prior 28 months it showed expansion was the Fed; the Fed has never raised interest rates when the national manufacturing index was below 50 or in contraction.
The index rose to 53.8, up from May's 51.4 reading and the 51.5 expected. That is the twenty-fifth consecutive showing above 50 but the first time in 12 months the index has increased. Employment rose but is still contracting (49.9, up from 48.8), new orders jumped to 57.2 from 51.7, and prices paid tanked to 50.5 from 58.0. Those are all positives though employment is still shrinking. This is the longest manufacturing expansion in 20 years.
Now there is something else to consider in the June report: the national numbers tend to lag the regional by a month to two months. With some of the regions turning negative in June we could still see the national number do likewise. The Fed proceeding as if the economy is robust but it is slowing its expansion as many indicators from manufacturing to business investment to shipping tonnage to commodities prices indicate. The Fed apparently had these numbers before its meeting; it gets the data a day before its release and it had a chance to look them over before hiking again. That explains the comments about a slowly improving labor market.
In any event the data bounced back and may be enough to fend off a contraction reading in July. It was more than enough to bolster the Fed's current position of continuing rate hikes on into the misty future.
May construction spending takes a dive as the Fed focuses on stalling housing. Take note of the numbers, Fed.
Public and private construction took a tumble in June. The 0.9% drop was a 1.4% swing as a 0.5% gain was expected. Private construction spending fell 1.6%, private residential construction (isn't it strange that we have to say 'private'? The government really is in the housing business. Don't recall that as an enumerated power in the Constitution) fell 1.7%, and private nonresidential construction (businesses) fell 1.6%. Public construction hit a record, rising 1.7%.
Private spending is down, government spending is up. That is about the size of it. Residential spending was lower, another indication that the housing market that the Fed and others are calling a bubble is starting to cool of its own accord. As we discussed Thursday night, however, the housing market is the new target of the Fed after the stock market in the late 1990's. The Fed is going to try and fix what it perceives to be a problem, once again trying to micromanage the economy. Of course all it has to do the job are rate hikes and money supply. That is a clumsy method to accomplish a goal, similar to pulling a tooth with drilling tongs. You get the job done but you destroy everything else in the process.
The Fed needs to stick to worrying about long-term price stability as per its mandate instead of sounding alarms about social issues and how consumers and businesses spend. Greenspan may have valid points to make, but do it on the high-priced lecture circuit and not as the head of the Fed. Tinkering with markets is a sure way to really, really screw them up. All you have to do is look at the Fed's track record (out of the last 10 rate hiking situations we suffered 8 recessions) and what it trying to accomplish (e.g. in the late 1990's battling the stock market and the 'runaway' consumer) and you realize the Fed should stick to broad macro issues as opposed to sweating what are really natural ups and downs in various markets and sectors. Of course we live in a day of activist judges who rule not as per the Constitution but as per their own feelings of right and wrong, so activist non-elected officials who step outside of their mandates are nothing new. Doesn't make it right, but most of the US citizens don't know or don't care, and that is when we start losing our guaranteed freedoms.
THE MARKET
MARKET SENTIMENT
VIX: 11.4; -0.64
VXN: 14.27; -0.19
VXO: 10.63; -0.72
Put/Call Ratio (CBOE): 1; +0.23. Quick turn up in the ratio indicating more of the sentiment that long positions need protection or speculation the market is heading lower. This is a more bullish indication, but overall the bulls/bears ratio is bearish and that offsets what the put/call ratio was showing Friday.
Bulls versus Bears:
Bullishness is rising and bearishness if falling. Both ends of the spectrum have pushed to what are considered bearish levels. With the summer slog ahead and earnings, this is another weight upon the market and is taking on more importance as the market struggles with key resistance.
Bulls rose to 55.1% from 53.9% last week, the seventh consecutive weekly gain, up from 47.95% just a few weeks back. Bulls bottomed in early May at 43.5%.
Bears fell to 19.1%, below the 20% level considered the bright line for bearish implications. This follows a steady erosion of bearish views (20.2% from 20.3% from 20.9% from 25% from 26.1%).
NASDAQ
Stats: +0.41 points (+0.02%) to close at 2057.37
Volume: 1.245B (-28.16%). Last Friday stocks tanked on high volume on the Russell rebalance and this Friday they 'rallied' on very low volume. No distribution, no accumulation; with these pre-holiday sessions you can't take anything from the volume. As it is NASDAQ has undergone distribution the past week and the Friday action did not change that. The recent distribution has knocked the index back to the bottom of its handle and is not good action within the handle (you want to see volume call down). This distribution has techs under pressure but thus far still holding in the range that is its handle.
Up Volume: 528M (+58M)
Down Volume: 696M (-488M)
A/D and Hi/Lo: Advancers led 1.24 to 1
Previous Session: Decliners led 1.27 to 1
New Highs: 81 (-38)
New Lows: 36 (+2)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Basically flat on very low volume as NASDAQ held above the 50 day EMA (2045) Friday, but it still made a lower high midweek after the bounce of the 50 day Tuesday. It is still working in the 4 week handle to its 6 month cup with handle base, the point where it fades back and those frustrated with the lack of progress in the advance and what looks to be a turn back down go ahead and sell out. The distribution is not a good sign in the handle, but thus far it has not been fatal. NASDAQ needs to hold the 50 day on this test and then show some strong volume as it rebounds. Sounds simple, but oil and more worries about the Fed are taking their toll as the distribution shows. Remaining defensive for now but many strong techs are holding near support just fine. Moreover, the 50 day EMA is still holding above the 200 day SMA (2032) after crossing up over that level to start June. As we mentioned at the time, a test of that move where the 50 day comes back to tap at the 200 day is rather typical action when an index makes a break higher to change a trend.
SOX was a duplicate of NASDAQ, posting a modest, fractional gain. It, however, is below the 50 day EMA (421.25) having undercut that level Thursday. It showed a doji on the candlestick chart Friday, and after a drop that can signal a change of momentum coming. Maybe. The handle on SOX' double bottom with handle pattern is dipping a bit more than you want to see. SOX was a leader in the May recovery, but it has quickly reverted to a follower.
SP500/NYSE
Stats: +3.11 points (+0.26%) to close at 1194.44
NYSE Volume: 1.227B (-14.59%). Low pre-holiday volume made the modest bounce off the 50 day EMA of little account. The index is still dealing with those three distribution sessions in the past seven. As with NASDAQ it is still holding near support as the distribution has not taken it down as of yet. Need to see some better upside volume this coming weak, but have to deal with oil, the Fed and the start of earnings.
Up Volume: 995M (+348M)
Down Volume: 599M (-807M)
A/D and Hi/Lo: Advancers led 1.74 to 1. The small and mid-caps led the session and thus the very solid breadth as the large cap indices posted a very modest advance.
Previous Session: Decliners led 1.13 to 1
New Highs: 194 (-17)
New Lows: 33 (+1)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 managed a small bounce up off of the 50 day EMA (1192) Friday but low volume makes the move rather more like wasted motion. All in all SP500 was under pressure last week and the end of the prior week, making a lower high midweek. Trying to recover from a hard dump lower, working along the 50 day EMA in choppy trade. As we noted at the start of last week, the inability to make a quick jump back up after the selling to the 50 day EMA means it would take a longer consolidation to reset for the next attempt higher. That is what it is attempting now. Thus far it is holding the 50 day EMA, pretty much the level it needs to hold to salvage the pattern. Have to see some price/volume improvement this week as SP500 tries to rally back up toward the recent high (1220) so it can break up the potential double top.
The market may be able to find some salvation on the backs of the small and mid-cap stocks. The SP600 and SP400 rebounded off the selling as NASDAQ and SP500 should have done. Well positioned to start the week and lead the rest of the market higher. SP600 needs to clear 338.71 to break up the double top pattern that tried to form with the March and June highs. It is performing well and looks ready to lead the market once more. It needs to if the market overall is going to continue the upside move.
DJ30
The blue chips held 10,250 once more as it did the week before. DJ30 is struggling hard after dumping through the 200 day SMA (10,445) seven sessions back. The blue chips have struggled all year and were starting to look pretty good in late May, but when the index tried to make the break higher it had no volume. It faltered on the trade issue with China and it has not recovered yet. About all it has done is keep from completely imploding with a break below 10,250. High praise indeed.
Stats: +28.47 points (+0.28%) to close at 10303.44
Volume: 231 million shares Friday versus 301 million shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
This past week the market went basically nowhere for the large caps, bouncing after the selling to end the prior week, but then giving the bounce right back. A lot of running in place, and on the whole the market lost ground when you consider the distribution that continued with the Thursday selling.
The news was extremely interesting. Sandra Day O'Connor announces her retirement and brings to the fore the threatened fights regarding Supreme Court nominees, the Fed raises rates as expected but throws in a caution about 'elevated' inflation near term, the proposed tariff against China is tabled given assurances the yuan will stat to partially float in the near futures. Very interesting on the news front.
The latter item threw the market into a tizzy two Thursdays back or at least gave the market a reason to unload some to the downside. With the China trade issues is taken off the table that is one less thing for the market to worry about, but when the news hit Thursday the market did not respond, nor did it respond much Friday. No, there were other issues, new and old, to consider.
The Fed was back on the table with its worry of elevated inflation. That helped push the Fed Funds Futures contract up to where not only another 25 BP hike is 100%, but yet another (to 3.75%) has better than a 50% chance to occur. It is still a long way out, but if nothing else this shows the expectations the current market is building in. Until very recently the market was building in hikes just to 3.5% and had rallied based upon that. Now it has to re-jigger and take into account another rate hike.
Oil is also back in the picture in a big way. It stalled out and started to fade some and once more there was talk of price making a parabolic move, but it shrugged it off and rallied to $60/bbl. It closed the week rising $2.25 Friday to $58.75 despite weekly inventories that were much higher than expected. It sold on the news but then came doggedly back to end the week, partially because not many wanted to be short heading into a long weekend, and sad to say it, given it is July Fourth, the threat of a terror event is still present.
Regardless of the reason, oil did not respond to higher inventories by falling and staying down. Gasoline prices are on the rise again, moving back above $2/gallon on average. We said back in March and April that gasoline would hit $3/gallon this summer, and at $2.50 and higher it is really going to impact the consumer and businesses. That is another item the market is pondering right now as it pulls back. The trade issues helped knock it back, but the 'new' old issues are keeping it down.
There is one more issue the market is pondering from this lower level: earnings. This past week saw some fairly big names miss and/or warn, e.g., PIXR, MON, FDX. Analysts have been predicting slowing earnings for the past couple of quarter, but it has yet to materialize. These early warnings could be the start of that slowdown; those three cited above are pretty diverse yet reflect important segments of the economy. It remains to be seen how that will pan out but this pullback in the market is not giving a thumbs up to anything whether it be the Fed, oil, earnings or trade.
We will start the week as we finished it, somewhat defensive, looking for opportunity in energy once again while we keep an eye on the small caps and technology. The small caps are attempting a breakout move, and if they do we can expect to see the techs try to follow. With oil near $60/bbl and gasoline over $2/gallon a rally does not seem logical, but the market is what prices in the probabilities and whether companies can grow earnings with high energy cost and higher money costs. If it shows us buys we will participate in them.
Support and Resistance
NASDAQ: Closed at 2057.37
Resistance:
The 10 day EMA at 2066
2075 to 2078
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 50 day EMA at 2045
Early April high at 2021, February lows at 2023.
The April high at 2022 was the higher high point.
The 200 day SMA at 2032
S&P 500: Closed at 1194.44
Resistance:
The April high at 1194
1196, the mid-January high and the early December peak in the left shoulder.
The 10 day EMA at 1200 and price resistance at that same level.
The February intraday high at 1212.
December high at 1217
The June high at 1220
The March 2003 up trendline at 1227
The March 2005 high at 1229.11
Support:
The 50 day EMA at 1192 is trying to hold.
The early May high at 1178
1175 second high in that double top that spanned late 2001 and early 2002
The 200 day SMA at 1175
Dow: Closed at 10,303.44
Resistance:
10,400, the bottom of the November/December range
The May high at 10,406
The 18 day EMA at 10,426
The 200 day SMA at 10,445
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 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.
July 05
Factory Orders, May (10:00): 3.0% expected and 0.9% prior
July 06
ISM Services, June (10:00): 58.0 expected and 58.5 prior
July 07
Initial Jobless Claims, 07/02 (08:30): 320K expected and 310K prior
July 08
Non-farm Payrolls, June (08:30): 180K expected and 78K prior
Unemployment Rate, June (08:30): 5.1% expected and 5.1% prior
Hourly Earnings, June (08:30): 0.2% expected and 0.2% prior
Average Workweek, June (08:30): 33.8 expected and 33.8 prior
Wholesale Inventorie, May (10:00): 0.5% expected and 0.8% prior
Consumer Credit, May (15:00): $4.5B expected and $1.3B prior
End part 1 of 3
|
us stock market
understanding the stock market
|
