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yahoo stock, us stock market
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7/20/05 Stock Split Report Update
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: BELM; LRCX; ENR; SUN; FLSH
Trailing stops: UNH
Stop alerts issued: IMGC; PDC
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
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SUMMARY:
- Stocks refuse to buckle under to obstacles, rally once more on volume.
- Greenspan tells Congress economy solid, more rate hikes to come despite some housing issues, flat yield curve.
- Sentiment indicators are low but underlying belief market cannot sustain gains post-crash and late comers fueling the rise.
- NASDAQ bumps 2005 high as good news starts to saturate the market.
INTC, YHOO pushed to the side as stocks trample higher.
Citigroup shook the market with its earnings as the reporting season started, but after recovering from that test stocks have not let bad news get in the way of the party. Wednesday Intel and Yahoo were mere annoyances in the overall push higher.
Stocks opened lower as you would expect, but SP500 held the 1225ish level near the 10 day EMA, and that helped set the floor for a rebound. Greenspan threatened to take stocks down again when his 'we are going to keep hiking' testimony was released. Oil inventories were much better than expected, however, and that news worked as an offset. Stocks held the early lows and stated another long, steady melt higher all session long that sent SP500, SOX, SP600 and SP400 to new 2005 highs.
Volume was strong early, particularly on NASDAQ, thanks to the INTC and YHOO trade. When the initial downside pressure dissipated, however, the volume did not dry up and blow away. It remained strong as stocks chugged higher all session to close just off their session highs. Very good action when stocks start soft and then overcome adversity to rally positive on strong trade. Couple that with some 2+:1 breadth along with some breaks through resistance and you have another nice session on the best volume in a month.
Stocks have definitely been in rally mode. They are now overcoming obstacles that would have scared them off just a few weeks back and definitely back in late spring. The China trade issues toward the end of June almost derailed the rally and Citigroup earnings threatened to strip away the rally this month leading into earnings. Those were overcome after some selling. The Intel and Yahoo news evoked selling for about an hour, and it wasn't any desperate, panicked selling at that. No, stocks have their heads down and are just rallying, playing catch up with the economy at this point and factoring in some more better than expected earnings.
It is healthy when the market ignores bad news but it is also something to note because it cannot go on forever. Right now this action is in large part being driven by money that did not believe in the move but is now in chase mode trying to catch the breakaway move (borrowing from the Tour de France). We are hearing a lot of that from floor traders and market makers; orders are coming in from some holdouts, and they are pretty big orders as they dump some money into the market that was being held back in fear of a meltdown. Instead the continued melt up has some panic buying taking place. It won't take much for that money to get scared and come back out of the market.
Now we have the majority of indices hitting new highs for the year if not all-time highs (SP400, SP600 once again). NASDAQ has ridden the wave as well and is now at its early January high at 2191.60. It blew through 2100 and barely paused on this move. This is another important level NASDAQ has to face down, and with the current strength there is little question it can do it. The issue is whether the move will have staying power, and that is a question as to just how far this run can last on the current spate of good news. Earnings were met with some trepidation, but with some good results from key stocks the money is pouring in and it overwhelmed the Intel and Yahoo results that were not up to expectations. The market typically reaches a saturation point in the earnings season when it posts this kind of run. As always it pays to watch for potential potholes ahead, and a good news run such as this warrants a bit of scrutiny at another important resistance point for NASDAQ. For now the signals are good with higher volume, good leadership, and strong breadth.
THE ECONOMY
Greenspan warns of potential energy and housing problems but promises further rate hikes.
The story was basically the same one we have heard for a few months, i.e. a solid economy, good growth but a 'frothy' housing market in some isolated areas and now the concern that continued rising energy prices taking a toll on the consumer. At the same time, however, he talks of inflation with respect to rising oil prices. That is a tough sell. Rising energy prices are a tax; they result in less consumption, the antithesis of inflation. Sure rising oil prices cause consumer prices to rise because consumers are key end users, but the added dollars consumers spend for fuel they don't spend elsewhere. Energy is not like other products; if its price goes up you still have to use it. That means the money is gone. With other products if the price gets too high the consumer might shift the buy to something else or might not spend at all just yet. That can keep the economy moving. When fuel prices rise too high history is very clear as to the result: economic slowdown. Thus, Greenspan's comments that rising energy is inflationary are disingenuous.
Greenspan more or less concluded, however, that things are quite good in the economy with good consumption from individuals and businesses, inflation a possibility but in control, etc. What we heard a lot Wednesday after the text was released was 'well if this is the case then why the hell is the Fed still raising rates?' Almost in the same breadth they would answer their own question with 'because it can.' What the bond traders mean is that the Fed has another agenda, just as we have been arguing for about six months.
The Fed once more is using some rather modest inflation as a reason to raise rates. Rates were low and the Fed wants them higher. That market pegged it at 3% in late 2004, and then re-evaluated and put it at 3.4%, maybe 3.75%. The Fed is likely looking at 4% to 4.5%. Greenspan was clear rate hikes would continue, though that is not really a gauge as to how many more; he will stop abruptly without any notice. All along we have said the Fed was going to push them to a level that it arbitrarily felt it had to get to, and 4% is likely the minimum threshold. The Fed will do what it always does: it will hike rates until it hits that level or something pops first. If nothing pops at 4% it will keep going. That is the typical Fed history. Sure it has admitted it was mistaken on a very rare occasion and stopped rate hikes, but the economic distress was quite clear when it did so, and of course it did it without any warning.
We were hearing a lot of this very talk Wednesday even as bonds held their own and stocks then rallied. Bond traders are more historically oriented than stock traders and that is why there is really no 'conundrum' with respect to the bond yield curve. They know the Fed raises rates too high and causes economic distress 80% of the time. They are not taking the 20% side of the bet, particularly because once more they see the Fed saying one thing while the data it cites say another. When the Fed is in this mode it is being agenda driven, not results driven. It does this when it thinks things are pretty much bullet proof, and that is always a dangerous mindset.
THE MARKET
MARKET SENTIMENT
A lot of talk of late on the financial stations about the pervasive bullishness in the market, and with the traditional sentiment indicators that is certainly the case. VIX broke below 10 intraday Wednesday, the first venture below that level since late 1993. Of course volatility remained low and below what are considered 'normal' levels of the second half of the 1990's for several years. Indeed, volatility climbed as the market climbed, and it was not until massive spikes in volatility in 1998 and then again in early 2000 that the market suffered a bear market.
The point: don't get too tangled up in where the VIX trades. It can hold at low 'bearish' levels for years when a solid rally is in place. It then rises when the rally approaches its end point, that volatility that accompanies the change of seasons, i.e. from a bull to a bear.
There is another issue that is running below the usual measures of fear or complacency. Ever since the bear market there has been this feeling that stocks simply cannot hold any sustained gains. There is still a very outspoken group that believes the recession and market downturn was not severe enough to totally 'wring out the excesses,' and that all of this upside movement is just a prelude to a nasty downturn.
We can say with 100% certainty that there will be a nasty downturn . . . at some point in the future. It always happens, and it usually accompanies some needless and foolish tinkering with the economy, something that is currently ongoing but not too onerous just yet. That underlying theme has to this point kept a lot of the money out of the US equity market because many believed that it was simply a waste of effort to invest in stocks while the bubble re-inflated.
The market tends to top when it runs out of fuel, i.e. when most of the money that can be invested in stocks has found its way in. The bearish undertones during this recovery have kept a lot of money on the sidelines, and this current move is possible because some of that money is moving into the market now. A noted bear turned bullish last week, not because he was all gung ho about the economic prospects, but because money was still cheap and all of the other asset classes outside of US equities have been driven up to levels that make stocks relative bargains. Thus he is putting his money into US equities.
That is what a bull market does. It drags more and more bearish money in as it continues to surprise to the upside and break through resistance points. We admit that we are not smart enough to know what is going to happen, but we know enough to act when the market and leading stocks say to do so. Thus we have participated in the move all the way up despite any misgivings deep in the pit of the stomach.
At some point the money is all dragged into the market and there is no fuel left to push stocks higher. That happened in early 2000, aided by the Fed drying up the money supply and calling all of the money back that it put out to the banks ahead of Y2K (all of that money was dumped into the market because there was no made rush to the banks ahead of January 1, 2000). Along the way there will be mini-tops, i.e. where the late comers rush in and spike up volume as stocks continue to rally; may be seeing some of that now as NASDAQ hits its 2005 high. When the real top is hit, however, you will see a lot of volatility (the VIX will indeed jump) along with a lot of distribution in the market and leading stocks breaking down. Thus far that has not shown up in this rally.
VIX: 10.23; -0.22
VXN: 12.89; -0.17
VXO: 9.47; -0.26
Put/Call Ratio (CBOE): 0.91; +0.1
Bulls versus Bears:
Last week: Bulls increased slightly while bears did the same, maybe working to offset each other but still close to levels considered bearish for the market. This has taken them out of the clearly bearish levels of three weeks back, but again, still very close to levels considered bearish.
Bulls rose to 54.5%, back up after a one-week hiatus where the fell to 53.9%. Still below the 55.1% from two weeks back that put it above the 55% level that is considered a bearish indication. Bulls bottomed in early May at 43.5%.
Bears offset the bulls a bit, rising for a second week and moving to 22.2% from 21.4% the week before. That keeps them above the 20% level for the second week after dipping to 19.1% three weeks back. Below 20% is considered a bearish indication for the market. Hit a high for the year at 30% in early May.
NASDAQ
Stats: +15.39 points (+0.71%) to close at 2188.57
Volume: 2.031B (+18.5%). Best volume in over a month as NASDAQ started soft and rallied positive. That shows the early selling converting into buying, a strong indication. The big spike in volume also shows that a lot more money came into the market than during any of the move, or at least most of the move. A big summertime volume spike, if it continues for a few sessions, can be an indication of that saturation point or interim top where a chunk of money held back to this point is thrown at stocks; once it is gone then the market has to come back some.
Up Volume: 1.235B (-109M)
Down Volume: 748M (+407M)
A/D and Hi/Lo: Advancers led 1.97 to 1. Solid but now overwhelming upside breadth.
Previous Session: Advancers led 2.07 to 1
New Highs: 208 (+58)
New Lows: 17 (-6)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ turned a potential problem into a positive, gapping down on the INTC/YHOO earnings but then rambling back up for a solid gain on strong trade. The early dip was obviously used as an entry point by some of the big institutions that have sat out much of the rally; the dip gave them an opening and they took it. That ran NASDAQ right up to the January 3 high (2191.60), closing just below that level. This was undoubtedly an accumulation session as that money pushed stocks higher in a mad rush to buy. As discussed above, however, it is not necessarily an 'all clear' signal that the rally has turned on the afterburners. It may have, but it is worth just being cognizant that some 'just cannot stand it' money was unleashed that had been held on the sidelines for a long time. Finally the managers just couldn't stand it anymore and put to work. With NASDAQ right at the 2005 top and a potential 4 year high, that is worth noting. It may not stop the move at all, but given the little rest at this juncture it could run into trouble at least on an interim basis. Other than that, however, there is not a lot to criticize with respect to this move.
Case in point is SOX. It rallied 1.7%, leading the market, despite INTC disappointing investors. Thus while INTC was sold, many of the stocks that depend upon Intel rallied. There was no lack of money moving into semiconductors even after a 60 point move in SOX. That breakout above 450 has ushered in money that was banking on a failure at that level; kind of a 'if you can't beat 'em, join 'em' effect.
SP500/NYSE
Stats: +5.85 points (+0.48%) to close at 1235.2
NYSE Volume: 1.571B (+1.21%). A second strong session of NYSE volume as SP500 moved through some key resistance and SP600 moved to a new all-time high. This volume is not just a big one-day surge, but has shown some steady gains punctuated by some solid above average trade the past two sessions as the NYSE indices moved higher. Of course NASDAQ volume was spiked by the INTC trade, but its trade has not been as consistent as NYSE this past month.
A/D and Hi/Lo: Advancers led 2.25 to 1. Stocks were firing in on all cylinders across the board as most stocks pitched in on the move.
Previous Session: Advancers led 2.29 to 1
New Highs: 323 (+101). Still not a real surge in the new highs despite the breakouts by the indices. Something to keep note of; a modest but potential chink in the armor.
New Lows: 18 (0)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 finally put 1229.11 to bed with a strong volume move to 1235. That takes it to a new high for 2005, and while it does not close the book on this level it is the kind of action you want to see as an index makes a break through key resistance. SP500 is now at a 4 year high of its own. That gets a lot of value guys in a sweat, but actually it shows a lot of the old overhead supply has been weeded out of the market; time ahs a way of doing that as investors gave up on stocks. Indeed, as discussed above, many have continued to avoid stocks but are now turning back to them. That in itself is a warning shot as noted in the discussion of volume.
This market is not much without the small caps, and for the second straight session SP600 has been in the lead, posting yet another new all-time high with its second bounce off of the 18 day EMA. That still leaves it another couple of tests and bounces on this move as long as the market remains healthy. The small caps have done a remarkable job, however, of ignoring the large cap problems when those stocks have started their struggles.
DJ30
INTC was a drag but DJ30 posted another positive session, clearing the near resistance form the June highs (10,646 to 10,656). A modest breakout but a breakout nonetheless as the blue chips continue to follow the rest of the market higher. Unlike the rest of the indices, DJ30 is a long way from its recent highs at 10,984.
Stats: +42.59 points (+0.4%) to close at 10689.15
Volume: 312 million shares Wednesday versus 318 million shares Tuesday. Volume spiked again, this time on the INTC selling.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Some economic data Thursday along with earnings (QCOM and EBAY both beat the street after the bell), but you have to wonder what more LEI, jobless claims, the Philly Fed, and even the FOMC minutes can add given all of the earnings and Greenspan's talk Wednesday. That is the saturation mentioned earlier; there is only so much news the market can absorb, and at this point it has opted to ignore bad news and focus on the good. That cannot sustain itself indefinitely.
That said there are not a lot of problems with the move other than its own success to this point. NASDAQ has rallied past 2100 and finds itself knocking on the door to a new 4 year high (2191), and there may be some hesitation at that point. While a lot of new money hit the market Wednesday, there were also some good breakouts, and as we noted way back when things were dicey and in the interim periods when the market looked as if it was getting ready to fold the rally, when the stocks show you the move you have to ignore your gut feelings and go with them. Always protect your positions, but don't just sit there and fail to act. That is exactly what a bunch of fund managers did when they saw the moves but did not believe they were for real. The market makes that decision and what we need to do is recognize them when they are being made and act. If we have to then play defense, so be it.
Thursday we are going to continue looking for opportunity when it shows itself. Many areas are rallying; we want those that will hold up and deliver the best moves the fastest. No reason not to look for those, particularly as we have many open positions that are riding higher and higher. When we commit new money we want to see it participate in the moves.
Support and Resistance
NASDAQ: Closed at 2188.57
Resistance:
2191.60, the January intraday high.
2215 is the June 2001 closing high.
2264 is the June 2001 intraday peak.
2313 is the 5-22-01 closing high.
2328 is the May 2001 intraday high.
Support:
2178 is the January closing high.
2163, the mid-December closing high has stalled NASDAQ recently.
2151, the early December closing high and highs from January 2004
The 10 day EMA at 2144
The 18 day EMA at 2123
2100 was key resistance point, and a successful test sets it up as support.
2075 to 2078
The 50 day EMA at 2080
2051 from February, March price points.
S&P 500: Closed at 1235.20
Resistance:
Price tops at 1265 from 1-28-99 and 2-99 & price bottoms from 12-20-00
Price top at 1-6-99 at 1272
Price tops at 1290 from 5-23-00
Price tops at 1364 from 1-29-01
Support:
The March 2005 high at 1229.11
The March 2005 closing high at 1225
The June high at 1220 and the 10 day EMA at 1222
December high at 1217
The 18 day EMA at 1216
The February intraday high at 1212.
1200 is some support
The 50 day EMA at 1201
1196, the mid-January high and the early December peak in the left shoulder.
The April high at 1194
The early May high at 1178
1175 second high in that double top that spanned late 2001 and early 2002
Dow: Closed at 10,689.15
Resistance:
10,754 is the February high
10,868 is the December 2005 high.
10,985 is the March high
Support:
The June highs at 10,646 to 10,656
Price consolidation at 10,600
The April high at 10,557
The 10 day EMA at 10,569
The 200 day SMA at 10,468
The May high at 10,406
10,400, the bottom of the November/December range
The recent April highs at 10,264
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 19
Housing Starts, June (08:30): 2004K actual versus 2050K expected and 2004K prior (revised from 2009K)
Building Permits, June (08:30): 2111K actual versus 2085K expected and 2050K prior (revised from 2062K)
July 20
Greenspan speaks to Senate
July 21
Initial Jobless Claims, 07/16 (08:30): 326K expected and 336K prior
Leading Indicators, Jun (10:00): 0.5% expected and -0.5% prior
Philadelphia Fed, Jul (12:00): 10.0 expected and -2.2 prior
FOMC Minutes, Jun 30 (14:00)
End part 1 of 2
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