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us stock market, understanding the stock market
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8/29/05 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Tuesday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: BJS; FTO
Trailing stops: AMED
Stop alerts issued: AMED
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:
- Katrina makes investors pause, but stocks drift higher in the uncertainty.
- Katrina does not shoot oil to the moon, but it did no favors to consumer.
- Lots of economic data that will have to be adjusted for Katrina effect.
- SP500, SP600 test resistance and will have to show more to avoid rolling right back over.
Stocks threaten sell off but after initial drop drift higher into close.
Katrina dropped from category 5 to category 4 right before landfall and made a job to the east and just missed giving New Orleans a full blast of 140 mph winds. While the Big Easy may have gotten just a bit of a break, that is likely not the case for the oil platforms is plowed through on the way to land. Importantly, the LOOP system about 50 miles south of New Orleans where the supertankers offload their cargo took a direct hit. Typically you hear nothing from the LOOP operator in a storm; it shuts down for about three days and then re-opens. This time the operator said that there may be some delay and that meant to many in the industry that it was not a routine shutdown.
That spiked energy futures overseas over $70, and when the US markets opened it was still strong. That was the apex, however, and oil faded the rest of the session to close up just pennies. Still at $68/bbl, but it was unable to hold the fear spike. That was because there is still a lot of uncertainty about the extent of the damage. Colonial pipeline early on announced it may not be able to make its deliveries and that shot prices higher. Later it announced deliveries were on schedule and prices fell back. It was that kind of day as investors tried to gauge the extent of the damage. We know, however, that wont' be known until the helicopters that were beating a hasty retreat from Louisiana and Mississippi as late as Sunday afternoon return and can survey the damage.
It is not just energy damage that as the concern. Katrina surged right up Interstate 59 in Mississippi, and given the breadth of the storm it could wreak havoc on cotton (the bowls are open and too much rain will ruin them), soybean, and other crops in Louisiana, Mississippi, Alabama and even Georgia. Thus not only energy prices are propped up by the storm but we could see some other commodities rising as well once more information comes out.
Rally born from fear? Nah.
Stocks sold off at the open but then managed to move higher into the close with NASDAQ recovering the 50 day EMA and SOX posting a nice bounce over the 18 day EMA. SP500 and SP600 were not left out, both posting nice gains but they were unable to recapture the 50 day EMA. Volume remained light as stocks recovered.
Now sometimes rallies are hatched in the midst of fear or disaster. Problem is here there was not a lot of fear and the rebound from the lows was lacking any enthusiasm (a.k.a., volume). Moreover, the 'disaster' did nothing but inflame one of the burrs under the market's saddle: oil and gasoline prices. Sure oil fell back but it did not drop on the news. Moreover, spot gasoline prices shot higher in NYMX and we can expect gasoline prices to rise in short order.
Thus the technical pattern as well as the continuing overhang of energy issues does not suggest stocks made any type of significant bottom Monday. The light volume on the SP500 and SP600 rebound suggests nothing more than a relief bounce from the breakdown through the trendline and 50 day EMA last week.
It was not all light volume and lackadaisical action. SOX actually showed some pep with a 1.3% gain that jumped it back above its 18 day EMA. No volume, but SOX has shown it wants to be a leader if it can get a little breathing room. Other stocks scattered across various sectors posted decent moves, but there were very few blowout upside moves. NASDAQ retook its 50 day EMA, but that is a tenuous move given the very light volume.
In short, there are still signs that some want to lead, but right now much of the market does not look as if it has the guts to follow it. Thus if it can continue back up, the market will be overcoming the odds. More than likely we will continue to see the pullback as stocks work on finding the bottom of what appears to be a basing event.
THE ECONOMY
Katrina setting up even higher energy prices.
Oil may not have been able to hold the record $70/bbl price (in current dollars), but it did not plunge lower either. There is a vacuum of information where assumptions are being made about the extent of the damage. Early word was that the US would tap the petroleum reserve (SPR), and that helped spark a market bounce after the early selling. There was some backtracking later in the session, but more important is the issue of whether the damage done around the reserve as a result of the storm is such that getting the oil out will be a problem. Maybe it will be enough to say we are ready to release oil, but the market saw through that Monday. Indeed, as of the close Monday the guesses were at a dead heat as oil closed basically flat.
Gasoline futures, however, jumped on NYMX and they did not give back their gains. The Pascagoula, MS refinery status is yet not 100% known, though the big Citgo refinery in Lake Charles, LA was going full bore. With the limited refining capacity compared to supply, any interruption from a major facility is a problem for prices. Indeed, when we saw Katrina breaking off buoys in the gulf on Sunday afternoon we figured it was time to go fill up the vehicles and our spare capacity containers. Back early in the summer we felt prices would hit $3/gallon, and Katrina looks to have given them the catalyst to do that on the last big holiday of the year as Labor Day is celebrated this weekend.
There continues to be a lot of commentary on what the government can do to reduce prices for the consumer and thus help stave off a consumer shutdown. We watch pundit after pundit shrug and say nothing can be done immediately as it takes years for new drilling to be productive and there is simply not enough refining capacity to make a dent in the supply that is already in the market. Wake up boys and girls. Federal taxes on each gallon of gasoline is staggering at over 40 cents. If the government really wanted to help consumers it would suspend that tax at least temporarily. Of course when you fund barrels of pork (as opposed to barrels of oil) in the highway bill that builds a couple of transportation museums as appetizers, you are not going to find many citizen-minded senators or representatives. If they would ask their constituents if they wanted a museum about roads or gasoline 40 cents per gallon cheaper you can pretty much guess the museum would be put on hold. Of course, we are not asked because we are foolish consumers who live hand to mouth and need our sage leaders to make policy regardless of what we think.
Bigger picture anywhere from 1 million to 1.8 million barrels are off the market during this storm. About 1 million/day was off before the storm and another 800K more or less in the aftermath. The west and central gulf will come back on line Tuesday and Wednesday as they should have weathered the storm fine. The big question is just how much damage was done below New Orleans in its rich waters. We have heard reports of at least 5 floating or submersible rigs adrift. The risk is whether they or other stray boats run into stationary platforms and cause any further damage. It is just unknown right now how much damage was done. With buoys started going out in 40 foot waves as Katrina churned through the gulf, you can expect some damage.
Week loaded with economic damage now has the Katrina overlay.
Starting Tuesday the economic data begins to roll in (consumer confidence, factory orders, FOMC minutes) in what is a very heavy docket for the week. It will have some impact, but the asterisk after each report will be Katrina. One storm, but one storm that impacted four states on its landfall and is already doing more damage in more states as it moves inland (e.g. Georgia). It is cutting a large swath through the eastern half of the country and from the oil platforms in the gulf to the farms inland to the river traffic, the storm is causing physical damaged as well as idling industry.
Will the Fed care?
That is an impact that colors all of the data about to be announced. It not only causes that physical damage and idles industry but we have to deal with energy prices that may go even higher in the aftermath. At best they are not likely to go down. That puts a lot of strain on an economy that is already showing the wear and tear from higher gasoline prices. As the Fed is often fond of saying about inflation, if you wait until you see the problem it is too late.
There is an awful lot of deadwood piling up on the economy in addition to the Fed's rate hikes and lowered money supply. As we have written time and again, every time the Fed engages in a protracted rate hiking campaign there are going to be unexpected events that directly impact the economy. The economy continually deals with setbacks, and it only becomes more vulnerable when they occur as the Fed is slowing the economy. It is very hard to gauge the impact when there are no unexpected events. When you pile on these unknowns, it is impossible.
That will likely not stop the Fed from raising rates, however, because the Fed thinks it knows more than the markets. Indeed bonds were higher both on the long and short end Monday (the curve remained steady though still very flat overall), meaning rates were lower. Now a lot of people are arguing that rates are lower because of low inflation expectations. That is in part very true. But, when we see rates move lower after these economic setbacks and in the wake of Fed actions and Fed member speeches, you can also see that the bond market is building in slower economic times as a result of those events. The bond market is smart enough to have a healthy dose of skepticism regarding the Fed's actions. With the Fed's history of wrecking the economy, bond traders are taking that into account. Throw on a massive storm and the bond market is even more skeptical of the Fed's ability to know when to say enough is enough.
THE MARKET
MARKET SENTIMENT
VIX: 13.52; -0.2
VXN: 15.3; -0.07
VXO: 11.95; -0.6
Put/Call Ratio (CBOE): 0.99; -0.21. Spiked above 1.0 early on but then faded to close just below that level as the market rebounded.
Bulls versus Bears:
Bulls: 56.8%. A second down week in a row, falling from 57.3% last week and 59.1% the week before. Still no major change in the trend higher since the low was hit in May at 43.5%. This marks the fifth consecutive week above the 55% level that is considered bearish. After the buyers are gone there is no one to keep coming in. Bulls bottomed in early May at 43.5%.
Bears: 25%. Up from 22.5% last week that saw bears break back above the 20% level considered bearish. After one week below 20% it rebounded above that threshold. Hit a high for the year at 30% in early May. At this rate it won't take too long for it to reach that May high.
NASDAQ
Stats: +16.88 points (+0.8%) to close at 2137.65
Volume: 1.274B (-1.87%). Not much of a recovery with this anemic volume. This is not enough to turn the tide even with the recovery of the 50 day EMA.
Up Volume: 960M (+583M)
Down Volume: 283M (-612M)
A/D and Hi/Lo: Advancers led 1.43 to 1
Previous Session: Decliners led 2.18 to 1
New Highs: 59 (+5)
New Lows: 51 (+6)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ gapped down to 2112, holding easily above support at 2100 and then rebounding with a slow steady gain into the close. Along the way NASDAQ cleared the 50 day EMA (2132) but stalled out right at the 50 day SMA on the close. Volume that was low Thursday and fell further Friday was even lower Monday as NASDAQ bounced back up to test its breach of the 50 day. You like the recovery attempt, but without the volume there is not much chance of this move holding. The index fell on some distribution, and though volume was low as it tried to hold the 50 day EMA and consolidate, it has yet to show any accumulation to reverse the distribution. Trying to make the recovery and is getting some help from the semiconductors, but Monday that was not enough.
SOX posted a solid jump off a test of 460 last week, moving back above the 18 day EMA (466) and challenging some resistance at 470. A higher low on the recent test indicates some strength the rest of the market is now showing. With the rest of the market still very questionable we are not sure SOX can lead higher. It sure is looking good at this juncture, and if the market were stronger overall it would be a slam dunk.
SP500/NYSE
Stats: +7.18 points (+0.6%) to close at 1212.28
NYSE Volume: 1.219B (+3.29%). Volume rose on NYSE as a lot of the energy stocks traded on higher volume given the uncertainty of Katrina. Overall volume remained well below average, and that undermined the rebound by SP500 and SP600.
A/D and Hi/Lo: Advancers led 1.73 to 1. Decent breadth as small cap energy recovered, but again, the market cannot live on breadth alone.
Previous Session: Decliners led 2.3 to 1
New Highs: 84 (+16)
New Lows: 53 (+16)
The Chart: http://www.investmenthouse.com/cd/^spx.html
SP500 reached down to support at 1200 and held. That triggered an overall bounce in the market, aided by some word that some of the feared onshore damage to oil facilities was not as bad as thought and that the US may open the SPR. The bounce lacked any real muscle despite a bump higher in overall trade. That was likely due to the energy stocks getting a lot of early interest; the overall change was marginal and volume was still well below average. In short, there was no conviction on the move as that held support could not generate any real upside volume. We are likely to see SP500 test its 50 day EMA (1217.45) or the up trendline (1221); without a strong increase in buying, SP500 is likely to fail there and continue its move to test the 200 day SMA (1195).
The small cap SP600 rebounded as well, boosted by gains in the energy sector, many of which stocks populate the small and mid-cap indices. SP600 rebounded to close just below the 50 day EMA (341.30) in a move similar to the large caps. Big break lower Friday, a rebound Monday to test. Still likely to sell further toward the up trendline at 333 or even the 200 day SMA (326.26) if the selling returns with some more strength.
DJ30
Rising but still below average volume on DJ30 as it tested 10,350 on the low and rebounded to gain 0.6%. It tapped at the 10 day EMA (10,496) on the high and faded back some. Lots of oohs and ahhhs about the Dow's move, but it was still a pretty anemic rebound to test its very weak action as it broke down below its 200 day SMA (10,539) last week.
Stats: +65.76 points (+0.63%) to close at 10463.05
Volume: 203 million shares Monday versus 192 million shares Friday. Volume was up but remained well below average. More buyers in the market on Monday than sellers on Friday, but overall not strong enough to change the character.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Consumer confidence, Factory orders and the FOMC minutes are released Tuesday, and after the Michigan sentiment report faded some Friday, a lot of attention is on the Conference Boards' number. All of these will need a 'Katrina effect' factored in because gasoline prices are going to bump higher at least temporarily, and other commodities are going to feel the impact of the storm as it pushes into a lot of soybean and cotton acreage.
On the flip side there is the rebuilding effort where those FEMA dollars are spent to put back what was torn down or waterlogged. That helps put a silver lining into destruction left behind.
The key action Tuesday and through the rest of the week will be how SP500 and SP600 react at the 50 day EMA and up trendlines, whether NASDAQ can hold the move over the 50 day, and whether SOX can show some leadership and continue to build on its positive pattern that has easily held the 50 day EMA and is rebounding.
We are not too confident SP500 and SP600 will be successful in reclaiming their uptrends, and we are going to be watching for them to fail and resume their trips lower as they consolidate in a new base. As we said over the weekend, this is likely a new base building episode as opposed to a further sharp sell off or a quick rebound. That does not mean it won't go lower; after this low volume test back up to the 50 day EMA those indices are set up for a drop back down after this kiss goodbye.
There continue to be a lot of stocks showing solid strength at near support, and those suggest that any continued market selling is not going to be a big blow down but more of that base building. We continue to see these stocks hold support and rebound; more need to show stronger volume as they move up to give this move any substance.
There are also many stocks that are struggling, and the Monday bounce pushed them higher back to resistance. A low volume rebound after sharp selling is typically just a stock or index coming up for air before heading lower. Thus we are going to be looking for some good entry points on downside plays ready to make quick bumps lower as SP500 and SP600 struggle at the 50 day EMA and turn back for another test.
Support and Resistance
NASDAQ: Closed at 2137.65
Resistance:
2151, the early December closing high and highs from January 2004
The 18 day EMA at 2146
2163, the mid-December closing high
2178 is the January closing high
2191.60, the January intraday high.
Support:
The 50 day EMA at 213.50
2100 was key resistance on the way up.
2090 is the February and March interim highs
2074 is the 200 day SMA.
2050 to 2045 from May and June
S&P 500: Closed at 1212.28
Resistance:
Some resistance at 1210 is not holding it back.
The 50 day EMA at 1217.45
December 2004 high at 1219 and June high at 1220
The April/July up trendline at 1221
The 18 day EMA at 1220
March 2005 closing high at 1225 and intraday high at 1229.11
The recent July highs at 1245.15
Support:
1200 is some support
1196, the mid-January high and the early December peak in the left shoulder.
The 200 day SMA at 1195
1183 - 1184 from November 2004 highs and July 2005 intraday low.
Dow: Closed at 10,463.05
Resistance:
10,500 is some price point resistance
The 18 day EMA at 10,528
The 50 day EMA at 10,533
The 200 day SMA at 10,539
The April high at 10,557
Price consolidation at 10,600
The June highs at 10,646 to 10,656
10,720 is the high in the recent lateral move.
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 and 10,400, the bottom of the November/December range
10,250 held in the June and July lows.
10,012 the April low.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 30
Consumer Confidence, August (10:00): 101.0 expected and 103.2 prior
Factory Orders, July (10:00): -2.3% expected and 1.4% prior
FOMC Minutes, August 9 meeting (2:00)
August 31
GDP-Preliminary., Q2 (08:30): 3.4% expected and 3.4% prior
Chain Deflator-Preliminary., Q2 (08:30): 2.4% expected and 2.4% prior
Chicago PMI, August (10:00): 61.0 expected and 63.5 prior
September 01
Auto Sales, August (00:00): 5.3M expected and 5.7M prior
Truck Sales, August (00:00): 8.8M expected and 11.3M prior
Initial Jobless Claims, 08/27 (08:30): 315K expected and 315K prior
Personal Income, July (08:30): 0.5% expected and 0.5% prior
Personal Spending, July (08:30): 1.0% expected and 0.8% prior
Construction Spending, July (10:00): 0.5% expected and -0.3% prior
ISM Index, August (10:00): 57.0 expected and 56.6 prior
September 02
Non-farm Payrolls, August (08:30): 190K expected and 207K prior
Unemployment Rate, August (08:30): 5.0% expected and 5.0% prior
Hourly Earnings, August (08:30): 0.2% expected and 0.4% prior
Average Workweek, August (08:30): 33.7 expected and 33.7 prior
End part 1 of 2
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us stock market
understanding the stock market
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