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world stock market, us stock market
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9/07/05 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: VIP; GME; DP
Trailing stops: None issued
Stop alerts issued: 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. 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 start soft, add modest gains on rising trade.
- CBO sees economic softening following Katrina.
- Disaster response sees the same old mantra: hike taxes, punish oil companies for 'windfall.'
- Many thinking recession as market indicating otherwise for now as mid-caps and small caps lead the move.
Modest gains as stocks continue modest accumulation.
We were not expecting a lot of fireworks after the Tuesday rebound, and the market lived up to expectations. A soft start gave buyers an opening if they wanted it. It took just about all session, but by the close investors did push stocks higher though semiconductors lagged on ALTR's profit warning. Modest gains with small caps (0.3%) and mid-caps (0.4%) leading along with DJ30 (0.4%) while NASDAQ and SP500 lagged (0.2%).
Volume rose once more, moving above average on NYSE as the small and mid-caps stretched their gains. NASDAQ volume rose but once more it fell short of average; would like to see that volume match NYSE's strength, particularly given that summer is over, supposedly everyone is back to work on Wall Street, and it is September. It is definitely good to see rising volume on upside moves as that shows buyers have moved into the lead with some strength after the August distribution. We always want to see stronger, above average volume trade because that shows conviction. As we have noted frequently over the past few months, however, you rarely get exactly what you want in this market. When it shows you buy signals and leaders start moving, you buy the leaders. That was the case once more Wednesday.
THE ECONOMY
Congressional Budget Office predicts economic slowing in Katrina's aftermath.
The CBO is out with its analysis of hurricane Katrina's economic impact. It foresees 400,000 jobs lost and a 1% clip from GDP growth for the year. Wow. We can all breathe easier now that the CBO has spoken. It is so often right. Such as when it predicted massive deficits that would only increase because of the tax cuts. Instead we see tax receipts increasing well beyond projections as the deficit is not nearly as horrific as forecast.
The CBO takes the static approach to budgeting. If you cut taxes by $1, that means the deficit will go up by $1. It does not take into account what is called dynamic budgeting (or what we refer to as reality budgeting) where tax cuts stimulate economic activity and thus actually increase tax returns even though rates are lower. You can get to a point where that does not work, i.e. a certain level of taxes where an additional decrease will not generate further or meaningful economic increases and thus increase tax receipts; that is the law of diminishing returns. We have yet to ever find that level in the US, however. We have found that our current tax rates, even though getting lower, still force money into other areas besides investment in capital goods and growth. We need to continue lowering rates until we reach that point of diminishing returns. Only then will we be able to full realize the potential of our economic system and really benefit everyone.
As you can tell, we don't put too much stock into what the CBO projects. We are very concerned about how the economy will fare with the tremendous strains on southern states with education, housing, medical needs, etc. for tens of thousands of evacuees. That is the wild card factor that a many are not considering as they ponder energy prices and the rebuilding effort. The market is the best judge of where markets go, and it for now it is not collapsing under energy prices or Katrina, but has started some accumulation across the board. That may or may not hold up, but the market, as always, will be the canary for the economic impacts down the road.
How to pay for the recovery?
Let the feds do it, a.k.a., increase taxes.
There is this underlying assumption that the federal government is supposed to pick up the tab for the rebuilding of Florida, Alabama, Mississippi and Louisiana. This comes from a march down the road toward a larger and larger federal government that started back in the 1930's though it has its roots in the passage of the sixteenth amendment that allowed the income tax. We hear people talk about tens and hundreds of billions of dollars required to rebuild. New Orleans is still a big question mark in our view; studies prior to Katrina project New Orleans will be an island in the Gulf in the future given the coastal erosion and loss of marshland if we continue the game of building levees to protect a city 10 feet below sea level.
Given this assumption of federal responsibility there are already calls of tax increases on the 'rich' (and the standard for 'rich' is very low) as well as tabling the vote on the elimination of the death tax. These are the typical responses to any problem. Do our leaders think perhaps we should revisit a 'highway' bill that contains over 6,000 pet projects that have nothing to do with interstate highways or railroads? Of course not; once passed it somehow is accorded the same status as the gospel of Jesus. It would be heresy to open it back up for a serious revision or even repeal. There is this assumption that there is no waste in the government. We all know that is bogus, but you try and get the legislators to cut the budget and you are lucky to get $50 million cut from a trillion dollar budget. You would have better luck running a cat through a dog show than getting Congress to seriously cut its budget even when faced with crisis.
No, it is much easier to talk of tax hikes on some rich class out there. Nothing like vilifying some of your own citizens to have them bear even more expense from a government that cannot reign in its spending.
What about those scurrilous oil companies?
You have heard it often the past week about how oil companies are reaping a 'windfall' form Katrina. You hear of 'obscene' profits and have flashbacks to the 1970's with long lines and price controls. O'Reilly and others rail about a number of 'solutions' such as requiring oil companies to give 20% of their profits to help victims or give it to the government. Different words but the same tune: the government deciding just how much money anyone or any entity can make. Are we living in the former USSR?
No one likes profiteering, and maybe there is some of that ongoing right now. We here that the majors are putting the squeeze on the independents; they don't like having to deal with them, and every time there is a price pinch they really push prices higher to the independent stations.
Before we jump off on the idea that oil companies are a big, fat profit center ripe for the picking we have to recognize what that thinking has brought us in the past. First, many oil companies took major hits with respect to their facilities and equipment. It is not cheap to operate these Gulf facilities and take care of their people, and as we have seen, some companies took some serious hits to their equipment. Most of the production facilities were left unscathed, however, and fortunately for them and us that was the case.
Beyond that, however, we have to realize that the oil and gas exploration and production business is cyclical and frequently suffers from the boom and bust cycle. Sure oil companies make a lot more money when prices rise for whatever reason, but when the bust comes they typically lose money. They need the money made during the booms in order to keep exploring and drilling for product during the busts. Otherwise we get very uneven supply; it takes a good 10 years to find and develop a big field to the point it can start delivering oil. That means you have to have continual exploration, high prices or not, in order to keep our supply steady and thus keep prices relatively steady.
There was a major oil bust in the 1960's that saw production capability decline. Then the 1970's rolled around and we were hit with the OPEC embargo. Our production capacity had dwindled during the bust and the embargo shot prices higher. Oil companies started making huge profits as oil tripled. Cries of 'obscene profits' abounded and the Windfall Profits Tax Act was passed, basically what O'Reilly and the others are calling for. The boom went bust in the 1980's as Saudi Arabia drove prices down to $9/bbl to gain world dominance over supply. We lost thousands and thousands of small wells during that time, wells that once shut in could not be re-opened effectively. Oil companies would have had more money to explore for new reserves but for the wisdom of Congress in siphoning off those 'obscene' profits to pay for Congress' spendthrift ways. We are so smart we always outthink ourselves when we assume the market does not tell the true story. Sure it overshoots short run, but it tells the tale. Our leaders refuse to acknowledge or understand this and thus we see the same patterns repeat in the market decade after decade.
Private industry anyone?
Jack Kemp is at it again, coming out with a sensible idea on how to rebuild without having to raise taxes, soak the rich or make the oil companies presentable to grandma. He is proposing a tax free enterprise zone in the affected areas with a moratorium on taxes for 5 or 10 years. That would give private investors the incentive to really look at the options available for rebuilding and invest in those that will really work, i.e. those that make sense because they are cost effective and likely to survive another storm. It would turn a devastated area into a boom area and create tens of thousands of jobs and more, and not just in the rebuilding effort.
Will it happen? Congress is so petrified of this concept that it will never even get to a committee even to discuss it. Congress would no more curtail its taxable base than it would vote itself a pay decrease. The precedent would be terrible for Congress because it would work and us poor stupid voters would see it work and demand more such creative thinking and ideas in addressing other areas of government. That would start taking power out of Congress and putting it in the people. What a strange concept for a country that was founded for the people and by the people.
When confronted with these gigantic obstacles, obstacles we know will come visit us again, we need new and creative ideas. The old school of falling back on the federal government and thus the taxpayers that make the economy work cannot continue simply because we are not going to generate the kind of economic activity in the future that we have always used to pay for this largesse. Why not? Because the Baby Boomer growth engine is starting to retire and will start to die off. There is no massive demographic to take their place. The government won't have that deep pot to dip back into every time it overspends and needs more funds to grow larger. When that happens we either descend into a socialist state or we have a tax revolt, the latter of which is likely to happen when nothing is done regarding social security and Medicare and taxes are raised 18% to 20% 15 years from now.
THE MARKET
MARKET SENTIMENT
VIX: 12.52; -0.41
VXN: 14.9; +0.01
VXO: 11.3; -0.72
Put/Call Ratio (CBOE): 0.88; -0.06
Bulls versus Bears:
Bulls: 51.1%. Third down week in a row falling below the 55% level considered bearish. Definite improvement but would like to see a mid-forty reading again. It has been a steady decline: 56.8%, 57.3%, and 59.1%. Starting to challenge the trend of blatant bullishness that emerged after the number bottomed in May at 43.5%.
Bears: 27.3%. Third week above 20%: 25% last week and 22.5% the week before. Bears are on the rise, breaking back above the 20% level considered bearish. Just spent one week below 20%. Hit a high for the year at 30% in early May. It is running toward that level.
NASDAQ
Stats: +5.17 points (+0.24%) to close at 2172.03
Volume: 1.542B (+5.71%). Volume rose once more but came just short of average. Still showing accumulation as NASDAQ moves up off the August low though not as strong as you would like to see. Strong trade last Wednesday and Thursday as NASDAQ made its rebound, and that helped set the foundation of this move.
Up Volume: 914M (-226M)
Down Volume: 558M (+254M)
A/D and Hi/Lo: Advancers led 1.2 to 1. Very modest breadth Wednesday as tech stocks had a hard time really getting an upside push. Both NASDAQ and NASDAQ 100 rose 0.2%; breadth showed no favorites on NASDAQ Wednesday.
Previous Session: Advancers led 1.97 to 1
New Highs: 140 (+30)
New Lows: 31 (-10)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Volume moved toward average as NASDAQ continued its move off the August low after holding above key support at 2100. It is continuing its climb toward the recent August high (2220) and has a decent start. We want to see breadth continue similarly to Wednesday and new highs increase as it makes its way toward that prior high. That will give the move some strength the late July run did not have that helped usher in the August decline. It has a rebound and follow through under its belt, and we want to see a steady, solid rebound as it continues.
SOX posted a modest loss (0.3%), but held up very well after ALTR issued a profits warning. It tapped the 18 day EMA (468.70) on the low and the rebounded for a modest decline. It continues to hold that key support level after showing solid relative strength in the August selling. That bodes well for its continued move higher toward its recent highs (486.34).
SP500/NYSE
Stats: +2.97 points (+0.24%) to close at 1236.36
NYSE Volume: 1.493B (+5.4%). NYSE volume continues to outpace NASDAQ on a relative basis as the small and mid-caps find more buyers once more. This market is looking more like an economic recovery market with the small and mid-caps leading off of the recent lows following Katrina.
A/D and Hi/Lo: Advancers led 1.12 to 1. Very ho-hum breadth, but a strong showing on the Tuesday follow through session was what we wanted. Still, want to see breadth continue with strong showings as the advance toward the recent highs continues.
Previous Session: Advancers led 2.71 to 1
New Highs: 220 (-21). Need to see this run as well as the NYSE indices head toward the recent highs. It did not surge the last move and we want to see that change.
New Lows: 18 (-2)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
Volume was up and above average again on Wednesday, the fourth above average volume session in the past six, and Tuesday was average. Very solid action as SP500 and friends moved off of the recent lows. SP500 continues its move higher on rising volume, showing further accumulation as SP500 comes toward its next test at the August high (1246).
The small cap SP600 and mid-cap SP400 are making their moves on their all-time highs as well (357.86 and 725.02, respectively) as both added to their Tuesday gains and did so with that above average NYSE volume. Of the two, the mid-caps are performing the best. They tested but never seriously breached the 50 day EMA in the August selling. Definitely in the leadership role and looking to lead to a new high soon.
DJ30
DJ30 led the market with a 0.4% gain, pushing it further above its 200 day SMA (10,538) but still well within the confines of its July/August trading range. Volume backed off, coming in below average; hardly a strong showing as the blue chip index continues to follow the rest of the market.
Stats: +44.26 points (+0.42%) to close at 10633.5
Volume: 226 million shares Wednesday versus 233 million shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
A few economic data points tomorrow, but jobless claims will be the most interesting. The federal government has tried to sign up the evacuees for their checks and we will see how much impact there is at this point. It will understate the impact because so many were still in a state of flux as they sought shelter. Given that, once more the economic reports will provide little information as to the future.
Looking at the leadership in the recovery with the mid-caps, small caps and semiconductors showing relative strength (along with healthcare), this market has the look of an economic recovery market. It is not clear just yet, but it is shaping up that way. The market thus far appears to be reading Katrina as an economic boom scenario. As we recall from the last recovery, the small and mid-caps are leaders off the lows. They stand in the best positions to grown more rapidly than the large caps. With massive rebuilding all the talk in Congress, they are gearing up for that.
Just think what would happen if the Kemp tax free economic zone was put into place. A boom would truly ensue and these stocks would vault. They are improving nicely now, but with no taxes they could really blossom. We would see more and more start-ups and new technologies; it would be very similar to investment incentives we have seen in other tax cut packages that actually worked.
Ah to dream the impossible dream. Back to reality, these stocks are still looking good as market leaders, and we are going to continue to find those that are set to make good moves off of good entry points. We have been picking off strong stocks that have set up to move, and we are going to continue to do so.
We can expect another day or half day of upside from this move and then typically a pause. That would call for a pause Friday after a good run this week. We may see a move into Friday itself before some position shuffling as the weekend approaches.
Support and Resistance
NASDAQ: Closed at 2172.03
Resistance:
2178 is the January closing high
2191.60, the January intraday high.
2192 is the mid-July high.
2220 is the August high
Support:
2163, the mid-December closing high
2151, the early December closing high and highs from January 2004 is being tested.
The 18 day EMA at 2150
2147 is the 50 day SMA
The 50 day EMA at 2137
2100 was key resistance on the way up.
2090 is the February and March interim highs
2076 is the 200 day SMA
2050 to 2045 from May and June
S&P 500: Closed at 1236.36
Resistance:
The recent July highs at 1245.15
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:
March 2005 closing high at 1225 and intraday high at 1229.11
The April/July up trendline at 1228
December 2004 high at 1219 and June high at 1220 being tested
The 50 day EMA at 1219
Some resistance at 1210
1200 is some support
1196, the mid-January high and the early December peak in the left shoulder.
The 200 day SMA at 1196
1183 - 1184 from November 2004 highs and July 2005 intraday low.
Dow: Closed at 10,633.50
Resistance:
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:
Price consolidation at 10,600
The April high at 10,557
The 200 day SMA at 10,538
The 50 day EMA at 10,528
10,500 is some price point resistance
The May high at 10,406 and 10,400, the bottom of the November/December range
10,350 turned out to be support in the recent pullback.
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.
September 06
ISM Services, August (10:00): 65.0 actual versus 60.0 expected and 60.5 prior
September 7
Productivity, Q2 revised (8:30): 1.8% actual versus 2.1% expected and 2.2% prior
Fed Beige Book (2:00)
September 8
Initial Jobless Claims (8:30): 315K expected versus 320K prior.
Wholesale inventories, July (10:00): 0.6% expected versus 0.7% prior.
Consumer Credit, July (3:00): $10.0B expected versus $14.5B prior.
September 9
Export prices, August (8:30): 0.2% prior.
Import prices, August (8:30): -0.1% prior.
End part 1 of 2
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world stock market
us stock market
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