|
|
money investment, day trading
* * * *
10/31/05 Investment House Daily
* * *
Investment House Daily Subscribers:
Happy Halloween!
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: NVDA; GAP; WOOF; DBRN
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
SUMMARY:
- Friday rebound continues with solid moves but after hours earnings warnings threaten the gains.
- Consumer incomes and spending rise but energy was the boost and that is not a good thing.
- WMT getting more of the retail pie as consumers continue to stretch dollars as more money goes into the gas tank.
- Chicago PMI stronger than expected, boding well for national number.
- Upside move to get another test at resistance as big name techs lower guidance.
Stocks start strong, finish well, but face obstacles in the morning.
No hackneyed references to tricks or treats, just a recognition of a strong session. Futures were higher early on as a more positive mindset continued Monday following the solid Friday rebound off of key support levels. Oil was trading lower and indeed closed below $60/bbl (59.76, -1.46). Seems oil is slipping and sliding all over itself as it tries to hold its up trendline. It threatened that level over the past two weeks but looked to have posted a solid rebound. That was tossed aside Monday, and the market didn't seem to mind one bit.
Stocks also received some decent personal spending and income data (though looks can be deceptive) and the Chicago PMI was stronger than expected. Those certainly didn't hurt. In addition, President Bush nominated someone with readily verifiable constitutional credentials; may not have helped a lot, but the market saw Bush as getting back to dancing with who brought him success, and that in itself was a positive.
Volume ran higher on NYSE and was tracking lower on NASDAQ until very late. Breadth was strong all session with 2:1 to 3:1 readings all session long. Leaders were bouncing higher on volume. Those are the ingredients you want to see as a market rebounds from selling. In this case the market is making a higher low after what looks to be a successful test of the prior low. That is setting it up well to make a break through the downtrend that started in April.
Then there is the trouble to deal with. Just before the close NASDAQ and the other indices dipped sharply. Dell warned after hours that it would not meet non-GAAP earnings or revenues, and it appears that news was leaked just before the close as DELL started lower and many big name techs turned down as well. It was nothing like the result when the news was official right after the bell. Dell swung about $2 on the news though it bounced modestly very late in the after hours session. It managed, however, to take most tech stocks with it, particularly those such as INTC that sell a lot of chipsets to Dell. TTWO also released some lower guidance and it too was getting boxed around after hours though it managed a fairly decent bounce off the after hours bottom.
This is the lot the market has with the fact of Fed action and high energy prices. Companies are having varying difficulty in absorbing the energy costs or passing them along. Thus the market experiences these warnings and weaker guidance as a result of the uncertainty (though it is certain they are an impact, it is the degree of impact) with respect to these key costs associated with business. That simply means volatility in earnings, and after the corporate scandals and resulting shareholder lawsuits we are seeing plenty of warnings.
In sum, a solid move Monday with volume, breadth and leadership. The indices moved through near resistance and to the next really key levels. We could expect a breather at that point after two strong moves even without any news. With Dell coming out and taking down chip makers and other techs, it looks as if that rest will come. Of course when you are fighting a downtrend the key to a test is a moderate pullback. This move will show us how much strength it has because DELL is a big tech name and despite its ugly downtrend, it influences other big cap techs (e.g., INTC), and that will pressure things for the Tuesday open.
THE ECONOMY
Incomes surge on storm insurance payments, spending rises but on energy costs.
September incomes rose 1.7%, well above the 0.4% expected and the 0.9% August drop. That was the largest gain since December last year, but it was due to $120B in insurance payments for Katrina and Rita. That is hopefully the kind of gains you would hate to see continue, at least with respect to the reason. It was also more or less an offset from August where incomes fell 0.9% (revised from -0.1%) due to the large drop in rental and personal business income in the storms' aftermath. Down because of the storms and then up because of the storms. That is the definition of a wash.
Moreover, real disposable incomes have suffered all 2005. Q1 -3.4%, Q2 +1.5%, Q3 -0.9%. The wage and salary portion of PCE is down to 65 from 72 in Q1 2000. Incomes are just not growing, or at least they are unable to make headway given the other price increases that eat away at any wage gains. That along with out and out higher prices that steal dollars from other areas is a major drag on consumption that results in an expanding economy as businesses ramp up production to meet demand.
Spending was in line at 0.5%, up from a 0.5% August decline. The spending was no doubt bolstered by the insurance payments as consumers and businesses had to replace lost goods. Even more important on a national level was the portion of spending that was due to higher energy costs. Year over year spending rose about 6%. If you factor in the cost of energy and its increases, however, spending fell around 5%. For the month, if you adjusted for energy costs, spending fell 0.4% versus the 0.5% headline gain. Better than the energy cost adjusted 1% decline in August, but you still see energy costs driving much of the spending gains.
That is the problem we discussed over the summer: consumers are spending, but more and more of the paycheck is going to powering the vehicle and cooling and heating the home. Those dollars that go into the tank don't go elsewhere. So instead of buying a good or service that in turn requires the company providing that good or service to make another one thus having a 'ripple effect' on the economy, those extra dollars are burned. It doesn't have the same ripple effect because we know the energy companies are not taking a chunk of each extra dollar and running out to drill more, etc. A lot of those dollars are being shopped around for acquisitions because it is still cheaper to buy reserves in the form of another company than to go out and discover them. It is thus a double whammy on the economy: some goods and services purchases are replaced by energy purchases and thus lowering overall economic activity, and then there is no ripple effect from spending those extra dollars; they are basically gone, at least in the short term.
Wal-Mart's October sales to hit 4.3%, breaking out of the top of its 'usual' 2% to 4% range.
We see the impacts when we review how WMT's sales have improved this year. There was no real noticeable change until summer as gasoline prices rose and the impact was noted in WMT's improved sales when it anticipated them to fade. This is the economic slowdown pattern, the one that we saw in the last recession when discounters received all of the business and the traditional retailers were left in the cold. That stopped when the economy recovered and the discounters were dropped like day old bread when hot rolls were available.
Prices rose and consumers started to reallocate their dollars with many going back to the discounters, a habit well learned in the last recession. WMT sales rose along with the likes of TGT. WMT still expected sales to drop, however, fearing the impact of rising energy prices. As seen Monday, however, WMT's sales are rising even as prices rise and it fears a slowdown.
Some heralded this as great news, trotting out the usual dogma about the world's largest retail seeing prices rise, etc. They forget that WMT's sales rose during the recession as well and that was not what you would call great times for the rest of the economy. To us this is more of a sign that the consumer is worried about the future and is adjusting spending to account for rising energy prices. That means making the dollar stretch farther at WMT when you need to buy paper goods, groceries, toothpaste, dog food, etc. As we have seen in the past, that is not necessarily a great sign for the overall economy: more dollars going in the tank, remaining dollars stretched at discounters, other retailers getting the rock in their trick or treat bags (a la Charlie Brown) or the lump of coal in their Christmas stocking.
Chicago PMI Blows through Expectations.
This business sentiment/activity measure in the Midwest was expected to fall but it jumped past the September 60.5 reading as it posted a strong 62.9 reading (57.2 expected). The gains were across the board, and that is good and bad with prices paid moving to 79.6 from 76.3. The good news, however, was stronger than those prices paid increases. Employment moved back to expansion levels at 51.3 (48.4 prior). New orders surged higher to 72.6 from 63.4.
The Chicago PMI is considered a harbinger of the national ISM due out Tuesday at 10ET. The national expectation is a move down to 57.0 from 59.4. The stronger Q3 GDP data, though business investment was down versus Q2, along with falling energy prices could spark a similar reaction in the national number as seen in Chicago. We note that Chicago held its ground after Katrina and Rita unlike the New York and Philadelphia surveys. It has thus indeed tracked more closely to the national index.
We like the data these regional surveys provide. While they are basically a sentiment survey on the business side, they have tracked more accurately to the overall economic performance than the consumer. While that is no glowing recommendation, the correlation is solid enough to where it is actually a leading indicator. The regional surveys turned higher before it was evident the overall economy was indeed in better shape coming out of the recession. Thus when we see improvement on the heels of a modest slowdown that is an indication to us that the economy overall is still performing well near term.
THE MARKET
MARKET SENTIMENT
VIX: 15.32; +1.07
VXN: 17.99; +0.47
VXO: 13.65; -0.15
Put/Call Ratio (CBOE): 0.91; +0.07
Bulls versus Bears:
Last week's numbers:
Bulls: 44.8%. Down from 45.3%. Another solid decline but has slowed dramatically from the 3.7% declines to start October when the selling was strong. Bottomed in May at 43.5%.
Bears: 29.2%. Down from 29.5%, the high water mark on this cycle thus far. Hit a high for the year at 30% in early May.
NASDAQ
Stats: +30.42 points (+1.46%) to close at 2120.3
Volume: 1.932B (+2.41%). A second session of rising volume shows some good ongoing accumulation. Now volume was running just a hair lighter and then finished stronger; that indicates that late leak re DELL had some late volume jumping in. Cannot complain, however, about the strong volume coming off the 200 day SMA test as NASDAQ rallies to the down trendline.
Up Volume: 1.565B (+347M). Much stronger than downside volume even with the late move lower. We note that upside volume doubled downside volume Friday but then quintupled it Monday. Very strong move from buyers.
Down Volume: 316M (-334M)
A/D and Hi/Lo: Advancers led 2.55 to 1. Very solid breadth for second consecutive session to match the strong upside volume.
Previous Session: Advancers led 2.03 to 1
New Highs: 111 (+58)
New Lows: 54 (-58)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ rallied out of the box, gapping higher and running to the 50 day SMA (2119) by midmorning. After a 4.5 hour lateral move it then got in gear again in the last hour, rallying to the August down trendline on the high (21.25.73). Unfortunately the late selling dropped it from that level but NASDAQ managed to hold above the 50 day SMA on the close. This is solid action even without the breakout over the trendline. Two solid volume sessions with upside volume squashing downside volume Monday. Solid breadth. Solid leadership. All coming after an undercut of the 200 day SMA (2073) and then an immediate rebound to make a higher low over the October low after testing the follow through session two weeks back. This is strong action and sets up the breakout over the downtrend and a showdown with the October high at 2167 (intraday) as NASDAQ continues its rebound. Before that, however, it has to deal with the after hours warnings, but even those are dissipating in their damage as the after hours session continues.
SOX (1.8%) came back from the dead, continuing its upside after the Friday reversal where it undercut the June and July lows intraday before the comeback. The move brought SOX back to test the 200 day SMA (435) on the high before fading back some to close. Key test for SOX; it is back to the bottom of its August lateral move, and recovering this level and breaking higher would give NASDAQ et al a big boost.
SP500/NYSE
Stats: +8.6 points (+0.72%) to close at 1207.01
NYSE Volume: 1.899B (+8.92%). Solid volume showing as trade was running higher all session and picked up some steam as the late buying resumed. Good to see after Friday NYSE failed to attract the volume that NASDAQ did. Solid volume action off the bottom.
A/D and Hi/Lo: Advancers led 3.09 to 1. Excellent breadth as large and small caps were all rowing together. Midmorning breadth was a stellar 4:1.
Previous Session: Advancers led 2.76 to 1
New Highs: 106 (+53)
New Lows: 90 (-63)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 moved through the 200 day SMA (1999.31) and 1200, broke through the 50 day EMA (1204) and even the 50 day SMA (1210) on the high (1211.43). The late selling pushed it back down below the 50 day SMA and kept SP500 below the bottom of the July through September range. Key level for SP500 just as with NASDAQ. It too will likely start weaker Tuesday after the two strong runs and the Dell news. We want to see SP500 hold 1200 and resume the move, either Tuesday or another day, from that level.
SP600 (1.8%) rallied as well on that rising NYSE volume, moving through the 50 day EMA (339) on the high but then failing to hold that level on the close. That keeps it at last week's high and also right at the bottom of the July to September range it broke below in early October. A good recovery with a higher low after a one-day undercut of the 200 day SMA (331) Thursday. Good bottom building action as well, but it too will feel some of the same headwinds as the other indices with the after hours warnings.
DJ30
DJ30 moved toward the 200 day SMA (10,498) but then tumbled off of that level to close just above the 50 day SMA (10,434). Volume was sharply higher, moving further above average on the second session of gains. It is still mired in its 7 month range, but it has moved back to the middle. The 200 day SMA is its next ceiling that would take it to the top half of the range. INTC and HPQ will be something of a drag early Tuesday as they feel the impact of Dell's warning. Not a strong position; we are looking more at how NASDAQ and SP500 respond as they are showing more leadership.
Stats: +37.3 points (+0.36%) to close at 10440.07
Volume: 320M shares Monday versus 283M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The ISM index (national manufacturing index) and the FOMC one-day meeting are the key items on the economic agenda, but the early action will be dominated by DELL's lowered guidance. Dell and stocks whose companies supply products to Dell were down after hours, resulting in a broad slump in technology. Late in the after hours session there was a broad recovery, but stocks did not recover their closing prices.
After a 2 day move to resistance we would expect a softer open as stocks digest their gains. Now there will be added pressure with the warning. We will see how steadfast the recent buyers are as the market digests that news over Tuesday morning in the run up to the FOMC decision at 2:15ET. When a market rallies with strength it has priced in the bad news. The knee jerk reaction to the Dell news was lower, but the real test of the move comes after the initial selling and whether stocks managed to hold near support and ultimately recover.
They may not recover Tuesday, but we believe they will hold this test. NASDAQ has managed to move higher and make this recovery without DELL. DELL has trended lower since mid-August when it gapped sharply lower. That coincided with NASDAQ's troubles (and the entire market), but it has started the recovery without DELL. Indeed the downtrend itself indicates this news is not wholly unexpected. Thus after the initial drop lower Tuesday we want to see the indices hold support and then over the next couple of days start the rebound.
Support and Resistance
NASDAQ: Closed at 2120.30
Resistance:
The 50 day SMA at 2119 is not entirely broken.
2125 is the August downtrend.
2154 from January 2004 high
2178 is the January closing high
2187 is the September high.
2191.60, the January intraday high.
2192 is the mid-July high.
2220 is the August high
Support:
The 50 day EMA at 2108
2100 was key resistance and support in the past
The 200 day SMA at 2073
2050-51 from spring and summer 2005 consolidations
2025 is the early October low
2018 is the early April high.
The August 2004/April 2005 up trendline at 2023 that forms the bottom of the big triangle pattern
S&P 500: Closed at 1207.01
Resistance:
1210 held in late September on the close.
The 50 day SMA at 1209.66
December 2004 high at 1219 and June high at 1220
March 2005 closing high at 1225 and intraday high at 1229.11
The September high at 1243 and the recent August high at 1246
Support:
The 50 day EMA at 1204
1200 was solid price support at one time
The 200 day SMA at 1199
1190 from prior prices
1183 - 1184 from November 2004 highs and July 2005 intraday low and a high way back in July 1998
1182.50 is the August 2003/August 2004 up trendline is in trouble
The October intraday low at 1168 is a key point to watch
1165 - 1155 from late 2001/early 2002 double top
1140 from the April low
Dow: Closed at 10,440.07
Resistance:
The 200 day SMA at 10,499
Price consolidation at 10,600
The June highs at 10,646 to 10,656
10,720 is the high in the recent lateral move. This is the key resistance.
10,754 is the February high
10,868 is the December 2005 high.
10,985 is the March high
Support:
The 50 day EMA at 10,412
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 August and September pullbacks
10,250 held in the June and July lows but is blowing out now
10,200 from April.
10,175 from the July intraday low.
10,000 from the April low.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 31
Personal Income, September (08:30): 1.7% actual versus 0.4% expected and -0.9% prior (revised from -0.1%)
Personal Spending, September (08:30): 0.5% actual versus 0.5% expected and -0.5% prior
Chicago PMI, October (10:00): 62.9 actual versus 57.4 expected and 60.5 prior
November 01
Auto Sales, October: 5.4M expected and 5.7M prior
Truck Sales, October: 7.0M expected and 7.3M prior
Construction Spending, September (10:00): 0.5% expected and 0.4% prior
ISM Index, October (10:00): 57.0 expected and 59.4 prior
FOMC policy announce (2:15): Expecting another 25BP hike and no change in the statement.
November 02
Crude Inventories, 10/28 (10:30): +4.414M prior
November 03
Productivity-Prelim., Q3 (08:30): 2.6% expected and 1.8% prior
Initial Jobless Claims, 10/29 (08:30): 330K expected versus 328K prior
Factory Orders, September (10:00): -1.0% expected and 2.5% prior
ISM Services, October (10:00): 57.0 expected and 53.3 prior
November 04
Non-farm Payrolls, October (08:30): 100K expected and -35K prior
Unemployment Rate, October (08:30): 5.1% expected and 5.1% prior
Hourly Earnings, October (08:30): 0.2% expected and 0.2% prior
Average Workweek, October (08:30): 33.7 expected and 33.7 prior
End part 1 of 3
|
money investment
day trading
|
