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world stock market, us stock market
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11/09/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: FRK, RBAK
Buy alerts: NVDA; LUK; SMG
Trailing stops: None issued
Stop alerts: REDF
SUMMARY:
- Market starts soft, rallies, and even afternoon bombings don't take it down.
- Bonds tumble as foreign demand falls at treasury bond auction.
- Wholesale inventories rise but sales rise much more.
- Not dead yet: mortgage applications rise even as rates hit 16 month highs
- Stocks still setting up to continue the advance, oil still flirts with the uptrend.
Market avoids a late session upset.
Stocks continued to show solid action, starting soft, working through the morning with no major losses, then rallying into the afternoon. A pullback to test the move was really tested mid-afternoon when reports of three hotel bombings in Jordan hit the wire. Lots of speculation as to whether it was AQ or some other group, but you have to wonder if that is the real issue; that someone continues to advocate blowing up civilians is bad enough. In any event, the market sold back some of the gains, but managed to rebound and close out the session with gains across the board. Semiconductors and the smaller caps led (1.4%, 0.43% on SP400), two groups that are needed for a continued rally.
Volume was higher on both NASDAQ and NYSE, with stronger trade on NYSE. That is good for an upside session. A/D was just modest at +1.2:1. That shows no real groundswell of upside just yet. Leaders were starting to move again, showing some scattered volume moves. They tend to do that ahead of a broader move. The major indices gained, but they remained in their recent lateral ranges as they form handles, a.k.a. lateral consolidations, to the strong rally higher. Basically the majority of stocks posted modest gains, sliding sideways in the current consolidation.
Soft start, stronger finish. Rising volume. Good leadership. Overcoming bad news to hold gains. Nice lateral consolidation following a strong move, unwilling to give up the rally gains. Those are all attributes of very healthy market action that is setting up the next break higher in this year end rally. We were picking off some of the leaders making solid moves Wednesday, being patient and letting them show us the moves. The action suggests a break higher to come.
THE ECONOMY
Bonds fall on lack of foreign interest.
The second treasury auction of the week as foreign demand dropped. That pushed the 10 year note to its lowest level in two weeks, i.e. driving the yield higher to 4.64%. That puts the yield within 5 basis points from its high for the year. Foreign demand accounted for 21.1% of the bonds purchased ($13B worth), down from 45.8% in October.
Bond traders noted there is still room for the 10 year to fall given it has hit higher yield just recently. Indeed, some predict a 4.75% 10 year note by March 2006. It will need it; the Fed is still showing no signs of letting up and the Fed funds contract has almost fully priced in a hike to 4.75% by the Fed at Bernanke's first meeting.
The rates are not the big deal here; they are still historically low. What worries most economists is the usual mantra: at some point foreign buyers won't fund our debt and rates will spiral out of control. They cite this auction and some others over the past six months where foreign buyers have not been frothing to buy. Of course the other months demand has been huge. The aggregate buying is still solid but the volatility in the buying is raising some eyebrows. As we know. Volatility in any market is one indication of change. We have been watching this month to month and this auction is another one of the down months after a strong October. Are foreign buyers about to book from US treasuries? Not likely. It is still the safest widely accepted store of value in the world, and incidents such as the Jordan bombings only help demand.
Wholesale inventories rise more than expected but sales shoot higher.
Wholesale inventories in September rose 0.6% (0.3% expected). That would seem to indicate that inventories were starting to pile a bit higher. Sales, however, rose 2.4%, the strongest gain since March 2004. Sales up 2.4%, inventories up just 0.6%. That suggests more production activity ahead in order to make sure inventories are present to meet demand.
That is good and bad. Inventories can always be viewed as half full or half empty. On the half empty side, higher inventories can mean less buying and goods piling up. On the other hand it can mean a lot of buying and suggests a strong economy. With sales rising sharply, it indicates strong economic activity that will require more production. It also means that GDP might be a bit softer as inventories are considered part of growth. The truth is that strong sales trump impacts on GDP. You want to see companies selling their goods at a strong pace because that means robust economic activity even if an inventory drawdown detracts from GDP.
Mortgage applications rise again.
Overall mortgage activity, new applications and refinancing, rose 2.3%. New mortgage applications rose 6.4%. Refinancing dropped 3.4%, something to be expected as 30 year rates rose to 6.31%, the highest since June 2004 when they hit 6.34%.
The gain in mortgage applications was the first in four weeks. Year over year, however, the rate was down 3.6%. A year ago the 30 year fixed rate was 5.69%.
A lot of numbers. What do they mean? They mean the housing market continues its slow decline. Last weak was an up week, but it did not reverse the trend of a slowing mortgage market. Just look at the year over year numbers: the 30 year is up to 6.21% from 5.47% and the mortgage applications are down 3.6%. As rates go up, new mortgages go down.
It is also a function of just how old this housing boom is. It weathered the recession as people stayed home after 9-11. It defied predictions of collapse many times as the housing stocks continued higher and higher. Now those stocks are in some serious declines, indicating that the housing cycle is over. As discussed Tuesday, the question is whether it crashes or just slowly grinds down. It is doing fine; the sticking point is whether the Fed will know when to say 'no more.'
THE MARKET
MARKET SENTIMENT
VIX: 12.8; -0.28
VXN: 15.87; +0.31
VXO: 12.14; -0.31
Put/Call Ratio (CBOE): 0.83; +0.1. Edging higher as the market moves sideways and on news of the Jordan bombings. A bit of anxiety entering the market, but not anything to really provide any momentum to the market.
Bulls versus Bears:
Bulls: 46.4%. After a month-long decline to 44.8%, bulls started back up on the heels of the bottom and the gains put in since. Never got as deep as the May low at 43.5%, but good enough to get this move started. Bottomed in May at 43.5%.
Bears: 26.8%. Sharp drop in bears as well, down from 29.2%. Hit a high for the year at 30% in early May.
NASDAQ
Stats: +3.74 points (+0.17%) to close at 2175.81
Volume: 1.662B (+1.33%). Volume started slow but finished slightly higher as NASDAQ posted a gain. Technically good action but there are some considerations. First, it was still well below average and thus not much of an indication of accumulation. Not bad, but not a great surge. Second, volume was running lower in the morning; it rose on the news of the Jordan bombings and when NASDAQ action responded by turning choppy. Overall solid price/volume action continues.
Up Volume: 895M (+108M)
Down Volume: 726M (-109M)
A/D and Hi/Lo: Advancers led 1.22 to 1. Pretty anemic, but it is still in the consolidation so nothing bad about this.
Previous Session: Decliners led 1.47 to 1
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ moved through near resistance at 2178 once more, hitting 2183 on the high. Once more it was unable to hold that level on the close. Is it some major failure at that level? No, it is just working laterally now after a strong run higher, moving sideways on low, below average volume. Even as it moves laterally, price/volume action remains great, i.e., up on up days, down on down days. At the same time it refused to give up gains. Solid consolidation action that it needed, and that is setting up the next move higher.
SOX (1.41%) was the leader Wednesday, jumping off the 50 day EMA (451.47 and moving through the 50 day SMA (456.82). That leaves it right at the August lows near 460, a potential resistance point. Will that stop SOX? Don't' think so. Looks as if SOX is going to move through this level and on to try the triple top at 480 to 485 that stalled it out starting in August.
SP500/NYSE
Stats: +2.06 points (+0.17%) to close at 1220.65
NYSE Volume: 1.613B (+14.64%). Big jump in NYSE volume jumped the indices higher, but the afternoon selling brought them back into the range. Volume was up, but it was still below average on the session as it has been the past four sessions while the NYSE indices consolidate in a lateral move. As with NASDAQ, even though lower overall in the consolidation, price/volume action remains solid, up on up days and down on down days.
A/D and Hi/Lo: Advancers led 1.2 to 1. Might weak, but it was better before afternoon chop when the small caps were really sporting nice gains.
Previous Session: Decliners led 1.59 to 1
New Highs: 101 (+34)
New Lows: 135 (+31)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 moved through resistance at 1220 and 1225 intraday, but in the afternoon volatility after the bombing news it gave back that move, closing again inside the recent lateral range that is consolidating the strong run higher. The range is very flat; SP500 is refusing to give up its gains, and the Thursday action that tried to make the break on higher volume shows it is getting a bit antsy and closer to breaking higher. Very good action continues.
The small cap SP600 (+0.30%) was up over 0.7% intraday, probing the top of its recent range, but as with the other indices, it faded to close back in its range. That keeps the index in a nice, tight lateral move above the 50 day SMA as it too sets up for the next break higher. Its all-time high is just below 358 (closed at 345.04), and it could give that a run in this year end rally when it makes the breakout move.
DJ30
The blue chips also continued the lateral action, moving above the 200 day SMA (10,499) on rising but still below average volume. This action is right in line with the other indices following DJ30's solid move through the 200 day on strong volume. Its immediate resistance is the top of the recent rage at 10,600, and then 10,718 is intermediate resistance before it challenges the old highs near 11,000. That is a ways to go yet, but it is setting up to at least give that a try.
Stats: +6.49 points (+0.06%) to close at 10546.21
Volume: 244M shares Wednesday versus 201M shares Tuesday. Higher, but still below average on the session.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Economic news picks up again tomorrow with the Michigan sentiment, import/export prices, the trade budget, etc. There was some more earnings news after hours with Cisco beating the street and seeing its stock price rise only to lower guidance and then see its stock price fall as much as it rose. The rise was minor and the fall was minor; CSCO isn't a market leader anymore; it gave that up for good after Christmas 2004. Other stocks, e.g. NVDA, gave good guidance and were up nicely after hours.
The market is not likely to be deeply moved by either. CSCO will suffer in its own little world and NVDA will enjoy some gains. The rest of the market will likely continue its consolidation and at some point will deliver the breakout. As noted, we were seeing leaders such as NVDA starting to move already, and that is typical before the overall market makes its break higher. We have been adding positions when we see decent moves from these, and when the market breaks higher we will continue to do so as stocks continue their rebounds and breakouts as well.
Oil is still toying with its trendline, something it has teased us with for the past two weeks. Wednesday it closed just below $59/bbl (58.93, -0.78). It has not closed below 59 often, and we are going to be watching this further for signs of a more serious break lower. A close below 58 likely sends it to 55 rather quickly. That will make everyone in general feel better, but price has to hit below 50 to start making a real difference. As we have discussed before, if it does that can mean trouble for the economy as oil may be indicating an economic slowdown. The other side of that coin is that it may have simply rallied too far on speculation and suffered a blow off top that a breakdown below its trend would consummate. Jury is still out on this one; each time it has looked ready to break lower since late 2004 it has held the trend and rebounded. Thus far it is still holding. It too is not dead yet, but if it breaks below 58 on the close in a sharp move lower, stocks will applaud the move.
Support and Resistance
NASDAQ: Closed at 2175.81
Resistance:
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:
2154 from January 2004 high
2144 is the October gap up point.
2147 is the 10 day EMA
2121 is the August downtrend.
The 50 day EMA at 2121
2100 was key resistance and support in the past
The 200 day SMA at 2077
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 2025 that forms the bottom of the big triangle pattern
S&P 500: Closed at 1220.65
Resistance:
December 2004 high at 1219 and June high at 1220 is not broken yet
March 2005 closing high at 1225 and intraday high at 1229.11
The September high at 1243 and the August high at 1246
Support:
1210 held in late September on the close.
The 50 day SMA at 1210
The 50 day EMA at 1207
1200 was solid price support at one time
The 200 day SMA at 1200
1190 from prior prices
1183 - 1184 from November 2004 highs and July 2005 intraday low and a high way back in July 1998
1187 is the August 2003/August 2004 up trendline
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 10,546.21
Resistance:
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 200 day SMA at 10,499
The 50 day EMA and the 18 day EMA at 10,438
The May high at 10,406 and 10,400, the bottom of the November/December range
10,350 was 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.
November 07
Consumer Credit, September (15:00): -0.1B actual versus $5.8B expected and $7.9B prior (revised from $4.9B)
November 09
Wholesale Inventories, September (10:00): 0.6% actual versus 0.3% expected and 0.5% prior
Crude Inventories, 11/4 (10:30): +4.5M crude, +4.2M gasoline, -0.1M distillates
November 10
Export Prices ex-ag., Oct (08:30): 1.1% prior
Import Prices ex-oil, Oct (08:30): 1.2% prior
Trade Balance, September (08:30): -$61.8B expected and -$59.0 prior
Initial Jobless Claims, 11/05 (08:30): 320K expected and 323K prior
Michigan Sentiment-Prelim., November (09:45): 76.0 expected and 74.2 prior
Treasury Budget, Oct (2:00): -$50.0B expected and -$57.3B prior
End part 1 of 3
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world stock market
us stock market
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