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world stock market, us stock market
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11/10/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: AXL; WIRE
Buy alerts: COH; DIOD; LSTR; SRCL; KONG
Trailing stops: None issued
Stop alerts: Cleared out the energy positions when oil broke $50/bbl. BJS; SWN; DO; ESV
SUMMARY:
- Stocks start out shaky on bombings, trade deficit, rallies hard on treasury auction & oil decline.
- Trade gap surges on oil imports and storm-related export declines.
- Decline in US deficit goes unnoticed even as tax receipts surge.
- Natural gas posts a big build and oil closes below $58/bbl.
- Thursday treasury auction sports huge increase in foreign interest, drives 10 year note lower as bonds rally.
- Ready for run to 2005 highs as indices breakout from lateral consolidation.
Market overcomes early obstacles, breaks out from consolidation.
Once more stocks displayed their new attitude. Starting weaker with a hangover from the Wednesday bombings, the market did not get much respite as the September trade figures posted a record trade deficit spurred by high oil prices as the Gulf storms prompted greater energy imports and stymied exports. Cisco's lukewarm earnings outlook added its own damper to the morning action, though its overall impact is now limited given its long, long slide.
Stocks slipped on the open, but they never threatened to breach near support. Then the Michigan sentiment report came out stronger than expected (79.9 versus 76.0 expected and 74.2 in October), natural gas reserves saw a huge build, and oil dropped below $58/bbl. That synergistic combination helped lift stocks off the lows.
Then the treasury auction results were released, and after a couple of so-so performances they showed huge gains in foreign demand. That rallied bonds and it rallied the market as well as big chunks of real estate were gained over the next 2 hours. NASDAQ broke through its recent range at 1278 and then took out a series of prior highs. SP500 broke through 1225, tested, and then blew past that level and next resistance at 1229.
Volume was running stronger early as the market struggled, but it remained strong and surged more as stocks reversed and rallied. Once more solid accumulation with higher volume on an upside session. Once more investors worked through and shrugged off some disappointing news. Again, this is the market's new attitude.
Breadth was disappointing (1.5:1) as the small caps lagged. Breadth can always run behind when the market reverses, and that was part of the problem with breadth Thursday. It was clear, however, that the small caps were again dragging the rest of the market early on, and that continued into the close. Large caps were stronger as the 1.27% gain on NASDAQ 100 topped NASDAQ's 0.96% gain. We are not too concerned about the small caps; they have been leaders and are set up well to continue their move.
The lower breadth and the relative strength of large caps left many stocks rising on lower volume despite the overall stronger market volume. That left many stocks drifting higher; tempting, but we still want to see solid volume on the moves higher. That is likely to come over the next sessions as the buying continues to spread out once more.
THE ECONOMY
Trade gap hits a record on extraordinary circumstances, while the decline in the US budget gap is ignored by the press.
The trade gap hit $66.1B in September, up from $59.3B in August and topping the prior record at $60.4B posted in February. Imports rose and exports fell. You can rest assured that many trumpeted another record gap as the inevitable doom for the US. You probably heard several such prognostications as this is one of the areas many who are down on the economy like to speculate about.
Well, there is no question that is a whopping imbalance. There were some special conditions that helped boost it to a record. The storms impacted both imports and exports. With much of the Gulf oil production shut in after the hurricanes, we had to import more energy from abroad. At the same time, because the US Gulf production was off line world prices rose. Thus we had to import more and we had to pay more for it. A very nasty Catch-22 situation. Then we had declining exports because many ports and transportation avenues were closed. Grain and organic chemicals exports that are usually shipped through New Orleans could not make it out. On top of that, Boeing suffered a 4 week strike that cut caused a $2.4B drop in airplane shipments. As a result, imports grew $3.8B while exports fell $3.3B.
Of course we still imported a lot of consumer goods (they gained $873M in the month) such as electronics, clothes, toys and sporting goods. That is where the doomsayers focused as it is our penchant for consumption they claim will be our ultimate downfall. It is an old debate with new verses as to whether we should pay higher prices for products made in the US or pay less for imported goods made by people paid lower wages. Lower priced goods allow more disposable income for other areas, including saving. On the other hand many of our companies cannot compete with the low wages paid overseas and thus fewer jobs remain in those competing areas.
Special interest groups use these figures and comparisons to try to get their agendas before Congress. It did not take but an hour before representatives of various industry sectors were calling for more tariffs on Chinese imports. They common theme we see is they like to vilify the consumer for consuming the goods that are delivered at the best price and quality. It is a tough call to make, but from what we see on the tube and in the papers, the facts are hard to come by where we could make reasoned decisions. There is a lot of emotional spin, but a lot of the talk is all or nothing on both sides. We are not going to stop consumers from consuming foreign goods; if we do then prices will jump significantly and the threat of inflation will be even more pronounced. We have to make a series of decisions that recognize the need for imports to meet demand. I am glad I do not have to wade through trade issues and make trade policy, and frankly most of the officials in DC feel the same way.
US budget deficit less than expected as tax receipts surging.
It flew under the radar for most news stations, but the October deficit was less than expected. Still the third largest on record, but less than thought ($47.2B versus $57.3B). Why is the deficit shrinking? Because tax receipts are so strong, coming in at $149B, the highest since October 2001. A lot of television pundits have said that this is a one-time event, but if that is so, why do they keep rising as the economy continues?
It is clear that tax receipts have risen even as tax rates are lower. This is nothing new; there are many instances where lower taxes brought in more revenues because of strong economic activity. Kennedy's cuts in the sixties, Reagan's in the eighties. The problem is that the feds go overboard when they see those receipts coming in and spend it all and more.
If the tax cuts did not generate more revenues tax receipts would be lower. All we have to do is put the brakes on spending. Yet on Thursday the Senate could not agree to even a modest budget cut to pay for Katrina and Rita costs. Again, why not issue an executive order cutting all federal department budgets by 5% across the board as an efficiency enhancing mechanism? No one believes the federal government runs efficiently, and a 5% cut while requiring no drop off in services would be child's play.
Natural gas inventories jump, oil closes below $58/bbl.
It is the time of the year when natural gas supplies are supposed to decline, the time when winter's breath forces consumers to turn on the furnace. Instead weather has been really warm the past few weeks and natural gas inventories have ballooned. Last week they rose 61BCF when 45BCF was expected. That dropped gas prices sharply Thursday, down $0.37 to $11.95/mmbtu.
Oil is in more of a slide as inventories continue to build as well. After the Gulf storms the US requested Europe to send its excess over here, and apparently it is doing just that. Supplies have surged, and after the spike from the storms, price is starting to break down.
We said last night that a close below $58/bbl would be a significant pivot for the market. Thursday oil closed at $57.80/bbl, down $1.13 on the session. That has the potential of sending oil quickly down to $55, and from there a slide toward $50. That will help pricing, it will help consumer confidence, but it really needs to be lower to splash some water on inflation and help a burdened economy and consumer.
We don't have a lot to say regarding the congressional hearings on prices held Wednesday. It was a publicity stunt for most of the participants. Talk shows such as O'Reilly talk about proof that oil companies were gouging, etc. One thing to bear in mind: what market does not react upwardly for a short period, regardless of supply issues, when a major event strikes and POTENTIALLY threatens supply? We all know markets are emotional, and when trouble is near and even remotely threatens supply, prices will rise. With the two Gulf storms the majority of the Gulf production capacity was shut-in and remained shut in for weeks. That was real supply interruption and the market reacted by sending prices higher. Once the emotion ran its course, prices started to decline.
The talk shows point to data regarding demand and supply. Well we all know that markets react emotionally and overshoot both ways. That is exactly what happened here, and there is little difference in this episode from others in history. So have your hearings, state your position in front of your constituents, spend some of our tax dollars doing it, and then go cut the budget.
Treasury auction yields big results.
After a very lackluster auction Wednesday, buyers came loaded for bear Thursday. Foreign investors were particularly strong after notably lacking on Wednesday. The strong auction sparked a bond rally and that bolstered stock gains mid-session. The 10 year yield dropped to 4.56% as that bond gained over two points as 55.7% of the 10 year notes sold did so at the high for the day. That is a very strong auction and shows foreign demand for the safety and certainty of the US remains strong.
THE MARKET
MARKET SENTIMENT
VIX: 11.9; -0.9
VXN: 14.61; -1.26
VXO: 11.36; -0.78
Put/Call Ratio (CBOE): 0.78; -0.05
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: +20.87 points (+0.96%) to close at 2196.68
Volume: 1.99B (+19.71%). Strong surge in volume as NASDAQ rallied. NASDAQ 100 stocks posted an overall better gain as many large caps attracted much of the volume Thursday. Still a good accumulation session for NASDAQ, continuing its solid price/volume action.
Up Volume: 1.198B (+303M)
Down Volume: 769M (+43M)
A/D and Hi/Lo: Advancers led 1.49 to 1. The weak link as the large cap techs outperformed. Not too concerned about this given the overall good pattern in the smaller cap indices.
Previous Session: Advancers led 1.22 to 1
New Highs: 140 (+34)
New Lows: 74 (+10)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ bolted out of its consolidation and cleared many interim peaks from the past two years. It is now basically headed for a test of the August high at 2220 where this pullback began. So far it is showing excellent strength as it rallies, suggesting it can clear that level in its year end run. It looked solid in its consolidation, and it broke higher just as those technicals indicated. Now we let it run and see how it handles the old high. If it can take it out, that would break NASDAQ out of that big 23 month ascending triangle, an accumulation pattern. It could have some serious running ahead of it . . . if the Fed doesn't go too far, oil prices don't spike back up, etc.
SOX (1.28%) broke through resistance at 460 and is now back in the 10 week consolidation range it traded through from late July to early October. As noted Wednesday, it has an open field to 480-483.
SP500/NYSE
Stats: +10.31 points (+0.84%) to close at 1230.96
NYSE Volume: 1.748B (+8.38%). Solid but not huge volume as the NYSE indices broke higher. Volume moved back above average for the first time in a week, but really cannot compare with the strong volume from October. The small caps lagged and when they get back on board volume will likely improve even more.
A/D and Hi/Lo: Advancers led 1.48 to 1. Pretty lame as the small caps held back, letting the large caps do the work.
Previous Session: Advancers led 1.2 to 1
New Highs: 136 (+35)
New Lows: 157 (+22)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
Nice breakout from its week long lateral handle. SP500 tapped the 10 day EMA on the low and then shot higher on rising, above average volume. It is right at the October high at 1233, but it is likely to move through that and take on the August high at 1246. It rallied on good volume, set up the consolidation well, and then took off again. Very solid action.
SP600 (+0.57%) lagged the action, dropping to test its 50 day EMA (340.53) on the intraday low and the vaulting back up to close with a modest gain. It is still in its lateral move of the last week, but it looks ready to breakout from this nice pattern and move with the rest of the market and toward its high in early August at 357.86.
DJ30
Even DJ30 got in on the action, breaking through 10,600 resistance on rising, above average volume, helped by INTC's announced dividend and buyback. Solid move and setting DJ30 on course for a showdown with the high in this 6 month range at 10,720. That remains problematical with this index. It is showing decent action but has not been as strong as the other major indices. First thing first; let it challenge the highs in this range.
Stats: +93.89 points (+0.89%) to close at 10640.1
Volume: 293M shares Thursday versus 244M shares Wednesday. A return to above average volume as DJ30 breaks through key resistance as well.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
No scheduled economic releases Friday, but we are starting to hear from Fed officials once more, and with bonds rallying and the 10 year falling Thursday, they are likely preparing to hit the road and try and push rates back up. Always a pleasant thought.
DELL announced its lowered earnings after hours and even gave more tepid 2006 guidance. It rallied at first and then gave it all back to close flat. Just not that much excitement anymore for Dell now that it is all grown up and cannot grow those sales and earning as it used to.
The action in the market has been just about as scripted: rally off the second test, strong volume on the move higher, excellent consolidation where it held its gains, and then off higher once more on strong trade. We want to see the move spread out again, and after this initial surge to kick it off it likely will do that. That will provide addition opportunities as stocks move higher toward the year highs.
The question is what happens when they get there. If the move remains strong they can easily break through and then come back to test. That is not unusual. Or they can run to that level and then pause, consolidate again, and move on through. They can also roll over and tank. We still view this as a year end run and not necessarily a run that will carry well into 2006. That year will bring new challenges, but we might not see any really rough going until we get some idea of what Bernanke is going to do. Right now the market figures Greenspan will issue two more hikes and that oil will continue to soften; something like investors thought at the end of 2004 but were sadly disappointed as the ensuing sell off showed.
We are going to bear that in mind as we get further down the road. For now we are going to enjoy the run in our current positions that we have been taking throughout this rally and continue looking for opportunity to enter into new stocks ready to move or current positions that are giving us another entry point. The one thing about basically excellent, by the script market action is you wonder where the next problem is going to come from. At least a healthy skepticism keeps you on your toes.
Support and Resistance
NASDAQ: Closed at 2196.68
Resistance:
2220 is the August high
Support:
2192 from the January intraday high and the mid-July high.
2187 is the September high.
2178 is the January closing high
2156 is the 10 day EMA.
2154 from January 2004 high
2144 is the October gap up point.
The 50 day EMA at 2122
2100 was key resistance and support in the past
The 200 day SMA at 2077
S&P 500: Closed at 1230.96
Resistance:
March 2005 closing high at 1225 and intraday high at 1229.11
The September high at 1243 and the August high at 1246
Support:
December 2004 high at 1219 and June high at 1220
The 10 day EMA at 1216
1210 held in late September on the close.
The 50 day EMA at 1208
1200 was solid price support at one time
The 200 day SMA at 1201
1190 from prior prices
Dow: Closed at 10,640.10
Resistance:
Price consolidation at 10,600 is giving way
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 10,500
The 50 day EMA at 10,445 and the 18 day EMA at 10,465
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.
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): 0.6% actual versus NA expected and 1.1% prior
Import Prices ex-oil, Oct (08:30): 0.8% actual versus NA expected and 1.0% prior (revised from 1.2%)
Trade Balance, September (08:30): -$66.1B actual versus -$61.3B expected and -$59.3 prior (revised from -$59.0)
Initial Jobless Claims, 11/05 (08:30): 326K actual versus 320K expected and 324K prior (revised from 323K)
Michigan Sentiment-Prelim., November (09:45): 79.9 actual versus 76.0 expected and 74.2 prior
Treasury Budget, Oct (2:00): -$47.2 actual versus -$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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