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world stock market, us stock market
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11/14/05 Investment House Daily
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SUMMARY:
- Another slow session following the Thursday breakout and ahead of a heavy economic calendar, Bernanke confirmation hearings.
- Greenspan backs off statement made one year ago regarding funding US trade gap.
- Market eases back ahead of economic data, expecting inflation to be lower and setting up for the run at 2005 highs.
Stocks wander sideways ahead of economic data onslaught.
Stocks continued their rest after the Thursday breakout move, unable to find any strong buyers ahead of the week's economic data. Investors won't have to wait long as Tuesday starts off the action with the NY PMI, retail sales, and the PPI. That will impact the action, but the CPI Wednesday will tell much of the story along with what Ben Bernanke, Greenspan's heir apparent, has to say in his confirmation hearings. Investors are expecting better inflation numbers given the drop in energy prices as part of their view that the Fed is just about through with its rate hiking. As we noted in the weekend report, this rally has many similarities with late 2004, mainly the view that the Fed is through and oil prices are breaking lower. Both of those proved inaccurate last year and the market suffered; the strong action on this move, however, at least suggests that we get a continued run toward the year end.
Stocks did have some positive catalysts to support a move, but they were unable to carry the water very far. WMT beat the street with its earnings and it has a rosier outlook for the holiday retail season. LOW also beat earnings and it enjoyed a solid session, gapping up off of its 200 day SMA. That news was out before the open, however, and it simply did not drive the majority of stocks significantly higher. Greenspan was speaking regarding the trade gap, and when he suggested that we needn't worry about the trade deficit the market rallied. That too flared out, however, and stocks proceeded to drift lower on the session.
By the close, DJ30, SOX, and SP400 (mid-caps) were fractionally positive. NASDAQ and SP500 closed with less than a 0.1% loss. The small cap SP600 brought up the rear again with its 0.27% decline. Basically stocks just flat-lined.
Volume was lower on NASDAQ and higher on NYSE, but volume was still well, well below average as it was Friday. Thus we did not get all twisted in knots over SP500 and SP600 fading slightly on slightly rising trade. Breadth was negative in the -1.5:1 range, weighed down by the continued small cap lag. The market was internally weak but hardly on the verge of collapse. It was simply taking another low volume breather after the breakout and before the next move to test the 2005 highs.
THE ECONOMY
Greenspan indicates trade gap may not require more rate hikes.
It was almost one year ago that Greenspan, in comments at a central bankers get together, made basically another 'irrational exuberance' statement, i.e. that the Fed may have to get interest rates higher in order to attract foreign capital and thus fund the US trade gap. In short, the Fed was taking it upon itself to once again save us from our own short sightedness and make the world safe for commerce. We noted at the time that this was a clear warning the Fed was not done with rate hikes and indeed likely had a long way to go before it would consider the job done.
A year later and the market is still pondering the question as to just how close to done the Fed is. The late 2005 rally, similar to the late 2004 rally, suggests the market is again anticipating an end to the Fed's rate hikes. The rally in the 10 year bond is definitely begging for a cessation as the spread between the 10 year and the 2 year hit 10 BP Monday, definitely threatening an inverted yield curve if things hold as they are and the Fed continues its rate hiking to 4.5% by the end of January 2006.
Monday the market received some good news on the rate hiking front when Greenspan, in a speech to Bank of Mexico's 80th anniversary conference, suggested that the US trade gap was likely to be easily funded by foreign interests and that the dollar would remain a store of value for the rest of the world (just as we stated last week). In short, Greenspan was pretty upbeat on the trade deficit and the dollar, at least as upbeat as he can be. What this suggests is that with the intervening year gone by and the accompanying rate hikes, Greenspan is saying that the Fed's work regarding ensuring the trade gap will be funded by foreign investment is done. Mark one item off the blackboard that the Fed felt obligated to adjust via monetary policy.
That still leaves the housing market on the board as a target. The question we have is whether Green-speak will start backing off of this in the coming weeks. If that is the case then we can start believing the Fed is done and that Greenspan will suggest to Bernanke that the Fed is done for now. As noted, the market is anticipating an end close at hand, i.e. by the January 31 meeting as discussed in the weekend report, and that is part of what this year end rally is all about. If it is to keep going it will need confirmation that the Fed is finished, but that won't happen until 1-31 at the earliest. If oil continues to fall and the Fed-speak continues this more accommodative tone, then the year end rally might just extend itself to the first part of the year. For now the action is very positive as the market continues higher, helped in part by the views regarding the Fed and oil prices.
THE MARKET
MARKET SENTIMENT
VIX: 12.18; +0.55
VXN: 14.68; +0.47
VXO: 11.6; +0.45
Put/Call Ratio (CBOE): 0.89; +0.21. Good to see the ratio jumping right back up after hitting 0.68 Friday, the low for the current cycle, i.e. since the rally off the October lows started (and well before that as well).
Bulls versus Bears:
Bulls: 50.6%. Bulls surged over 4 points (46.4% prior) the past week following the strong run off the lows. The lateral move this week was not enough to deter them, though another couple sessions of lateral movement before the breakout would have swelled the doubter's ranks. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 24.7%. Dove lower from 26.8% last week, also a sharp drop fro the 29.2% reading hit on the high as the market sold in October. That was just below the 30% level hit in May, so a very respectable showing during the selling, and enough to do its job.
NASDAQ
Stats: -1.52 points (-0.07%) to close at 2200.95
Volume: 1.422B (-2.74%). Very low, below average volume as NASDAQ moves laterally after the strong Thursday breakout move. The strong price/volume action continues even as NASDAQ takes a pause.
Up Volume: 742M (-199M)
Down Volume: 664M (+158M)
A/D and Hi/Lo: Decliners led 1.35 to 1. Symptomatic of the lackluster move, breadth was negative when NASDAQ and NASDAQ 100 posted very modest losses. The influence of the small caps was evident in the weaker overall breadth.
Previous Session: Advancers led 1.2 to 1
New Highs: 147 (-23)
New Lows: 54 (+2)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Tried an early move higher and was positive for much of the day, but the index was moving lower after the first hour. It could not get on track, continually slipping as the session progressed. Support was never in jeopardy (near support at 2192, and hit 2197 on the low) as losses were very modest. We were looking for a continued advance toward the 2005 at 2220, but in the absence of a continuation of the breakout, the low volume pause was solid. Once more NASDAQ is refusing to give up any gains as it takes a breather after a nice upside move.
SOX (+0.56%) was positive all session, but with the other major indices indecisive, SOX could not make the definitive move to continue its breakout move either. It again held 460 on the low and used that as support to move higher. Acting as if it wants to lead on this next leg higher as it tests and holds the break over 460 and sets up for a run to the August highs from 480 to 483.
SP500/NYSE
Stats: -1.01 points (-0.08%) to close at 1233.71
NYSE Volume: 1.394B (+7.82%). Volume rose on the downside session for SP500 and SP600, but SP400 did post a gain. Overall volume remained very low and well below average on the session, hardly what you would call a distribution session where stocks where stocks are sold off on volume. Just another low volume easy move sideways.
A/D and Hi/Lo: Decliners led 1.65 to 1. The small caps have continued to lag on this move. They are not breaking down, just have not found the buying traction yet to send them higher.
Previous Session: Advancers led 1.31 to 1
New Highs: 122 (-14)
New Lows: 171 (+58)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 posted a modest loss on slightly rising, but still very much below average volume. SP500 has set up something of a reverse head and shoulders pattern the past few months, an accumulation pattern. Similar to NASDAQ, SP500 has moved laterally the past two sessions, holding the gains from the Thursday volume breakout move. We still anticipate the index proceeding higher to its August highs at 1245.86. If it wants to take three or four sessions to move laterally after the breakout last Thursday, that is fine with us as it sets up the break through the August high even better.
The small cap SP600 (-0.27%) brought up the rear Monday once more, but it did not remotely give up its recent lateral range above the 50 day EMA (341.07). It continues to move in a tight lateral range, forming the handle to its double bottom set up in October. Looks ready for the breakout, but as we always say about good-looking patterns, until they show us the move they are just pretty pictures. A breakout over 349 takes it on toward its all-time high at 357.86.
DJ30
Once more DJ30 led the market, but the moves grow thinner as it taps at the top of this range at 10,720 (hit 10,710 on the Monday high). Volume was higher but was still well below average as DJ30 edged higher for a modest gain. Hardly the look of a powerful move through that point is near at hand given the slowing action as it creeps higher. That suggests something of a pullback before DJ30 is able to punch through.
Stats: +11.13 points (+0.1%) to close at 10697.17
Volume: 211 shares Monday versus 195M shares Friday. Low volume continues after the solid Thursday volume that supported that break higher.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The economic data starts rolling in before the Tuesday open with the NY Empire State PMI and the October retail sales. Sales are expected to fall for the month as oil prices dipped (remember, gasoline is included in retail sales). Thus we will have to see the breakdown of the results, but this can be a situation where lower sales are a positive as lower gasoline sales often mean more purchases in other areas, areas where the product has to be replaced by workers as opposed to another gallon of high-priced gas burned in the tank.
The market will also get a peak into Bernanke's thinking as the confirmation hearings begin. He is likely not to say anything as to what he would do currently, but he will be asked to explain how he can reconcile continuing Greenspan's go slow approach with his stated preference for inflation targets, etc. We hear there may even bee a question regarding his views on the Fed chairman commenting on issues that are outside the Fed's mandate such as social security and other social programs, deficits, the stock market, the housing market, etc.
The market has not advanced the Thursday breakout, but it continues to show positive action even on the 'off' sessions where it fails to make headway. That tells us that there are few sellers and that the buyers are driving the action. All they need is the next catalyst to drive the indices higher to test the August 2005 highs. The economic data may supply the catalyst, or the market may just continue to consolidate as the reports begin to flow. The market is setting up for the next move, however, and we will continue to move into positions in strong stocks as they show us they are ready to resume the advance.
Support and Resistance
NASDAQ: Closed at 2200.95
Resistance:
2205 was intraday resistance last week
2220 is the August high
2251 is the January 2001 low (2273 is the closing low)
2264 from the June 2001 peak
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
2192 from the January intraday high and the mid-July high.
2187 is the September high.
2178 is the January closing high
2171 is the 10 day EMA.
2154 from January 2004 high
2144 is the 18 day EMA and the October gap up point.
The 50 day EMA at 2130
2100 was key resistance and support in the past
The 200 day SMA at 2079
S&P 500: Closed at 1233.71
Resistance:
The September high at 1243
The August high at 1246
1273 is the May and May 2001 peaks
Support:
March 2005 closing high at 1225 and intraday high at 1229.11
The 10 day EMA at 1221.87
December 2004 high at 1219 and June high at 1220
1210 held in late September on the close.
The 50 day EMA at 1210
The 200 day SMA at 1201
1200 was solid price support at one time
1190 from prior prices
Dow: Closed at 10,697.17
Resistance:
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 June highs at 10,646 to 10,656
Price consolidation at 10,600 is giving way
The 10 day EMA at 10,573
The 200 day SMA at 10,503
The 50 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 15
NY Empire State Index, November (08:30): 15.5 expected and 12.1 prior
Retail Sales, Oct. (08:30): -0.7% expected and 0.2% prior
Retail Sales ex-auto, Oct (08:30): 0.3% expected and 1.1% prior
PPI, Oct. (08:30): 0.0% expected and 1.9% prior
Core PPI, Oct (08:30): 0.2% expected and 0.3% prior
November 16
CPI, Oct (08:30): 0.0% expected and 1.2% prior
Core CPI, Oct (08:30): 0.2% expected and 0.1% prior
Business Inventories, Sep (08:30): 0.3% expected and 0.4% prior
Net Foreign Purchase, 0 (09:00): 91.30B prior
Crude Inventories, 11/11 (10:30): 4.424M prior
November 17
Initial Jobless Claims, 11/12 (08:30): 322K expected and 326K prior
Housing Starts, October (08:30): 2060K expected and 2108K prior
Building Permits, October (08:30): 2170K expected and 2219K prior
Industrial Production, October (09:15): 1.0% expected and -1.5% prior
Capacity Utilization, October (09:15): 79.6% expected and 79.0% prior
Philadelphia Fed, November (12:00): 15.0 expected and 17.3 prior
End part 1 of 3
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world stock market
us stock market
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