|
|
trade stock, stock prices
* * * *
11/17/05 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: NTIR; MPWR
Buy alerts: MRVL; OXPS; VAS; FFIV; BRCM; MSCC (bonus)
Trailing stops: ATVI
Stop alerts: None issued
SUMMARY:
- After the breakout test, stocks surge ahead as NASDAQ hits new 2005 closing high and small caps come to life.
- Housing starts and permits slide as cycle winds down. Fed remains the main determinant as to whether it is an easy slide or a crash.
- Industrial production snaps back as Gulf production recovers.
- Philly Fed weakens again. The Fed needs to take notice.
- Lots of momentum and good news as stocks head into expiration Friday.
Great action remains as stocks break higher after a breakout test with NASDAQ delivering another breakout.
Wednesday we wrote how stocks were set up for the next move, and Thursday NASDAQ and SP400 spiked that set up with breakouts. Stocks started higher even before any morning economic news hit. The futures absorbed the slower housing starts and permits, a bump higher in oil, and surging gold and moved higher on the open. It was no major upside move. NASDAQ rallied to 2205 resistance and faded, giving the move a weak look. Stocks wandered laterally for three hours, edging back toward that resistance. The Philly Fed came in much lower than expected and Fed presidents were out as well, talking about the issues with inflation.
Even with that dead weight stocks recovered to the early morning highs and just below resistance. Then everything lined up. Oil had been up early but then turned over, falling $1.54 to $56.59, and was even flirting with breaking below 56. NASDAQ popped higher, breaking through 2205. The small cap SP600 came to life, and it broke out from its handle, something it was unable to accomplish the past two weeks. That rang the bell for the rest of the session. NASDAQ climbed to a new closing high for 2005 on rising trade. All of the other indices joined in as well, and even SP400 (mid-caps) broke to a new 2005 as well and indeed a new all-time high. Ah the sweet smell of new highs.
Volume was up and above average on both NASDAQ and NYSE, not surging, but a nice, solid volume boost. Breadth was huge at almost 3:1 on NYSE and 2.7:1 on NASDAQ. New highs increased nicely on NYSE as the small caps started to move, but NASDAQ needs more work; it hit a new high and new highs were still modest. More work to do there, but if the small caps continue to rally we expect that to occur.
That leaves the market well-positioned heading into November option expiration. After hours the momentum continued as MRVL announced strong results and rose another $4 in extended trade. HPQ surprised upside and rallied as well. Friday lacks any scheduled news, but it looks as if stocks are going to provide their own fuel for the rally as NASDAQ attempts to extend its breakout and SP500 tries to makes its own breakout as well.
THE ECONOMY
October is slow for housing starts and permits as the latest evidence housing has peaked. Will the Fed get the message?
In the latest round of evidence the housing market has peaked, starts fell 5.6% in August, the largest decline since March. Permits suffered their largest drop since September 1999, falling 6.7%.
We say this is the latest evidence, and indeed the facts of a slowing housing market have been on the rise the past two weeks. Wednesday the survey of homebuilders showed a 12% drop for the month as enthusiasm about the future received a gut check as homebuilders finally started to see the handwriting on the wall as to the housing market. Slowing mortgage applications, falling housing prices, increasing inventories, longer sales windows; yes the facts are becoming clear.
The handwriting has been on the wall for some time. Markets typically don't just move higher and higher and then one day crash without warning. For months and months we have written about the peaking housing market. Those same signals that are obvious today were showing up all during 2005, but the changes were subtle just as the economic problems that contributed to the 2000 market crash and the 2001 recession were appearing before the crash, but they were mostly ignored because the economy was so 'white hot.'
The irony of all this is that the Fed, the supposed watchdog of all things economic (at least under Greenspan's reign where everything fell within the Fed's purview), did not start harping about the housing market until summer 2005. Indeed, Greenspan laughed off the idea of a housing bubble in the spring when he addressed Congress and was queried regarding a potential bubble. By that point, however, the housing market was already peaking as we were reporting at the time. No sharp and sudden upheaval as dramatic as the stock market rollover in March 2000, but a broad slowing after 5 years of unmatched growth. Once again the Fed was launching an attack even as the target was already at the turning point.
There is nothing wrong with a housing peak. As we have written before, housing is an early economic cycle sector; it starts early because when we come out of a down cycle rates are low and jobs are expanding. That gives the impetus to buy. As the recovery progresses, rates rise and the market cools. This time it lasted much longer because of 9-11 and the homebody attitude adopted for a couple of years and the Fed keeping rates so low for so long. Even with the continued stimulus of low rates, the cycle was already peaking starting in 2004. The cycle was longer than normal, but there is nothing abnormal about its peak.
The problem we face is the Fed and whether it can recognize that its jobs is more than done with respect to the housing market. As noted, the Fed is getting aggressive about housing late in the game. This is exactly what it did with the economy and the stock market in 1999 and 2000: it caused a big part of the problem by injecting way too much liquidity (ahead of Y2K) and then it acted all put out because the market and economy surged with that influx of capital. Its response was typical: it went much too far in applying its 'fix.' In 2000 it completely dried up money supply and increased its rate hiking pressure, adding a final 50 BP hike in May. The stock market did not bottom until October 2002, and as usual, the economy followed with its recovery in 2003.
Currently, the Fed already has 12 rate hikes under its belt in the current cycle. It ramped up its rhetoric against the housing market last summer. There are clear indications now that the housing market has not only peaked but is now on the downside. If the Fed continues its fight (fighting a battle that is already over), the housing market is not going to have a normal winding down of the cycle but a nasty crash similar to the market and economy back in 2000. The Fed kept rates too low too long and that allowed the housing expansion to last longer and spread farther than it would have. That alone presents issues in the housing slowdown as those who really could not afford mortgages are squeezed out of their homes. If the Fed keeps pounding away at it, the end result will be a sharp drop in sales, prices, and wealth that will take years to work through. That has a familiar, unsettling sound to it.
Industrial production and capacity rebound post storms.
After a sharp drop in September following the Gulf storms, production rebounded 0.9% (1.0% expected) from a 1.3% September decline. It was the best increase in 16 months. A return in energy production that was shut in after the storms and the end of the Boeing labor dispute contributed a large part of the gain. Capacity jumped back up, rising to 79.5% (79.4% expected and 78.9% prior).
The relatively quick snapback tracks the recovery in the regional manufacturing (PMI) reports that saw the New York and Philly regions slow sharply immediately following the storms only to rebound the following month.
Philly Fed surprises with a steep slowdown. A 3 year old expansion needs some care, not attacks.
Well, at least there was a snapback. Philly was one of the two regions experiencing a substantial decline in business sentiment immediately following the Gulf storms. October saw a solid recover to 17.3, and expectations for November, while lower, were still a solid 15.0. Philly limped in with another low report, coming in at 11.5.
New orders fell to 12.7 from 18.6, accounting for a substantial portion of the drop. Prices paid faded sharply as well, however, posting a 56.8 reading versus 67.6 in October. Further, employment rose to 19.1 from 17.3, and the Philly employment index is known for tracking national employment levels fairly well.
That makes two out of three months showing a sharp decline in manufacturing sentiment in the Philly region. You can explain away the September reading based on the storms, but there was really no extraordinary event in November to account for the decline. Generally the region remains positive as with the rest of the economy.
As seen in housing, however, there are areas of the economy that are fragile what with high energy prices and an economic expansion that is three years old. After 12 rate hikes that started when the recovery was just half as old as it is now, the Fed should be walking very carefully. Economic expansions tend to run about three years on average and this one is showing some wear and tear due to its age and due to the Fed's rate hikes. The Fed can surely kill it off; it has a good track record in that regard.
That is whey we keep watching the yield curve. The Fed seems to think it does not matter, but as discussed Wednesday night, who wants to put their money on that bet? The spread between the 2 year and 10 year notes is less than 10 points, essentially a flat curve. Comments from Fed presidents Thursday (e.g., Poole) indicate the Fed remains ready to continue hiking interest rates into the future. It looks as if the 10 year bond peaked at 4.66% two weeks back, just about matching the high in the summer. We would be surprised to see rates climb back up this year. That means the Fed will invert the curve at its December meeting. That is another reason we remain very wary with respect to 2006; we like the odds for a continued rally through the end of the year, but after that the Fed may have acted just enough to keep its batting average high with respect to causing economic slowdowns and recessions.
THE MARKET
MARKET SENTIMENT
VIX: 11.25; -1.01
VXN: 13.28; -0.68
VXO: 11; -0.82
Put/Call Ratio (CBOE): 0.71; -0.07
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: +32.53 points (+1.49%) to close at 2220.46
Volume: 1.885B (+7.2%). Volume did not explode higher but it put in an above average volume session as NASDAQ moved to a new 2005 closing high and indeed a post October 2202 closing high. It shook off the Tuesday distribution and met it with a breakout and accumulation.
Up Volume: 1.426B (+548M)
Down Volume: 397M (-453M)
A/D and Hi/Lo: Advancers led 2.71 to 1. Excellent breadth.
Previous Session: Decliners led 1.47 to 1
New Highs: 123 (+57). Disappointing new highs. As NASDAQ continues to drive higher we need to see this broaden out.
New Lows: 69 (-31)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ was the first large cap index to make the break through the 2005 high on the close. It was supported by stronger, above average volume and strong breadth. The market action has been very good on this run off the October low, showing strong price/volume action and good leadership. It has continued all the way to the new 2005 high (and post-October 2002 high), setting up a continued rally toward year end. We would like to see NASDAQ continue higher from here, putting some distance between it and 2220 before it tests. As this is just the first day of the move after the pullback, and as there were good earnings results after hours, it has a good chance of doing just that.
SOX (+1.06%) bounced well off support at 460, though it still has not broke through the highs of this recent lateral range. It is set up well to do just that and follow NASDAQ higher. It was hampered by the AMAT earnings and that stock's loss on the session, yet it still posted a 1% gain. Looking for a continued break higher here and on toward the 2005 highs at 483.
SP500/NYSE
Stats: +11.59 points (+0.94%) to close at 1242.8
NYSE Volume: 1.694B (+7.16%). Solid, above average volume as NYSE, SP500, and SP600 broke higher. Will need continued strong trade as SP500 moves through the 2005, and with expiration Friday it is likely to get it.
A/D and Hi/Lo: Advancers led 2.94 to 1. Excellent breadth as the small caps and mid-caps came to life in support of the large caps.
Previous Session: Decliners led 1.08 to 1
New Highs: 156 (+110). With the small and mid-caps moving, this was a better read. As SP600 continues its breakout this will only improve.
New Lows: 176 (-42)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 broke higher and posted a solid gain on volume, running fast toward the 2005 highs (1246). A great test and then this strong initial move toward the highs on the first move of the rebound gives it more upside momentum to take out those highs just as with NASDAQ.
The small cap SP600 (+1.83%) came to life after the Wednesday intraday test of the 50 day EMA, rallying out of the handle to its double bottom. It still has a ways to go to hit a new 2005 and all-time high (357.86), but it needed this start, and this move also adds support to the moves by NASDAQ and SP500. SP400 (mid-caps) made a new all-time high on the Thursday move as well. Strong stuff.
DJ30
DJ30 struggled all session, posting the lowest gain of the indices (+0.43%) and on lower trade. It posted a gain, matching July high in this range at 10,720. This is a key point for DJ30, and we expected a struggle to get through. It is likely to do so Friday as HPQ reported better than expected results after hours and was moving higher. It still is a long way from the March 2005 at 10,985.
Stats: +45.46 points (+0.43%) to close at 10720.22
Volume: 274M shares Thursday versus 286M shares Wednesday. Above average but rather disappointing volume as DJ30 tested the high in its range.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
There is no scheduled economic data Friday, but it is expiration Friday and the Fed-speak is picking up the pace before the 'quiet time' ahead of the December meeting. Oil will also be a key factor as it continues its fall toward $55, the first step after breaking its trendline a week back. There will also be some input from earnings, with some big tech names (MRVL, HPQ) announcing some solid results. The market has some momentum after a nice test and break higher, and it has some good news to help keep the move going.
It will be important for SP500 to make its breakout as well, and given it is expiration Friday there will likely be plenty of volume for it to do so. Again, we want to see the major indices put some distance between them and the 2005 highs; it is a much stronger position to come back and test the breakout than to stall below it and have to regroup and make another run at it. As they made a solid test just this week before the Thursday move, there is good momentum for a continued run higher.
Breadth was strong Thursday, but there were still many stocks that made modest moves and on modest volume. Further, SP600 has not made its strong breakout yet. That means there are still stocks in position to start solid moves, i.e. still in buy position. We are enjoying the ride with positions we have taken during this run, but you have to act when the market is telling you it is time to act. With SP500 and SP600 still to make their breakouts, we can participate further as stocks in good position make their moves.
Support and Resistance
NASDAQ: Closed at 2220.46
Resistance:
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:
2205 was intraday resistance last week 2192 from the January intraday high and the mid-July high.
2187 is the September high.
2178 is the January closing high
The 10 day EMA at 2184.72
The 18 day EMA at 2164
The January 2004 high at 2154
2144 is the October gap up point.
The 50 day EMA at 2138
2100 was key resistance and support in the past
The 200 day SMA at 2081
S&P 500: Closed at 1242.80
Resistance:
The September high at 1243
The August high at 1246
1273 is the May and May 2001 peaks
Support:
The recent highs at 1238
March 2005 closing high at 1225 and intraday high at 1229.11
The 10 day EMA at 1228
December 2004 high at 1219 and June high at 1220
The 18 day EMA at 1220.
The 50 day EMA at 1213
1210 held in late September on the close.
The 200 day SMA at 1202
1200 was solid price support at one time
1190 from prior prices
Dow: Closed at 10,720.22
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
The 10 day EMA at 10,628
The 18 day EMA at 10,562
Price consolidation at 10,600
The 200 day SMA at 10,505
The 50 day EMA at 10,490
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
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): 22.8 actual versus 15.5 expected and 12.1 prior
Retail Sales, Oct. (08:30): -0.1% actual versus -0.7% expected and 0.3% prior (revised from 0.2%)
Retail Sales ex-auto, Oct (08:30): 0.9% actual versus 0.3% expected and 1.1% prior (revised from 1.1%)
PPI, Oct. (08:30): 0.7% actual versus 0.0% expected and 1.9% prior
Core PPI, Oct (08:30): -0.3% actual versus 0.2% expected and 0.3% prior
November 16
CPI, Oct (08:30): 0.2% actual versus 0.0% expected and 1.2% prior
Core CPI, Oct (08:30): 0.2% actual versus 0.2% expected and 0.1% prior
Business Inventories, Sep (08:30): 0.5% actual versus 0.3% expected and 0.4% prior
Net Foreign Purchase, 0 (09:00): 101.9B actual versus 0 expected and 91.30B prior
Crude Inventories, 11/11 (10:30): -2.1M bbl versus 2.0M bbl expected
November 17
Initial Jobless Claims, 11/12 (08:30): 303K actual versus 322K expected and 328K prior (revised from 326K)
Housing Starts, October (08:30): 2014K actual versus 2060K expected and 2134K prior (revised from 2108K)
Building Permits, October (08:30): 2071K actual versus 2170K expected and 2189K prior (revised from 2219K)
Industrial Production, October (09:15): 0.9% actual versus 1.0% expected and -1.3% prior (revised from -1.5%)
Capacity Utilization, October (09:15): 79.5% actual versus 79.6% expected and 78.9% prior (revised from 79.0%)
Philadelphia Fed, November (12:00): 11.5 actual versus 15.0 expected and 17.3 prior
End part 1 of 3
|
trade stock
stock prices
|
