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us stock market, trade stock
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11/29/05 Investment House Daily
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SUMMARY:
- More strong economic data sparks another early rally that fails again.
- Consumer confidence follows consumer actions, posts strong November gains.
- Durable goods surge on Boeing production but business investment is not chopped liver.
- New home sales surge but likely not an indication of a housing rebound.
- Still setting up for the next move as economic data continues to pour in.
Economic data strong once again, but market is not there yet.
For a second straight day the market had some solid economic news to move higher on, and for the second straight day stocks started higher only to give the move back. Surging durable goods orders, strong 'Black Monday' internet traffic, surprising new homes sales, and a big jump in consumer confidence dealt the market a strong hand, and stocks gapped higher. Just under an hour into the session, however, the market's bluff was called. As on Monday, the indices slid back the rest of the session, closing again near the session lows. It got a bit farther on the initial run, but it still could not hold the move.
The inability to make the upside move stick despite the good news once more underscored a tired market, one that rallied well for a week and now needs a rest. Though they finished at the session lows the indices were mixed with modest gains and modest losses, holding above near support at the 10 day EMA. Volume moved higher, suggesting some distribution, but we note that trade was stronger on the early gains as a result of the economic data, and it dropped off as the session wore on. Breadth was modestly positive, and leaders mostly held near support as well.
In short, the market continued to take the pause that refreshes after an impressive six day run higher that took NASDAQ and SP500 to new post October 2002 highs, continuing the year end rally off of the October lows. Right now it has been a two day pullback and everyone is calling it a normal retracement after a strong move. In a couple of days we will hear that calm wear thin as shades of paranoia show through. That will be about the time the pullback is over and the upside move will be ready to continue.
THE ECONOMY
Consumer confidence catches up with consumer actions.
As we have seen in the retail sales and other areas, consumers' actions were belying lower sentiment. Well, sentiment started to catch up in November as the Conference Board reported a 98.9 reading, well above the 90.0 expected and October's 85.2. Expectations jumped 18% and plans to buy included everything from houses to electronics. Everything, that is, other than cars; those were snapped up during the employee discount pricing over the summer. Other than cars, however, it seems everything else is fair game in the coming six months for the consumer. Of course we cannot take what consumers say they are going to do at face value; if you did that in September you would have surmised a major slowdown was coming. The key is always the absolute levels: is sentiment in the fifties or sixties, a level that coincides with a drop off sharp enough to prompt recession? If not then you are in pretty good shape.
October Durable Goods Surge on Boeing orders
Orders stampeded higher in October, rallying 3.4%, well above the 1.5% expected and the -2.0% September reading (revised from -2.4%). Impressive, but as usual the headlines tell only part of the story. You have to lift up the skirt to see what is really there. Civilian aircraft orders jumped 50.4% thanks to the end of the Boeing strike. Take out aircraft and overall orders rose just 0.3%. Impressive to ho-hum with one exclusion.
It was not all aircraft. Computer sales fell 1.3%, lagging before the usually stronger Christmas season. Outside of the consumer, however, business investment rose 1.3%, continuing a nice string of advances. This is key for the economy as many see the consumer as on the ropes with housing values peaking, debt loads heavy, and wages failing to grow substantially.
Indeed it has been key ALL ALONG. Consumer spending never significantly fell off during the last recession; it was corporate investment that ceased in the aftermath of the Fed draining the money supply pool and crashing the stock market. No venture capital, no capital investment, no new ideas as mountains and mountains of inventory was worked off and written off. It was not until the investment incentives and capital gains tax cuts that business started spending and the economy ceased its tailspin and then started the current expansion.
Moreover, it looks as if business spending will continue at a solid pace. Business order backlogs rose, making an impressive 12% rise in the past three months. Indeed, the trend has been higher all year as business to business spending increases as companies remain confident that their capital outlays will generate more income in the coming year. While we have our concerns about the economy in 2006, business leaders remain enthusiastic enough to invest. While we don't really trust CEO sentiment (it lags recoveries and is too strong at peaks, most recently seen in the housing market), if they are willing to put their money where their mouths are then that is additional actual stimulus for the economy, and that will help keep the economy going even if the consumer falls apart as some of the alarmist bears have been harping about for the entire expansion. As noted Monday, they will be right at some point, but the key is the 'at some point.' They can be wrong for years (as they have been the past three years) and continue the same story until finally there is a slowdown. If you wear the same clothes long enough, they will come back in style some day. Of course you are ridiculed, pelted with rocks and garbage, etc. until that time.
New home sales jump 13%, leaving analysts frothing at the mouth.
For months we talked about the housing market peaking in a nice, steady manner. In the past four weeks as the data has turned unmistakably softer, it is finally mainstream to claim the housing boom has peaked. Every day the financial stations have a piece on how the market has finally topped, as experts come on to say the obvious. Where were they months ago when it really could have helped the viewers?
Well Tuesday the October new home sales were released and instead of a slide lower they showed an unexpected 13% surge. The cries were immediate from the new-born 'housing boom has ended' soothsayers, protesting that the data was flawed because it was out of line with the existing home sales, housing starts, mortgage application index, the moon phase, etc. Man, there is nothing worse than a reformed analyst.
Were the numbers so outlandish? They were out of line with an overall pullback but as we know, markets that are in transition tend to throw off volatile data, some readings up, some readings down, all readings eventually closing in on the mean and the new trend. Thus we don't view the jump in sales as necessarily fraudulent as some suggested, just a combination of a bump in sales and some inaccurate surveying along with some volatility in a transitioning market. Overall the housing market continues to trend lower as it has shown signs of doing for at least the past six months.
THE MARKET
MARKET SENTIMENT
VIX: 11.89; +0.05
VXN: 15.4; +0.62
VXO: 11.33; -0.09
Put/Call Ratio (CBOE): 1.1; +0.09. A second consecutive close above 1.0 as put sellers scramble to buy back their put options and some speculators jump on the downside early. Like to see this heavy action on just a mild market pullback. That means there is a lot of turmoil in the options market, i.e. a lot of speculation, and speculators often get it wrong.
Bulls versus Bears:
Bulls: 53.6%. After surging the past three weeks, bulls started to flatten a bit, rising just a bit higher than last week's 53.1%. Flattening out just below the 55% level that indicates an excess number of bulls. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 23.2%. Bears actually rose from the 22.9% low on this leg hit last week. They easily held above the 20% level that is considered bearish. It hit 29.2% on the high this cycle, just below the 30% level hit in May when the market bottomed at that time as well.
NASDAQ
Stats: -6.66 points (-0.3%) to close at 2232.71
Volume: 1.797B (+11.36%). Technically a distribution session on NASDAQ as volume moved above average as the index dropped 0.3%. As noted, however, volume was strong early in the session as the market moved higher, then it flattened as the session wore on and NASDAQ faded. Stronger on the upside, weaker on the downside. Something to continue to watch to make sure it does not ratchet higher on the downside, but again the intraday action does not suggest sellers were ramping up.
Up Volume: 769M (+297M)
Down Volume: 1.015B (-118M)
A/D and Hi/Lo: Advancers led 1.05 to 1. Breadth on NASDAQ was modest all session, but it did manage to hold positive into the close despite the negative finish by the index.
Previous Session: Decliners led 2.38 to 1
New Highs: 102 (-13)
New Lows: 55 (+5)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Gapped higher on the open but stalled near 2251 resistance in the first hour. NASDAQ then spent the rest of the session making lower highs and lower lows. It hit the 10 day EMA (2230) just after lunch, bounced decently, but then faded into the close, returning to the 10 day EMA. NASDAQ continues to hold near support at the 10 day and is also still above the August high at 2220, the post October 2002 high until the breakout last week. We don't necessarily like the jump to above average volume, but overall the picture is still solid.
SOX (-0.62%) also gapped higher on the solid economic news, but it too could not hold the early move. closing at the session low. SOX is also holding above the 10 day EMA (474.51), the near support level. It gapped higher two weeks back, and it may try to fill that gap down to 468 before resuming the move.
SP500/NYSE
Stats: +0.02 points (0%) to close at 1257.48
NYSE Volume: 1.603B (+7.43%). Volume was up on NYSE as well as SP500 ran higher and then gave the move back, running in place. That is what you call churn, higher volume turnover after a move higher, but as with NASDAQ, the strong volume was early in the session and backed off as the index sold back. In addition, volume was still below average on NYSE. Still viewing this as good consolidation action.
A/D and Hi/Lo: Advancers led 1.45 to 1. Breadth was 2:1 at one point early on, and it held up fairly well given the flop back to flat as the session wore on.
Previous Session: Decliners led 1.92 to 1
New Highs: 123 (-8)
New Lows: 98 (+2)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 rallied close to the recent highs but could not punch through, fading back to flat by the close. It is still easily holding above the 10 day EMA (1251.97) as it runs in place. That slight churn suggests that SP500 may indeed come back to fully test the 10 day before it is ready to move higher. That is still very good action as SP500 consolidates the nice gains to this point and takes a pause that refreshes before it resumes its move.
The small cap SP600 (+0.56%) led the advancing list as the small caps bounced back above the 10 day EMA (352) on the close. SP600 is regrouping, attempting to set up another run at the 2005 highs (1245.86) after failing to take out that level on the last nice leg higher. The small caps lagged the overall market in making the move higher and thus are now consolidating below the high. Looks as if it will take a couple more sessions at least to shake out the sellers and finish setting up for the move higher.
DJ30
Don't you wish the Dow would hit 11,000 and get it over with? Every session there is an 11K watch similar to a death row vigil. Not that hitting 11K will be akin to throwing the switch and zapping the market rally, but at least it would be done. For the fourth session DJ30 danced just below 11,000, hitting 10, 959.79 on the high. Volume backed off slightly, so it was not going to make the move, particularly with NASDAQ and SP500 slogging around after a solid open. All in all not a bad lateral move just below the 2005 high at 10,940, and the sideways consolidation is doing a good job of setting up the breakout move. As with the rest of the market we simply have to be patient, let it set up and show us the move.
Stats: -2.56 points (-0.02%) to close at 10888.16
Volume: 255M shares Tuesday versus 259M shares Monday. Backing off slightly as DJ30 showed a doji at the peak of the recent run.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Q3 GDP, Chicago PMI, and crude inventories continue the raft of economic data this week. GDP is expected to rise to an excellent 4.0% while the Chicago manufacturing index is expected to cool a bit but still maintain a blistering 60.0 reading.
Of course, thus far the economic data has been unable to sustain an upside move this week, but that is not due to the quality of the data. The market has run well and is taking a needed rest. You know how after a really hard day of work you are in your favorite chair or lounger and a great movie is on that you would love to watch, but you cannot fight off the sweet arms of Morpheus? You try to stay awake, but the slow waves of sleep drift in despite your best efforts. Right now the news is good but the market simply cannot shake off the need to consolidate the recent gains. Before too long it will have its rest, and then the news will spring it higher for good.
Right now we continue to be patient as the action, despite the higher volume Tuesday, indicates the market is in a normal pullback to consolidate the last leg higher. SP500 and NASDAQ are still holding their breakouts while SOX, DJ30 and SP600 consolidate just below the 2005 highs, preparing for their own breakout attempts. Right now the action is solid and most everyone says this is a normal pullback. As the market did not immediately jump back up Tuesday and hold the gains, that means the consolidation will continue and go a bit lower, enough to get traders and investors very uneasy the recent move can hold. As noted, when that concern gets high enough and we start to hear comments that the rally has lost its steam once more below Dow 11,000, then we can get ready for the resumption of the move.
That is likely to take at least a couple more sessions. You can never time this just perfectly, and as leaders often lead the moves of the overall market, we will be watching for opportunities in those stocks as they rebound off near support on some solid trade. This is the pattern we have used since the October bottom when things looked bad but we saw strong stocks making key moves higher. We might not have felt great about the economy and the market, but when the market talks you have to act on what it is showing you versus what your gut feelings tell you. Accordingly we have scored some very nice gains on the move higher, and we are looking to move into more positions as this consolidation winds down and the year end rally continues.
Support and Resistance
NASDAQ: Closed at 2232.71
Resistance:
2251 is the January 2001 low (2273 is the closing low)
2264 from the June 2001 peak
2288 from December 2000 low.
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
The 10 day EMA at 2230
2220 is the August high
The 18 day EMA at 2208
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 50 day EMA at 2164
The January 2004 high at 2154
2144 is the October gap up point.
2100 was key resistance and support in the past
S&P 500: Closed at 1257.48
Resistance:
1264 from the December 2000 lows.
1267 to 1273 is the May and May 2001 peaks (1315 intraday)
1324 to 1329 from the October 2000 lows.
Support:
1250 may prove to be some psychological support.
The August high at 1246
The 10 day EMA at 1252
The September high at 1243
The 18 day EMA at 1241.5
March 2005 closing high at 1225 and intraday high at 1229.11
December 2004 high at 1219 and June high at 1220
The 50 day EMA at 1224
1210 held in late September on the close.
Dow: Closed at 10,888.16
Resistance:
10,952 - 10,965 from Q4 2000
10,985 is the March high
11,176 - 11,186 from April 2000
Support:
10,868 is the December 2004 high
The 10 day EMA at 10,820
10,754 is the February high
10,720 is the high in the recent lateral move
The 18 day EMA at 10,733
The June highs at 10,646 to 10,656
Price consolidation at 10,600
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
November 28
Existing Home Sales, October (10:00): 7.09M actual versus 7.20M expected and 7.29M prior (revised from 7.28M)
November 29
Durable Goods Orders, October (08:30): 3.4% actual versus 1.5% expected and -2.0% prior (revised from -2.4%)
Consumer Confidence, November (10:00): 98.9 actual versus 90.0 expected and 85.2 prior (revised from 85.0)
New Home Sales, October (10:00): 1424K actual versus 1200K expected and 1260K prior (revised from 1222K)
November 30
GDP-Prelim., Q3 (08:30): 4.0% expected and 3.8% prior
Chain Deflator-Prelim., Q3 (08:30): 3.1% expected and 3.1% prior
Chicago PMI, November (10:00): 60.0 expected and 62.9 prior
Crude Inventories, 11/25 (10:30)
December 01
Auto Sales, November: 5.3M expected and 5.2M prior
Truck Sales, November: 7.1M expected and 6.2M prior
Initial Jobless Claims, 11/26 (8:30): 325K expected and 335K prior
Personal Income, October (8:30): 0.5% expected and 1.7% prior
Personal Spending, October (8:30): 0.2% expected and 0.5% prior
Construction Spending, October (10:00): 0.5% expected and 0.5% prior
ISM Index, November (10:00): 58.0 expected and 59.1 prior
Dec 02
Non-farm Payrolls, November (08:30): 210K expected and 56K prior
Unemployment Rate, November (08:30): 5.0% expected and 5.0% prior
Hourly Earnings, November (08:30): 0.2% expected and 0.5% prior
Average Workweek, November (08:30): 33.8 expected and 33.8 prior
End part 1 of 3
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