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money investment, investment help
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12/01/05 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: LRCX
Buy alerts: WIRE; SPIL; SOX; CKFR
Trailing stops: None issued
Stop alerts: None issued
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Stocks surge higher, resuming the year end rally, hitting on all cylinders.
- Retail sales strong overall.
- ISM manufacturing index remains solid, prices slowing.
- Personal income and spending lower but still solid.
- Year end rally is back on, and for now we participate with a wary eye on the start of 2006.
The sweet smell of a holiday rally.
Christmas rally? Holiday rally? Better leave that to the political arena. Call it what you want, the year end move continued Thursday after telegraphing it was just about ready to do so. Wednesday we noted the rising anxiety over the pullback, the leaders starting to move higher, and the nice action in NASDAQ, SOX and SP600. Today they cut loose, all three surging to new 2005 highs.
Stocks rallied once more despite oil rising over $1/bbl, natural gas inventories drawing down 49BCF (-20BCF expected on the low end), and more strong economic data ranging from same store retail sales, the national ISM, and personal spending an income. Of course strong economic data is good in the general sense as it indicates economic activity that will continue to generate earnings growth, particularly at 4.3% GDP growth levels. The paradox we are in right now, however, is the Fed action. If economic data is too strong the fear is the Fed will hike rates too far.
As noted Wednesday, there IS NO relationship between economic growth and inflation; inflation is caused by too much money in the system, and money supply is controlled by our friends at the Fed. Thus raising rates because the economy is strong is nonsensical. If the Fed raises rates because there is too much liquidity, that is a different matter. We have no problem with the Fed raising rates to dry up the excess liquidity in the aftermath of the Gulf storms where there were shortages of goods due to resource and capital goods destruction. The fear is the Fed won't read the market signs and continue hiking as it did in 1999 and 2000 because it fears a strong economy will produce inflation. When it takes its eye off the ball with respect to what causes inflation versus what causes prosperity, we suffer because the Fed keeps hiking beyond the point it should stop, and that turns the strong economic data into weak economic data.
Despite that cloud hanging over the market, investors shrugged it off. The big money that has been chasing performance since things got really rolling in early November was at it again Thursday, pushing volume higher along with most stocks as breadth topped 3:1 on NYSE and was above 2:1 on NASDAQ. Leaders were surging and as noted, the leading indices moved to new 2005 highs. The move is hitting on all cylinders, and despite the same old concerns about what the Fed will do and where energy prices are going that we had in late 2004, you cannot ignore what the market is doing in the here and now. That is why we were buying in the gloom of October as the market was bottoming and leaders were showing their mettle. We have been riding many of those higher all the way up, and we are still adding positions as the market makes its pullback and then resumes the move. When year end gets here and the portfolio packing is over, everything will require re-evaluation. For now the action is very impressive.
THE ECONOMY
Retailers continue to post gains though, as usual, not all share the wealth.
There were some strong November retail sales results once more. It was not a return to buying, but more of the same that we have seen all along with a few normal monthly dips sprinkled in along the way. JCP +3.6%, ANN +12.9%, LTD +5%, ANF +23%; many topped expectations, doubling, tripling or quadrupling expectations in some cases. It was not all roses of course. Long time retail leaders such as AEOS and JWN disappointed; in retail's shifting sands, particularly in the specialty retail segment, sales can be vaporous.
Overall, however, retail remains strong despite continued musings that the consumer is on the verge of collapse. Looking back over the past twenty years, the consumer has purportedly been on the ropes more often than not. This coincides with the shift in the world economies to service the US consumer as the Baby Boom generation matured and wealth grew. Similar to the Fed believing that inflation had to be around the corner in 1929 and in 2000 given the strong economies at the time, many believe that because of strong consumption the consumer is on the verge of being tapped out. Time and time again, however, the strength of our system has continued to produce wealth as it has done for over 200 years.
There are definitely issues coming with the housing market cooling and the marginal owners getting squeezed out as their variable rates jump, but there have been other issues that were supposed to crush the consumer but did not. The oil bust in 1980 left millions broke. The real estate and savings and loan collapse in the mid-1980's did the same. Somehow the consumer recovered and as the records show, tax receipts during the 1980's surged even in times of turmoil. Moreover, the economy moved right on into the 1990's and continued the boom. The comparison is not identical, but the point is similar: the consumer appears to be on the verge of collapse and is written off by many only to keep on doing what the consumer always does, i.e. consuming.
What we fear more than any supposed housing issues is when the boomers start dying off. Then the irrepressible economic engine that drove the economy for decades will be gone and the next generations are not a similarly clearly defined demographic group. We saw what happened to Japan when its economy hit the air pocket crated by the hole in its population that resulted after WWII: almost 15 years of depression. We don't have that kind of black hole in our demographics, but we also don't have a solid block of consumers of the caliber of the baby boomers to step in and keep the economic engine running.
ISM lower but tops expectations while construction spending surges.
58.1 was lower than October's 59.1, the national manufacturing survey still topped the 58.0 expected. Unlike the Chicago PMI, prices paid tumbled to 74 from 84. We figured the national number would not show the same pricing pressure; indeed, it showed the opposite. Employment rose to 56.6, the highest since February. That also is the opposite from Chicago. New orders slid as with Chicago, but still came in above 60, a very strong reading.
All in all the report was another solid read on the economy. It is a sentiment survey; these are not hard numbers but what purchasing managers believe the numbers will be. At these levels, however, the strength is evident, particularly when juxtaposed with the other strong economic data the economic is throwing off.
Speaking of strength, construction spending beat expectations and jumped September's result (0.7% vs 0.5% vs 0.2%). There is a shift ongoing. Residential construction, while still leading nonresidential, has peaked while nonresidential is closing the gap. Indeed, residential spending rose 0.6%, the smallest gain in four months. Nonresidential spending closed the gap, but it was dominated by public spending that rose 1.9%. Private nonresidential spending actually fell 0.3% on top of September's 0.2% decline. You want to see private spending leading the charge because that is the engine that drives the growth: private investment is made because the return is there. Public spending can occur at any time and usually has questionable results.
Spending and income both rise modestly, basically in line.
Spending rose 0.2%, dead on expectations and down from September's 0.5% gain. Income increased 0.4%, just below the 0.5% expected; that followed on the heels of the big 1.7% jump in September due to payouts from the Gulf storms' aftermath.
That of course pushed the savings rate down again, coming in at 0.7%, posting the fifth consecutive negative reading. Again the US citizen is blasted for being an avarice-ridden spendthrift based on this data. That of course is because savings is so narrowly measured. It does not include gains in household wealth via house value appreciation, equity and debt holdings, etc. It is the crudest of measurements and does not reflect a society where now the majority hold securities as a form of savings. After all, we are all told to invest for our future, and you don't do that with cash in the bank. Yet, that is how the government and the Fed measures our savings and draws inane conclusions accordingly.
THE MARKET
MARKET SENTIMENT
VIX: 11.24; -0.82
VXN: 14.42; -0.89
VXO: 11.12; -0.66
Put/Call Ratio (CBOE): 0.84; -0.01
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: +34.35 points (+1.54%) to close at 2267.17
Volume: 2.101B (+8.55%). Strong volume returned, the strongest volume in a month, as NASDAQ broke to a new 2005 high. That trade indicates the big money was back in the mix, accumulating shares once more. The price/volume action has been superb during this rally, and it continued that string Thursday.
Up Volume: 1.741B (+696M)
Down Volume: 343M (-460M)
A/D and Hi/Lo: Advancers led 2.3 to 1. Excellent breadth in conjunction with the strong price/volume move. Showing the right signs as the index once more makes an important rebound move.
Previous Session: Advancers led 1.37 to 1
New Highs: 204 (+79). Not bad; not great either. Should be better as NASDAQ breaks to new high ground for the year.
New Lows: 45 (-2)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ showed a tight doji at the 10 day EMA (2237) Wednesday and gapped higher off that positive indication Thursday. It rallied all session and closed at the session high, posting a new closing high for 2005. Excellent action with strong volume, solid breadth and solid leadership justifies the move to the high for the year. Does not look as it is done as the big money continues to chase the strong performance higher.
SOX (4.2%) was a leader as the chips were the clear strength in the market Thursday. SOX gapped higher and never looked back, breaking to a new 2005 high and out of a great reverse head and shoulders. Relative strength broke out as SOX hit a 19 month high. Strong, strong move.
SP500/NYSE
Stats: +15.19 points (+1.22%) to close at 1264.67
NYSE Volume: 1.884B (+5.27%). Volume was the best in a month as SP500 managed to turn around the Wednesday distribution, fighting fire with fire. You love to see buying overwhelm an attempt at selling.
A/D and Hi/Lo: Advancers led 3.29 to 1. Stellar breadth as SP600 and SP400 hit new all-time highs.
Previous Session: Decliners led 1.03 to 1
New Highs: 218 (+114). As with NASDAQ, better but not nearly as good as you would expected with the performance in the small and mid-cap indices.
New Lows: 73 (-6)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 turned the tables on the Wednesday selling with stronger accumulation. SP500 gave up the 10 day EMA (1254) Wednesday but held the breakout above the August (2005) high at 1246. Great recovery.
SP600 (1.8%) surged to a new 2005 and new all-time high Thursday, clearing 357.86 with relative ease. The small caps are back in the forefront, leading with NASDAQ and SP400 once more. The market has made its best gains when NASDAQ and SP600 are leading the way, and when you look at the action on SP500 and DJ30, that is what is happening right now.
DJ30
DJ30 is still trying to get through 11,000, posting a solid move Thursday but still below the March 2005 high at 10,940. It looks solid to make the move, but it has not done it yet and volume is still lagging on the index.
Stats: +106.7 points (+0.99%) to close at 10912.57
Volume: 257M shares again, same as Wednesday. Volume is still below average on the index, so no real surge in buying of the industrials. Once more it is tagging along.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Any thought the market was going to wait for the jobs report was dispelled Thursday. The market, namely NASDAQ, SOX and SP600, was ready to make its move and it did it. Stronger economic data, stronger oil prices, fear of the Fed, and the prospect of a looming jobs report were not enough to keep stocks on the sideline.
The jobs report could always upset the apple cart, but jobs have diminished in import subsequent to the election. The Fed worries about wage-led inflation, but geez, incomes are hardly surging. Even if they were, incomes do not cause inflation. I think Bernanke gets that; Greenspan had a nasty habit of falling back on Phillips Curve ideas and has thus always been suspect when it comes to lick-log time.
Basically the strong move indicates the year end rally is back on. We were buying Wednesday as it showed signs of returning and again Thursday as it did return. The strength of the move indicates more upside to come toward year end similar to the last leg higher. That means we are going to continue looking for opportunity as it arises. It is still there even with a strong move such as Thursday.
The coming year still has us concerned. The run to the end of 2004 was strong, but it rolled over like a lazy dog when 2005 hit and the performance chasing ended. It did not help that the Fed made it clear it was still on for 2005 and oil prices rebounded after threatening a breakdown. As we noted before, that has a familiar ring to it this time around as well.
That does not mean we are going to cower from 2006 while the market is showing outstanding technical underpinnings and leadership. We have to take what the market is giving when it is giving it. Right now that is upside in a strong uptrend. That may change at the first of the year and we may have to look at a downside approach. Either way we will take what the market gives and make our nice returns based on what the market is telling us.
Support and Resistance
NASDAQ: Closed at 2267.17
Resistance:
2264 from the June 2001 peak is breaking
2288 from December 2000 low.
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
2251 is the January 2001 low (2273 is the closing low)
The 10 day EMA at 2237
2220 is the August high
The 18 day EMA at 2217
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 2171
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 1264.67
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:
The 10 day EMA at 1254
1250 may prove to be some psychological support.
The August high at 1246
The 18 day EMA at 1245
The September high at 1243
March 2005 closing high at 1225 and intraday high at 1229.11
The 50 day EMA at 1227
December 2004 high at 1219 and June high at 1220
1210 held in late September on the close.
Dow: Closed at 10,912.57
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 10,835
The 18 day EMA at 10,759
10,754 is the February high
10,720 is the high in the recent lateral move
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): 4.3% actual versus 4.0% expected and 3.8% prior
Chain Deflator-Prelim., Q3 (08:30): 3.0% actual versus 3.1% expected and 3.1% prior
Chicago PMI, November (10:00): 61.7 actual versus 60.0 expected and 62.9 prior
Crude Inventories, 11/25 (10:30): -4.2M versus -1.7M expected
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): 320K actual versus 325K expected and 337K prior (revised from 335K)
Personal Income, October (8:30): 0.4% actual versus 0.5% expected and 1.7% prior
Personal Spending, October (8:30): 0.2% actual versus 0.2% expected and 0.5% prior
Construction Spending, October (10:00): 0.7% actual versus 0.5% expected and 0.2% prior (revised from 0.5%)
ISM Index, November (10:00): 58.1 actual versus 58.0 expected and 59.1 prior
December 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 2
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