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money investment, investment help
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12/06/05 Investment House Alerts Report
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IH Alert Subscribers:
A pesky little bug is running through the office, knocking out several staff members at once. Accordingly the report has to be shortened this evening due to lack of bodies. Not the bird flu or even swine flu, but it is the kind that keeps you on your toes if you get my drift.
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: TRAD
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Strong economic data aids a strong start
- Morning action was strong but quite volatile and an early afternoon rally cannot hold into the close as stocks swan dive.
- Action takes on some bearish tones as market tries to continue the rally.
Economic data suggests Fed could pause, but reality ultimately hits the market.
The strongest productivity gains in two years (4.7%, 4.5% expected) helped get stocks revved up pre-market after a sluggish Monday start to the week. The idea behind the move was that the Fed would not have to be so gung ho in its Phillips Curve view of the economy, i.e. that growth necessarily leads to inflation. With productivity hitting levels during the big economic rebound in Q3 2003 when GDP grew at 7.2%, the economy can grow at 5% GDP without feeling any wage pressure or other Phillips Curve 'indications' of inflation.
Stocks gapped higher, up 10 points on NASDAQ. The morning session, however, was anything but a picture of strength. Stocks opened strong but almost from the get go they were up and down, basically all over the map, within the upside range. It was a case of some buying and others using that buying to move out of stocks as we approach year end. As we noted Monday, there are quite a few floor traders and market makers who fear a repeat of early 2005 where a nice rally right up to the close of 2004 was sent back to the drawing board. That kept stocks hamstrung all morning and kept us pretty quiet despite the early gains. It appeared the rally was resuming after a breather following the strong Thursday move, but the internal action was not giving that a firm vote of confidence.
Factory orders came out at 10ET and showed a strong 2.2% gain. Oil was a smidge lower, not enough to make a difference. Then stocks caught a bid in the early afternoon and moved to new session highs. Volume was running a bit higher on NASDAQ, a bit lower on NYSE as the idea of a Fed not under pressure to hike caught some footing again. When the bond market closed, however, stocks wavered again. Harsh reality hit again: a Greenspan Fed is not going to stop hiking rates just because productivity is higher. Greenspan is in the inflation mode and when that happens it does not matter what the data suggests because he always, always reverts back to the Phillips Curve mentality as the economy grows.
Afternoon rally stalls when the bond market closed.
That took the legs out from the rally and stocks thudded lower. It managed to hold modest gains on the close, but the sharp move higher midday was gone. That leaves Bernanke as the great hope for the market: will he find the data more amenable to at least pausing the rate hikes or will he have to 'prove himself' as an inflation fighter. That is nonsense; Greenspan 'proved' himself when he took over and we had Black Monday as he attacked the market in a bull dog fashion. We have never learned from history in terms of Fed actions, and the market action Tuesday appeared to be hedging the bet that Bernanke would be different.
Showing some signs of wear.
Last Thursday the market was hitting on all cylinders as it resumed the rally, jumping off the 10 day EMA with strong volume, breadth and leadership. Since then it has not pushed ahead. It tried Tuesday but as noted, it was unsure of the move with a very volatile morning session despite the gains. It again gave a move back, Tuesday in a much more dramatic fashion than on Monday.
That suggests a potential change in character as the market moves into the meat of December. It is already having the effect of backing some buyers off as they remember last January. Overall, however, the action remains in good shape. Sentiment is a bit extreme and the intraday action is turning a big negative. Still the indices are holding their trend and working laterally, refusing to give up the gains thus far.
Last year there was similar action in December with a couple of pullbacks early and mid-month before the move resumed. There was some distribution on a couple of sessions, something avoided thus far. No undermining of the move yet, just looking a bit tired. That keeps us watching for any further chinks in the armor, but thus far leadership remains solid. That still leaves us with the decision to hang onto positions if the market tests further say toward the 18 day EMA. What we do in that instance is let stocks show us if they can hold support or not. If not then we close those out that are struggling. In short, the market is still set up to move higher but is showing more stress in addition to some extreme sentiment readings. Time to be careful, but if we see the move start again we will use those strong stocks moving well to participate. Overall we anticipate the year end rally will continue, but needed a bit more rest before continuing.
THE MARKET
MARKET SENTIMENT
VIX: 11.52; -0.08
VXN: 14.36; -0.24
VXO: 11.22; +0.28
Put/Call Ratio (CBOE): 0.78; -0.08
Bulls versus Bears:
Bulls: 55.8%. Well, bulls crossed over the 55% level considered bearish (up from 53.6% last week). The theory behind this reading is that when too many investors are bullish, then most of the money is in the market and it has a hard time sustaining itself. For now the nuts and bolts are solid (price/volume action, leadership), but we need to watch closely; if they deteriorate the combination of the sentiment and technical deterioration would be a sign to start paring back. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 21.1%. Holding just over the 20% level considered bearish. Quite a drop from the 23.2% the prior week. With bulls jumping if bears fade further that would be even a stronger indication and make any technical deterioration dangerous for the rally. 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: +3.12 points (+0.14%) to close at 2260.76
Volume: 1.859B (+7.48%). Stronger volume from the start as stocks rallied, and that has a positive shade to it. It remained above average, however, as NASDAQ gave much of its move back. Where stocks rebounded Monday off the lows, NASDAQ stocks fell toward the lows in the afternoon.
Up Volume: 1.104B (+520M)
Down Volume: 711M (-416M)
A/D and Hi/Lo: Advancers led 1.16 to 1
Previous Session: Decliners led 1.63 to 1
New Highs: 206 (+38)
New Lows: 41 (+5)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ rallied to 2278, in between resistance levels and then turned over in the afternoon, giving back almost all of a 21 point gain on the session. A strong move that overcame some morning volatility and rallied anew in the afternoon but then it folded the tent. That demonstrates a struggle still ongoing as NASDAQ tries to continue the break higher from the current two week more or less lateral move over the 10 day EMA (2249). Not great action; giving a strong move back is never great. Now we see if it can continue to hold at near support at the 10 day EMA and even the 18 day EMA (2230) and then continue the move.
SOX (+1%) was the leader again, managing to hang onto more than half the session gain and adding to last Thursdays break higher unlike most of the market. SOX has assumed a leadership role, and though it closed well off the high it still looks to be in good shape to continue the breakout that took it to a new 2005 high.
SP500/NYSE
Stats: +1.61 points (+0.13%) to close at 1263.7
NYSE Volume: 1.599B (-5.09%). Volume never jumped sharply on NYSE as its indices rallied early in the session. Trade did make it to average, but the lack of volume shows the buyers were not jumping back in with any force.
A/D and Hi/Lo: Advancers led 1.21 to 1
Previous Session: Decliners led 1.45 to 1
New Highs: 221 (+70)
New Lows: 63 (-15)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 started higher and really got underway in the early afternoon, hitting 1273 on the high before giving back just about all of the 11 point gain by the close. A big trial run for a continuation of the rally, but you always hate to see a nice move given back. The lower volume helped ease the reversal as SP500 continues its two week lateral move that has found resistance at 1267. Still set up to move.
SP600 (+0.28%) rallied as well, hitting a new all-time high at 362.54 before it too returned most of the move. Having some trouble getting over 360, but still looks very good as it moves laterally after the Thursday move, refusing to give back that gain. That is a sign of strength and we could very well see SP600 take the lead along with SOX on a continued rally.
DJ30
DJ30 rallied 80 points, making it back to the recent highs intraday before giving three-fourths of the move. Volume moved up to average and DJ30 is still nicely in the recent range, holding above 10,800 and trying to finally make the move over 11K. It is setting up to do that, and likely when there is not much fanfare, i.e. after another couple of quiet sessions, it will make the move.
Stats: +21.85 points (+0.2%) to close at 10856.86
Volume: 264M shares Tuesday versus 237M shares Monday. Showing the trade it needs to make the move.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
A bit more bearish action Tuesday and that may get the sentiment a little riled up and give the indices what they need to make it to the next level. SOX and SP600 look good to go. NASDAQ is not bad either, working laterally over the 10 day EMA. Tuesday was disappointing action but not fatal. Another day of directionless action may help get that sentiment higher for the next move. We will be patient, let the lateral move and even further test take place and then look for opportunities on the way back up.
Support and Resistance
NASDAQ: Closed at 2260.76
Resistance:
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:
2251 is the January 2001 low (2273 is the closing low)
The 10 day EMA at 2249
The 18 day EMA at 2230
2220 is the August high
2205 was intraday resistance last week
2192 from the January intraday high and the mid-July high.
2187 is the September high.
The 50 day EMA at 2181
2178 is the January closing high
S&P 500: Closed at 1263.70
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 1258
1250 may prove to be some psychological support.
The 18 day EMA at 1250
The August high at 1246
The September high at 1243
The 50 day EMA at 1231
March 2005 closing high at 1225 and intraday high at 1229.11
December 2004 high at 1219 and June high at 1220
1210 held in late September on the close.
Dow: Closed at 10,856.86
Resistance:
10,868 is the December 2004 high
10,952 - 10,965 from Q4 2000
10,985 is the March high
11,176 - 11,186 from April 2000
Support:
The 10 day EMA at 10,844
The 18 day EMA at 10,786
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
The 50 day EMA at 10,633
Price consolidation at 10,600
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 05
ISM Services, November (10:00): 58.5 actual versus 59.0 expected and 60.0 prior
December 06
Productivity-Rev., Q3 (08:30): 4.7% actual versus 4.5% expected and 4.1% prior
Factory Orders, October (10:00): 2.2% actual versus 2.2% expected and -1.4% prior (revised from -1.7%)
December 07
Crude Inventories, 12/2 (10:30): -4.188M prior
Consumer Credit, October (15:00): $5.0B expected and -$0.1B prior
December 08
Initial Jobless Claims, 12/03 (08:30): 318K expected and 320K prior
December 09
Michigan Sentiment-Prelim., December (09:45): 85.0 expected and 81.6 prior
Wholesale Inventories, October (10:00): 0.5% expected and 0.6% prior
End part 1 of 3
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