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money investment, day trading
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12/12/05 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: SMSC
Trailing stops: None issued
Stop alerts: AMGN
SUMMARY:
- Indices post modest gains once more, unable to breakaway ahead of FOMC meeting.
- To change the language or not; only Greenspan's hairdresser knows.
- Stocks still in position to rally if given a reason.
Bouncing around near support once more, unable to break away.
Stocks had a good look to start the week with futures nicely higher pre-market as the US markets emulated a strong Japanese market. Some merger news (VIA/DWA, COP/BR) also stirred up some excitement, but once more the excitement was short-lived. Stocks bounced around positive thru the morning with modest gains but then ran out of the early buyers by lunch. Without the buyers the market turned negative as NASDAQ fell back to its 10 day EMA and SP500 again tested toward its 18 day EMA.
That test was enough to send stocks back up in the afternoon session, recovering positive territory, albeit modest gains at best. Nonetheless it was another test lower that found support and rebounded into the close, much more bullish action than early last week when stocks started higher and positive only to finish negative. That was about all they could muster, however. Volume was lighter on both NASDAQ and NYSE, showing no power behind the gains. Breadth was light and mixed as well, but it was basically flat on both major exchanges, matching the lackluster point moves.
Investors were simply unsure heading into the Tuesday FOMC meeting. Typically stocks rise into the meeting, but this one has a little more intrigue given the potential language change (or not) after a year and one-half of rate hikes at a 'measured' pace. As with last year, there is anticipation the Fed is just about done, but given the fact that they did not and the market fell and that the Fed has not laid a lot of groundwork for a language change, buyers put the wallets away and decided to wait. Good to see the market test near support and then rebound again despite going nowhere for the session.
THE ECONOMY
Language change ahead. Maybe.
No one doubts a 25BP hike to bring the Fed funds rate to 4.25%. No one doubts another 25 BP on January 31 to make 4.5%. The issue of the times is whether the Fed is going to keep 'measured' and whether it feels the current interest rate level is still a 'policy accommodation.'
Over the weekend we brought up what most consider kryptonite, i.e. the Fed not making the language change. We noted the Fed has not spent much time building in expectations of the change with a lot of commentary by Greenspan and his merry men. Outside of the last round of FOMC minutes where it was suggested that a language changed would be necessary at some point, there has been little of the usual telegraphing of a change.
On the other hand, why would the Fed keep the language the same tomorrow? There is a very high likelihood that Greenspan anticipates the rate hikes drawing to a conclusion at he January 31 meeting. That is likely why he rescheduled the meeting for that day and not in February as he would still be chairman. That would allow him to make the last rate hike and thus give his successor a gift he felt he did not have, i.e. the ability to work into the job without having to hike rates as the first order of business.
Back when this change was made that was most probably Greenspan's intent. In the intervening time more economic data has come in, and the data indicates growing strength in the economy. As discussed over the weekend that has Phillips Curve implications, and at this point in the economic cycle the Fed always reverts to a Phillips Curve analysis instead of its 'free market,' 'growth without inflation' approach early in each cycle. In short, the Fed talks a good game, but it cannot carry through with it into the late innings (sorry to use that Fisher analogy).
Thus the facts supporting Greenspan's moving the meeting are not the same, and that could cause Greenspan to opt out of changing the language. The FOMC minutes set the stage for a lot of talk from the FOMC about a change, but it has elected not to make the talk. That could be the signal that Greenspan is not going to make the change just yet. Even with that, however, Greenspan knows the change has to be made sooner than later, and he still wants to give is successor flexibility. That just might tip the scales to a language change Tuesday despite the Fed not laying its usual predicate for any significant policy change. The odds of this are lower than no change, but that itself would produce a surprise and possibly deliver the catalyst to send the market higher on its continued year end run.
THE MARKET
MARKET SENTIMENT
VIX: 11.47; -0.22
VXN: 14.83; -0.31
VXO: 11.03; -0.46
Put/Call Ratio (CBOE): 0.69; -0.13
Bulls versus Bears:
Bulls: 56.2%. Up slightly from the 55.8% last week. That makes two consecutive weeks that bullishness has exceeded the 55% benchmark considered bearish. As noted, 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. We continue to watch the nuts and bolts (price/volume action, leadership) closely for signs of weakening. Some leading stocks have dropped but thus far it has been limited. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 21.9%. Last week's 21.1% was the low water mark on this run thus far, and the bounce this week is a sign of that near term concern for this rally we discussed above. It is holding just over the 20% level 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: +4.22 points (+0.19%) to close at 2260.95
Volume: 1.704B (-0.56%). Flat below average volume on a modest gain shows no inspired buying, just a continued low volume move along near support.
Up Volume: 909M (-321M)
Down Volume: 771M (+321M)
A/D and Hi/Lo: Decliners led 1.02 to 1. Matched the action, i.e. flat on the day.
Previous Session: Advancers led 1.51 to 1
New Highs: 144 (+21)
New Lows: 31 (+6)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ gapped higher on early week excitement, but it immediately found sloppy trade. It ran into near resistance at 2264, twice cracking through that level but twice failing to make that move. That sent NASDAQ lower midday, finding the 10 day EMA (2252), its nearest support. That was enough to send it back up in the afternoon session. NASDAQ did not recapture its high for the session but it did recoup some losses off support and returned positive for the session. Volume was still below average and breadth was weak, but the intraday action continued the turn late last week back to better intraday action. This keeps NASDAQ set up to make the next leg of the run, but it is also still searching for a catalyst.
SOX (+0.60%) gapped higher as well. It also experienced the intraday dips, but that had the nice effect of filling the gap higher. It then rebounded with the market in the afternoon session to close where it started, posting a modest gain that again led the market. SOX has made a good bounce off of near support at the 18 day EMA (486.54), filling the gap from the December 1 move and ready to move higher. It has overcome lukewarm INTC projections and is still ready to make its move. we are looking for that this week though a lot rides upon the Fed's actions Tuesday.
SP500/NYSE
Stats: +1.06 points (+0.08%) to close at 1260.43
NYSE Volume: 1.406B (+0.41%). Volume edged higher on NYSE but remained well below average as the indices continued their lateral move over near support. Very good consolidation action, i.e. the low volume as the indices work in a tight, lateral range.
A/D and Hi/Lo: Advancers led 1.13 to 1. Faded back a bit but nothing to get in a snit over.
Previous Session: Advancers led 1.53 to 1
New Highs: 173 (+68)
New Lows: 100 (+38)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 made little headway, but its action was solid once more. It reached down toward the 18 day EMA (1253) on the low, easily holding above that level, and then rebounded to hold the 10 day EMA (1258) and a modest gain. Low volume is not a bad thing as the index is showing very good consolidation action. It is set up to make the next leg higher, but it too has been looking for a catalyst and not finding one thus far.
SP600 (+0.16%) showed similar action, but it held above the 10 day EMA (357.78), holding above that level on the low and rebounding for a modest gain below near resistance at 360. It is pinching off here between the 10 day EMA and 360; it is either going to make the breakout or fail. Thus far everything looks good to go higher but as with all indices, it is seeking something to send it higher.
DJ30
The Dow continues it struggles, tapping at the 10 day EMA (10,806) on the high and fading back to close below the 18 day EMA (10,782) with a slight loss. Unlike the other indices, DJ30 volume rallied, approaching average. It too is trading in a narrow range the past two sessions, but it is below resistance as it does. In short, it is not operating from the position of strength that the other indices enjoy. Again, DJ30 is in our view more of a follower than a leader. Thus though it is in a weaker position than the other indices we do not believe that suggests DJ30 is going to lead the other indices lower.
Stats: -10.81 points (-0.1%) to close at 10767.77
Volume: 254M shares Monday versus 239M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Tuesday at 2:15ET the Fed releases its decision on interest rates and most importantly its accompanying statement that all will be watching to gain insight as to the Fed's future moves. The Fed Funds futures have priced in tomorrow's hike, a January hike, and is still problematical regarding a March hike. That will be the Bernanke Fed, and we would be surprised if Bernanke hiked on his first meeting at the helm.
Stocks will likely show similar volatile action in a narrow range, but we still anticipate that they will move higher into the actual announcement even with the added intrigue of whether the Fed will alter its statement. The indices are definitely set up to make the move higher to continue the rally; they started on December 1 but could not keep it going. Since then they have wandered with some selling and some nervous buying, holding their gains but unable to make the break higher. Uncertainty regarding the Fed given the stronger economic action and oil's refusal to fall (indeed it was up over $61/bbl again Monday) are similar to the start of 2005. The market is looking for an assurance it should continue the year end rally. The Fed statement could give it that if there is movement in the statement language.
Support and Resistance
NASDAQ: Closed at 2260.95
Resistance:
2264 from the June 2001 peak
2273 is the January 2001 closing low
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
The 10 day EMA at 2252 held on the Monday low
The 18 day EMA at 2238.8
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 2192
2178 is the January closing high
S&P 500: Closed at 1260.43
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 1253
The August high at 1246
The September high at 1243
The 50 day EMA at 1235
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 10,767.77
Resistance:
The 18 day EMA at 10,783
The 10 day EMA at 10,806
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:
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 10,655
Price consolidation at 10,600
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 12
Treasury Budget, November (2:00): -$83.1B actual versus -$80.0B expected and -$57.9B prior
December 13
Retail Sales, November (08:30): 0.4% expected and -0.1% prior
Retail Sales ex-auto, November (08:30): 0.0% expected and 0.9% prior
Business Inventories, October (10:00): 0.5% expected and 0.5% prior
FOMC policy announce (2:15): 25BP rate hike and removing 'measured' expected.
December 14
Export Prices ex-ag., November (08:30): 0.6% prior
Import Prices ex-oil, November (08:30): 0.8% prior
Trade Balance, October (08:30): -$62.8B expected and -$66.1B prior
Crude Inventories, 12/9 (10:30): 2.720M prior
December 15
NY Empire State Index, December (08:30): 18.5 expected and 22.8 prior
CPI, November (08:30): -0.4% expected and 0.2% prior
Core CPI, November (08:30): 0.2% expected and 0.2% prior
Initial Jobless Claims, 12/10 (08:30): 320K expected and 327K prior
Net Foreign Purchase, 0 (09:00): 101.9B prior
Industrial Production, November (09:15): 0.5% expected and 0.9% prior
Capacity Utilization, November (09:15): 79.8% expected and 79.5% prior
Philadelphia Fed, December (12:00): 15.0 expected and 11.5 prior
December 16
Current Account, Q3 (08:30): -$205.0B expected and -$195.7B prior
End part 1 of 3
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money investment
day trading
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