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world stock market, us stock market
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01/04/06 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: BRL; PCP; NBR
Trailing stops: CHS
Stop alerts issued: CHS
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/alertssr.htm
SUMMARY:
- Solid continuation of Tuesday FOMC reversal.
- Analysts lament post-Christmas slowdown, but solid season, gift card sales remain.
- Mortgage applications continue their slide as major markets cool slightly.
- Factory orders rise on back of aircraft orders while business spending slumps.
- Indices approaching a key level on this rebound attempt as January indicator looking good so far.
Market picks up where it left off Tuesday.
The soft futures pre-market had a lot of floor traders worrying about 'lack of follow through' to the Tuesday FOMC driven reversal and gain. After a strong move the market often starts soft as market makers and specialists lower prices to bring in some sellers and thus re-stock their supply of stock to sell. If the market can rebound after that early softness that is a good indication of the market's strength.
That is what occurred Wednesday. After a softer start stocks turned right back up and continued the Tuesday move. The economic data was so-so at best with chain store sales weaker to end the year, home mortgages falling again, and factory orders that were lackluster without another big aircraft order. Even so the market rallied, led by the three horses off of the October 2002 low, i.e. NASDAQ, SP600 and to a lesser extent SOX. Volume was lower but still solidly above average. Breadth was solid on NYSE (2:1), decent on NASDAQ (1.7:1). Leadership held the high ground again, giving the market something to rally around.
The key move of the day, despite the leadership from the above three indices, involved SP500. The large caps lagged with a 0.37% gain, and they could not perform better because they ran into the prior December intraday highs at 1275 that precipitated the late December pullback to the 50 day EMA. Twice SP500 tried that level, once right before lunch and again in the last hour. The bell rang on the last attempt, so whether it would have been successful is problematic. The internals were not bad, price/volume action was good, and leadership was solid. That combination gives it a solid shot at a breakout, though after such a sharp, fast run to that point
THE ECONOMY
Chain store sales slip in week between Christmas and New Years, throwing yet another scare into the sector.
Just when the retailers felt it was safe to declare a decent holiday season same store sales for last week were down 0.8% from the week before. Seems that there was a lot of traffic but the discounts reduced the overall amount of sales. Remember, sales are measured in dollars and not in units. Thus discounts without a lot more sales to make it up result in lower sales numbers. The dip still put sales up 2.9% year over year according to Redbook, but that was well off the pace set the prior four weeks with sales in the 4+% range. That is not a bad retail season. Indeed it was a good retail season. The late slump just kept it from being a very good retail season.
There is also the issue of gift carding, the new method of giving. Everyone does it now for that niece or nephew or aunt or uncle you have no idea how to relate to. We gave some to our priests; didn't really know what they needed and as a plus didn't feel it would mess up the vow of poverty. It is the failsafe.
It is also big business with sales increasing sharply each year the past three years and totaling around $18.5B in 2005. It has also shifted the holiday shopping parameters. Used to be the season ended the first week of January and went dormant until Valentine's Day. In a recent survey by American Express, only 8% said they would redeem their cards in the week following the holiday season. Most (40%) would do it within a month, 25% within 6 months, and 11% within a year. As gift cards are not counted at the time of sale, that pushes billions of dollars in holiday sales out of the holiday season.
Thus, calls that the season was not as good as expected are once again hard to completely defend as gift carding continues its popularity growth AND retailers are able to use it to their benefit. They do this because gift card shoppers appear to be not as discriminate as holiday shoppers in trying to get that great deal. It's free money after all. Thus retailers are not marking down items as much post holidays, and thus despite holiday season sales not matching up to high expectations, they come out just fine with an extended sales season and one that does not have the markdowns required to really bring in the buyers. Not all retailers benefit from this, but again, not all retailers share in the best fortune during the holiday season either.
Mortgage application rates make it four weeks in a row.
It is hardly news anymore, but mortgage applications made it a full month of declines, falling 1.5%, bringing volume to its lowest level since May 2002. Purchase mortgage applications fell 3.4%, offsetting the 8.3% jump in refinancing. Seems some are jumping in as mortgage rates dip the past three weeks, figuring the water is not going to get better and wanting to refinance while they can. Indeed, the 30 year fixed rate fell to 6.15%, down from 6.21% last week.
Manhattan, New York real estate is also showing wear and tear, though by most standards it is just getting broken in. The early data shows prices started to lag in the last half of 2005, with the median price for a condo or co-op coming in at $760K. Some sources say price rose slightly (just over 1%) while others say they fell 4%. With a 2-bedroom going for $1.2M on average and 20% gains for the year, that is peanuts.
Still, it does show a nationwide trend in the more expensive cities. Boston and surrounding states, several California markets, DC, and other areas 'suffered' flattening prices in Q3. Again, after huge gains for the year, a bit of flattening is getting blown out of proportion though it does show the housing market is tired after a long run. The early cycle economic indicator is finally showing its age.
November factory orders rise an in line 2.5%, once again on civilian aircraft orders.
Transportation new orders rose 15.8% as aircraft orders soared 134.3%. Auto orders fell 11.4% as the auto and car parts sector slid 7.8% to a three year low.
That was the story. Take out civilian transportation and orders were flat. Take out the big drop in defense aircraft and parts (-49%) and orders gained 3.3%. That shows how big the transportation numbers were.
It is good to see government spending decline because that spending masks an economy's underlying strength or weakness. Basically, civilian aircraft goosed the number, and defense spending brought it down. Take out those volatile segments and you get a decent reading.
Decent, but it had some sour notes. Non-defense capital goods rose 19.6%, but again, those civilian transportation orders skewed the data. Take those out and you get a good idea of business spending. Unfortunately, that showed a 2.1% decline. If this economy is going to continue to expand business is going to be the catalyst. With all of that money supposedly in the coffers, the economy will need business to put that money to work in the form of new equipment, employees and the like. There were gains: metals (1.3%), computers and electronics (0.6%), computers alone (6.8%), and electrical equipment (1.6%). There was still buying, but it was pretty weak from a business perspective given companies were heading into year end when more spending occurs to gain tax advantage. That does not bode well for early 2006 as Q1 is typically a slow capital spending month.
THE MARKET
MARKET SENTIMENT
As noted Tuesday, sentiment is not really conducive to a market rally. Volatility is low, but that is not a really good indicator as it can remain low for extended periods in a rally. Bullishness is very high overall despite near term worries with respect to how 2006 will start, and that is a key issue in keeping the early year bounce alive and blossoming into a new breakout and continuation of the late 2005 rally. When everyone is bullish, where does the new money come from that will drive stocks even higher?
VIX: 11.37; +0.23
VXN: 14.85; +0.16
VXO: 11.37; +0.53
Put/Call Ratio (CBOE): 0.75; 0
Bulls versus Bears:
Bulls: 60.4%, up from 58.8%. No drop off in the climb higher and there are way too many bulls at this point for the market's good. Four straight weeks bullishness has exceeded the 55% benchmark considered bearish. 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. The market is struggling to move higher, more leaders are balking, and the small caps are on a bumpy road. The rally needs to resume this week. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 20.88%, down from 21.6%. Continues to slide lower as bulls rise. Bad combination. Still above 20% that is considered a bearish reading, but close enough for horse shoes. 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: +19.72 points (+0.88%) to close at 2263.46
Volume: 1.98B (-5.19%). Volume fell off Tuesday's strong pace but it was not a wilting session. Trade remained easily above average as NASDAQ stocks advanced on volume that was much better than most of the trade in November and December. That means the buying, even with the lower overall trade from Tuesday, is stronger than the late year rally and the selling.
Up Volume: 1.49B (-73M)
Down Volume: 458M (-39M)
A/D and Hi/Lo: Advancers led 1.63 to 1. Breadth was still moderate at best as the large cap techs led the move but not by much. Need more soldiers at the front lines if NASDAQ is going to push through the December highs and break to a new post-2002 high.
Previous Session: Advancers led 1.58 to 1
New Highs: 169 (+49). These need to improve as well as NASDAQ nears the prior highs from early December. The generals need the troops to follow.
New Lows: 24 (-26)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ continued higher Wednesday on lower but still strong volume after undercutting its 50 day EMA (2213) Friday, selling further early Tuesday, and then reversing course on strong volume. Nice little double bottom formed the last two weeks of December, and that shakeout to start the year flushed out the pipes and buyers stepped in. NASDAQ has traveled 75 point low to high the past two sessions, and the December intraday high is ahead at 2278, another 15 points. NASDAQ is likely going to feel a bit winded when it gets to that level, and if it can make that move Thursday it will be at the highs along with SP500. They might be able to drive on through, but a pause for a session or two, just enough to get the pessimists to start talking about a failed rally at the old highs, would set the stage for a breakout. The buyers have come back thus far, but they will need to show more strength to make the break, i.e. willing to buy more NASDAQ stocks than the rather narrow move back up thus far.
SOX (0.72%) took a back seat to NASDAQ Wednesday, posting a decent but anticlimactic gain. SP500 managed to hold its 50 day EMA on its close last week, and that set up this rebound. As with NASDAQ, the prior high at 510 (intraday) is still 13.5 points away, and if it makes it on a straight run higher it will definitely be looking for a chair to take a breather.
SP500/NYSE
Stats: +4.66 points (+0.37%) to close at 1273.46
NYSE Volume: 1.835B (-3.9%). NYSE volume was not too far removed from NASDAQ's 1.98B shares. Lower but still very solid trade that also topped most trading sessions from November and December. A good volume kicker as SP500 moved to a new post October 2002 closing high.
A/D and Hi/Lo: Advancers led 2.53 to 1. Once more breadth remained strong as the NYSE indices pushed higher. The advance in NYSE stocks is underpinning the rebound effort here even as SP500 struggles with the prior highs.
Previous Session: Advancers led 3 to 1
New Highs: 288 (+72). Continues to improve, and we anticipate it will be even stronger as SP600 moves toward its prior all-time high. SP400 made the breakout to the new high today, and that helped push breadth.
New Lows: 29 (-33)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 butted twice at 1275, the December intraday highs that are the high water mark since the October 2002 low. SP500 managed to close at a new closing high since that bottom, and it is on the verge of taking out that prior high. The bell cut it short Wednesday on its second attempt. The strong volume backing the move suggests it is going to give the resistance its best shot, but it would be nice to have the other indices crowding their highs at the same time.
SP600 (0.62%) continued its move off the 50 day EMA (351.69) after last week's close just below that level and Tuesday's sharp intraday drop through that support before its rebound. It is approaching the prior all-time closing high (361.46) and intraday high (362.80), but it also will have traveled a long way to get there (16 points) and will likely need a breather. We note that SP400 (+0.68%) broke to a new all-time high Wednesday, moving off a small double bottom that formed over the past three weeks. That has helped buck up the breadth and the new highs.
DJ30
The blue chips continued their rebound off the 50 day EMA (10,735) test, moving higher once more on above average volume. This volume has been stronger than the past two weeks, but lower than the spate of volume in mid-December. That is different from the other indices that saw this week's volume shoot past those levels. About all you can say is that DJ30 is still working on the handle to its 10 month double bottom with handle base, moving up toward a breakout over 10,960.
Stats: +32.74 points (+0.3%) to close at 10880.15
Volume: 271M shares Wednesday versus 302M shares Tuesday. As noted, this volume is not up to the levels from mid-December, indicating this move does not have as much strength.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
ISM services, initial jobless claims, and crude inventories top the list of economic reports along with the retailers reporting their December sales. All pikers compared to what the Fed minutes held, but retail sales and oil inventories won't be overlooked. Indeed, retail sales started coming in after hours Wednesday and were better than expected thus far. ARO (+11%), AEOS (+9.8%), MW (+8.1%); not bad but we will see how the rest of the big names come in Thursday morning.
Oil has been in the shadows the past week, particularly this week with the FOMC minutes release. Over the weekend oil continued its move back above 60 and Wednesday it closed at 62.46 after topping $63/bbl. While natural gas is starting to struggle some as warm weather continues across much of the country, oil has continued higher even after Russia and Ukraine settled their differences after the world outcry against Russia for using oil similarly to OPEC in the early 1970's.
Even if we suppose the Fed is off the table on 1-31-06 or at the latest in March, that leaves high energy prices ahead for 2006, prices much higher than they were through the first half of 2005. The consensus is that the US and other world economies can handle higher prices due to more efficiency, etc. but prices have crept back up despite rather warm winter weather and the trough of the driving season. Yet again oil simply will not capitulate and fall despite breaking its trend a month ago and threatening a breakdown. As you recall, it did this as well in late 2004, but continued higher. There are predictions oil will fall below $50/bbl this year; we would love to see it, and for the economy to continue it needs to happen. We cannot go into the summer driving season with oil above $60/bbl. Demand will only push gasoline prices higher not to mention the likelihood that we will have a few more big storms hitting the coast given we have entered a decade or so of increased tropical activity.
Oil issues aside, the January indicator so far is looking good with two solid upside sessions to start the year. Another good upside session is supposed to mean a good January and thus a good year. Whatever. We are much more concerned with how the indices handle the rapidly approaching December highs. SP500 is already tapping at that level with NASDAQ closing fast. Once there we anticipate a pause as noted above, one that gets a bit of worry going about another stall at that level. That will likely be enough to punch through what with the good leadership holding its own. Still need the buyers to keep coming to market, and that too is a worry given the high bullishness; will there be enough new buyers to make the breakout? Thus far it looks pretty decent.
There are still issues with respect to making the near term breakout and then whether the market can continue the rally well into 2006. Many predictions are declaring full speed ahead. As noted Tuesday night, we like NASDAQ's bigger pattern, and when you look back the past two years you see basically a big base for the entire market following the bottom in late 2002 and the torrid 2003 rally. The stage is certainly set from a technical perspective for a further and better run in 2006, but we have to make the right policy decisions as well to foster a conductive climate for investment in the US economy that is the engine to economic growth and thus stock market gains.
Support and Resistance
NASDAQ: Closed at 2263.46
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 18 day EMA at 2237
The 10 day EMA at 2237
2220 (2218 intraday) is the August high
The 50 day EMA at 2213
2192 from the January intraday high and the mid-July high.
2187 is the September high.
2178 is the January closing high
S&P 500: Closed at 1273.46
Resistance:
The recent highs at 1275
1267 to 1273 is the May and May 2001 peaks (1315 intraday)
1324 to 1329 from the October 2000 lows.
Support:
1264 from the December 2000 lows
The 10 day EMA at 1262.81
The 18 day EMA at 1261.18
1250 may prove to be some psychological support, but it did not hold Friday.
The August high at 1246
The 50 day EMA at 1248
The September high at 1243
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 10,880.15
Resistance:
10,952 - 10,965 from Q4 2000 and late November 2005
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 10,823
The 18 day EMA at 10,819
10,754 is the February high
The 50 day EMA at 10,734
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.
January 03
Construction Spending, November (10:00): 0.2% actual versus 0.7% expected and 0.8% prior (revised from 0.7%)
ISM Index, December (10:00): 54.2 actual versus 57.5 expected and 58.1 prior
FOMC Minutes, December 13 (14:00)
January 04
Auto Sales, December: 5.7M expected and 5.5M prior
Truck Sales, December: 7.6M expected and 7.0M prior
Factory Orders, November (10:00): 2.5% actual versus 2.4% expected and 1.7% prior (revised from 2.2%)
January 05
Initial Jobless Claims, 12/31 (08:30): 320K expected and 322K prior
ISM Services, December (10:00): 59.0 expected and 58.5 prior
Crude Inventories, 12/30 (10:30)
January 06
Non-farm Payrolls, December (08:30): 200K expected and 215K prior
Unemployment Rate, December (08:30): 5.0% expected and 5.0% prior
Hourly Earnings, December (08:30): 0.2% expected and 0.2% prior
Average Workweek, December (08:30): 33.7 expected and 33.7 prior
End part 1 of 2
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