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world stock market, us stock market
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1/07/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: SNDK
Buy alerts: ATW; CRDN; DRI; MATR; NOV; STJ (bonus)
Trailing stops: ABC
Stop alerts issued: 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/alertssr.htm
SUMMARY:
- NASDAQ, SOX lead big finish to big first week of 2006
- Jobs report 'just right' for the market, but longer term we still face big issues.
- Bond curve turns flatter on jobs report, 'conspiracy theory,' potential Chinese diversification.
- This week like the start of the year all over.
Stocks surge Friday, capping an amazing week with a strong follow through.
Maybe the jobs data was just right, maybe the retail news was better than expected. Maybe there was just a lot of money itching to get into the market. Friday stocks started stronger, hesitated just a bit, then blasted off on excellent volume and breadth as technology continued its lead. Most sectors came with it, however, as the rotation from earlier in the week turned into wholesale buying.
Volume surged on NASDAQ as tech and semiconductors led the charge. Breadth was strong. Leadership remained excellent with semiconductors and wireless-related stocks really charging hard. All indices broke to new post-2002 highs except for SOX, but it broke out to a new 21 month high. Tuesday night we said we would be looking for a follow through session starting Friday. The market delivered on the earliest possible session, the fourth after the rally started, and it was an impressive follow through.
The market tried to soften midday after that first surge out of the blocks on the weaker yet strong employment report. Retail news continued to improve. As discussed Thursday, holiday sales were once again stronger than expected, and Friday Best Buy wowed analysts with the results from its holiday sales: flat panel sales up triple digits, gift cards up 20%, web sales (we used their buy on the web, pick up at the store option for late gifts) up 40%, and MP3 sales up double digits as well. Oil moved over $64/bbl (64.21, +1.42), and that tried to kill off the move after the initial surge. It did not work, however, as stocks rallied to lunch, paused and then rallied into the last hour. They moved laterally once there, but closed out the day at the session highs.
We were expecting some softness ahead of the weekend, but the only softness was the inability to push to a new session high in the last hour. The ability to hold the gains into the weekend after a huge upside week was impressive. That kept all of the indices with solid breakouts and a 'January indicator' that bodes well for the 2006 market.
Some analysts lamented the move as it already hit their target advances for the year. As discussed earlier in the week, however, NASDAQ, SP500 and SOX spent the last two years building this base, consolidating the huge move off the October 2002 low. Many might say the market has made its move. Others will say that the market has too many headwinds to go much further given the price of oil (sneaking back up in the shadows of the early year rally), a declining housing market, a tapped out consumer, and a 3 year old expansion. Heck, we are quite worried about the rising energy costs. The market, however, is the synthesis of all of the available data, and it has built a great base and is making a powerful breakout.
At this juncture it is suggesting good things ahead for the economy. The market always leads the economy. In 2000 we saw it rollover and tank ahead of a massive drop in GDP growth that eventually took us into an official recession (we were feeling as if we were in a recession before that, however, given the swan dive in growth). In late 2002 it bottomed and started to rally well ahead of the economic recovery in the second half of 2003. Now after two years of lateral movement it is breaking out. The market is suggesting further economic growth, and the sectors leading the charge this week (technology, semiconductors, metals, materials, and on Friday, financials) are harbingers of economic growth. Wow. We just had a 4.1% growth quarter with imports shaving off a big chunk of the total production. Can we be looking at even stronger growth through the summer and the fall? If this breakout holds and continues, that is what the market is telling us.
THE ECONOMY
Weaker December jobs, huge November revision keep jobs growth on pace.
The 108K non-farm payroll jobs created in December fell far short of the 200K anticipated, a number in line with the monthly jobs growth average. November was written higher to 305K, however, making the two month combination a virtual wash. No one seemed to question the low number, but construction jobs fell off sharply, contributing to the miss. Moreover, with seasonal adjustments due to retail hiring, and given the huge November revision, we will not be surprised to see December revised higher as well come February.
That puts jobs growth at 2 million for 2005, the same as in 2004. Interestingly, I heard a comment two weeks back on one of the television 'talks' shows (now more like shouting matches) about how Bush was the first president since Wilson to have negative job growth during a term. It wasn't great growth, but the numbers show it was not negative. Indeed, with the market collapse, corporate governance scandals, 9-11, the Afghanistan war, lack of corporate investment, and recession, it was damn good to have any jobs at all. Remarkable is a better description.
It keeps growth at the 200K/month average, and it looks as if it will continue. Of course the unemployment rate fell to 4.9% from 5%, matching the post-recession low, and it continues the dichotomy between what companies are reporting and what workers are saying. The household number suggests 2.6M jobs created in 2005 versus the 2M the non-farm payrolls recorded.
Pay increases, but when will the great jobs show up?
Hourly earnings rose 0.3% for a 3.1% year/year gain. That is the strongest gain since early 2003 and many economists are suggesting workers will enjoy better wage growth in 2006 as the labor market tightens more and companies, having wrung out as much productivity as possible, made acquisitions, and bought back shares, start focusing on the employee more.
Of course with pay increases the employees will still have to deal with the elimination of pensions (IBM announced last week that it will start cutting its pensions), outsourcing, and job quality. The big, mature companies that were the growth companies of the 1980's and early 1990's (e.g., DELL, MSFT, INTC, CSCO, etc.) have joined the ranks of other mature companies (CAT, IBM, MMM, etc.) and are still overall reducing workforces as they cut costs to maximize profits from existing cash cows in their mature industries. GM and F are going to be hard-pressed to survive with their staggering employee benefit packages, and we could see very significant impacts to the job market in 2006 if they cannot succeed in steps to become more competitive with their leaner, more efficient foreign competition.
At the same time the new businesses that sprouted during this recovery are not at the stage where they are creating millions of jobs. We have discussed this before, but when Greenspan and friends tried to slow the economy and narrow the gap between the US and the rest of the world (and of course overshot and sent us into a nasty plunge), we lost much of our competitive advantage in technology, and now many of the jobs that would have sprouted here are going to arise on foreign shores. This was the biggest giveaway in world economic history, and we are paying the price for it now and in the future.
Bond yield curve speaking the opposite of the equity market?
We noted the stock market breakout and good technical position indicating economic growth down the road. Friday the bond yield curve flattened to just 3 basis points after the employment data. Seems the bond market looked through the low number for December, did the simple math with the revision to November, and concluded there was nothing there to stop the Fed. Indeed, as Greenspan looks to wages as part of his inflation equation, the rising hourly earnings give the Fed additional worry to stay the course on hikes.
Thus bonds flattened some. Jobs and wages were not the only reason, however. Treasury secretary Snow was on CNBC early Friday and he was schilling the Greenspan line that a flat or inverted curve does not mean a weak economy or recession. Snow has a doctorate in economics, so he is not to be lightly brushed off. Still, bond traders saw this talk coming out of the administration as a conspiracy between Snow and the Fed to convince everyone that a flat to inverted curve is not bad similar to how the Fed convinced economists in 1999 and 2000 that its 'new' inflation indicators really did indicate inflation. We all know the result of that: a Fed totally unchallenged by the academic community and thus free to wreck the economy. Traders tell us that, despite the stretch of imagination that argument takes, it suggests that the administration is not going to put any pressure on the Fed to knock it off even if another hike would invert the curve (which it will, of course do in spades).
Another impact on bonds was a post on the official Chinese website suggesting that China was looking to diversify some of its holdings out of US treasuries. This is similar to what South Korea and Japan said in 2005, and after a rattling the market recovered somewhat. It is something that we have to live with; our trade imbalance is substantial and there are a lot of dollars out there. Countries such as China are awakening to their new wealth and when that happens they look around for ways to protect their gains. The issue is how much and whether it impacts the US dollar enough to send it significantly lower, causing a progression of divestiture of US assets that pushes dollars back home, devaluing the dollar and increasing domestic inflation due to a lot more cheaper dollars. Again, our Fed and fearless leaders really screwed us all when they let Greenspan act in the best interest of other nations as opposed to the US in the late 1990's. We are going to be paying that price for a long time.
THE MARKET
MARKET SENTIMENT
VIX: 11; -0.31
VXN: 14.95; -0.06
VXO: 10.99; -0.64
Put/Call Ratio (CBOE): 0.68; +0.06
Bulls versus Bears:
Bulls: 55.7%. A sharp drop from the 60.4% the prior week, reversing a steady climb through 55%. Well, not reversing it, but putting a big dent in it. Still above the 55% level considered the threshold into excess. It won't stay there, however, given the strong surge this week. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 23.7%, up from 20.88%. That was basically the low point on this move and bulls got a bit more skittish last week as the major indices sold to the 50 day EMA. Good surge, taking it out of the danger zone, but likely to fade after this week's 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: +28.75 points (+1.26%) to close at 2305.62
Volume: 2.354B (+20.04%). Surging volume, the best outside an expiration in months, as NASDAQ shattered the prior resistance at 2278. Strong accumulation in technology continued Friday, capping an outstanding week of buying. Higher volume gains show big money buying stocks. A lot of 'new' money was put to work this week as heavy bets were placed on 2006.
Up Volume: 1.798B (+355M)
Down Volume: 525M (+30M)
A/D and Hi/Lo: Advancers led 1.95 to 1. Finally got respectable though it was not blowout breadth session.
Previous Session: Advancers led 1.15 to 1
New Highs: 232 (+63). No, not quite good enough.
New Lows: 20 (-5)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
NASDAQ gapped higher, tested back intraday close to the gap point, holding above 2278 as it did, then rocketed higher for an outstanding end to a superb week. NASDAQ ran through the December high (2278) like Vince Young, taking the market on its shoulders and pushing most everything to a breakout. It did not hesitate much, just making a modest midmorning test of the break higher before powering to the upside. 115 points from the Tuesday low to the Friday close (4.8%). That is a lot of ground to cover in a week (some picked that for the year's gain), and we won't be surprised to see it take a breather this week. How much is the key.
SOX (+2.17%) was the other standout once again, looking pretty invincible as well as it moved through the December high at 510. Impressive rally off the 50 day EMA (now at 482.56). Semiconductors are leading a move into technology that has all the look of a rally in anticipation of a solid growth spurt for the economy. It is approaching next resistance near 528. After this excellent move it will likely need a breather as it approaches 528.
SP500/NYSE
Stats: +11.97 points (+0.94%) to close at 1285.45
NYSE Volume: 1.77B (-1.03%). Volume backed off on NYSE, showing the real strength was in NASDAQ. Volume was not light, however, posting its fourth consecutive above average close. Lots of big money buying all week helped push the NYSE indices to new post 2002 highs.
A/D and Hi/Lo: Advancers led 2.91 to 1. Excellent breadth returned as the small and mid-caps helped lead the way. Tech on NASDAQ and energy on the NYSE small and mid-cap indices pushed breadth back up.
Previous Session: Advancers led 1.24 to 1
New Highs: 337 (+138). Not bad, finally getting there. Would like to see it 450 or better, however.
New Lows: 20 (-15)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
A clean, strong break above the December highs at 1275 on continued solid volume. Have to love that kind of action. No hesitation, just a clean break and an excellent end to an excellent week. Not much else to say. Strong volume, strong breadth, good new highs. It has some room before next resistance at 1300, but with this kind of move that is only a day away. More than likely SP500 will start to slow before it gets that far, requiring a bit of rest after its own 3.1% move this past week.
SP600 (+0.95%) and SP400 (+1.12%) were again leaders with the mid-caps really plowing the ground for the week. They broke out Wednesday, clearing the way for the rest of the NYSE. Energy stocks helped the move. SP600 lagged, but it finally made the move. It still has not cleared the December intraday high (362.80) on the close. Nice little double bottom base on the 50 day EMA set up the move and blew apart the short head and shoulders base that had set up.
DJ30
DJ30 joined the party as well, making a higher volume breakout from its 10 month double bottom with handle base. Not a major blastoff but a steady, above average volume move that took DJ30 above the December highs (10,900). That still does not put the Dow over the March intraday high at 10,985, but it is a technical breakout from the pattern.
Stats: +77.16 points (+0.71%) to close at 10959.31
Volume: 291M shares Friday versus 251M shares Thursday. Solid volume for the week, but not as solid as NYSE or NASDAQ. That pretty much sums up the Dow, but it did make the break higher.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
The market showed some amazing strength the past week as money came running in to start the year, particularly after the FOMC minutes on Tuesday turned a modest rebound after the early sell off into a high volume reversal. What looked as if it might be a January 2005 repeat turned into the strongest buying the market has exhibited since July and early November 2005. It started with the basics, e.g. energy, materials, and metals, but then the techs and chips took over. Friday the basics and the techs were rising together. Healthy rotation and then a Friday surge that also included a plethora of index and individual breakouts.
This week there is more economic data, the most important in Thursday's retail sales and PPI. The Fed said it was just about done but would rely on the incoming data re inflation. If PPI clams back down and CPI the following week is tame again, the 'limited' number of hikes becomes a question of one more or two more. The data this week, however, will not be of the caliber from last week or the CPI the following week.
The thing about this coming week is that it will be a lot like the start of the new year. This past week was so strong, so one-sided, it almost appears to be an aberration. Of course, the solid technical bases building into this move the past two years indicate otherwise, but the strong move was impressive. The question has become whether the buying will turn off abruptly now that the first week is over and money came pouring into the market, almost chasing performance once more toward the weekend.
As noted, the indices have run a long way on this move, have cleared resistance, and will be in need of a breather. Typically a strong market or stock will blow through resistance as done on Friday, carry a bit further, then come back to test that move. The strong market will hold and continue higher. This rally started well below the breakout point so the additional upside may be limited after this breakout.
That means it is time to be patient, let our positions work for us, let other stocks set up for the next move, and pick our shots. Even with this move last week, however, we still see many strong stocks in position to continue moving higher, just starting to make the move. Breakouts and runs come in waves just like the rotation seen last week. The early runners blast off then need a rest. In a strong market another sector or wave of stocks will be ready to move in while they rest. Money moves around, or more accurately as seen last week, new money comes in but goes to a new sector. In the end last week, most of it was going into technology and chips.
Thus we are still going to look for upside opportunity early in the week, just being patient to make sure there is strong buying, i.e. the volume is good. There were a lot of stocks moving Friday, but we did not enter all that moved higher because some of the volume just did not measure up. It was a general move higher that lifted most stocks. That means many rose but without serious buying volume they will likely fade as soon as the move takes a pause. That means good, high quality stocks (strong technical position, strong fundamentals) in position to make a solid move.
Support and Resistance
NASDAQ: Closed at 2305.62
Resistance:
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
2288 from December 2000 low.
2278 is December 2005 intraday high.
2251 is the January 2001 low
The 10 day EMA at 2256
The 18 day EMA at 2248
2220 (2218 intraday) is the August high
The 50 day EMA at 2219
S&P 500: Closed at 1285.45
Resistance:
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
The recent highs at 1275
1264 from the December 2000 lows
The 10 day EMA at 1268
The 18 day EMA at 1265
The 50 day EMA at 1250
The August 2005 high at 1246
The September 2005 high at 1243
March 2005 closing high at 1225 and intraday high at 1229.11
Dow: Closed at 10,959.31
Resistance:
10,965 from Q4 2000 and late November 2005
10,985 is the March intraday high
11,176 - 11,186 from April 2000
Support:
10,868 is the December 2004 high
The 10 day EMA at 10,857
The 18 day EMA at 10,839
10,754 is the February high
The 50 day EMA at 10,749
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 09
Consumer Credit, November (3:00): $4.6B expected and -7.2B prior
January 10
Wholesale Inventories, November (10:00): 0.4% expected and 0.2% prior
January 11
Crude Inventories, 01/06 (10:30)
January 12
Export Prices ex-ag., December (08:30): -0.9% prior
Import Prices ex-oil, December (08:30): -0.2% prior
Trade Balance, November (08:30): -$65.9B expected and -$68.9 prior
Initial Jobless Claims, 01/07 (08:30): 291K prior
Treasury Budget, December (2:00): -$2.8B expected and -$2.9B prior
January 13
Retail Sales, December (08:30): 0.8% expected and 0.3% prior
Retail Sales ex-auto, December (08:30): 0.4% expected and -0.3% prior
Business Inventories, November (08:30): 0.4% expected and 0.3% prior
PPI, December (08:30): 0.4% expected and -0.7% prior
Core PPI, December (08:30): 0.2% expected and 0.1% prior
End part 1 of 3
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