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world stock market, us stock market
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1/11/06 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday.
MARKET ALERTS
Targets hit alerts: MRVL (took some more gain)
Buy alerts: TECH
Trailing stops: PSYS
Stop alerts issued: COHR; INFY
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:
- Stocks start slower, finish strong yet again, but no new leaders.
- Mortgage applications rise, following last week's turn in new purchase applications.
- Energy inventories mixed, but in the end oil remains expensive.
- Trade balance, treasury budget up for Thursday, but earnings are still going to be the focus until the price data Friday and next week.
Market shows some more signs of tiring, but defies sellers again, closing stronger after soft opening.
Less than inspiring earnings after the Tuesday close and the Wednesday open (DNA, DD) pressured stocks early in the morning, but by the open most of the negative ripples had calmed. Stocks did not roar higher out of the gates, however, spending the morning and on into lunch hovering around the flat line. SOX and NASDAQ were positive, leading once more, but the small caps were off their game along with the large caps and blue chips. None were down much, though none were up much either outside of some specific names that continued their great runs.
The oil report was mixed with lower oil but much higher gasoline and distillates, but stocks did not seem to notice, at least for now. Oil rose in the afternoon, but so did stocks, finding some footing after lunch and then, once more, rallying into the close. That move turned all indices positive except the small caps.
Good low to high intraday action and strong volume as stocks made that move; that is a positive. Breadth was very flat, however, needing the afternoon rally to turn positive. Even then NASDAQ breadth was flat and NYSE breadth was only slightly higher (1.2:1). It was a case of very narrow leadership where the leaders from the past sessions, already in good runs, simply added to the gains. There were some leaders that surged further, but there were quite a few others that were rocked (e.g. INFY, CTSH, FFIV) or struggled to hold their gains. It was a case of NASDAQ 100 almost doubling the gains of NASDAQ overall. A case of generals running higher but the troops balking at following. Indeed, even some of the generals decided to sit this day out.
In short, the rotation we were looking for did not occur Wednesday. Money stayed with some big names in technology as well as financials. The market is still taking on some characteristics of losing some momentum what Tuesday's volatile session and the narrow rally Wednesday with some strong leaders having second thoughts about moving higher. That lack of rotation when they hesitated was another indication that new money is not so ready to commit to new positions right now. That did not stop the index from rallying; as seen in 1998, the market can run higher and higher even as just a few stocks lead the way (back then it was DELL, MSFT, CSCO, INTC and other former growth companies from the tech sector). Certainly there were no major sellers trying to push things lower. No, this has been a strong run based on strong buying, and it will likely burn itself out and test back on its own versus being hit with any serous selling.
The narrow advance made it more difficult to move into new positions, but we knew that would be the case going into the day. After such a strong run you don't want to be stepping into new positions on BRCM, SNDK, MSTR, MRVL, AAPL, NEM, DBRN, etc. We need a test to consolidate and set up the next entry points for both long and short term plays. Again, the market is showing signs that is setting up, but no one has told some of the leaders that are pushing the action right now.
THE ECONOMY
Mortgage applications rise overall as refinance applications post second weekly gain.
Overall applications rose 9.9%, the first gain in five weeks as new purchase mortgages surged along with refinancing (9.6% and 9.9%, respectively). This was the second strong week for refinancing as 30 year fixed rates fell again, down to 6.08% from 6.15% and its fifth straight decline.
It is interesting that mortgage applications are rising right now. Sure rates are declining and that always spurs activity, but with the housing market supposedly on the ropes and heading lower and the Fed almost done with its rate hikes, you would think buyers might be willing to wait and see if a nascent buyer's market could turn into a strong buyers market. Sure Fed rate hikes only impact the short end directly, but if the Fed removes that pressure, there will be less inclination for the long end to rise, even less than there is now (the spread between the 2 year and the 10 year narrowed to 3 basis points Wednesday).
What this shows us is that consumers are confident enough to go ahead and buy regardless of what may come down the road. Rates are lower and that is spurring refinancing as there still are fears rates will jump higher. That would be the case if those countries holding a lot of US Treasuries decided to send them back to the US. That is always something to worry about, but it is in a way worrying about a comet slamming into the earth. They are out there, there are some on earth's trajectory, and it could very well happen some day. Of course, Congress could meaningfully and significantly reduce discretionary and entitlement spending some day as well, but no one is holding their breath waiting for that to happen.
Oil is still the silent (and ignored) killer.
Oil inventories fell 2.9M bbl last week, over three times the 900K drop anticipated, as demand for oil has exploded once more following the Katrina spike then drop. That surge in demand has been enough to push gasoline prices up from around $1.80/gallon to $2.30/gallon. That is at the 'ouch' level for consumers as the $50 bill it took to fill my vehicle this week can attest to.
There may be some relief on that front, however, as gasoline inventories tripled expectations as well, rising 4.5M bbl versus the 1.7M expected. Heating oil rose as well, jumping 4.8M bbl versus the 2.3M bbl expected. No doubt the warm winter in most of the country (and dry and windy and fiery) is helping balloon heating oil inventories.
The inventories may help gasoline prices near term, but longer term oil remains over $63/bbl. It dipped all of 25 cents or so after the inventory data, but then rebounded and turned positive in the afternoon. That price is too high for gasoline to fall below $2/gallon. We have said it before: if oil remains above $60/bbl heading into the summer, gasoline is going over $3/gallon for an extended time, not the blip higher after Katrina. That will have serious impacts on the economy as consumers will cut back and businesses will be hit with higher costs and start imposing more 'energy' premiums. That will keep people from using their services as much, etc. The ripple effect is a strong one when gasoline gets that high.
Then throw on one or two of those buoy-popping, oil rig wrecking, coastal inundating high category storms and you have the scenario where Goldman's 'super spike' in oil prices gets closer to reality. Of course, $4/gallon or more gasoline will follow, and that can't be good for anyone. This is conjecture to a certain extent, but oil is holding at the top of its range, and world tensions (this week Iran and its nuclear ambitions) is not letting it fall. A big storm or two is not a wild assertion; we are in a period of more frequent and stronger storms, a period that could last 10 years or more. Any wonder solar and other alternative energy stocks are performing pretty well?
THE MARKET
MARKET SENTIMENT
VIX: 10.94; +0.08
VXN: 15.23; -0.54
VXO: 10.66; -0.07
Put/Call Ratio (CBOE): 0.63; -0.08
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: +11.04 points (+0.48%) to close at 2331.36
Volume: 2.426B (+19.29%). Tremendous volume, the strongest of the move. Not surprising. The move was led by large caps, and it takes a lot of buying to move them a significant distance. More accumulation, but as the breadth shows, very narrow and not necessarily the healthiest of accumulation sessions.
Up Volume: 1.568B (+449M)
Down Volume: 821M (-57M)
A/D and Hi/Lo: Advancers led 1.05 to 1. Very narrow breadth as the NASDAQ 100 gained 0.82% versus NASDAQ's 0.48%. Breadth has lagged most of the move and it really fell as the big name techs drove their gains further. An index can rally for a long time on low breadth. That is not characteristic of this rally, however, and we expect the rotation to start. Indeed, already some of the big name leaders, as noted above, are stalling after strong moves.
Previous Session: Advancers led 1.34 to 1
New Highs: 216 (+34). Still quite anemic, and given the breadth, not surprising.
New Lows: 24 (-4)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixq.html
Another upside session after a slow start with stocks rallying in the afternoon to the close. Strong volume but weak breadth. As NASDAQ extends its rally the gains are getting narrower and that is not necessarily what you want to see; you like to see all boats rise because it shows widespread confidence in the entire market. Narrow breadth rallies can continue for years, however. You simply have to move into the stocks that are rallying. Back in 1997 and 1998 I was frustrated because the small caps had stopped performing while my large cap tech holdings kept climbing. That took about an afternoon to rectify and I could have cared less about the small caps after that, at least until the recession. Then they took over and it was time to move back in. The point: if this rally remains narrow we will focus more assets on those in the limelight. We already have a lot of positions in them, but if it does not fan out again, we will remedy that situation. In reality we believe this is just the ending notes of this first part of this rally, and it will begin rotating again to other areas in NASDAQ.
Another super SOX move (1.65%). This sector is showing breadth that the rest of the market did not on Wednesday. SOX has surged to next resistance at 532 to 536 (closed at 536.44), and has done so with ease. Its next resistance, and key resistance at that, is at 561. SOX will likely take a breather before it tries that level on for size. Right now, however, it is blowing down all obstacles.
SP500/NYSE
Stats: +4.49 points (+0.35%) to close at 1294.18
NYSE Volume: 1.742B (+0.89%). NYSE volume was lagging, but it posted a late surge that carried it above Tuesday levels and thus demonstrated a bit of accumulation as well. Similar to NASDAQ, however, the advance was narrow as the small caps, and to a lesser extent the mid-caps, sat the move out. Large caps rallying at the end of a rally. If this was in a downtrend we would say this was a short covering session. Instead, it is occurring after more than a week of solid gains. That puts it more in the 'showing signs of weariness' category in the rally.
A/D and Hi/Lo: Advancers led 1.28 to 1. As noted, weak breadth as the small caps were down for the session.
Previous Session: Advancers led 1.21 to 1
New Highs: 298 (+31). Up but still quite low in the bigger picture. Without the small caps contributing, there was not much of a chance for a hearty advance.
New Lows: 39 (+21)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 started flat and stayed flat most of the session before the afternoon rally caught hold and pushed the large caps to solid, steady gains on stronger, above average volume. It was a large cap move; the small caps were lower on the session. Investors were interested in the big names in financials, and those are found on SP500. They were interested in the small name financials as well, and they are on the NYSE too. Great move for the large caps; they have tagged along for three years and are now trying to flex some muscle. Very neat that it is the financials as that indicates good things for the economy ahead.
The small caps (-0.18%), after a strong breakout, ran out of gas Wednesday, showing a doji on the candlestick chart. The move higher gained strength when the small caps took a share of the lead. Without them it will eventually fade, but NASDAQ and SOX are leading in its stead for now.
DJ30
The blue chips with their large cap offerings enjoyed upside as well Wednesday, putting some more distance over 10,984, the March 2005 high. Not a powerful move as volume, though higher, was again just over average. DJ30 is playing a supporting role and good that it made the break higher. It is not trying to be a leader, however.
Stats: +31.86 points (+0.29%) to close at 11043.44
Volume: 266M shares Wednesday versus 264M shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The economic data gets a bit more interesting Thursday with the import/export, trade, and treasury budget. Earnings continue to ramp up, and that will garner more of the attention. The market has rallied hard and right into earnings, a season that thus far has started with a whimper. Indeed, we are seeing earnings misses based on, allegedly, the effects of Katrina and Rita. While some companies no doubt have those storms impacting the bottom line, we can also expect that excuse to wear thin as the season progresses. Thus far investors have overlooked it; natural for some companies to be hit by the storm effects. The more we hear it, however, the less believable it becomes.
Basically, the market has run well, it is showing a few signs of wear, earnings are just starting, and we are going to see some more disappointments, not all of which can be written off as storm related. The leaders have run far and it is not a great time to chase the lot of them.
What it will take to get us new buy points is the resumption of the market rotation that has shown up starting with the first session of the new year. It was not present Wednesday, and it may not show up until some form of overall market consolidation transpires. We will watch for it, however. Oil inventories are down and prices are up. Energy stocks are in good patterns; they are setting up for another move. We are also looking at financials as they were later comers to the move. Retail as well. There are still many areas to look, but we have to be really patient here given the run to this point. We want to see volume moving into any potential new position because even if the breadth stays narrow, if big money is buying a stock it has a much better chance of giving us a good run, particularly in a rallying market.
Support and Resistance
NASDAQ: Closed at 2331.36
Resistance:
2328 from the May 2001 peak, and it is breaking.
3015 is the December 2000 peak and the October 2000 low
Support:
2288 from December 2000 low.
The 10 day EMA at 2287
2278 is December 2005 intraday high.
The 18 day EMA at 2270
2251 is the January 2001 low
The 50 day EMA at 2232
2220 (2218 intraday) is the August high
S&P 500: Closed at 1294.18
Resistance:
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
The 10 day EMA at 1279
The recent highs at 1275
The 18 day EMA at 1272
1264 from the December 2000 lows
The 50 day EMA at 1255
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 11,043.44
Resistance:
11,176 - 11,186 from April 2000
11,248 from the May 2001 peak.
11,238 from the September 2000 peak.
Support:
10,985 is the March intraday high
10,965 from Q4 2000 and late November 2005
The 10 day EMA at 10,933
The 18 day EMA at 10,892
10,868 is the December 2004 high
The 50 day EMA at 10,779
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.
January 09
Consumer Credit, November (3:00): -$600M actual versus $5.0B expected and -$8.4B prior (revised from -7.2B)
January 10
Wholesale Inventories, November (10:00): 0.4% actual versus 0.5% expected and 0.2% prior
January 11
Crude Inventories, 01/06 (10:30): -2.9M actual versus -900K expected and -1.013M prior
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): -$66B expected and -$68.9 prior
Initial Jobless Claims, 01/07 (08:30): 320K expected versus 291K prior
Treasury Budget, December (2:00): $4.2B expected versus -$2.9B prior
January 13
Retail Sales, December (08:30): 1.0% 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 2
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world stock market
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