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us stock market, trade stock
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1/22/06 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Tuesday
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: LUK
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:
- Indices post a most modest rebound as buyers not ready for re-entry.
- Businesses upbeat about economy, prospects, but hard to go to the bank on that one.
- Leading indicators rise but a bit light.
- Earnings are all that is on tap for Tuesday as stocks try to hold and rebound, but thus far TXN failed to provide techs any confidence after hours Monday.
Stocks move upside with some breadth but moves pale versus Friday.
Foreign markets were lower on the heels of the Friday US sell off, and the US market did a decent job of fending off further selling, starting with a modest bounce, avoiding heavy selling, and rebounding for a modest gain in a volatile, lower volume session. Though stocks started stronger we would have preferred some follow through to the downside to spark some more of that Friday fear and flush out the pipes. That would set up a better recovery. As it was the modest early bounce worked as a relief valve that kept things from a strong downside shakeout.
There were a few bargain hunters, but too few to make a real difference. The market is awaiting a catalyst to reignite the rally but the two main issues on the burner are not helping. Oil was lower, falling to 68.10, -0.38, but that is no difference when prices are close to post-Katrina levels during a mild winter. That mild winter may set us up for a hellacious summer storm season, and $68 to $70/bbl is not the way to go into that situation. Earnings have yet to impress investors on an overall basis, with guidance below expectations continuing. A lot of the mega cap companies simply are not able to generate strong growth forecasts or are unwilling to do so (sandbagging some?) in this rising energy cost environment. That has left investor lukewarm about driving stock prices higher; if earnings forecasts are not running higher, why should stocks?
This underscores the problem for large cap companies that are past their growth prime. They have some products that generate their earnings but they are not growing their markets. Their focus is to maximize profits from those revenue sources, and as we have seen the past four years, that entails cutting employees, benefits, and other overhead costs that are not needed in the sale of those primary cash cow products. When an unavoidable cost such as energy price spikes becomes imbedded and looks only to worsen, profit forecasts have to decline if those costs cannot be passed on. Thus far the costs are being mostly eaten by the companies, and thus the lighter forecasts.
Fed-speak was a bit friendlier Monday with another Fed-head opining that 1 to 2 more hikes were 'sensible.' While that would seem friendly, the market is starting to anticipate only one more hike versus two. Even with just one hike, unless long rates get on the bike, the 2-year/10-year bond curve that closed at 4.36% versus 4.35% (already inverted) will really get turned on its head. While you might be able to buy into Greenspan's 'not all inverted curves mean recession' argument as to a modestly inverted curve, a 25 basis point inversion is going to choke most investors. Thus with energy prices pushing toward $70/bbl in a relative calm versus the rampage last August and September, we are already hearing talk that even the Greenspan Fed cannot raise on 1-31 without crushing the economy.
Thus while the Fed has been widely attributed with starting the rally in January with its friendly FOMC minutes, if it is not flexible and adapts to the data (what it says it is doing, but not many believe it, at least with respect to the data being weaker and requiring no further hikes) it could play a role along with high energy prices in an overall drop in economic activity and thus the market prior to that. Imagine that; the two primary concerns of 2005 still issues in 2006 and ready to stall the economy and the market even as the Fed says it is close to ending its actions this round.
THE ECONOMY
NABE delivers an upbeat report.
The National Association of Business Executives delivered one of its best reports in years Monday. Demand for products and services hit its highest level since Q2 1997. Profit margins were the third highest on record, even greater than the 1990's many like to point to as the zenith of our economic strength (though they would be incorrect in doing so). Prices charged were at the highest level since 1989 as 59% indicated they were able to charge higher prices. Wages and salaries were rising as well, and many noted a severe shortage of skilled labor.
Man, that sounds pretty darn rosy. Then why are we getting these weaker earnings outlooks? Are they sandbagging, i.e. offering less now than they will deliver in the future or are they just overly optimistic after being pessimistic through the first three years of the recovery? The answer is both. First, many financial shows like to have business leaders on in order to get the word from the horse's mouth as to the business outlook. Executives are as human as any of us, and thus they tend to be negative when things are bottoming and rebounding, and they tend to be overconfident when a recovery is well down the road. Thus, we never put a lot of emphasis on executive surveys, at least as forecasting tools. The reports always highlight what they expect to happen, and their belated bullishness is typically late in the cycle.
Leading indicators post a modest rise.
In the 'why even bother' category is the Conference Board's leading economic indicators report. Monday it released its December number and it was +0.1%, less than the 0.2% expected and much less than the wildly revised November reading at 0.9%, almost double the 0.5% originally reported.
The LEI has lost a lot of its weight in the past few years, particularly last year when it appeared to be more of a lagging indicator than leading, showing strength when things really weakened, and weakness when things later strengthened. Given the November reading you would expect solid economic growth in May and June, but most economists are projecting a slower 2006.
A lot of the problems the past year has to do with changes within the index, and that added to the volatility. Once the index settles down it could give us a better reading of the future, but why wait for that? The ECRI indicator is 'faster', meaning it gives the signals before the LEI, and it has been right with respect to recessions, recoveries, slowdowns, etc. As noted last week, ECRI is on the verge of showing the peak in this inflation cycle but it is also on the verge of showing a peak in the growth as well. The next few weeks will firm that up.
THE MARKET
MARKET SENTIMENT
Sentiment remains high overall, particularly with investment advisors. That is reason for caution a the market tries to shake off the Friday thumping that was part expiration and part uncertainty regarding oil's future given the various factors exerting pressure upon it. Sentiment suggests the action is overdone, and if price/volume action and leadership starts failing it adds weight onto the market's shoulders.
VIX: 13.93; -0.63
VXN: 19.43; -0.02
VXO: 13.06; -1.03
Put/Call Ratio (CBOE): 0.88; -0.2
Bulls versus Bears:
Bulls: 57.3%. Up slightly from 56.8% the week before. That was a one-week decline after hitting 60.4% the week before. Still over the 55% level considered extreme. This, as with VIX, is an indication and not a fact of market direction. Hit 44.8% on the low on this leg, just above the 43.5% low in May.
Bears: 22.9%. Creeping higher after 22.1% and 23.7% the prior two weeks. That followed a low at 20.88%. 20% is the threshold where a lack of bears is considered extreme and bad for the upside. 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: +0.77 points (+0.03%) to close at 2248.47
Volume: 1.971B (-18.01%). Of course volume was lower from Friday and expiration, but it was not as strong as most of the volume this year. Still above average and still good trade, but not a clear resumption of the accumulation.
Up Volume: 926M (+665M)
Down Volume: 1.013B (-1.109B). Was quite closely matched.
A/D and Hi/Lo: Advancers led 1.19 to 1. Modest rebound after the big hit the large cap techs took Friday. Indeed the modest breadth and lagging small cap index show it was a modest bounce in the beaten up large caps.
Previous Session: Decliners led 2.67 to 1
New Highs: 123 (-49)
New Lows: 39 (+4)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ started modestly higher and then fell through the 50 day EMA (2244) on the low in the first hour. That was the catalyst that led to the session rebound, but it was not a washout and then a big recovery. We like that it held that level as well as the October to December trendline, but a bigger intraday dip followed by a strong recovery would show a stronger upside bias. As it is, NASDAQ showed decent but relatively a bit weaker volume as it tried to rebound; a 0.77 point gain is, however, hardly a rebound. NASDAQ is still trying to shake off Friday and what led to that thumping in addition to expiration. It has not shown its hand yet, but it has shown some strength and some weakness at the same time.
SOX (+0.58%) led the market in gains again, managing to hold the 18 day EMA (513.51) on the close after a slight undercut. SOX was waiting for the next big chip to announce earnings, and TXN disappointed after hours with a revenue shortfall, particularly in its forecast. Intel stunk, AMD surged along with some of the smaller chip stocks, now TXN is mediocre. It was one of the large cap techs that was supposed to help direct a positive future for chips what with its DLP processors, etc. It did not, and SOX and SMH and the chips will be pressured again Tuesday as they try to hold near support.
SP500/NYSE
Stats: +2.33 points (+0.18%) to close at 1263.82
NYSE Volume: 1.643B (-22.35%). Volume was above average but as with NASDAQ, it was lower relative to January volume overall. The point gain showed it was not much of a recovery, and the volume indicates it was not as strong either.
A/D and Hi/Lo: Advancers led 1.71 to 1. Decent breadth on the rebound.
Previous Session: Decliners led 2.31 to 1
New Highs: 156 (-84)
New Lows: 34 (-9)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
About all SP500 managed Monday was a hold of the 50 day EMA (1260). It closed roughly 4 points off its intraday high, tapping the October/December trendline on that high. It is right in the middle of the late November and December consolidation range. A good place to hold, but it too failed to show a lot of pop as it tried to rebound, suggesting it will take more work to consolidate the Friday beating and continue higher.
SP600 (0.08%) barely cracked positive on the close, but the action was solid. The small cap index tapped at the 18 day EMA (363) on the low and rebounded to hold the 10 day EMA (365), easily keeping its breakout intact. Still showing a lot of strength despite the Friday reversal from the Thursday break higher; looks very much as if SP600 sold in sympathy Friday with the other indices and is set to rebound once more. The market needs its leadership and it certainly is set up to deliver if investors are so inclined.
DJ30
DJ30 posted a modest rebound from the Friday trashing that took the index below the 50 day EMA (10,793) and 10,700, the middle 'hump' in the 11 month double bottom with handle base. It broke out of that pattern in January on low volume, and as is often the case with that type of breakout, it was squashed on strong downside trade. It broke down, losing its breakout. Now we see whether the small caps are stronger leaders than the DJ30 is a laggard.
Stats: +21.38 points (+0.2%) to close at 10688.77
Volume: 366M shares Monday versus 449M shares Friday. Trade was not shrinking Monday, equaling last Wednesday and Thursday before the Friday slaughter.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
No scheduled economic reports, and that is fitting given that bombard the market starting Tuesday. TXN was the latest large cap offering to disappoint with its guidance, and that is going to start things off under pressure unless some amazing spin is imparted on the numbers ahead of the open. After hours the spin was creating a downside hole that TXN was falling into. It was not a calamity after hours, but techs were weaker across the board, and that means buyers will have to come in to rescue stocks from early selling.
That is what we were looking for Monday, a bit of a further blowdown and a stronger recovery. What we got was a weak test lower and a weak rebound. Stocks held on, but there was no rush to buy. Stocks now either go about a bit of consolidation at this support and then recover, or we could see a resumption of the selling on stronger volume and leaders falling through near support. That would indicate a correction that, if severe enough, could portend some real economic issues ahead given the oil situation and the slightly inverted bond yield curve.
The market had an opportunity to implode Monday after that Friday selling, but we did not expect that would be the case, and the fact that it didn't shows some continued underlying strength. We don't want to extrapolate that into a firm belief the market is safe here; it has too many issues it is dealing with to be safe. So you either have a wall of worry the market will climb or insurmountable obstacles that will bury it. Again, with the leaders holding up the market remains alive to fight another day. It will likely have a fight early as it tries to hold after the TXN earnings and seeks some strong earnings from the growth stocks as opposed to the mega caps that have been disappointing with their growth forecasts.
Support and Resistance
NASDAQ: Closed at 2248.47
Resistance:
2251 is the January 2001 low
2273 is December 2005 closing high.
2278 is December 2005 intraday high.
The 18 day EMA at 2276
The 10 day EMA at 2280
2288 from December 2000 low.
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
The 50 day EMA at 2244
2220 (2218 intraday) is the August high
2216 is the August 2005 high
2208 is the second October up trendline
2178 to 2182 from the December 2004 high and the September 2005 high; these roughly mark the breakout from the 2 year base.
S&P 500: Closed at 1263.82
Resistance:
1264 from the December 2000 lows
The October to December up trendline at 1271
The recent highs at 1275 (intraday) and 1273 (closing)
The 18 day EMA at 1274.34
The 10 day EMA at 1275.54
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
The 50 day EMA at 1260
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 10,688.77
Resistance:
10,720 is the high in the recent lateral move
10,754 is the February high
The 50 day EMA at 10,793
10,868 is the December 2004 high
The 18 day EMA at 10,854
The 10 day EMA at 10,835
10,965 from Q4 2000 and late November 2005
10,985 is the March intraday high
11,176 - 11,186 from April 2000
11,248 from the May 2001 peak.
11,238 from the September 2000 peak.
Support:
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 23
Leading Economic Indicators, December (10:00): 0.1% actual versus 0.2% expected and 0.9% prior (revised from 0.5%).
January 25
Existing home sales, December (10:00): 6.87M expected and 6.97M prior
Crude oil inventories (10:30): +2.741M prior
January 26
Durable goods orders, December (8:30): 1.0% expected and 4.4% prior
Initial jobless claims (8:30): 300K expected and 271K prior
Help wanted index, December (10:00): 39 expected and 39 prior
January 27
Chain Deflator, Q4 (8:30): 2.6% expected and 3.3% prior
GDP, advance, Q4 (8:30): 2.8% expected and 4.1% prior
New home sales, December (10:00): 1.225M expected and 1.245M prior
End part 1 of 2
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