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us stock market, trade stock
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1/28/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: MRVL; HAL
Buy alerts: SLB; ESRX (bonus); ATW
Trailing stops: None issued
Stop alerts issued: VIP
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:
- Auto sales, defense spending sink Q4 GDP but not the market.
- GDP slowdown likely temporary, but it points out continuing issues for economy.
- New home sales nip expectations. An uptick in an overall slowdown.
- FOMC front and center even as large caps close in on January highs.
Market ponders slow GDP then continues its move.
Futures were burning early Friday on the heels of some strong earnings from BRCM, PG, WFR and even MSFT, building on the other more recent offerings from CAT and many small and mid-cap issues. Japan was on fire as well, up over 3% on its session as technology leaders are providing just what the market wanted, i.e. strong outlooks not only support their current prices but future price increases as well.
Then along came the 8:30ET preliminary GDP report, and its 1.1% reading was a shocker. Futures were knocked back on the news, but they did not cave. Indeed, they managed to recover some of the lost ground and the market started to the upside as if it had no worries about what happened in Q4. Indeed, the market looks forward not backward, and it looked right past the report and put in the move we said in the Thursday report it needed to make, i.e. SP500 taking out the December highs and the trendline and NASDAQ putting a clear break between it and the December highs.
The move recaptured all of the prior Friday's losses as investors looked past the past and even overlooked some of the future, specifically oil prices. Yep they were back up (67.76, +1.50) as the daily worries about Iran's reaction to potential economic sanctions bobbed back and forth. In any event, SP500 made a solid move as large caps took the lead Friday, particularly in technology. Large cap techs got the earnings season off to a rough start, but with MSFT and BRCM earnings NASDAQ 100 managed to rally as well, taking out the December closing high.
Thus the so-so breadth (after some excellent breadth sessions, particularly on a resurgent NASDAQ) was not that disappointing. Volume was lower as well, but it was still a very strong session with NYSE trade topping all prior sessions for the month other than Thursday and expiration. While the overall power was not the same as Thursday, the market simply shifted its focus for the day. After some whiffs of distribution drifted in over the past week, the strong accumulation that resumed the rally put that to rest.
That leaves NASDAQ and SP500 coming off a higher low on strong volume, looking to take on the highs hit on the early January run that reignited a flagging rally. The move to end the week keeps the breakouts from the longer term accumulation patterns on NASDAQ and SP500 alive, and a breakout over the January highs shows the market looking at some positives down the road that are not readily apparent given all of the issues confronting the economy and indeed the world. Kind of a global wall of worry.
Solid moves and much needed, but NASDAQ and SP500 are not out of the woods. The action remains solid with leadership, great price/volume action, and good technical moves. With earnings season peaking (though there are still lots of February reports; the season is really extending to two months now), NASDAQ and SP500 are still below the prior highs. Is there enough good news left out there to keep up the momentum for a breakout over the prior highs? The market was starved for good news and it finally got it, starting the rebound. It may need some goosing to get it over the hump, but not sure the Fed, the main event for the week, will provide what the market needs, i.e. a clear statement regarding its intent on another hike after Tuesday.
THE ECONOMY
GDP growth hits a three year low but there are skeptics.
The 1.1% was close to one-third of the 2.8% expected, and miniscule compared with Q3's 4.1% growth. For the year that kept growth at a very respectable 3.5% (4.2% 2004), but as with many things in life, the economy is viewed in a 'what have you done for me lately' manner.
Equipment and software rose 3.5% versus 10.6% in Q3. Government defense spending fell 2.4% versus a 2.9% rise in Q3. Consumption was a modest 1.1% versus 4.1% in Q3. The big impacts, the ones that really hit the report were auto sales (-8% yr/yr and -18% from Q3), defense spending (-13%), and, once again, oil imports. Auto declines alone accounted for a 2.06% GDP drop, defense another 0.66% drop. If you factor out the reduction in autos and defense spending, both unexpected, you get the 2.8%ish level forecast. The drop in defense spending is likely the result of cash management at the fiscal year end. The auto decline was due to the summertime gorge on 'me too' pricing and the end of promotions in the fall.
No doubt the preliminary ready was slowed by special circumstances as underlying data, particularly coming out of December. For instance, durable goods showed a sharp surge in business investment but the preliminary GDP showed a decline. There are also the impacts of Katrina and Rita; those worked to slow GDP because when you destroy businesses, property, capital equipment, etc., you take away growth. Texas, Louisiana, Mississippi, Alabama and Florida all lost businesses and entire cities. Not only that, but neighboring states have taken on the burden of the evacuees. We wrote at the time that would put a strain on the economy, and it is being borne out in the numbers.
Hurricane rebuild will provide some overlooked relief after storms ate into Q4 growth.
On the upside, and what we did not see in any report on GDP was the coming impact of the hurricane rebuild. Pages and pages are devoted to the consumer slowing in 2006, high energy prices, etc., but nothing on the rebuild. Certainly housing will slow outside of the storm impacted areas and that will affect the consumer. Energy costs will also have their impact, and that is the wildcard facing us all. But there will be growth from the rebuild as the Feds spend $80B of public money and more billions are spent by private industry thanks to some tax incentives in the affected regions. Now it won't make up the difference if the overall consumer declines and a few more storms spike gasoline over $3/gallon and likely onto $4, but if the latter does not happen, many will be pleasantly surprised at the economic strength for a fourth year of an economic expansion.
Oil imports sapping us in more ways than one.
Back to oil. After the Gulf storms over half of the US Gulf production was shut in. It is still not all back online. Immediately after the storms we had to import a lot more oil. It was available and we used it. Prices dropped and we used more as demand actually increased in December. That in itself is part of the paradox. Economic activity returned after the storms to the extent we wanted more oil. We are still not producing enough here, so we had to import more. That increased demand was enough to drive GDP lower because imports are subtracted from GDP. Thus more demand because of returning economic activity actually drove the measure of economic activity lower. If more storms shut down production this year, we will see the same impact (in addition, heaven forbid, to any more damage).
In addition you have the effects of sustained high energy prices on the consumer and businesses. It is impacting where our dollars are spent and also corporate profits as costs find it difficult to get passed along. If they are, then the consumer gets it from both ends, i.e. directly from gasoline and heating/cooling costs and indirectly from higher priced goods and services.
There is an option that can cure many ills.
We have to wean our vehicle fleet, at least passenger vehicles and passenger trucks off of oil or at least substantially reduce them. Hybrids are not cost effective but a start. They don't provide the power we need, however, to conduct business in much of the country. A lot of this country does more than drive highways to work each day. We are hearing good things about clean diesel, and it does not require the vast quantities of sweet crude we need for our passenger fleet.
It will take more than that, and a commitment through tax and investment incentives to get viable hydrogen powered vehicles in 12 years is needed. We made it to the moon in less than 7. We don't need another NASA, just give private industry the incentive to get us there and give consumers the incentive to convert. We often discuss our great technology giveaway that occurred in early 2000 and wonder how we can get it back. Creating the incentives to have industry develop the technology to substantially wean us off oil would thrust us back in the lead and provide those highly sought jobs and rising standard of living we have enjoyed to this time.
THE MARKET
MARKET SENTIMENT
As has been the case for much of the past three months, sentiment remains too bullish overall. At the same time there is that continuing undercurrent of pessimism not reflected in the VIX or investment advisor bullishness. Oil worries, housing market deterioration, Iran, Iraq, Hamas, a weakening consumer - - every day you hear the headlines. Thus while the traditional sentiment indications are stretched, the market is finding energy from an ongoing undercurrent of issues that keep worries out in front. Friday's GDP report was another one adding to fears of an economic slowdown.
VIX: 11.97; -0.45. VIX remains historically low. Whenever the market sells as it did two weeks back we hear talk of volatility being too low, signaling the end of a rally. Volatility can remain at these levels and history shows it can hold these levels during long, sustained rallies as in the mid-1990's. Indeed, volatility rose as the rally aged and then hit highs as the rally peaked. Thus higher volatility readings can mean different things depending upon what the market itself is doing.
VXN: 17.31; -0.24
VXO: 11.4; -0.3
Put/Call Ratio (CBOE): 0.8; +0.1
Bulls versus Bears:
Bulls: 53.7%. The selling in mid-January had its impact, pushing bullish advisors below the 55% level considered bearish. Quite a drop from the prior week's 57.3% reading. It hit 60.4% three weeks back. Good to see it down, but with this market advance it is likely heading right back up. Hit 44.8% on the low on the last leg, just above the 43.5% low in May.
Bears: 25.3%. A nice gain in bears from 22.9% after bottoming at 20.88% recently. It held above the 20% level that indicates too little bearishness. 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: +21.23 points (+0.93%) to close at 2304.23
Volume: 2.384B (-4.3%). Volume was lower but still very strong, matching the highest levels of the rally. It was more of a large cap day for NASDAQ, but they were weak earlier in the rally and this was just some money moving around in the index. After getting just a bit dicey with the Wednesday rollover that saw some distribution, a strong answer the last two sessions to send NASDAQ back up through resistance. That is the better move as it shows the buyers are back and buying stocks. Those moves have more staying power.
Up Volume: 1.484B (-188M)
Down Volume: 855M (+58M)
A/D and Hi/Lo: Advancers led 1.42 to 1. Pretty modest breadth, but as noted it was a large cap session where the bigger names recovered and advanced after showing weakness as the earnings season got underway. Despite the slow Friday, the past week saw NASDAQ breadth finally expand to significant levels.
Previous Session: Advancers led 2.17 to 1
New Highs: 306 (+60). Getting there as NASDAQ nears the early January high. Want to see it move past 400 as NASDAQ advances to and then moves to a new high.
New Lows: 24 (-5)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher 10 points and rallied 31 points on its high. That occurred in the first hour and NASDAQ cleared 2300 and closed within 17 points of the January high. It was too much, too fast and NASDAQ burned out some as the session wore on. NASDAQ undercut 2300 early afternoon, but then rebounded in the last hour to retake that level. Not a major resistance point, but the high after fading from the early January peak; basically a midway point on the way to the January high. Solid trade led by the large caps. NASDAQ is close, making the move we said it needed to make, i.e. a fast trip up after resuming the move. Nice higher low at key support at the 50 day EMA and the October/December trendline. Now it has to finish the job this week.
SOX (2.68%) led the market again, gapping higher and clearing the recent resistance at 539 On the high (559.60) it tapped at important resistance at 560, the January 2004 peak, its high after SOX bottomed in October 2002. It gapped and ran higher but it could not make any of the post-gap run stick. It consolidated for two weeks before making this move, setting a good foundation for the try. Given its tap at resistance, it may try to fill some of the gap before making a serious move at that key point.
SP500/NYSE
Stats: +9.89 points (+0.78%) to close at 1283.72
NYSE Volume: 1.943B (-6.29%). Solid volume once more as SP500 continued is move off of the 50 day EMA. This is the type of volume you like to see as an index comes off the 50 day as it shows the big money buyers moving in to acquire more stock.
A/D and Hi/Lo: Advancers led 1.83 to 1. Rather lackluster again, but as with NASDAQ, the small caps were quieter after leading the market out of its recent dip.
Previous Session: Advancers led 1.82 to 1
New Highs: 438 (+139). Much better showing of new highs along the lines of what we wanted to see as the NYSE indices forged toward new highs. The market is moving together this time as opposed to the prior attempts.
New Lows: 36 (-2)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
Second strong session off the 50 day EMA (1262) that carried SP500 through the October to December trendline and that key resistance at 1275. Strong volume once more as it made the move, showing great accumulation in the large caps, finally providing some support to the other NYSE indices. It stopped just short of the interim peak after the prior high for the year (1285) and still shy of the January high at 1295. Making good inroads to that level and doing it quickly. May pause as it nears that resistance, particularly with the FOMC meeting on Tuesday.
SP500 (0.50%) advanced as well, but it gave up the leadership mantle on the session after breaking higher Tuesday to get the rebound rolling. A definitive new high Thursday on a strong breakout; it deserved something of a day off. Very strong but this week it may come back to test toward the up trendline at 373 as the rest of the market (i.e. NASDAQ and SP500) take a breather at the January highs.
DJ30
DJ30 rallied again, once more matching NASDAQ with its gain. The blue chips are getting help from the tech side of the index along with the industrials, something lacking for some time. Still in the December range with the peaks at 10,960 and after that the January high at 11,048. We don't think much of DJ30 as an index, but there is a lot of talk about its inability to clear 11K on the last run and how it likely won't clear it again. That may be enough to get it through on this occasion.
Stats: +97.74 points (+0.9%) to close at 10907.21
Volume: 398M shares Friday versus 400M shares Thursday. Another good showing of volume as the blue chips are finding some big buyers. They will need it as they move back to 11K
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
FOMC meeting starts a very busy week.
Earnings are not done yet as the season has stretched out into February. They will still be very important to the market's progress, but there is also the FOMC one-day meeting Tuesday and then a heavy load of economic data. Personal income, spending, consumer confidence, ISM, productivity, factory orders, Michigan sentiment, the jobs report. It is going to be a soup of data stirring things up just as NASDAQ and SP500 try for the January highs.
Despite all of the data, the FOMC meeting will be a major focus as investors wanting to hear that the Fed is done on Tuesday either with or without another hike. The GDP thud will give the Fed the ability to hold off, but it won't, at least on Tuesday. The GDP deflator was too hot for the Fed to take a pass on Tuesday. The overall GDP, however, likely makes the next meeting, Bernanke's first, that first pass for the Fed of this campaign.
The hike will invert the curve; bonds were rallying Friday on the GDP number, pushing yields lower. That is not a great thing, but as discussed last week, a modest inversion given all of the foreign buying of treasuries won't upend the market near term. Investors will be listening for anything that gives an insight as to whether the Fed is done, but Greenspan cannot do that. It is not his Fed anymore and thus he cannot speak for the next Fed chairman who will be at the helm in March. We will get a hike and not much more information.
Reaching for the January highs.
SP500 and NASDAQ are making strong moves toward the January highs, posting back to back gains after a lackluster start to the week following expiration. It was a good launching point, a higher low, and both indices can take out the January highs without requiring any rest stop. May still do it, however, as the market has almost two sessions to kill before the FOMC result at 2:15ET Tuesday. A move higher Monday that takes them close to those highs and then a rest while they wait for a reason to move through.
The market has ignored a lot of reasons to fail up to this point. Will the Fed inverting the curve stop the move, i.e. anticipation actually becoming fact. We will see. For now the market is playing the dichotomy game. It is rallying after breaking out from a two year base on NASDAQ, moving higher in the face of an inverted yield curve, sustained high oil prices, etc. The financial shows love to hash then rehash the possible scenarios, and there are as many as there are guests on the show. We go through some of that process ourselves just to be ready for the possibilities.
In the end, however, the market always tells us which way to go, and recently it has been acting quite well. It is staring major issues in the face and still rallying. That can always change in relatively short order, but if you anticipate it too much you tend to fight the action. We felt 2005 might be a tough year for the economy given the expiration of tax incentives and higher energy prices, but the economy cruised right on through. If we had run scared of the economy we would not have participated in the action.
No, you have to do what the market is telling you to do and take what it is giving. It has another test ahead with SP500 and NASDAQ at the January highs, but we see leadership from many areas of the market. Chips are obvious choices, but after the run this week a bit extended. Energy is still in its test, technology other than chips is still in reason, some medical and health look good as well. In addition there is strong price/volume action and long term base breakouts. We will continue to play this action until the market shows otherwise.
Support and Resistance
NASDAQ: Closed at 2304.23
Resistance:
2328 from the May 2001 peak
3015 is the December 2000 peak and the October 2000 low
Support:
2288 from December 2000 low.
The 10 day EMA at 2281
2278 is December 2005 intraday high.
The 18 day EMA at 2277
2273 is December 2005 closing high.
2259 is the October/December up trendline.
The 50 day EMA at 2249
2220 (2218 intraday) is the August high
2216 is the August 2005 high
2215 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 1283.72
Resistance:
The January high at 1295
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
The October to December up trendline at 1277
The December highs at 1275 (intraday) and 1273 (closing)
The 10 day EMA at 1274
The 18 day EMA at 1273
1264 from the December 2000 lows
The 50 day EMA at 1262
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 10,907.21
Resistance:
10,965 from Q4 2000 and November/December 2005
10,985 is the March intraday high
11044 is the January high.
11,176 - 11,186 from April 2000
11,248 from the May 2001 peak.
11,238 from the September 2000 peak.
Support:
10,868 is the December 2004 high
The 18 day EMA at 10,832
The 10 day EMA at 10,817
The 50 day EMA at 10,793
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 30
Personal Income, December (8:30): 0.4% expected and 0.3% prior.
Personal Spending, December (8:30): 0.8% expected and 0.3% prior
January 31
Employment Cost Index, Q4 (8:30): 0.9% expected and 0.8% prior
Chicago PMI, January (10:00): 59.5 expected and 61.5 prior.
Consumer Confidence, January (10:00): 104.8 expected and 103.6 prior.
FOMC decision and statement (2:15)
February 01
Construction spending, December (10:00): 0.1% prior and 0.2% prior.
ISM, January (10:00): 55.0 expected and 55.6 prior.
Crude oil inventories (10:30): -2.4M prior
February 02
Initial jobless claims (8:30): 283K prior
Productivity, Q4 prelim. (8:30): 1.8% expected and 4.7% prior.
February 03
Non-farm payrolls, January (8:30): 245K expected and 108K prior
Average workweek, January (8:30): 33.8 expected and 33.7 prior
Hourly earnings, January (8:30): 0.3% expected and 0.3% prior.
Unemployment rate, January (8:30): 4.9% expected and 4.9% prior.
Michigan sentiment, revised (9:15): 91.5 prior
Factory Orders, December (10:00): 1.1% expected and 2.5% prior
ISM Services, January (10:00): 59.1 expected and 61.0 prior.
End part 1 of 3
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