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world stock market, us stock market
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2/01/06 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday
MARKET ALERTS
Targets hit alerts: CLF; KWK
Buy alerts: MRVL (bonus)
Trailing stops: None issued
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:
- Market faces adversity and comes out looking good with chips ready to lead again.
- January ISM grows at a slower pace, December construction surges past expectations.
- Bush touches on important points, but is it all the same old D.C. rhetoric?
- Market set up well after overcoming more issues.
Market swallows a potential problem.
A big market leader missed big and was down 20% after hours Tuesday. It was supposedly due to a higher tax bracket and that somehow made it not so bad. GOOG still did not make as much money as it was thought (and priced in), and thus the stock sold. But, it did recover from its after hours lows and closed down 7%.
Indeed, the rest of the market recovered as well, closing positive. Moreover, the market was never really tested. NASDAQ, SP500 and SOX tested the 10 day EMA on the low and recovered to close at session highs. DJ30 was right behind SOX leading the action higher, riding the back of Boeing's earnings. SOX showed great action, testing near support and rebounding, its leaders starting higher.
Lower oil prices helped (66.56, -1.36) as inventories of crude and gasoline rose much more than anticipated. December construction easily surpassed expectations and the ISM was strong though lower than expected. That combination was viewed as somewhat Fed friendly, given the Fed is supposedly watching all data like a hawk.
Overall the action was a great set up for Thursday, digesting the solid move last week, holding near support, and starting back up. Volume was lower but still very strong. Breadth was modest, but the positive breadth on a down day Tuesday showed the lack of any real selling. Leaders were moving ahead of the pack and after hours some strong chip earnings are sending semiconductors higher still.
In sum, the action was positive with the potential for an ugly tech session blunted and indeed reversed with the intraday action. It looked much more like the completion of a short test of last week's gains, shaking out the sellers and preparing the way for the next move higher. There is still economic data this week that could swing buyer and seller sentiment, but from a technical standpoint the action looks solid and has set up another run at the January highs.
THE ECONOMY
ISM grows at a slightly slower pace.
January manufacturing growth sentiment slipped to 54.8 from 55.6 (56.0 expected) as new orders and hiring slowed while prices paid rose. Basically it was a weaker report, but still easily in the expansion mode. The reading means that the manufacturing sector still grew nationwide, just at a slower pace of growth.
The levels were the lowest since August and the issues that surrounded the Gulf storms. That low includes new orders and production as the report showed a somewhat surprising slowdown after a strong Q4. As noted, however, the level remains strong. The risk facing manufacturers is continued increasing energy prices and materials prices (e.g. copper, steel, chemicals, etc.) that could reduce the amount of dollars available for investment in the business itself, i.e. new capital equipment and R&D.
The latter are what keeps business expanding and creating the new technologies and devices and services that we don't even know we need yet.
Anything new for the economy in the state of the union?
Speaking of creating new technologies, the President did touch on an issue we believe would help us recapture a lot of the technological edge we forfeited in the investment and technology stagnation from 2000 to 2003. We enjoyed strong gains in technology during the 1990's because our economy remained strong while much of the world struggled. The collapse from such loft growth rates and the dearth of investment capital and entrepreneurship induced by the self-inflicted gunshot from the Fed pushed us right back into the pack. Instead of being THE place for developing countries to come and get technology in the future as our Baby Boom generation grays, we are now fighting for our lives in the technology race.
Bush touched on a lot of issues, a couple being investment and research in fuel cells and our favorite, hydrogen powered vehicles. The only way we are going to correct our trade imbalance is to get off of an oil standard. To do this we have to eliminate and replace the primary user of petroleum products, i.e. the hydrocarbon powered internal combustion engine. The push toward perfecting that technology within the next decade would open all kinds of technological avenues and likely help thrust us back to the front of the technology wave. It would certainly help free up a lot of funds from issues such as air quality standards and the related health costs, be a catalyst for the new great jobs we need to continue building our standard of living, and help eliminate the threat of all those petro-dollars we spend each day that may some day come back to roost when the owners decide they don't want to use them to buy US treasuries.
Unfortunately it was mentioned in passing and the mode of funding appears to be subsidies. It should be a priority. It is nice to say we should get off 75% of foreign oil in 20 years, but it was a shotgun approach, spraying a few pellets here and there. We have to get over burning things for propulsion; it is too inefficient and still creates health issues. Further, subsidies should instead be tax incentives so anyone, meaning even start ups, can compete to create the technologies to drive the new vehicles. The big corporations overlooked the PC revolution; instead the ideas came from just plain old American ingenuity.
That is our strength, i.e. empowering our entrepreneurship to overcome our problems. Government rarely comes up with the answers and it never does it efficiently. We need to have inventors all across the nation working on ways to do this. The way you make it viable is to give tax incentives to go out and obtain the equipment and capital necessary to do the job. Create the environment, set a goal, and let the American genius solve the problem.
THE MARKET
MARKET SENTIMENT
VIX: 12.36; -0.59
VXN: 17.12; -1.46
VXO: 11.99; -0.2
Put/Call Ratio (CBOE): 0.93; +0.12. There was a lot more gloom than doom Wednesday, and put activity jumped higher even as the indices closed up. It was a recovery session and that had downside positions being closed later in the session as stocks recovered. Others were buying back sold puts early when things looked iffy on NASDAQ, then selling again as NASDAQ recovered. Get the idea: a lot of activity in puts typically means some change, and a lot of traders tend to run back and forth, following the bus rather than seeing the bigger picture.
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: +4.74 points (+0.21%) to close at 2310.56
Volume: 2.341B (-1.61%). Solid trade as NASDAQ gapped lower on GOOG-related worries but then mounted a steady recovery to close near session highs. Good low to high action and solid volume supporting it. Thus as with Tuesday we view the price/volume action as solid, still showing an accumulative slant.
Up Volume: 1.499B (+352M)
Down Volume: 827M (-316M)
A/D and Hi/Lo: Advancers led 1.17 to 1
Previous Session: Advancers led 1.16 to 1
New Highs: 219 (+21). Needs to get a lot better as NASDAQ approaches the January high. That will show us a broad advance and more importantly, stocks clearing old resistance and pushing aside overhead supply. That is a showing of strength for the move and an indication it is more than just a flash in the pan.
New Lows: 21 (0)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped lower but held the 10 day EMA (2293) and then recovered off that support level. An early afternoon pullback kept NASDAQ from turning green, but a run over the last 1.5 hours pushed it through the intraday double top and closed techs out at the session high. Volume remained excellent on this improved low to high intraday action. This looks like a very good test of last week's gains and has re-set NASDAQ for another shot at the January high (2333).
SOX (+1.03%) was the leader once more, gapping slightly lower itself and selling to the 10 day EMA (534.87). There is found support and recovered for a nice, solid gain. It held the January tops and thus the breakout, and looks ready to lead the rest of the market higher once again. Indeed, some semiconductors showed similar action, ready to lead higher. Strong earnings after hours from other chips (e.g. FORM, VSEA) is furthering the solid movement.
SP500/NYSE
Stats: +2.38 points (+0.19%) to close at 1282.46
NYSE Volume: 1.922B (-1.26%). Volume edged back but remained very strong as SP500 tested support and finished positive on the day. The dip lower and positive close indicates more accumulation of NYSE stocks.
A/D and Hi/Lo: Advancers led 1.23 to 1
Previous Session: Advancers led 1.17 to 1
New Highs: 298 (+13). Moved over 400 on the last leg and we are looking for it to do the same as the NYSE indices move higher on this leg.
New Lows: 33 (-7)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 has lagged the small caps and mid-caps, the semiconductors, and NASDAQ as well. That does not mean it is weak, however. It showed solid action Wednesday, coming back to tap the 10 day EMA (1278) on the low and rebounded to continue holding above the October/December up trendline (1280.50). SP500 is trying to make a higher low here at this support, and it is showing the same solid action as NASDAQ in that respect. This puts it on a nice perch after a short rest to take on the January high set three weeks back (1295).
SP600 (+0.19%) continued to run higher as the rest of the market pulled back. Wednesday it showed a bit of weariness with a doji on the candlestick chart. That can indicate a move, whether up or down, has lost momentum and suggests a move in the other direction to test. That would put SP600 pulling back as the rest of the market is set to move higher. Not necessarily a bad thing; SP600 led higher, and as it rests money can rotate to the other areas that were pulling back as it led higher. That is healthy action.
DJ30
DJ30 is showing more life and Wednesday it actually showed some leadership as well, rallying up to the December intraday highs after a nice short pullback Monday and Tuesday. Sure helps to have Boeing building and selling a lot of airplanes. In any event, DJ30 is well positioned to take on the January highs itself (11,048).
Stats: +89.09 points (+0.82%) to close at 10953.95
Volume: 333M shares Wednesday versus 369M shares Tuesday. Volume is not as strong as the selling volume two weeks back, something that has been a regular plague to DJ30 as it tries to breakout of this range.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
The Fed has spoken for now, and it is still too early for the Fed rangers to spread out and start talking about what its next move will be. After all, Bernanke just took charge and he is likely to see the lay of the land before he sends his minions out to prepare us for the next chapter. Of course, Bernanke may not cotton to that Greenspan MO at all, but Bernanke wants to be even more transparency so we anticipate some kind of foreshadowing. The question is when it will start, but for now we have an 'all quiet' on the Fed front.
More data comes out tomorrow, and while productivity is important, the Friday jobs report, despite is lagging nature, garners most attention. There is also final Michigan sentiment, factory orders and ISM services. It is a big day.
Ahead of that, however, the market has the look of wanting to move higher. As noted above, it swallowed some potentially damaging news and showed a good shakeout session. Leaders started to turn back up, e.g. the semiconductors, while NASDAQ and SP500 look ready to challenge the January highs. SP600 may need a breather, but as noted above, if it comes back some, the large cap indices can rally in some good and healthy market rotation. With the semiconductors leading, SP600 can take a deserved rest and the market still make an important advance with NASDAQ and SP500 moving through the prior January highs.
Thus we like what we saw today and where that leaves the market for tomorrow. We are going to look at picking up some strong stocks as the move back off a test of support. The market continues to price in positives for the future despite a slightly inverted yield curve and oil that is holding in the high sixties. As noted earlier this week, as long as the market continues to show solid action and present strong stocks with good buy points we will take part in that action.
Support and Resistance
NASDAQ: Closed at 2310.56
Resistance:
2328 from the May 2001 peak
The January high at 2333
3015 is the December 2000 peak and the October 2000 low
Support:
The 10 day EMA at 2293
2288 from December 2000 low.
The 18 day EMA at 2286
2278 is December 2005 intraday high.
2273 is December 2005 closing high.
2266 is the October/December up trendline.
The 50 day EMA at 2256
2220 (2218 intraday) is the August high
2216 is the August 2005 high
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 1282.46
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 1281.50
The 10 day EMA at 1278
The 18 day EMA at 1276
The December highs at 1275 (intraday) and 1273 (closing)
1264 from the December 2000 lows
The 50 day EMA at 1264
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 10,953.95
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 10 day EMA at 10,859
The 18 day EMA at 10,854
The 50 day EMA at 10,805
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% actual versus 0.4% expected and 0.3% prior.
Personal Spending, December (8:30): 0.9% actual versus 0.8% expected and 0.5% prior (revised 0.3%).
January 31
Employment Cost Index, Q4 (8:30): 0.8% actual 0.9% expected and 0.8% prior
Chicago PMI, January (10:00): 58.5 actual versus 59.8 expected and 60.8 prior (revised from 61.5).
Consumer Confidence, January (10:00): 106.3 actual versus 105.0 expected and 103.8 prior (revised from 103.6).
FOMC decision and statement (2:15): Raised FF rate to 4.5%, indicating 'may' need additional tightening and removing 'measured' from the statement.
February 01
Construction spending, December (10:00): 1.0% actual versus 0.2% expected and 0.5% prior (revised from 0.2%)
ISM, January (10:00): 54.8 actual versus 55.5 expected and 55.6 prior.
Crude oil inventories (10:30): +1.9M actual and -2.4M prior
February 02
Initial jobless claims (8:30): 295K expected and 283K prior
Productivity, Q4 prelim. (8:30): 1.0% expected and 4.7% prior.
February 03
Non-farm payrolls, January (8:30): 250K 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): 93.1 expected and 93.4 prior
Factory Orders, December (10:00): 1.0% expected and 2.5% prior
ISM Services, January (10:00): 60.0 expected and 61.0 prior.
End part 1 of 2
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