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us stock market, stock split
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2/07/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: CNQ; QSII; CLF
Stop alerts issued: HAL; WRES
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:
- Large caps fall further as dichotomy in the market continues but narrows.
- The other dichotomy: fear of a stronger economy and further Fed action versus fear of a weaker economy because of further Fed action (and some other items).
- Can Cisco earnings help stem the large cap slide?
Chips continuing to show strength but no sector is an island.
Monday the semiconductors and small to mid-caps were the strength, holding firm as the large caps struggled to hold the 50 day EMA. Tuesday that solidarity was cut down to the chips as the small caps slumped through the 18 day EMA as energy stocks sold off as Saudi Arabia promised production and refining capacity and oil sold $2/bbl. The small caps did not tank, but they along with the mid-caps were the downside leaders (-1.45%), and their decline lent a drearier picture to the selling.
Not that the large caps needed any help. SP500 knifed lower, totally giving up on the 50 day EMA and heading toward 1248, the bottom of the November/December range. NASDAQ fell back through the 50 day EMA as well, ready to break down through the floor of its late 2005 range as well. Volume jumped on both exchanges as the large caps tanked yet again. They are getting a lot of play on the financial stations because of the general rule that small caps start to slow down as an expansion slows and because they are perceived as a better value due to the small cap run up. If that is the line of thinking they are definitely becoming better values all the time. Breadth jumped as well on both exchanges, however, with -2:1 readings showing that the selling was not just limited to the large caps as it was on Monday.
The semiconductors were once again solid all session, never giving much ground and then putting in an afternoon rebound to close positive. The SOX looks solid with its modest pullback to the 18 day EMA and rebound. SMH is getting a bit iffy, however, working on a right shoulder to what could be a 9 week head and shoulders pattern. Thus while semiconductors have emerged as clear leaders, they are not immune if the selling continues to spread. Rarely does one sector go unscathed in general market selling, particularly a growth sector when there are worries about the economic future.
The close left the action on the negative side overall what with the small and mid-caps starting to show selling as well. In short, the large caps and large cap techs are in an unfettered decline, the small and mid-caps are waffling, and the chips are still quite strong; the semiconductors are becoming their own island of prosperity. After hours CSCO beat the street on EPS and revenues, and that not only helped that stock but also large cap techs in general. It also got chip leaders such as MRVL and BRCM moving higher. Hope springs eternal, but CSCO is not likely to change the course of NASDAQ, at least not like it could in its glory days of the 1990's.
THE ECONOMY
Is the economy strengthening or weakening?
TOL indicated Tuesday that it was not selling as many homes and it was revising its sales estimates lower. You would have thought a bolt of lightening struck given the reaction on some of the big financial stations. It is no secret, however, that the housing market is weakening. It has been weakening for 9 months or more. TOL's stock price peaked in July 2005, rallying to that new high on lower volume, an indication that the guts were already taken out of the run. It was at $58 at that point and it closed at 31.20 Monday before the Tuesday announcement. In short, the market had already figured out TOL's gains on this cycle were over long before TOL bit the bullet and admitted it to its shareholders.
Housing is an early cycle sector, so it would be normal for it to fall by the wayside as an expansion continued. Problem is, the housing run was artificially prolonged by 9-11 induced behavior changes and a long, long run of historically very low interest rates. Thus it could have continued its growth into the latter stages of an expansion with its decline coinciding with the decline in the rest of the economy.
Looking at the economic indications they are mostly positive though with some aberrations of late in the uptrends in the regional and national manufacturing reports, housing, other real estate, autos, and an inverted yield curve. The ECRI growth indicator has slowed, but last week it rebounded slightly, so the jury is still out on that very accurate leading economic indicator.
Market action in the large caps has look of substance.
The large caps are selling while many are saying they should start going up. Maybe they will, but the serious divergence in the market is telling. The reason for the January rally, i.e. the Fed being almost done, is fading as the Fed Funds futures build in two more rate hikes as opposed to just one. There is talk every day on the financial stations about a 6% Fed Funds rate or more given all of this financial strength they are seeing.
What really set them off, however, was the employment report and the talk about how the economy was really spitting out jobs now. As discussed before, that is not a leading economic indicator. It is indirectly, that is if the Fed is raising rates because the Fed will continue to raise rates (at least prior Fed's) because it fears high employment.
And therein lies the rub. We don't think the economy is as strong as it is made out to be, at least not expanding faster. The Fed is likely to continue on hiking on this economic strength furor just as it did in 2000, and the fear outside the economists (in the market, that is) is that the Fed will go too far. Thus not only is the basis for the rally renewing itself in January gone (the Fed almost done), but the market may also be building in the Fed continuing on and then going too far and once again causing economic damage.
The market is a leading indicator and the failure of the large caps as opposed to their emergence as leaders indicates that the expansion may not kick into the next gear as the general rule of thumb would suggest. Thus the sell off in these stocks could be the start of a decline that portends economic slowing. That is the dichotomy: a supposedly stronger economy leading to further tightening to slow it even as the economy slows as a result of prior rate hikes. Remember, the Fed has raised rates up from 1% over the past two years; there are still several rate hikes already made that have yet to impact the economy. That is what makes this such a delicate and dangerous economic game.
THE MARKET
MARKET SENTIMENT
VIX: 13.59; +0.55
VXN: 17.66; +0.04
VXO: 13.06; +0.73
Put/Call Ratio (CBOE): 0.95; +0.11. Jumped right back up but still only one reading above 1.0 during this pullback.
Bulls versus Bears:
Bulls: 52.6%. Surprisingly bulls continued to fall despite the gains two weeks back, falling from 53.7%. This is the second week below the 55% threshold after a fall from 57.3% from three weeks back and 60.4% at the peak on his cycle. Hit 44.8% on the low on the last leg, just above the 43.5% low in May.
Bears: 25.8%. Bears rose a bit higher, climbing from 25.3% last week and 22.9% the week before. Bears never fell below 20% on this move, helping underpin the advance (low was 20.88%). 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: -13.84 points (-0.61%) to close at 2244.96
Volume: 2.22B (+20.64%). Volume jumped as NASDAQ fell back through the 50 day EMA. After a series of declines on lower volume this is the first really clear distribution session, coming with a clearer breach of the 50 day EMA support.
Up Volume: 964M (+12M)
Down Volume: 1.231B (+369M)
A/D and Hi/Lo: Decliners led 2.14 to 1. Downside breadth jumped as well. NASDAQ just started to show solid A/D growth in January after lagging NYSE in the prior moves in 2005. Now the downside breadth is just as strong.
Previous Session: Advancers led 1.07 to 1
New Highs: 100 (-42)
New Lows: 37 (+7)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ tried to move up through the 50 day EMA (2257) intraday after a weaker open, but that effort died out in the first hour and NASDAQ trended lower the rest of the session. No real effort at a rebound, just a fade that flattened out into a 2.5 hour lateral move in the afternoon that stemmed the bleeding. NASDAQ is heading toward ht bottom of the November/December range and the October up trendline (2230). If that does not hold there is not much keeping NASDAQ up until 2200ish.
SOX (+0.11%) was a pillar of strength, testing the 10 day EMA (536) on the low and rebounding to post a modest gain. SOX is acting as without concern for the large cap indices as SOX trends higher using the 18 day EMA (530.72) as support. SOX is looking good, but if the rest of the market continues to sell with the same vigor as on Tuesday, SOX will be hard-pressed to hold out on its own. For now we like the action and will cautiously take positions in chips if they continue to show strong moves, but we have to be aware of the rest of the market and its negative influence.
SP500/NYSE
Stats: -10.24 points (-0.81%) to close at 1254.78
NYSE Volume: 1.779B (+16.56%). Volume jumped back above average as SP500 sank below the 50 day EMA and the small caps and mid-caps fell through the 18 day EMA. With energy selling as well the volume picked up some pace, showing a clear distribution session as the large caps break clearly lower from the 50 day EMA support level.
A/D and Hi/Lo: Decliners led 2.07 to 1. With the small and mid-caps under pressure with the energy stock selling breadth advanced beyond the modest large cap selling breadth on Monday.
Previous Session: Advancers led 1.5 to 1
New Highs: 90 (-43)
New Lows: 33 (+3)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
The large caps dropped through the 50 day EMA (1264) on rising, above average volume. After trying to hold that level and showing a doji Monday, the large cap selling continued, this time showing clear distribution as large money funds sold out of the large caps. SP500 is just above the 1248 level marking the bottom of the November/December range. It is heading for that level and stands to give up the breakout altogether (1246). It has made a lower high and a lower low, starting a trend lower and doing it with strong volume. The large caps are ugly and not looking to improve.
SP600 (-1.45%) led the selling, falling through the 18 day EMA (371.84) for the first time since December. The index was dragged lower by the selling in energy stocks that underwent one of their down sessions that pop up often as the sector continues moving higher. No major breakdown given it was in a breakout move. Key level at 365ish and the 50 day EMA (363.62) if that does not hold. It will have to make a higher low above 365 on this test in order to keep the uptrend in place. Going to be tested, but we also expect energy stocks to rebound before it tests much lower.
DJ30
DJ30 also broke lower from the 50 day EMA (10,804) on rising, above average volume. It is completing the formation of a right shoulder to a 10 week potential head and shoulders base. The breakdown is below 10,700, but DJ30 had already made that lower high and is going to test 10,700 once more, the July through September highs.
Stats: -48.51 points (-0.45%) to close at 10749.76
Volume: 351M shares Tuesday versus 263M shares Monday. Distribution on the blue chip index is in step with NYSE and NASDAQ.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Oil inventories are about the only economic items on the block Wednesday; no small potatoes but as we saw Tuesday, oil can fall and the market falls as well. At this stage, instead of a market and oil link (oil declines, market increases), the relationship is one of sustained high energy prices starting to have their impact on economic growth. Thus even energy prices $2 lower Tuesday had no positive affect on equities. Certainly the sustained oil prices and further Fed action are not helping the market.
Cisco beat the street by a penny and revenues were stronger than expected and it affirmed its Q3 outlook. That was enough to jump the stock $1 after hours and had the QQQQ running as well. Strong stocks such as BRCM and MRVL were running higher as well. Sounds great.
It likely won't lead to a turn in the market. The market saw most of the earnings up to Cisco's release and it made a lower high even as the earnings improved off of the early season disappointments. In other words, the market has seen the gist of the earnings season and was not too impressed. Cisco's results at the tail end of the Q4 reporting season will likely not alter that overall perception. It is no longer a growth stock; the real growth stocks will be challenged by a Fed that continues hiking into a slowing economy and thus will find the going harder. Cisco and growth stocks are no longer synonymous and thus what Cisco does won't change the other's valuation.
Cisco might spark a relief move to test the recently breached 50 day EMA on NASDAQ and SP500, but we would not expect more than that unless this thing really broadens out to the upside, i.e. the chips' strength actually was a portent of this resurgence in the large cap techs. Yeah, right. We like seeing stocks moving higher after hours and note that many semiconductors were really moving. We do not expect, however, for Cisco to turn the market.
Simply put, the market is worried once more as it was at the end of December with respect to the economic prospects ahead with a Fed that is still going like the Energizer bunny and oil prices that, even with a $2/bbl drop Tuesday (and even a $10/bbl drop), are still too high for a slowing economy.
We still like what we see in leaders in the chip sector and medical appliance/equipment to name two, and we also anticipate that energy will rebound again. As noted above, we will cautiously look at some, a few, a pinch, etc. of positions on strong stocks that continue to hold up and show us good moves after this last pullback. With more of the market coming under fire Tuesday, this is definitely a time to be cautious with new positions, but if a leader shows the right stuff we will give it a bit of money. Again, we will be cautious as the market determines whether the chips are going to be up and lead things higher, or down and join in on the downside. The market is the leading indicator and it remains somewhat a split decision with the chips so strong and the large caps so weak. The small and mid-caps will likely be the swing votes, and they were struggling Tuesday.
Support and Resistance
NASDAQ: Closed at 2244.96
Resistance:
The 50 day EMA at 2257
2273 is December 2005 closing high.
The 10 day EMA at 2274
The 18 day EMA at 2277
2280 is the October/December up trendline.
2278 is December 2005 intraday high.
2288 from December 2000 low.
2328 from the May 2001 peak
The January high at 2333
3015 is the December 2000 peak and the October 2000 low
Support:
The October 2005 up trendline at 2230
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 1254.78
Resistance:
The 50 day EMA at 1264.35
1264 from the December 2000 lows
The 10 day EMA at 1270
The 18 day EMA at 1272
The December highs at 1275 (intraday) and 1273 (closing)
The October to December up trendline at 1285
The January high at 1295
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
The bottom of the November/December 2005 range at 1248
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 10,749.76
Resistance:
The 50 day EMA at 10,804
The 10 day EMA at 10,821
The 18 day EMA at 10,832
10,868 is the December 2004 high
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:
10,754 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.
February 7
Consumer Credit, December (2:00): $3.3B actual versus $5.0B expected
February 8
Crude oil inventories (10:30)
February 9
Initial jobless claims (8:30): 285K expected and 273K prior
Wholesale inventories, December (10:00): 0.5% expected and 0.4% prior.
February 10
Trade balance, December (8:30): -$64.8B expected and -$64.2B prior
Treasury budget, January (2:00): $8.0B expected and $8.6B prior
End part 2 of 3
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us stock market
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