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world stock market, us stock market
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2/16/06 Investment House Daily
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SUMMARY:
- Stocks again overcome a post-Bernanke slump, NASDAQ rallying on much better trade.
- Economy is hardly dead yet, but strong indicators are not going to make the Fed friendlier.
- SP500 breaks string of lower highs, but NASDAQ still has work to do ahead of long weekend.
Some healthy rotation may be finally coming back to the market.
Up through the January peak the market was showing good rotation with money moving all around tech, semiconductors, small caps, and finanicals. Then it went on sabbatical when the large cap tech earnings started hitting the street. NASDAQ and the small caps went down, joining the large caps in an overall languish. Then the large caps came back to life, followed by the small caps. That was the state of affairs until Wednesday when the techs actually started to show some life once more. Thursday volume was up on NASDAQ as some big cap earnings helped bring some life to the index.
NASDAQ closed at the session high, still below the lower January peak. It is closing in on that level and trying to join DJ30, SP600 and the newcomer SP500 in clearing that peak. That rotation is a solid indication, but NASDAQ is not out of the woods yet. It is still below that critical level, and volume has not been great. Neither has breadth. It will have to continue contributing and at least play a supporting role for the large caps and the small caps. Techs are a growth area, however, and to give a vote of confidence to a continued economic expansion they have to make a higher high as well.
The economic data helped the market once more. Housing starts exploded past expectations with a 14.5% gain. Oil was up but still struggling. The Philly Fed snapped back sharply as well, matching the good recovery in the New York region. That Philly number is what seemed to spark the market. Bernanke spoke to the Senate, and the market faded again after the testimony that was given to a rather vacant banking committee. A vote on the Patriot Act and another economic hearing had many senators splitting time. When the Philly Fed hit, however, the market strengthened. It made a mid-afternoon test, but then surged up to the close at the session high.
Volume rose on NASDAQ and sputtered on NYSE, the opposite of Wednesday. Again, a sign of rotation. Breadth was huge on NYSE at better than 2:1, but it was middling on NASDAQ. NASDAQ's move was more of a large cap move given the earnings from the big techs on Wednesday evening. It was not bad action at all, indeed the kind of action needed for a comeback from the selling. Still work to do and still not really powerful, but fighting back.
THE ECONOMY
As we said before, there is nothing wrong with the US economy as the Thursday data continued to show. That does not mean, however, that it is impervious; it can still be pecked to death, i.e. weighed down by too many rate hikes as it was in 2000. The 2000 economy was still strong, but it was older and was weakening as the Fed continue to get more and more aggressive. That turned some weakening into a crash, and that is the main concern at this point. The economic expansion is old, there is some slowing but nothing fatal on its own. If the Fed goes too hard it threatens the same result. Remember, the 2000 economy was described as 'white hot' even after the stock market crashed and the damage had been done.
January housing starts surge, but that is not really a great thing for that market.
Housing starts saw the biggest surge in 33 years with a 14.5% gain. Permits were up 7%. Sounds great for the housing market, but it is not necessarily so. It was a warm month and a lot of building was pushed up. More than that, however, it is putting a lot of houses into a market that is already becoming saturated. Listings have quadrupled over this time last year as more houses are going unsold for longer periods. Builders are offering more incentives to move their inventory. A surge in housing starts is only going to bring more supply into a market where supply is already ballooning.
This is typically how strong runs end; the producers keep on producing until they cannot sell. That typically means some pain in the transition as they overshoot and are left with supply. The big issue is how the Fed looks at this number. It has targeted housing regardless of what it says otherwise. Will it read these starts with an understanding of the market or will it take the knee-jerk response and view the housing starts as a sign that market is still running. Reality is the market shows all of the signs of a peak, but as with any other market there are signs that remain strong until the move is over. If you look at the wrong ones you can make wrong decisions.
Philly Fed surges back after wobbly January, but it is not necessarily a blowout.
A massive surge to 15.4 from 3.3 in January easily surpassed the 9.2 expected. That 9.2 was not a bad jump in itself; 15.4 is huge. But it can be misleading. The overall number is independent of the components; that is why January was basically overlooked as the components were stronger than the overall number. What about February's components?
Orders were solid at 12.5 and shipments were 22.5, another strong reading. Prices paid softened a bit more as did employment. The components are basically split, and thus just as the January overall number overstated the weakness, the February overall number overstates the strength. It is still a strong result and that is an economic positive, though the Philly Fed has only about a 75% correlation between it and the ISM, much lower than the 90% correlation of the Chicago PMI.
THE MARKET
MARKET SENTIMENT
VIX: 11.48; -0.83
VXN: 14.93; -1.12
VXO: 10.97; -0.85
Put/Call Ratio (CBOE): 0.7; -0.01
Bulls versus Bears:
Bulls: 48.9%. Bulls continue to fade, falling from 51.6% last week and 52.6% the week before. A further decline from 60.4% hit in January on the high for this cycle. It is a positive to see bullishness fade during the rebound to end January; again, some of the bullish sentiment has cracked. If it gets below the mid-forties it is getting into a good indicator level. It hit 44.8% on the low on the last leg, just above the 43.5% low in May.
Bears: 27.7%. Very good, up from 25.3% and resuming the stronger move higher as three weeks back it was 25.8%. Bears held above the key 20% level on this cycle and they are approaching levels where sentiment helped turn the market. 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: +18.2 points (+0.8%) to close at 2294.63
Volume: 2.02B (+9.87%). Solid climb in volume pushed trade back above average for the first time in three sessions. Timely return to some strength after rising but still lagging on the rebound this week. It took over the volume chores from NYSE, showing some rotation into tech stocks after the large caps and then the small caps got the money to start the recovery attempt. Still not very strong buying in the bigger picture, and with NASDAQ yet to take out even its lower January high, this trade is not at the level you want it to be.
Up Volume: 1.213B (-71M)
Down Volume: 677M (+144M)
A/D and Hi/Lo: Advancers led 1.79 to 1. Decent breadth but not great breadth. The large cap techs led the move and thus narrower breadth. The techs are still struggling despite the three upside sessions since Tuesday.
Previous Session: Advancers led 1.64 to 1
New Highs: 189 (+57)
New Lows: 20 (-7)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ continued its mini up streak, gapping higher and definitively moving through the December high (2278) on rising, above average volume. That is the first step, and it was good to see some volume behind it, though volume does not stack up to the prior sessions when it moved higher and then sold back. That shows a remaining lack of conviction as NASDAQ moves toward the lower January high (2314) on its way to try the high at 2333. The market needs NASDAQ to at least come along with it, something it is trying to do. NASDAQ is a growth index, and if it continues to lag and fails at the January highs, that is not a great indication for a future economic expansion.
SOX (+1.43%) was the upside leader as it cleared the early and mid-December peaks at 539, trying to muster the strength try the twin tops at 556 and then at 560. SOX maintained its uptrend and after a close below the 18 day EMA (536.25) Monday it has regained its footing and continues the trend. Will need some NASDAQ buying strength to take it through those twin peaks, but it held its trend after cracking it.
SP500/NYSE
Stats: +9.38 points (+0.73%) to close at 1289.38
NYSE Volume: 1.659B (-4.03%). Volume trailed off for the second straight session after a good burst got things moving Tuesday. Like that NASDAQ trade pick up because if it had not, this declining trade on NYSE would be a real warning siren. As it is it deserves caution; Wednesday was not that bad, but another weaker session, (falling below average) as the climb continued keeps this move suspect.
A/D and Hi/Lo: Advancers led 2.36 to 1. Breadth was excellent, something of an offset to the volume, but it does not trump it. The small caps continue to show strength and that is keeping the breadth pumped up (energy stocks posted a modest rebound). No complaints, but the market cannot live on breadth alone.
Previous Session: Advancers led 1.75 to 1
New Highs: 219 (+67). Not overly impressive with SP500 approaching the January high along with SP600.
New Lows: 13 (-6)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 continued its nice streak of gains, running closely behind NASDAQ and SP600 on the session. Volume fell back to average as the move continued, not bad given the solid volume that kicked off the move, but with NASDAQ volume up and the small and mid-caps posting nice gains, a volume boost would have shown more strength. As it is SP500 looks solid as it moved past the lower January high (1288) toward the high at 1295. Good price move to clear the resistance but likely to pause or stall at the high given the lack of increasing trade to drive it higher.
The small caps (+0.84%) rallied as well, continuing the move above resistance at 370 and on toward the recent high at 380.83. Never made a lower low on this recent pullback, staying within its uptrend channel and bouncing off the 50 day EMA (365.61). Solid action as it continues the bounce toward the prior high, but that NYSE volume is fading as SP600 continues higher.
DJ30
DJ30 moved higher again, putting some distance on the January high (11,048) on some rising, slightly above average volume. DJ30 has cleared the near term resistance levels and is focusing on the longer term peaks (11,350; 11,401; 11,425). DJ30 has turned it on after a very weak January threatened to take it out of its 11 month double bottom with handle. Nice breakout on decent trade has given it some room to rise.
Stats: +61.71 points (+0.56%) to close at 11120.68
Volume: 303M shares Thursday versus 298M shares Wednesday. Good recovery after solid volume Tuesday then the decline Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The last day before a 3 day market holiday (Washington's birthday) and a three day advance on some mixed volume. Stronger trade trading off between the indices, but overall not a surge in volume as stocks recovered. That keeps this move somewhat suspect even as we see some rotation return to the market and some leaders picking up where they left off before the late January, early February selling. NASDAQ needs to continue to participate in the move higher not only to support the other indices but to also indicate that the market is still pricing in economic growth down the road. The market is a leading economic indicator; it has faltered on worries regarding the Fed, but declining oil this week has helped it back on its feet. It is making headway, but there are still important points for SP500 and NASDAQ to clear.
With a long weekend and a 3-day rebound we could see some position squaring given there are still some issues in the world such as oil, Iran, and still a terror premium beneath everything else. We saw more good action from some leaders that bided their time during the January and February weakness, using that time to consolidate gains and then break higher to start the next advance. Those have popped up the past three sessions despite the weakness leading into this move, and we will be looking for more on Friday. If we see the volume we will nibble at some more, but with the idea that we could see some weakness in the afternoon given the long weekend.
The PPI comes out Friday along with preliminary Michigan sentiment, and though PPI will be scrutinized for prices and can impact the action, the CPI next week is where the rubber meets the road. If PPI surges, however, it can cause a problem unless it is all energy; we know energy costs are declining now, and that will only help down the road.
DELL also reported earnings after the close, and unlike HPQ, AMAT and NTAP, it did not shoot higher on the news. Dell is being poached by HPQ's recovery, and its business model is not as popular in other countries as it is here. Thus DELL is not likely to give the NASDAQ the boost the Wednesday evening earnings did, but it also appears to be more specific to DELL.
Support and Resistance
NASDAQ: Closed at 2294.63
Resistance:
2302 is the October/December up trendline.
2328 from the May 2001 peak
The January high at 2333
3015 is the December 2000 peak and the October 2000 low
Support:
2288 from December 2000 low.
2278 is December 2005 intraday high.
2273 is December 2005 closing high.
The 18 day EMA at 2272
The 10 day EMA at 2271
The 50 day EMA at 2259
The October 2005 up trendline at 2237
S&P 500: Closed at 1289.38
Resistance:
The January high at 1295
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
The late January peak at 1285.
The December highs at 1275 (intraday) and 1273 (closing)
The 10 day EMA at 1274
The 18 day EMA at 1273
The 50 day EMA at 1266
1264 from the December 2000 lows
The bottom of the November/December 2005 range at 1248
Dow: Closed at 11,120.68
Resistance:
11,176 - 11,186 from April 2000
11,350 from the May 2001 peak.
11,401 from the September 2000 peak.
11,425 from April 2000 peak
Support:
11044 is the January high.
10,985 is the March 2005 intraday high
10,965 from Q4 2000 and November/December 2005
10,868 is the December 2004 high
The 10 day EMA at 10,957
The 18 day EMA at 10,915
The 50 day EMA at 10,845
10,754 is the February high
10,720 is the high in the recent lateral move
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
February 14
Retail sales, January (8:30): 2.3% actual versus 0.9% expected, 0.4% prior (revised from 0.7%).
Retail sales, ex-autos (8:30): 2.2% actual versus 0.8% expected, 0.2% prior.
Business inventories, December (10:00): 0.7% actual versus 0.5% expected, 0.6% prior (revised from 0.5%). Business inventories rose for the seventh straight month. Some indication of lower consumption, but the strength in sales continues as well.
February 15
New York Empire Index, February (8:30): 20.3 actual versus 18.0 expected, 20.1 prior.
Capacity utilization, January (9:15): 80.7% actual, 80.8% expected, 81.2% prior (revised from 80.7%).
Industrial production, January (9:15): -0.2% actual versus 0.2% expected, 0.9% prior (revised from 0.6%).
Crude oil inventories (10:30): +4.85M bbl versus -318K prior
February 16
Building permits, January (8:30): 2.217M actual versus 2.068M expected, 2.075M prior
Housing starts, January (8:30): 2.276M actual versus 2.023M expected, 1.933M prior
Philly Fed, February (12:00): 15.4 actual versus 9.2 expected, 3.3 prior
February 17
PPI, January (8:30): 0.2% expected, 0.9% prior
Core PPI, January (8:30): 0.2% expected, 0.1% prior.
Michigan sentiment, prelim, February: 91.0 expected, 91.2 prior.
End part 1 of 3
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world stock market
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