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world stock market, us stock market
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2/21/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: None issued
Stop alerts issued: IMGC
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:
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SUMMARY:
- NYSE indices post nice low volume pullback, but NASDAQ & SOX struggle again.
- FOMC minutes provide little relief from Fed, indicate more hawkishness.
- Leading Economic Indicators pumped up by lagging indicators.
- CPI is next data point for Fed that is still very much alive.
Take out NASDAQ and SOX and you have great market action.
Friday saw a low volume pause to start consolidating the rebound move that week. Tuesday we got some more of the same, but it was limited to the NYSE indices. SP500 and SP600 both posted modest losses on low, below average volume, continuing the nice consolidation of the rebound. They were helped by a rebound in energy stocks on the Nigerian oil issues; there is no denying that helped out those indices as many energy stocks call the NYSE home. NASDAQ and SOX, however, both thudded lower, NASDAQ landing on the 50 day EMA and SOX heading that way. Indeed, SOX made a fresh new low on this pullback, not a good indication for technology overall.
There were issues the market again had to confront, and as noted, some handled it better than others. Oil was up on the Nigerian rebel attacks and kidnappings over the weekend (62.74, +1.45), and as one of the drivers of last week's rebound, it was a big issue for the market. The LEI was over twice the level expected, a possible indication of stronger growth 3 to 6 months down the road. That along with a more hawkish Fed given its January FOMC minutes was more reason for stocks to feel the pressure.
Again, the news was handled differently by the indices. SP500 and SP600 shrugged it off more or less, posting modest losses (-0.33%, -0.29%) on light volume. They continue to show much improved price/volume action that started last Tuesday with the strong move higher that initiated the rebound. Breadth was ho-hum, but not bad given a down session. NASDAQ and SOX did not handle the news well. Their rebounds were weaker as they showed weaker price/volume action and weak breadth on that move. That came up and bit them on the behind Tuesday as they sold off early and could not get off the mat. Volume was lower as well so there was no major dumping, but that has not stopped these two from selling off and being simply weaker than the NYSE indices on this rebound attempt.
The key for the market is which will win out. The NYSE indices look as good as NASDAQ looks weak. We see many solid stocks in nice pullbacks, consolidating last week's move and preparing for a rebound with the right catalyst. We also see some leading techs such as MRVL trying to hold onto the 50 day MA as semiconductors threaten a breakdown. Perhaps this is just rotation as the market looks to new leadership after the semiconductors and NASDAQ got it this far. That is why we continue to look for upside opportunity in the many stocks that making nice, orderly pullbacks. With the yield curve inversion, the Fed still very ready to raise rates (now a third rate hike is 80% priced in), and oil prices on the rise from the latest supply crisis, all market sectors will be challenged. We want to see SP500 and SP600 continue the nice, orderly pullback to set up the next leg higher. We need to see NASDAQ make a stand at the 50 day EMA and show some good upside strength.
THE ECONOMY
FOMC minutes carbon copy last Fed rate hike statement with a hawkish twist.
After the January Fed minutes sparked a rally in a failing market, the February release was quite a letdown, at least in its effect. It did spark a rally, one that lasted about 2 minutes as the news hit and shorts were covered. After that it was back to the same old grind because the minutes were the same story just heard in the statement released after the January 31 FOMC meeting.
Basically the Fed said that rates were just about where they needed to be though some further hikes might be needed to keep things in balance. In short, the Fed said things were close to neutral and where they go from here depends upon the data. Nothing new there. If anything the minutes were more hawkish, in line with how the street read the January FOMC statement. Some FOMC members viewed core inflation as 'somewhat' higher than desired. Others noted inflation pressures were lower due to the drop in energy costs as January progressed. With the spike back up of late, so much for that positive.
This is more of the same, and the market read it as such. That, unfortunately, was not a positive. The Fed has come to the point where it says it is no longer on automatic with rate hikes, but will go month to month with its decisions, relying on what the data shows. Bernanke has seconded that notion as he takes the chair. Problem is, as we have detailed frequently of late, it is what you look at and how you interpret it that determines action. The Fed is very consistent in its approach; at the end of a rate hiking cycle it is pretty much spooked by any economic strength because its whole premise up to that point in raising rates is that things are too strong. Thus, unless it sees things weakening, it does not get off the brake pedal.
As history shows us, however, economic data means different things at different times in a cycle. Things that are strong at the end of a cycle don't mean the cycle is still expanding. Lagging data looks strong late in a cycle because it is lagging data. The underlying economy can be slowing down or even weakening while that lagging data continues to improve. We said last week that the economy is fine as most of the data indicates. It is slowing a bit but not in danger of falling into a slowdown. That is, unless the Fed does the work for it.
Mixed market indications.
That is the problem right now. The equity markets are holding up for now with SP500, SP600 and DJ30 looking solid. NASDAQ and SOX, growth indices, are not so great. They are not crashing, but like a middle aged man in a nowhere job in a nowhere town, they have lost their drive. Ever since those first mega caps reported bland guidance NASDAQ has run like a man with an arrow in his knee. The mega caps are not growth stories anymore. That is not news, but NASDAQ is still treated as a growth index when it is dominated by a lot of mature tech stocks. That leads to disappointment when they fail to produce the results just as DELL recently showed. CSCO beat expectations and rallied NASDAQ, but the general story is a lot of mature techs keeping a lid on NASDAQ's advance.
The bond market is more in line with the action on NASDAQ, i.e. the 2 year is stronger than the 10 year and now even the 30 year. At the close Tuesday the spread between the 2 year and 10 year was 16 basis points in the short end's favor. That is no three-quarter (75BP) inversion that many are pointing to as a trouble indication, but with the Fed still raising rates based on employment data and energy prices (that in truth act ultimately as a drag on the economy), the yield curve inversion is getting worse and will continue to get worse. It has gone from flat to a basis point inversion to a 16 BP inversion in two weeks. With the Fed still after the economy and with the long end still weak then the inversion will worsen.
A flat curve means flattening profits.
Some say it is no problem because of the foreign buying in treasuries. That is certainly part of the equation. Importing millions of barrels of oil per day and sending that purchase money overseas where it has to come back to the US or the world economy implodes is keeping rates lower than they would be. But it is not the significant creator of the inversion. If the bond market was acting as it should in a healthy and expanding economy the yield curve would still be steeper even with this foreign buying. For an economy to continue expanding, banks, businesses, etc. have to be able to borrow low and lend high. Profits accelerate when the rate curve steepens and they slow when it flattens. You cannot get around that economic truth just by saying part of the cause of the flatter curve is increased foreign treasury buys.
Thus the markets are throwing off mixed signals. Overall the stock market is suggesting some expansion, but it is mixed internally itself. SP600 is a growth index and it is performing well. NASDAQ is a growth index and it is struggling a bit. The bond market is a leading economic indicator as well, and inversions almost always lead to economic slowdowns and stronger ones lead to recession. Sure there is more foreign buying, but does anyone on the Fed really believe that is the only reason or even the primary reason for the current inversion? The answer is likely 'no.'
Leading Economic Indicators post fourth consecutive rise
January leading indicators rose 1.1%, more than doubling the 0.5% expected. December was revised higher to 0.3% from 0.1%. That was the fourth consecutive gain and the overall reading (140.1) was a new record.
The LEI measures 10 components including employment and building permits. Because of some of its components, it can mean different things at different times in a cycle. We recall back in 2002 and 2003 when the LEI started to show gains it was widely discounted as inaccurate. Well, as it turns out it was accurate though it was not as accurate as ECRI. It can pick up some increases that are leading indications. The problem is, it has been riding employment data of late (jobless claims and the overall jobs report) as part of its increase. Building permits have helped it out as well, and as discussed before, permits are not indicators; builders get permits even if a cycle is slowing because they are not sure if the cycle is finally over and they cannot afford to be caught short without the ability to build inventory.
In any event, LEI is showing strength, but we know it is inflating that strength due to some of its indicators that are leading the index' gains. We also know a slowing expansion can have strong months and weaker months. ECRI has even showed improving data the past two weeks but it is still suggesting that the expansion is slowing in 2006. Again, that does not mean the economy cannot continue higher from here as per the LEI. There are up and down cycles within an expansion and the data is looking stronger after weakening early in the year.
Again, slowing does not mean recession or even a hardship . . . if left alone. As Greenspan liked to point out, timing can be everything. The Fed's timing is typically that of a Swiss watch; one that fell to the bottom of the lake. History has many examples of expansions that went through a down cycle and were solid enough to recover but for too many rate hikes. With 75BP more rate hikes being priced in, the expansion is going to be tested. Thus far it is holding its own, but the market is not so sure as the mixed action shows.
THE MARKET
MARKET SENTIMENT
VIX: 12.41; +0.4
VXN: 15.25; +0.14
VXO: 11.39; +0.42
Put/Call Ratio (CBOE): 0.91; +0.08. Rising back toward 1.00 on the close but not there. Two closes over 1.0 this selling cycle. That is not enough to set the foundation for a rebound or turn the tide
Bulls versus Bears:
Bulls: 48.9%. Bulls continued to fade last week, falling from 51.6% 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: -19.4 points (-0.85%) to close at 2262.96
Volume: 1.785B (-8.95%). Volume was low on expiration Friday and it was even lower Tuesday, coming in well below average. That takes some sting off of the point loss, but it is not salvation. NASDAQ trade lagged on last week's recovery, showing the buyers were not as intense as on NYSE.
Up Volume: 491M (-213M)
Down Volume: 1.286B (+56M)
A/D and Hi/Lo: Decliners led 1.67 to 1. Not bad given the amount of decline. That is about all you can say because breadth on the rebound was not that solid.
Previous Session: Decliners led 1.16 to 1
New Highs: 144 (-42)
New Lows: 25 (+9)
The Chart: The Chart: http://www.investmenthouse.com/cd/^ixic.html
The Friday fade turned into a significant drop that took it past the December high (2278) it cleared last week. It broke through the 10 and 18 day EMA (2271) on the way down to the 50 day EMA (2260), undercutting it intraday before a modest rebound late managed to close the index on that support. No major heavy volume selling, just more of the lack of buying after the distribution that started the month. The lack of volume selling gives it the opportunity to hold here. It needs to in order to break the string of consecutive lower highs and lower lows. Techs have not done much, however, to turn investors back to them. Needs to find them here.
SOX (-2.17%) led the downside as it fell further below near support (18 day EMA at 534.86), broke through 525 that held it up last week, and is heading for the 50 day EMA (519.09). A nice recovery last week and looked very strong Thursday. Since then it has been a complete reversal as big names, particularly in chip equipment (e.g., KLAC, AMAT) are declining, helped by downgrades. A downgrade, however, will slow a strong stock temporarily; AMAT is showing its strongest volume in a month on this decline, and that is not promising. MRVL, another leader, is also struggling, managing to hold its 50 day EMA on rising volume. Chips are a mixed batch with some leaders continuing to show strength, but the uniform strength show in January and early February is not there. SMH, the semiconductor ETF, is diving toward the neckline of its head and shoulders pattern. The chips are heading to critical support where they need to hold or they will find themselves down.
SP500/NYSE
Stats: -4.2 points (-0.33%) to close at 1283.04
NYSE Volume: 1.549B (-1.25%). Volume remained low and below average, dropping from already low trade last Friday. This is what we wanted to see as the NYSE indices slipped into a consolidation of last week's rebound. Some accumulation came back into the market last week, and this continues that improved price/volume action.
A/D and Hi/Lo: Decliners led 1.12 to 1. Modest point losses, modest downside breadth. About par for the session.
Previous Session: Advancers led 1.3 to 1
New Highs: 198 (-21)
New Lows: 17 (-1)
The Chart: http://www.investmenthouse.com/cd/^gspc.html
SP500 made the move we anticipated and wanted, more or less. Volume was lower as it tested back modestly, what it needed as it could not hold the lower January high at 1288. It is still well above the 10 day EMA (1277.58) and the December high at 1275 (18 day EMA is at 1275.25). Want it to continue this orderly pullback for the next session or so, hold that next near support, and then continue the move higher. That pullback will be enough to shake out more sellers, setting up the breakout move.
SP600 (-0.29%) held up well also, tapping the 10 day EMA (373.93) on the low and rebounding to recoup over half its losses on the session. Lower volume, good and orderly test of near support. SP600 has returned to leadership, and it can prove its mettle here as well by holding onto near support at the 10 day EMA or the 18 day EMA (372.78) and providing the breakout with SP500.
DJ30
DJ30 led the move higher with a breakout to a new post-2002 high, showing some solid trade along the way. Tuesday it was down with the other indices as HD was up and WMT was down, both moving on earnings news. WMT had a contained outlook for 2006; if it is right the economy is likely going to be stronger than we anticipate because consumers shun WMT when times are good and move to it when times get tough. In any event, DJ30 lost some ground but it is a good giveback considering the run and the breakout higher. Looking for a hold at the January high (11,048) as the optimal point for it to test and rebound from on this pullback.
Stats: -46.26 points (-0.42%) to close at 11069.06
Volume: 270M shares Tuesday versus 329M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Tuesday saw the FOMC minutes giving the Fed's pulse a month back, and Wednesday the Fed gets a new data point (though it already has it today) with the CPI. There is also the release of crude oil inventories; there is plenty of supply, so unless there is a huge build the Nigerian crisis is likely to still rule the plight of oil.
The consensus for CPI is a 0.5% build (-0.1% prior) and a 0.2% core rise (0.2% prior). The last thing the market needs is an indication that prices are passing through to the consumer; that would keep the Fed on point and would press the market. That is the life of the market with a data-driven Fed. Seems we have been in this position before; indeed, the Fed has said it has been data driven for the past year. We are likely not going to see a decline in data, at least across the board in the near future, to the extent that would put the market at ease. That leaves it fighting the Fed, fighting oil prices, and fighting to hold support.
Thus far it has done an admirable job through 14 Fed rate hikes and oil that hit $70/bbl last month. Each time it has been on the verge of a breakdown it has found buyers just as oil has done. It is definitely at the point once more where it needs to find buyers in technology.
We still have our doubts about just what this market is showing us with respect to the future. There are similarities to prior market turning points, and that is why NASDAQ and SOX are very important as they test key support once more. If they break down on volume that raises the probability the overall market goes lower as well, an indication that the economy is going to slow unexpectedly.
Right now the market remains in its overall uptrend, and even though weakened, many stocks remain in very solid patterns. We will continue to look at those for upside opportunity as the market makes this pullback. It is a time to be patient and let stocks show the pullback and then the move higher if they are going to do it. While we may not like the action in NASDAQ and SOX overall, there are many stocks, inside NASDAQ & SOX as well as outside those indices, that remain in excellent shape. If this set up on the NYSE indices continues, they will provide solid plays on the rebound.
Support and Resistance
NASDAQ: Closed at 2262.96
Resistance:
The 10 day EMA at 2271
The 18 day EMA at 2272
2273 is December 2005 closing high.
2278 is December 2005 intraday high.
2288 from December 2000 low.
2308 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:
The 50 day EMA at 2260
The October 2005 up trendline at 2240
S&P 500: Closed at 1283.04
Resistance:
The late January peak 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 10 day EMA at 1277
The December highs at 1275 (intraday) and 1273 (closing)
The 18 day EMA at 1275
The 50 day EMA at 1267
1264 from the December 2000 lows
The bottom of the November/December 2005 range at 1248
Dow: Closed at 11,069.06
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.
The 10 day EMA at 11,001
The 18 day EMA at 10,950
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 50 day EMA at 10,865
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 21
Leading Economic indicators, January (10:00): 1.1% actual versus 0.5% expected and 0.3% prior (revised from 0.1%).
FOMC January 31 minutes (2:00)
February 22
CPI, January (8:30): 0.5% expected and -0.1% prior
Core CPI (8:30): 0.2% expected and 0.2% prior.
Crude oil inventories (10:30): +4.85M prior.
February 23
Initial jobless claims (8:30): 297K prior
Help wanted index, January (10:00): 40 expected and 39 prior.
February 24
Durable goods orders, January (8:30): -0.3% expected and +1.8% prior.
End part 1 of 3
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world stock market
us stock market
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