|
|
us stock market, trade stock
* * * *
2/27/06 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: LUK; LSTR; MSCC; ADM
Trailing stop alerts: None issued
Stop alerts: 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 Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Oil fades and stocks rebound, but unable to make the breakouts on SP500, NASDAQ.
- New home sales down 5%: one of Bernanke's watch point sectors continues to weaken.
- Watching for a breakout, but cautious given the lack of strong trade pushing the market higher.
A bit of decent news following Friday helps continue rebound toward next resistance.
Friday the news was pretty dark across the board with respect to oil with the Saudi attack and Iraqi civil unrest. Nonetheless the indices managed modest gains, overcoming the negatives and showing some hidden strength. Monday the news was better. Lowe's posted stronger than expected earnings and MER announced a stock buyback. Those were credited with helping, and they probably did somewhat, but the real heavy lifting was on oil's back. It gave up the Friday gains (61.00, -1.91) as concern over the Saudi Arabia production facility attack diminished. As oil softened stocks strengthened.
The early excitement pushed SP500 above its January high as NASDAQ rallied to the lower January high. SP600 broke out to a new all-time high. Volume was up on NASDAQ and NYSE, but it remained well below average. That lack of strong trade along with overall modest breadth allowed for some late selling that took away SP500's move above the January high. There was an upside push, but not enough to clinch the breakout move on SP500 or push NASDAQ through its initial resistance.
The move was primarily a large cap tech move. NASDAQ 100 posted a 1.14% gain versus NASDAQ's 0.88% advance. Energy and metals continued to languish. This suggests there is some rotation out of those latter sectors into large cap tech, a lagging sector. Of course, many of those issues have suffered sharp selling this year (and in many cases in 2005 as well), and this rebound could simply be some short covering. It is, however, helping NASDAQ recover after lagging on the recent rebound move whether short covering or rotation. In any event, breadth and volume were modest as NASDAQ rebounded further but was again unable to take out that next resistance.
This leaves the market basically in the same place though showing a further gain. Low volume advance on narrow breadth, still unable to make the break through key resistance. The market keeps its relatively decent looking face but that low volume and inability to break to new post-2002 highs continues to plague it. The low volume leaves it more susceptible to upset if a big event hits; that is always the concern with low volume moves because it does not take many institutional investors to significantly skew the market's direction in this environment. Bad news did not upset the market Friday, so there is some backbone growing. Just growing, however, as volume remains quite weak on this advance.
THE ECONOMY
New home sales drop 5% as inventories climb to a record.
The 1.233M annual units were lower than the 1.27M expected. The 5% decline pushed inventories up 20% year/year to the highest level ever recorded. That is a misleading statistic, however, as there are also more people living in the US than ever before. Nonetheless, it shows a dramatic increase in available housing, pushing inventories to a 5.2 month supply. That is the first time supply has hit that level since late 1996.
Some are saying it is too quick to say there is a glut of new homes on the market. Well, given the decline in the housing market the past year, it is soon enough. Houses are taking longer to sell; on average it takes 4.5 months to move a new home as opposed to 4.0 months in 2005. You can blame the inventories on a lot of building in January during the warm months, but it is harder to blame the rising time to sell a house on warmer weather.
In addition, cancellations of orders for new homes is on the rise the past few months. Real estate agents are telling us that those buying homes to resell are pulling out of deals, fearing a cooling market could lead them holding the bag, or in this case, the house. That is resulting in more homes on the market as they put their remaining inventories on the market in an attempt to beat the decline. For now the median price held steady at $238,100, so the supply has not yet shown up in the national average though it is showing up in certain regions.
Homes and Bernanke.
This decline, and thus far an orderly one, is a positive for those concerned about continuing rate hikes. While the Greenspan mentioned housing indirectly, it became apparent it was targeting the sector to slow it down. As usual, however, it is apparent from Greenspan's post-chairman speeches and comments that he emphasizes his primary reason for raising rates less and less the further into an expansion we get. In other words, he starts worrying over those lagging indicia of growth such as employment, etc. as he gets carried away by the strong economy talk.
Bernanke, however, is appearing true to his roots with respect to this rate hiking, mentioning Monday that the housing market is a real concern for the Fed in the months ahead. If housing continues to fade it is likely Bernanke will use that as an offset against any increases in employment and the like. To this extent Bernanke is still somewhat grounded in the reasons for the rate hike and understands that with strong oil prices a weak housing market is simply an additional restraint on the economy. Oil is a tax and weaker housing means less personal wealth. As seen last week, wages are not keeping pace with inflation. Business capital investment remains at an overall solid level. That is not an inflationary environment. As noted, hopefully Bernanke's comments mean he has not lost sight of why the Fed raised rates in the first place.
THE MARKET
MARKET SENTIMENT
VIX: 11.59; +0.13
VXN: 14.97; -0.19
VXO: 10.48; -0.14
Put/Call Ratio (CBOE): 0.72; -0.21
Bulls versus Bears:
Bulls: 45.3%. A strong drop from 48.9% the week before. A fairly precipitous decline the past few weeks from 60.4% hit in January on the high for this cycle. 35% is considered an extreme level that can indicate a reversal, but readings of 44.8% on the low on the last leg and 43.5% in May triggered solid market rebounds. Getting close, and with NASDAQ at support and trying to make a higher low, the timing is good.
Bears: 29.5%. Strong climb from 27.7% and 25.3% before that. The market never turned overly positive as measured by this indicator as it never reached below 20% on this move. It is at a level that can help the market turn. 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: +20.14 points (+0.88%) to close at 2307.18
Volume: 1.774B (+11.44%). Rising volume on a gain again showing some accumulation, but again, just some. Volume remains below average as it has for the past two weeks except for one session where it peeked higher. Good to see some accumulation as NASDAQ faces resistance, but it will need more overall buying to beat the one-two resistance from January.
Up Volume: 1.201B (+251M)
Down Volume: 517M (-98M)
A/D and Hi/Lo: Advancers led 1.42 to 1. Modest upside breadth once more as the large cap techs led the move higher, dragging overall NASDAQ with them. As with volume, not the kind of internal strength that leads you to conclude a breakout is a sure bet.
Previous Session: Advancers led 1.38 to 1
New Highs: 236 (+94). Getting a bit better. A reading of 400+ on a break through even the lower January high would be a good indication; along with, of course, strong volume and breadth as well.
New Lows: 22 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher, continuing the move off the 50 day EMA (2264) that started last week. NASDAQ has made a higher low at that key support and on Monday it rallied to tap at the late January high (2315), the next important resistance point. A break over that level gives NASDAQ a higher low and a higher high and gets it that much closer to breaking up that intermediate downtrend that started with the early January peak. The low overall volume remains as its Achilles heel; it needs to come up with some solid volume or it will continue to have a hard time making serious headway that will also hold the ground once it is taken. Monday the large cap techs led the move; we will need to see the rest of NASDAQ join in as the week progresses if it is going to make the next serious upside push.
SOX (+0.54%) lagged all session, finding it hard to get out of the blocks with the downgrade of chip equipment stocks in general and AMAT and LRCX in specific. SOX remains huddled just above the 50 day EMA (520.23) and its October/December up trendline at 526. Unlike NASDAQ, SOX does not have the look of even trying to shake off the recent weakness as seen with NASDAQ. It remains in its uptrend but is not participating with the rest of the market as it has made consecutive lower highs and lower lows. This is the lick-log point, i.e. where it needs to throw in with the market to the upside or throw in the towel.
SP500/NYSE
Stats: +4.69 points (+0.36%) to close at 1294.12
NYSE Volume: 1.44B (+0.23%). Volume was higher as well, though not as significant as NASDAQ. As NASDAQ trade was still below average, that leaves NYSE wanting as well. Low volume advance that is showing accumulation, but nearly all of it has come on below average volume. That is not the strongest of moves, and frankly, it leaves the NYSE indices somewhat suspect as they move for new post-2002 highs.
A/D and Hi/Lo: Advancers led 1.39 to 1. Very light breadth as the energy stocks were off and the large cap techs led the move.
Previous Session: Advancers led 1.51 to 1
New Highs: 281 (+101)
New Lows: 24 (+7)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied above the January high (1295) intraday (1297.57), and was holding that move right into the last hour. It tried a bounce higher to start that hour and then was sold into. That last dip lower in the last one-half hour close SP500 below the January high. Low volume and lackluster breadth doomed the attempt. SP500 needs a couple more sessions to work laterally over the 10 day EMA (1285), complete the handle, and then makes the breakout. Perhaps that action will garner some volume to the upside and give this move some power and immunity from getting flipped over on the next negative news story.
SP600 (+0.34%) rallied to 383 on the high, hitting a new all-time price. It gave back more than half the move as it too was hit in the last half hour. It managed to hold onto a new closing and all-time high, however, clearing the upper channel line and holding that on the close as well. Not a definitive move given the lower volume, weak breadth, and close off the high, but the small caps are also refusing to idle. More than that, they are refusing to sell off as is predicted every month. Hard to argue with new highs.
DJ30
Posted a modest gain as well, closing well off of the intraday high (11,132.61). Even at the high it was still within its range of the last week. Volume was up but still well below average; just not that strong of a move, but not bad at all as DJ30 continues its lateral move, consolidating the break higher that started a couple of weeks back.
Stats: +35.7 points (+0.32%) to close at 11097.55
Volume: 268M shares Monday versus 247M shares Friday. Though not strong, the action continues the overall solid price/volume action the past week, showing continued accumulation in Dow stocks.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Monday's economic data was a slow warm-up to what comes Tuesday: existing home sales, Q4 GDP revision, Chicago PMI, consumer confidence. Existing home sales are 80% of the market; it completes the housing market picture. GDP will be ignored for the most part with the focus on Q1's expected large jump. Chicago PMI and consumer confidence will have the most impact as Michigan confidence was below expectations and the regional manufacturing reports have shown a very recent rebound.
All of this folds into the mix of further Fed action and energy pricing. The prevailing thought is that the economy is on fire and thus force the Fed to continue rate hikes. The unconventional wisdom of the day was the conventional wisdom as late as early January, i.e. the economy was not as strong as thought. Left alone it will likely be jut fine. If the Fed takes on employment now that it has succeeded in blunting housing, we are likely to have problems. Whenever the Fed takes on jobs with the intent to slow them, it is acting too late in the cycle, and it is also acting on the economic aspect that most impacts sentiment. Sentiment can run up and down, but as long as there are more jobs coming, i.e. jobs are not believed to be threatened, consumers will spend.
There is enough economic data out this week to keep the market on hold with respect to any new ideas on what the Fed will do barring any major, unexpected moves in the data. Oil remains a key factor as well. While it would appear that $60/bbl oil versus $65/bbl oil makes little difference, the decline to near $58/bbl two weeks back really helped stocks. It managed to rebound from an imminent breakdown (yet again) on another oil-related crisis, and now everyone is watching to see if oil will resume the decline that started now that the news that stopped the fall is no longer news.
The bigger point is how the market continues to perform. It is pushing toward new highs and NASDAQ is trying to reverse its near term downtrend; not bad in the face of the issues that continue to dog it. On the other hand it cannot attract the strong buying that shows most of the big money is accumulating shares. They are not participating for whatever reason or reasons they want. The issue is whether there is something that brings them in as buyers or as sellers. We hate to sound negative, but this is a real consideration here as the market advances against the prior resistance levels without widespread backing.
Thus we remain cautious but are starting some positions here and there as individual stocks make moves indicating that at least they have widespread support (or selling). This is a key test for SP500, NASDAQ and even SP600 (even though it cleared resistance, it was on low trade), a prime point to fail. We will continue to look for opportunity, but if higher volume selling kicks in we will have to be strict with the upside and look for some downside potential as well.
Support and Resistance
NASDAQ: Closed at 2307.18
Resistance:
The late January high at 2314.36
2320 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.
The 10 day EMA at 2282
The 18 day EMA at 2278
2273 is December 2005 closing high.
The 50 day EMA at 2264
The October 2005 up trendline at 2248
S&P 500: Closed at 1294.12
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 10 day EMA at 1285
The 18 day EMA at 1280
The December highs at 1275 (intraday) and 1273 (closing)
The 50 day EMA at 1271
1264 from the December 2000 lows
The bottom of the November/December 2005 range at 1248
Dow: Closed at 11,097.55
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 11,049
The 18 day EMA at 11,000
10,985 is the March 2005 intraday high
10,965 from Q4 2000 and November/December 2005
The 50 day EMA at 10,898
10,868 is the December 2004 high
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 27
New home sales, January (10:00): 1.233M actual versus 1.270M expected and 1.298M prior (revised from 1.269M)
February 28
GDP second preliminary, Q4 (8:30): 1.6% expected, 1.1% first iteration
GDP chain deflator, Q4 (8:30): 3.0% expected, 3.0% prior.
Chicago PMI, February (10:00): 58.2 expected, 58.5 prior.
Consumer confidence, February (10:00): 104.0 expected, 106.3 prior.
Existing home sales, January (10:00): 6.60M expected, 6.60M prior
March 1
Personal income, January (8:30): 0.6% expected, 0.4% prior
Personal spending, January (8:30): 1.0% expected, 0.9% prior
Construction spending, January (10:00): 1.2% expected, 1.0% prior
ISM, February (10:00): 55.5 expected, 54.8 prior
Crude oil inventories (10:30): +1.121M
March 2
Initial jobless claims (8:30): 285K expected, 278K prior
March 3
Michigan sentiment, final, February (9:50): 87.5 expected, 87.4 prior
ISM services, February (10:00): 58.0 expected, 56.8 prior.
End part 1 of 3
|
us stock market
trade stock
|
