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us stock market, stock watch
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3/04/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: Took some interim gain on DIOD, CNI
Buy alerts: OPLK
Trailing stops: None issued
Stop alerts issued: IRM
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 overcomes another Intel disappointment but then gives it away.
- Economic data continues to show gains and declines.
- Market faces a boatload of economic data, tries to set up to once more to clear resistance.
- Pessimism growing even as market tries for new highs.
Market again faces down bad news but then lets a nice recovery get away.
Once more Intel disappoints, pre-announcing Thursday before the open that you could take its previous 2006 guidance and toss it in the trash. Apparently most investors had already done that. Futures dove lower just ahead of the open as the word disseminated and it looked pretty grim. The market opened and stocks opened lower as well, but they immediately started the rebound. By lunch the indices were turning positive. SOX was lagging, but it too overcame Intel and was in the green as well.
Volume was stronger on NASDAQ, a good indication as it rallied through the late January high, continuing the much improved price/volume action. Volume was lower on NYSE, more of the same weaker price/volume action this week. Nonetheless, SP500 moved back up to the Monday high. The market took an afternoon pause, but then that pause turned into a deeper pullback. That pullback continued through the afternoon. SOX was the laggard, and it proved to be the anchor chain that pulled the rest of the market back.
There was no breakdown at all, just more of the same seen the past two weeks. The higher volume turnaround (to the downside) on NASDAQ is not great action as that shows sellers jumped on the move higher and overwhelmed the buying. That always deserves attention just as a high volume rebound from selling piques interest in further upside. Clearly there was some nervousness with Bush in Pakistan and the fact that it was the weekend with tensions in Nigeria, Pakistan, Iran, Iraq, Venezuela, etc. The 'interesting times' we live in keep things at issue each weekend.
When all the smoke clears the market finished the day pretty much where it has traded all week. You can look at it either way you like. As for the negative, the clear point is that the indices tried to take out resistance once more and reversed when it was within their reach. Further, NASDAQ reversed on stronger volume meaning the sellers overtook the buyers and won the day. SOX lagged (understandably so), but it was disturbing that after overcoming the INTC news it gave up the rebound. NASDAQ 100 is in a bearish head and shoulders pattern. SMH (semiconductor ETF) is in a similar pattern, though not that ugly.
On to the positive. The buyers were ready to buy and move the market higher, once more overcoming another dose of bad news and showing no fear. NASDAQ price/volume action improved as money rotated back into techs. The patterns outside NASDAQ 100 are not bad. The reversals on NASDAQ and SP500 did not take them out of their patterns; indeed, the patterns with the Friday action have a bullish tint, probing the resistance then coming back to support to regroup and make the next move. The lower volume on the SP500 move looks particularly good by itself. There is leadership holding up and new stocks coming on as money rotates through the market. Bullishness has fallen to levels lower than that when two prior rallies started. Maybe that is foretelling a breakout ahead.
In short, the market has the same pros and cons as it consolidates below prior resistance, waiting for one side to take control. The Fed and energy, the two main market obstacles, remain at issue. A market breakout would forecast better economic times ahead and that likely means the Fed off the economy's back, letting it reach its potential and not choking it off as it hits the current unrecognized (by many so it seems) speed bump. With Bernanke yet to head his first meeting, the market is trying to figure out if he will stop at 4.75%, 5%, or forge fearlessly ahead similar to Greenspan when the maestro took over the head job.
THE ECONOMY
ISM services surpasses expectations, sentiment lags again.
The economy showed some mixed indications Friday. It is good to see not every report is slowing. The manufacturing ISM earlier in the week rose, countering some of the weaker readings shown in the regional manufacturing reports. The national report, however, tends to lag the regional reports by a month or two; we could see it soften some in March. In any event, the ISM services index rose in February, and it was ahead of expectations as well (60.1 versus 58.0 expected and 56.8 in January). That is a solid reading. Prices paid fell to 64.8 from 67.2. Jobs rose to 58.2 from 51.1. New orders bumped higher to 56.2 from 56.0. Again, these are solid numbers. They should be applauded given all of the other areas that are softening a bit. Instead they are used as a reason to overlook other areas that are softer and further the idea that the Fed needs to raise rates.
Michigan sentiment follows Conference Board sentiment survey, falls unexpectedly.
We saw consumer sentiment fall in the Conference Board's survey in February, and the final Michigan report for February echoed that decline. Sentiment fell to 86.7 from a 91.2 final reading in January. Sentiment was expected to fall after the Conference Board's results, but the drop was more than the 88.0 expected. It was even lower than the preliminary 87.4 reading. Both expectations and current conditions were lower with expectations again the weaker, falling to 74.4 from 78.9 in January.
The point is not the exact level of the reading, at least not at this stage. The numbers are still high enough that the consumer is not about to go on a buying strike. It is an indication of worry over a declining housing market and its impact on the economy. Of course there is a plethora other factors outside the economy to bum consumers, e.g. the port issue and talks of third world-like nationalization of all similar US operations, Iran nukes, continuing energy issues. Plenty to weigh down the consumer even as he is told the job market is great and the economy is so strong. What is the disconnect? Maybe things are not as strong as you hear. Things are not weak, and the sentiment is not suggesting that. It is, however, suggesting that the economy has lost some of its strength for now.
ECRI leading annualized growth rate falls.
We have been watching ECRI closely the past few months to see if it continues to show slowing. It is. The most recent reading fell to 3.5% annually for February 24, down from 4.1% the week before. ECRI's leading index continues to show weakening for the economy versus the analyst predictions it is strengthening.
Hate to keep saying it, but this is the same scenario as 2000: predictions the economy is growing or is unstoppable but economic indicators slowing, particularly the leading indicators. The Fed is raising rates into the slowing. Very similar, but you know that.
THE MARKET
MARKET SENTIMENT
VIX: 11.96; +0.24
VXN: 16.27; +0.28
VXO: 11.56; +0.12
Put/Call Ratio (CBOE): 0.87; -0.08. Never hit 1.0 the past week. Just two closes above 1.0 this year. Not an extreme and not enough to show any real anxiety, at least from this aspect of sentiment.
Bulls versus Bears:
This is telling us something as bullishness has tailed off significantly while bearishness is hitting rebound levels as well.
Bulls: 42.6%. Bullishness is really on a dive, dropping from 45.3% and 48.9% the week before. Quite a drop from 60.4% hit at the start of the year. It has now undercut the prior two lows that helped kick off their own rallies.
Bears: 30.8%. Bears did not grow as fast as in prior weeks (25.5% to 27.7% to 29.5%) or as fast as bulls fell, but as with NASDAQ, the reading has topped the prior two highs at 29.2% and 30% in May that presaged bottoms.
NASDAQ
Stats: -8.51 points (-0.37%) to close at 2302.6
Volume: 2.45B (+16.23%). Volume was up early as NASDAQ recovered and turned positive. Good action, continuing the positive turn in price/volume action on NASDAQ the past week. Then the bids stopped and the sellers showed up. Volume remained high as NASDAQ gave back the gains and closed negative. Not so great, especially since volume was its highest in over a month. Some churn (running in place on volume), and you never like to see higher volume on reversals off breakout attempts as the sellers use the rally to sell and they overrun the buying.
Up Volume: 1.115B (+132M)
Down Volume: 1.316B (+235M)
A/D and Hi/Lo: Decliners led 1.43 to 1. Breadth was low at the open but after the immediate recovery it was pretty much middle of the road.
Previous Session: Decliners led 1.3 to 1
New Highs: 175 (+9)
New Lows: 33 (-2)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped lower on yet another Intel warning and then immediately started the recovery, rallying 25 points and clearing the late January high (2315). Looked good as it pulled back to test that move in the early afternoon, but then it kept falling, giving up the gain and closing negative. High volume up, high volume down. The buyers were strong, the sellers were stronger. NASDAQ held above the 10 day EMA (2294) on the gap lower, and it held that near support level on the close as well. That keeps NASDAQ in the hunt for another breakout attempt as it continues to work laterally below resistance and holding the 10 day EMA. With the return of stronger volume last week it needs to make the most of this position.
SOX (-1.56%) gapped lower as well but it also fought back to turn positive. That was over about as soon as it happened, however, and SOX led to the downside. Even though it acted as the anchor chain, SOX still held above near support at the 10 day EMA (535). It rebounded off the 50 day EMA (523) last week, surging on Wednesday. SOX needs to make a higher low here to give it a springboard to take out 551 and then 555. It has stalled three times at that level. Time to make the move if it is going to do it.
SP500/NYSE
Stats: -1.91 points (-0.15%) to close at 1287.23
NYSE Volume: 1.57B (-12.32%). Volume was the opposite of NASDAQ: lower on the move higher, lower on the move down. No strength to break it out of its pattern, but no distribution. Just more basing, and after showing some deteriorating price/volume action during the week, this was not bad.
A/D and Hi/Lo: Decliners led 1.43 to 1. Was -2:1 early on but recovered decently and was quite modest on the close.
Previous Session: Decliners led 1.25 to 1
New Highs: 169 (+20)
New Lows: 27 (+8)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied over the January high (1295), matching the Monday intraday high (1297ish) on the high. It could not hold the move of course, closing slightly lower. Quite an intraday range of 13 points, but it held the 18 day EMA (1283) on the early run lower, and closed holding the 10 day EMA (1286). This is a continuation of the handle formation to its 8 week double bottom with handle base. It got a bit wild during the week with the volume sell off Tuesday and more strong volume Thursday. It held the pattern, and that keeps it in the game for a breakout attempt if it starts factoring in an end to the Fed's rate hiking.
SP600 (-0.34%) hit another new all-time high the past week, but it could not advance the ball. Three times it tapped at 384ish on the high and could not punch higher. It is struggling to clear the upper channel line in its uptrend (382). As noted Thursday, it will take something such as a NASDAQ and SP500 breakout to punch it through. Otherwise it is likely to make a test lower back to the 18 day EMA (377) or to lower channel line near 370.
DJ30
DJ30 showed a big doji on the candlestick chart similar to NASDAQ and SP500. It rallied to 11K on the high and then faded, again managing to hold the 18 day EMA (11,009) on the close. Volume soared thanks to a strong jump in INTC trade. It is holding support after that Tuesday dump lower took it to the 18 day. This is where it needs to make it stand to hold the mid-February break higher.
Stats: -3.92 points (-0.04%) to close at 11021.59
Volume: 365M shares Friday versus 274M shares Thursday. Price/volume action is not the best the past two weeks with the above average volume sessions posting losses. Again, this is where it needs to hold the line and continue the February break higher.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
After a rather slower week of economic data the news flow resumes in a torrent leading up to the February jobs report, the report that gets all of the attention with respect to the economy's health now that the economic expansion has slowed. Many are using this as a litmus test for what the Fed will do, but we are less and less convinced jobs are the focus. Friday two Fed officials, one leaving and the other staying, voiced different opinions, but opinions that nonetheless indicate the Fed is not too focused on jobs. Former FOMC vice chairman Ferguson said the economy was in great shape, but he is worried that housing and construction could fall off sharply and take the economy with it; as we said last week, the economy slowed dramatically the last two times the housing market peaked. Then there was Stern at the Minneapolis Fed saying that he saw no reason to raise rates beyond neutral and that they were now at or near neutral. One can only hope this more dovish tone is the truth.
The market still needs to come to a conclusion about what the Fed is going to do. It is holding up nicely but it cannot make headway either, at least all indices together. DJ30 and SP600 are making steps in that direction, but they have not broken free and clear. The market has to get its bearings regarding the Fed and then it can focus on energy; at least the Fed will be done when it is done, and all the market has to do is determine when the Fed is out of the game. Bonds say 2 more hikes but it is still too far out. Call us foolish, but after this week we are more confident the Fed is going no more than two. It should not go more than one or risk slowing things too much. It could even skip March, but the problem there is the Fed has built in too many expectations about the hike even with its 'we are at neutral and bound to the data' position. If things got bad enough for it to pause in March there would be a big reaction as investors second guess with the 'what does the Fed know that we don't?' question.
We would have loved to see the breakout hold Friday, but it is just as well it faded, still keeping the indices at striking distance of a breakout. Monday's can be weaker as well, and if it made the breakout it would like have been right back to start the week. It is back near support now, and that will keep the Monday morning profit takers to a minimum. The indices are set to make the move, they just haven't been able to do it yet. Investors will likely make the decision before the March 27-28 FOMC meeting, sooner if it is going to breakout this coming week. We still view the market holding back with respect to the Fed. It needs to get comfortable with when the Fed will stop and whether that will slow the economy more than this recent pause.
There is still leadership and money is rotating again, moving into tech last week as that index started to perform better with solid price/volume action. Small caps remain strong. Lots of stocks continue in solid uptrends. Coupled with the increasing bearishness just as the indices are approaching highs, the market could beat all the pessimism and deliver the breakout. We have been accumulating positions all along as we keep seeing good moves in stocks, and those good moves tend to foretell a breakout.
We will see. There is a high enough wall of worry that keeps people negative even as stocks move higher. It is that old syndrome of reacting with the gut versus letting the market and leading stocks tell you what the score is. Even as the market sets up to break to new highs, indeed, even as DJ30 and SP600 broke to new highs, bullishness declined and bearishness increased. When there are a lot of issues, whether market related, geopolitical, or otherwise, it is easier to discount market moves. We heard analyst after analyst this week talk about a strong Q1 and then an economic and thus market slowdown. It is easy to conclude that given the Fed action and energy's refusal to break lower and stay lower. The market often defies the easy answers, however.
Thus this week we will continue to watch for quality stocks making solid moves in this negative environment. They have been setting up and breaking higher and as they continue to do that we will continue to participate in the moves.
Support and Resistance
NASDAQ: Closed at 2302.60
Resistance:
The late January high at 2314.36
2328 from the May 2001 peak
2330 is the October/December up trendline.
The January high at 2333
3015 is the December 2000 peak and the October 2000 low
Support:
2288 from December 2000 low.
The 10 day EMA at 2294
The 18 day EMA at 2287
2278 is December 2005 intraday high.
2273 is December 2005 closing high.
The 50 day EMA at 2270
The October 2005 up trendline at 2252
S&P 500: Closed at 1287.23
Resistance:
The January high at 1295
1297.57 is the recent February high.
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
The 10 day EMA at 1286
The late January peak at 1285
The 18 day EMA at 1283
The December highs at 1275 (intraday) and 1273 (closing)
The 50 day EMA at 1273.61
1264 from the December 2000 lows
The bottom of the November/December 2005 range at 1248
Dow: Closed at 11,021.59
Resistance:
The 10 day EMA at 11,036
11044 is the January high.
11,159 is the February high.
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:
The 18 day EMA at 11,009
10,985 is the March 2005 intraday high
10,965 from Q4 2000 and November/December 2005
The 50 day EMA at 10,916
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.
March 06
Factory orders, January (10:00): -5.5% expected, 1.1% prior
March 07
Productivity, revised Q4 (8:30): -0.2% expected, -0.6% prior
Consumer credit, January (2:00): $5.0B expected, $3.3B prior
March 08
Crude oil inventories (9:30): +1.638M prior
March 09
Initial jobless claims (8:30): 290K expected, 294K prior.
Trade balance, January (8:30): -$66.5K expected, -$65.7K prior.
March 10
Non-Farm payrolls, February (8:30): 200K expected, 193K prior
Unemployment rate (8:30): 4.8% expected, 4.7% prior.
Average workweek (8:30): 33.8 expected, 33.8 prior.
Hourly earnings (8:30): 0.3% expected, 0.4% prior
Wholesale inventories (10:00): 0.5% expected, 1.0% prior
Treasury budget, February (2:00): -$115.0B expected, -$113.5B prior.
End part 1 of 3
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