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world stock market, us stock market
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3/06/06 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: CELG
Buy alerts: RMBS; TRAD
Trailing stops: STT; OVTI
Stop alerts: CLZR; MRVL; PARL; SLB
SUMMARY:
- Market starts sluggish then thuds lower in afternoon as long rates rise.
- Bond yield curve flattening but not the way the market wants.
- TXN fails to raise guidance, adding weakness after hours.
Another worry gets the best of the market.
Stocks started out well enough, flat to modestly lower, ready to build on the Friday breakout attempt. Oil was lower, typically a positive for the market. Softer open and then NASDAQ turned positive through mid-morning, trying another comeback move as it has shown of late. The action was not fast and furious but it continued the recent building action.
Energy was weak from the open, putting some drag on SP600 where a lot of the smaller energy stocks reside. The rest of the market, however, was holding up, along with semiconductors. They started to weaken, however, over lunch, though nothing major. Interest rates continued their recent run higher, however, and when the 10 year hit close to a 2 year high some sell programs were triggered. SOX was showing some relative strength with NASDAQ, but it gave way and so did the market.
All indices cascaded lower, falling through the near support levels we wanted to see hold after the Friday breakout attempt on NASDAQ and SP500. They managed to hold support, SP500 at the 50 day SMA, NASDAQ holding above that level along with SOX. SP600 fell through the 18 day EMA on rising NYSE volume, both it and SP500 showing distribution once more.
Not a great start to the week after showing some positives Friday. No breakdowns, but after being on the verge of a breakout, once more the indices have to put in some more time to try and set up another attempt. The market has found one reason or another to sell each time it nears a significant upside break. Whatever the reason, however, it points to the fact that the buyers just are not quite strong enough yet to make the move through resistance. They try to build for the breakout, but bulls simply cannot overrun the sellers.
Techs may get another reason for weakness Tuesday as TXN failed to provide the increased guidance many wanted at its mid-quarter update. It was down after hours, taking other chips with it. No major selling, just more weakness on top of a weak session. TXN still sees strong demand growth so it may pan out after the initial disappointment. It is, however, not the island of woes as is Intel. Pessimism continues to grow, but it is not enough at this point to have flushed the sellers. The indices are in the position of having to hold key support again and make another attempt at a breakout. Moreover, they will once more have to overcome some adversity as on Friday to do it.
THE ECONOMY
Long end interest rates driving higher, flattening the curve but, but investors not cheering.
The 10 year bond yield has tacked on 19 basis points in four sessions to close the inversion to just 1 basis point (4.76% to 4.75%). After the inversion topped 20BP, you would think the market would look upon this as an improvement, an indication that perhaps a recession may not be that close.
Instead, it is getting tagged with the blame for the market weakness when the indices are on the verge of breakouts. The problem is described as a rise in the long end as opposed to a rise in the short end. There is a fear that interest rates are breaking resistance, and with the help of the ECB hiking rates and Japan on the verge of ending its 5 year 0% interest rate policy it is feared that long rates will rise further. Moreover, there is the possibility that as European and Japanese rates rise the decreased differential between US and foreign bonds will lead to less investment in the US, exacerbating the current account deficit and result in even higher long end rates.
If this seems somewhat irrational to you, it is. There was a fear of inversion as the Fed pushed the short end higher while the long end held steady. Some no doubt took solace in the low long end because it helped keep housing alive and otherwise aided capital investment with a historically relatively low money cost. As the long end rises, those folks are getting rattled. With the Fed pushing up the short end, however, it only makes sense that the only way the inversion is going away is if long rates rise. How many times have you heard in the past two years that rising long rates are not necessarily a bad thing, that rates naturally rise when an economy is stronger. Thus if you buy the argument that the economy is so strong, then you would also not mind that the long end finally started to rise some on its own.
Of course that begs the question as to whether the economy is that strong. The adverse reaction could be the unspoken majority showing they don't believe all of the talk about a surging economy, and that with the long end finally breaking higher under the pressure of the Fed the economy may really slow. Remember what we have said: the Fed rates hikes have not fully impacted the economy. Further, the Fed always hikes and hikes until something breaks; that, unfortunately is usually too late. Sudden breaks higher indicate that the Fed rate hikes all of the sudden are hitting, pushing rates higher before they fall lower as the economy slows under their weight.
Still others fear that the quick advance in the 10 year signals that foreign investors are selling US treasuries, indicating that the feared inflection point has been reached with respect to US foreign debt and the US' supposed credit-worthiness.
What is likely happening is a combination of the first two factors. The potential further rise in overseas rates is leading bond investors to conclude the Fed will raise rates further and thus the selling in the bonds, pricing in further rate hikes. That ties into the Fed going too far as it fights inflation and also fears higher overseas rates pulling investment from the US.
It remains to be seen how this shakes out. A step back from the inversion is nice, though a flat curve still signals economic slowdown. Problem is, if the curve continues to improve with the long end rising, there are many fund managers viewing that as a negative and equities will be under pressure from those managers lightening up on shares just as they were doing on Monday with respect to NYSE stocks.
THE MARKET
MARKET SENTIMENT
VIX: 12.74; +0.78
VXN: 17.52; +1.25
VXO: 12.17; +0.61
Put/Call Ratio (CBOE): 0.92; +0.05
Bulls versus Bears:
Bulls and bears are at prior rebound levels even as the market toys with new highs. That remains something of a positive for a breakout, though the Monday action was anything but. Remember, this is always a secondary indicator and not a sure bet. It tells us that conditions are ripening for a turn.
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: -16.57 points (-0.72%) to close at 2286.03
Volume: 2.191B (-10.57%). No distribution on the NASDAQ selling, a modest positive as volume, though lower, was still well above average. NASDAQ has shown just two distribution sessions in the past month, though you could argue Friday was a distribution session. NASDAQ continues to hold in its range with overall decent price/volume action. It will have to be the index that holds the line as NYSE price/volume action has deteriorated.
Up Volume: 751M (-364M)
Down Volume: 1.424B (+108M)
A/D and Hi/Lo: Decliners led 1.72 to 1. The A/D line improved from -2:1 earlier in the session, a moral victory. Actually, the rebound along with the lack of distribution indicates things were not out of hand. Again, NASDAQ needs to keep it together for the benefit of the rest of the market.
Previous Session: Decliners led 1.43 to 1
New Highs: 120 (-55)
New Lows: 41 (+8)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Slight gap higher, a test of 2300, and then a further move into positive territory to 2309. That was it, however, as NASDAQ faded and then fell off the table in the early afternoon. NASDAQ fell through the 10 day EMA (2292) and could not recover the 18 day EMA (2287) on the close. It did hold the December high (1278), so its breakout remains in tact. Volume was lower but still topped average (though lower than last Tuesday, Wednesday and Friday. Disappointment after the Friday upside breakout attempt; the sellers again entered on an upside attempt and again the sellers won out. NASDAQ remains in its range and can make another higher low after the recent higher high and higher low. It has yet to make the breakout, however. There has been some improving price/volume action, and the index is relying on that to make a higher low above the 50 day EMA (2270.81) and take another shot at a breakout.
SOX (-1.71%) gapped higher as well and showed some relative strength through the morning. Once the selling got some teeth, however, it reverted to a downside leader, falling through the 10 and 18 day EMA as well and tapping at 525 on the low (526.09) and holding above the 50 day EMA (524.15). It too continues in its range of the past six weeks, thus far unable to make the breakout and now coming back to test the range's bottom yet again. This is where it has to find support once more.
SP500/NYSE
Stats: -8.97 points (-0.7%) to close at 1278.26
NYSE Volume: 1.653B (+5.29%). Volume was running higher all session as the energy stocks were under pressure from the open. Volume closed out back above average as NYSE posted its second clear distribution session in a week; three if you want to count last Wednesday, though that session showed a dip lower and solid rebound. In any event, NYSE was selling on rising volume, showing some distribution once again. If it was all energy we would not be terribly concerned; falling energy stocks indicate falling energy prices. Unfortunately it was not all just energy volume.
A/D and Hi/Lo: Decliners led 2.23 to 1. Small cap weakness kept breadth sharply negative all session, and it held to the close.
Previous Session: Decliners led 1.43 to 1
New Highs: 124 (-45)
New Lows: 40 (+13)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 thudded lower on rising volume but did manage to bounce some off the 50 day SMA (1276) tapped at the low. Distribution yes, but not a huge surge in volume. SP500 can still make a higher low at key support at the 50 day MA (1274 50 day EMA) and continued toward the breakout attempt. It is, however, not the best action in a handle formation with some distribution and some hard downside price declines. That said, perfection is rarely achieved. Thus far SP500 has held the line and managed to recover from weakness. It has yet another important test ahead at the 50 day EMA where it will try to make a higher low. We note that the financial stocks, stalwart leaders on SP500, were lower Monday, but sported modest declines on lower volume. When they turn back up they will help drive SP500 off this support.
SP600 (-1.10%) was the number two downside, also showing distribution as the small caps undercut the 18 day EMA (376.95) and could not recover it on the close. It hit a new high last week but could not put any distance on the January high (380). It gave that up on stronger downside trade as the small energy companies that call SP600 home were roughed up Monday. Something of a double top trying to form on SP600 with some distribution on the second high. This was one of the indices that helped bring the market back up in February, and if it falls hard it is going to hamstring the market near term. Not much support from the close (376) before 370 (50 day EMA is at 370.34).
DJ30
Despite the T/BLS deal, DJ30 couldn't gain any traction and indeed faded with the rest of the market. Couldn't hold the line at near support at the 18 day EMA (11,003) after showing a doji there Friday on the candlestick chart. It tapped at the 50 day EMA (10,918) on the low and managed a rebound to close, recovering about 30 points of lost ground (one-third of the total loss on the day). Volume was lower, fading back to average. Has given up the move over the January high (11,043), but is still managing to hold the move over the March 2005 high (10,936).
Stats: -63 points (-0.57%) to close at 10958.59
Volume: 292M shares Monday versus 365M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Revised Q4 productivity before the open and consumer credit late in the afternoon are the scheduled economic reports. The focus will remain on the 10 year bond and whether it makes more 1.5+ year highs. Oil was lower (though still over $60/bbl), and that did not help. When you think about it, if oil does fall significantly, i.e. falling well below $60/bbl, OPEC is going to take action to support the price. After all, last week an OPEC official announced $60/bbl as a fair price. Some demand was lost as oil hit the upper sixties to low seventies, so OPEC does not want to go there, but it continues to see strong demand near $60/bbl. Thus it has an incentive to keep it just over $60/bbl in order to maximize profits. In short, OPEC has been actively studying the market and has determined the world can live with $60/bbl oil, particularly with the US saying it wants to rely less on Middle Eastern oil. OPEC never left one insult go unnoticed.
Once more the indices are at a point where they have to hold. Thus far they have pulled it off, managing to maintain the range near the highs, keeping the breakout chances alive. They have a chance to make higher lows once more and continue to build toward the breakout. If they can shrug off the energy sector selling and find buyers in techs, metals, and chips once more they can do it. That was the problem Monday: money left energy but ti did not rotate anywhere else; thus the sharp drops in the afternoon.
The indices are at support where they can make higher lows, but as seems usual, they also have to deal with another obstacle. After hours TXN gave its mid-quarter update, and while it saw continued strong demand while narrowing its guidance to the high end of its range, it did not raise it. TXN lowered its guidance when it announced earnings in January, and the street wanted to see it raise guidance again. When it did not take its range back up, investors paid little attention to the claims of strong telecom demand, and the stock sold off about $1 after hours.
Thus once more the market will have to find positive threads in the market despite an apparent disappointment. The indices are still holding near breakout points, but again have to make an important hold at key support. Pessimism remains on the increase about the ability to make the move, and that in itself is a positive along with leadership that continues to hold up overall. Another session or two of modest decline/flat trade on lower volume would provide a very good set up for another breakout attempt and provide some good entry points on some of the strong leaders that could use a pullback for another entry point (e.g., TRID, WFR, DIOD, BRCM). Tuesday we want to see the indices hold at the next key support with some declining trade. That means they will have to shake off TXN and blunt the stronger Monday selling volume on NYSE.
Support and Resistance
NASDAQ: Closed at 2286.03
Resistance:
The 10 day EMA at 2293
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 18 day EMA at 2287
2278 is December 2005 intraday high.
2273 is December 2005 closing high.
The 50 day EMA at 2270.80
The October 2005 up trendline at 2255
S&P 500: Closed at 1278.26
Resistance:
The 18 day EMA at 1283
The late January peak at 1285
The 10 day EMA at 1285
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 December highs at 1275 (intraday) and 1273 (closing)
The 50 day EMA at 1273.80
1264 from the December 2000 lows
The bottom of the November/December 2005 range at 1248
Dow: Closed at 10.958.59
Resistance:
10,965 from Q4 2000 and November/December 2005
10,985 is the March 2005 intraday high
The 18 day EMA at 11,004
The 10 day EMA at 11,022
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 50 day EMA at 10,918
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): -4.5% actual versus -5.5% expected, 1.6% prior (revised from 1.1%).
March 07
Productivity, revised Q4 (8:30): -0.1% 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): 295K expected, 294K prior.
Trade balance, January (8:30): -$66.5K expected, -$65.7K prior.
March 10
Non-Farm payrolls, February (8:30): 210K expected, 193K prior
Unemployment rate (8:30): 4.7% 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): -$118.0B expected, -$113.5B prior.
End part 1 of 3
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world stock market
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