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world stock market, us stock market
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3/09/06 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: PDS
Buy alerts: None issued
Trailing stops: TRID; CELG; PWAV; GS
Stop alerts: DIOD; INFA; MSCC; RSTI; SIMO; SNDK
SUMMARY:
- Relief bounce lasts an hour as upside shows almost surprising weakness.
- Trade gap hits a new record as oil continues to surge . . . along with exports.
- Ports roadblock another form of protectionism, US style.
- Lack of rebound leaves investors in no man's land ahead of jobs report
Wednesday rebound moves into Thursday . . . for an hour.
Stocks started higher Thursday on the heels of the Wednesday reversal following 4.5 days of selling. The market was primed for a rebound and stocks were obliging investors. The move, however, lasted only about an hour. NASDAQ moved back above the 50 day EMA and chips were leading the rebound. Then there was a test. The test took NASDAQ back to the 50 day EMA. Then NSM announced its earnings, earnings that were not bad, but it did not give investors that blow out upside surprise they wanted. The indices jerked lower, NASDAQ undercut the 50 day EMA, and the downside slide was on again.
Stocks did attempt an afternoon rebound, rallying after lunch for another hour. Then it was announced that the UAE port deal was dead and the rebound attempt quickly evaporated. NASDAQ and SOX led lower once more with large cap techs leading the tech sector.
By the close SP500 was below the 50 day EMA as well, joining NASDAQ and SOX below that level. Always a weak signal when the indices start trading below the 50 day EMA. Volume was lower on both indices, thus there was no dumping. The problem is, however, that the market was trying to make a rebound as the sellers had feasted for over 4 days and were taking it easy. After the early upside pop there simply were no bids to support prices, and when NSM announced its results, the few that were out there got yanked. That renewed the downside slide. Thus even though volume was lower as stocks slid once more, the real point is that buyers simply displayed no strength to push even a relief bounce.
About the only thing working once more were consumer staple stocks such as CL and PG. Sure there were others with specific stories driving them, but this market has taken on the 2000 look: very choppy, back and forth action with growth stocks the most volatile. Outside the market we have the Fed on a rate hike campaign that looked to be winding down as the economy softens, but now the new view is the economy is surging (a view primarily derived from the employment data as it was back in 2000) and it seems everyone has once more bought into the notion that the Fed has to raise rates to prevent inflation. Never mind housing is slowing, never mind oil prices are still much too strong (the spiked in 1998 ahead of the 2000 recession), never mind that the leading economic forecasts are showing the economy has peaked. Just as in 2000 none of that matters. Those in power are too focused on port deals, political polls, and the upcoming congressional elections to keep their eye on the ball. It is all too frighteningly familiar, similar to watching a car wreck in slow motion.
THE ECONOMY
Trade deficit hits new record even as exports show another healthy gain.
The gap between import and exports rose to $68.5B topping the record October level by $700M. As with the interest rate worries, certainly this means the sky is falling. Indeed, Mr. Pisani on CNBC let us in on his laser sharp insight, saying the market should be worried about this because some day . . . the sky will fall. You get the picture. This is what former Treasury secretary Robert Ruben opined last month (yet again), saying that at some unknown point the trade gap MAY get big enough to cause foreign investors to label the US a bad credit risk and no longer buy our treasuries.
You can bet the market HAS factored it in the best it can, but with such a string of 'ifs, ands and buts' ahead of any reality, putting a price on it is like factoring in the potential that the bird flu will make it to the US, mutate into a human to human form, and then wipe out one-fifth of our population. Indeed, it is even harder than that because at least the bird flu impact can have hard numbers put to it. The main problem with the trade gap theory is it is ALL theory; there has been no point in history such an event has occurred with such a stable economy, indeed, the world's best consistently strong economy. You can factor it in, but you might as well go live in a cave if you are that worried about it. Note it and then put it on the wall with the worry about the next terror attack in the US, the next Tsunami, etc. Indeed, there is more likely for another major Gulf storm (heaven forbid) than this vaporous worry about at what point the trade gap gets to a level that 'may' result in less foreign investment.
Is the widening gap exposing some weakness in the US economy? Not from a productivity perspective. Exports grew once more, rising 12% year/year, a very healthy growth rate. Other countries want our products just as our citizens want the products of other countries. Strong economies want to consume foreign goods. The improvement in Japan and potentially the European economies is only a plus for the US and its exports.
The problem is there is one product that is skewing all the numbers. Imports grew 14% led by, you already it: oil and oil related products. In October, immediately after the Gulf storms, the trade gap hit an all-time record on all-time highs in oil imports. With the Gulf production off line we needed to replace that oil and we did it with imports. Since then, however, oil imports have not declined because production has not returned to capacity. Oil imports rose for the fourth straight month, up 2.5% in January and a whopping 40% year over year. Now that does not mean we are using 40% more oil. Imports are measured in dollars. Thus we are using oil that is costing us 40% more than last January, and that can be a combination of price increases and quantity usage. The primary factor is increased price as we all know.
Can the trade deficit be fixed?
Many are saying it will never be fixed, that we will never run a surplus again. With the US population aging and our manufacturing in a 50 year decline, that argument has some merit. We don't import a surplus now with a very active and productive consumer and work force; what will it be like in the future with a bunch of grey beards and a service economy engaged in caring for us old farts? We will have to import goods.
But that does not mean that the trade gap cannot improve. Energy is the primary culprit now, and I have written several times about the need and the very realistic chances of reducing our oil demand to minimal levels. Just recently that idea has come into vogue with the President's alternative energy initiatives, but it is one that should be continually pushed forward lest it suffers the same fate from back in the 1970's and early 1990's, i.e. initial interest then waning backing as energy prices subsided. The issue is definitely crisis driven, but we need to get out of that mode, have some insight, and look down the road to better times.
Ethanol is very possible along the lines of Brazil, although Brazil has a geographic advantage: its warm climate allows year round sugar can production, and sugar is the best source for ethanol, producing much higher yields than our corn-based variety. Nonetheless, millions of vehicles produced in the US over the past 5 years are already capable of running E85, the most prevalent form of ethanol. All it takes is more production and getting it to existing service stations to start making a dent.
A few million vehicles isn't going to do the trick but it is a start to changing the mindset. The beauty of this is that the vehicles can switch back and forth from ethanol to gasoline as prices dictate, and that has the appeal the consumer wants. No one wants to be stuck with an ethanol vehicle when gasoline prices plunge. Brazil learned that the hard way and now its fleet is bi-fuel, goes both ways, etc. In doing so it has weaned itself from over 80% of its prior oil consumption.
Hydrogen is another source that is just 15 years away from a workable, affordable vehicle. Hydrogen is very appealing because its source (water) is so widespread and it produces no hydrocarbon emissions that many blame for warming world temperatures. That is a rather grandiose viewpoint given the world has warmed during human existence long before the advent and widespread use of combustion engines. If you want to look for the real source in the rise of greenhouse gases, look at the destruction of the world's major forests. They were responsible for recycling the greenhouse gases, and their demise is the real crippling effect for the world regardless of whether we are using fossil fuels are not. The problem with hydrogen is that it requires an entirely new vehicle fleet and an entirely new service station process for providing the fuel. The vehicle is not the problem; the infrastructure to support it is the problem.
What does the port issue have to do with this?
Outside of changing our energy usage (something that must be done, however), the other way to improve the trade gap is to sell more goods to foreigners. This is what everyone harps on, but to us it is really an insignificant point. Over the past 20 to 30 years most exporting countries have geared their economies to feed US demand. They thrive because the US buys their goods. Thus they have absolutely NO interest in stopping the purchase of US treasuries.
The change that will come, however, is when some of these countries start consuming their own goods as their populations gain wealth. China and India are primary examples. Their middle class is growing and they will realize someday that they can afford to consume their goods and they will start doing that. Some of the drive to keep the US alive will diminish and thus we could see a reduction in treasury purchases.
On the other hand, when world economies recover, there is also the likelihood that the developed economies, e.g. Japan and Europe, will want to buy more US goods. Despite the US bashing around the world, it is still very chic to own US goods. As Japan ends its 0% interest rate economic financing incentive program and as the EU raises rates in its insane attempt to stall prosperity before it takes hold (the ECB is only mandated to fight inflation; unlike the Fed, it is not required to also find maximum sustainable growth), it is possible that foreign interest in our goods will increase and help offset oil purchases. It will only be an offset, however. Export growth has been strong and the deficit continues to grow.
So what about the port deal? Well it is a form of protectionism. Some in Congress want to cancel all contracts with foreign companies that have state ownership in the company. Of course, they won't go as far to then ask what the hell the US Treasury has to do with managing US ports or other federal ownership or control that amounts to ownership of supposedly private assets; apparently it is okay for the US government to own or control them. Maybe that is better than a foreign state owning them, but it is just a step better.
Free markets around the world would only help US exports. Most other countries have trade barriers and subsidies that work to block US exports. We have been negotiating free trade or open trade arrangements with various countries around the globe, but the kind of 'nationalization' of the ports is placing a chilling effect on attempts to open markets. Some in Congress want to cancel existing contracts that involve companies that have some foreign government ownership. This is little different from our complaints now and in the past about how countries "without rule of law" unilaterally cancel contracts with US companies who have built facilities in those foreign lands. It is simply hard to sell open markets even if we want to couch it as a security issue; other countries won't see it that way just as we did not see it as a security issue when countries cancelled oil contracts and confiscated property for the sake of 'national security.'
Maybe we want to keep control of port management (it is not port security as made out in the national headlines). That is our decision. The issue is how we go about it. Do we look like a bunch of children fighting on a playground, tacking legislation regarding port ownership onto bills designed to give our troops in Afghanistan and Iraq the supplies they need? Do we spit in the eye of one of our few Middle Eastern allies in the war on terror? Sure the UAE recognized the Taliban, but we furnished the Taliban with weapons, supplies and logistics at one point. Intelligence allows for change, and UAE's actions since show it is our ally. Instead of realizing we were about to take actions that would embarrass an ally and label us as protectionist and handling it in a more discrete manner, a schoolyard brawl breaks out. The President throws down the veto gauntlet (it would be his first in 6 years in office) and then Congress, reading the latest polls and as usual panicking, starts the game of tacking controversial legislation onto much needed legislation. It is a child's game, and very tiring to US citizens. We have a recent history of this what with the Chinese oil company trying to buy Chevron. This latest round just furthers the notion we are for open markets unless we decide not to be. We definitely have national interests we need to protect. If the system in determining what we want to exclude and not is broken, let's fix it and do so rationally. As it is we will likely have this thrown back in our face in the future. You know what? It won't help the trade gap issue at all.
THE MARKET
MARKET SENTIMENT
VIX: 12.68; +0.36
VXN: 17.79; +0.32
VXO: 12.27; +0.33
Put/Call Ratio (CBOE): 0.95; -0.01. Sluggish session did not spike this up. Again, it was more a session lacking buyers than driven by sellers.
Bulls versus Bears:
Bulls and bears have surpassed the levels in May and October 2005 that signaled bottoms in the market ahead of rebounds. That remains a positive for the market, but even high levels while the market was at the breakout point recently was not enough to push the market higher. The closer bulls and bears come to each other the better potential for a bottom. Thus far it is not making the difference. We have to keep this in its place: it is a secondary indicator. It tells us to watch for signs of a turn. It does not declare a turn on its own.
Bulls: 42.7%. Edging higher from 42.6% the prior week. Bullishness had been diving hard, 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 undercut the prior two lows that helped kick off their own rallies.
Bears: 31.3%. Another solid push higher from 30.8%. Bear growth continues to slow, down from prior weekly climbs from 25.5% to 27.7% to 29.5%. Already has surpassed its readings from the two prior market bottoms in May and October 2005 (30% and 29.2%, respectively).
NASDAQ
Stats: -17.74 points (-0.78%) to close at 2249.72
Volume: 2.006B (-7.4%). Volume remained above average on the reversal back lower, but it was down a bit. That shows less dumping of shares; it was more a lack of bids and then cancellation of the few that were there once the NSM earnings and Congress' port decision hit the wire.
Up Volume: 695M (-297M)
Down Volume: 1.278B (+130M)
A/D and Hi/Lo: Decliners led 1.47 to 1. Overall modest downside breadth.
Previous Session: Decliners led 1.09 to 1
New Highs: 87 (+10)
New Lows: 44 (-19)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ moved above the 50 day EMA (2670) intraday, tapping at the 18 day EMA (2280) on the high. That was it, and the move was over in an hour. NASDAQ came back to the 50 day EMA mid-morning, held and bounced some, but then gave it up heading into lunch as the NSM earnings placed added pressure on chips and thus techs. NASDAQ sold into the close, this time closing at Wednesday's rebound point. That keeps it in its current range by the skin of its teeth, holding above the January and February lows (2247.70 and 2339.91 on a closing basis) as it manages to hold its 2006 trading range. Volume was lower so there was no dumping, and despite the selling, that keeps alive the chance it can rebound. It looked dead in February but salvaged another rally. Similar to SOX, however, it has three failures at the top of the range. As in baseball, three strikes typically means you are out. The failure to make any real effort at a rebound shows weakness at the bottom of the range.
SOX (-1.39%) was again the downside leader. It was leading upside early in a relief effort, but that started to waffle and then failed when the NSM results came out. It is testing some support at 505 to 502 at the December highs, but not showing any compulsion to stop at that point. The test of 500 will be an important point for the index.
SP500/NYSE
Stats: -6.24 points (-0.49%) to close at 1272.23
NYSE Volume: 1.557B (-11.85%). Volume fell well below average as the indices tried to move higher but ended adding fifth loss in six sessions. No real dumping of shares, but as noted above, just a lack of buyers after the sellers sated some of their buy side desires.
A/D and Hi/Lo: Decliners led 1.22 to 1. Nothing especially nefarious, just a weaker session.
Previous Session: Decliners led 1.02 to 1
New Highs: 89 (+15)
New Lows: 41 (-22)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 moved through the 10 and 18 day EMA (1280) on the high but it was just a sightseeing tour as it quickly turned back over and gave up the 50 day EMA (1274) once more. It was not a major rollover; low volume just could not sustain the early move higher, and bids were cancelled as the session wore on. That leaves SP500 just below the 50 day EMA but still inside the lows hit Tuesday and Thursday. It is holding just over support at 1268 that marks a median line of the highs hit in November and December. That will be an important point for the index as its cup with handle pattern is morphing into a double top as volume lagged while SP500 tested the January highs and it was unable to hold the handle to the base.
SP600 (-0.43%) rallied solidly, bouncing off the 50 day EMA (370.44) and the up trendline (now at 371.50) early on. That move fizzled and it fell back, slightly undercutting both on the close. That keeps it at the mid-January highs before the run late in that month took it to a new all-time high. Similar to SP500, the pattern has turned into a double top , though it has not broken down yet. If it does break lower, it will make a decent downside play toward the December closing highs at 361.50 to 360.50. It has held this uptrend since breaking out in late November; this is where it needs to make a stand if it is going to continue its move and lend upside support to the rest of the market.
DJ30
Modest losses for the Dow as it was bolstered by its consumer products stocks. It still sold, unable to hold the move above the 10 and 18 day EMA (11,005 and 10,998) early in the session. Unlike the other indices, it is still holding above its 50 day EMA (10,926), roughly in line with the December highs. DJ30 started the most recent move higher, aided by the SP600. It and the SP600 are now trying to hold things together so the market can try another advance. Lower, below average volume once more, looking more like a consolidation for the Dow above its 50 day EMA, having tapped at that support Monday through Wednesday on the intraday lows before rebounding.
Stats: -33.46 points (-0.3%) to close at 10972.28
Volume: 266M shares Thursday versus 276M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The overrated jobs report for February is out before the open, and it will be the headline news on all stations as to how strong the economy is. As you well know, jobs are not the real indicator of economic activity. Jobs lag the overall economy. They lagged in 2000 for sure; the Fed kept hiking rates fearing 'wage-led' inflation would arise. The economy was slowing but the Fed refused to acknowledge it and we had a market crash and recession that cost us all trillions in our retirement accounts.
Thus the only thing the jobs report tells us at this stage of the economic cycle is whether we can expect even more rate hikes than those already assigned by the market. Another strong jobs report sews up the Fed's mission to raise rates at the next two meetings. After that is is harder to tell, but if the jobs report is strong it suggests no end in sight. In that respect it is a lot like the groundhog coming out of its den and seeing its shadow or not. It gives you an idea but not much more than that. Unfortunately, sewing up two more rate hikes will be too much for the market to handle. Housing is already falling and gasoline is going to hit $3/gallon this summer, and for a longer stretch than last year. That is going to sap economic strength just as those rate hikes still out there finally fall to earth and land on the economy. There is no immediate cause and effect with rate hikes. It takes six months or more for them to impact the economy. Thus what we see today not the true rate hiking picture. We feel the Fed needs to stop now. We fear that 50 more BP in hikes will be too much for the economy. We fear the action we see in the market in both the choppy trade at the highs and those stocks trying to take over leadership during the turmoil.
As we said before, hopefully we will be wrong. At this juncture, however, the market is looking familiar in a way that makes your stomach queasy. We could still get a decent relief bounce ahead; indeed, with all of this selling one will be coming. If it is a 'normal' correction that is simply taking out some excess in an otherwise upward cycle we should see one in relative short order. If there is something more sinister, we could see the selling prolong. That is why we are being cautious with new upside positions and were closing out some current positions Thursday when the rally started to turn over and again when the afternoon rebound attempt was scuttled. The one clear point is that the market is not performing well. The next question answered will be if it is just your average correction in an up cycle or a break lower foretelling economic troubles ahead. A resumption of volume selling with SP600 moving through support will give us more of an answer. Remember, the small caps are an up-cycle sector. They rally ahead of further economic gains. If they break their trend on strong NYSE volume that is a signal there is some economic softening ahead.
The lack of a rebound makes it more difficult to step in. Stocks sold down further, becoming even more oversold despite the Wednesday reversal attempt. We would like to see more of an upside push back up to recent support levels to give better entries for downside plays. There are some we are going to look at regardless as they are still in position to move substantially lower. At the same time we are going to be looking at those leaders that are holding near support for a play on a rebound. In addition we are going to look at some consumer staples and the like (however boring that may be) to see if we can capture some upside. Problem is, if you look at a stock such as PEP or KR, they move so slowly it hurts. If it is a temporary thing it is not so bad. If it is a defensive mode setting up due to slower economic times ahead, it can be dreary.
Don't want to end on a down note. On the bright side a strong jobs report is good for US citizens and their continued consumption of goods and services. And we don't want to forget that Bernanke is the new sheriff in town and he does have some different views on employment versus say housing. He is very worried about housing and has mentioned the prior two housing market declines that were followed by significant slowdowns in the US economy. He may just be on the ball enough to hike in March and then take a break and see how the housing market responds.
Support and Resistance
NASDAQ: Closed at 2249.72
Resistance:
The October 2005 up trendline at 2260
The 50 day EMA at 2270
2273 is December 2005 closing high.
2278 is December 2005 intraday high.
The 10 day EMA at 2278
The 18 day EMA at 2280
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:
A minor peak at 2249 still trying to hold.
2218 from August 2005 peak
S&P 500: Closed at 1272.23
Resistance:
The December highs at 1275 (intraday) and 1273 (closing)
The 50 day EMA at 1274
The 18 day EMA at 1281
The 10 day EMA at 1281
The late January peak 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:
1264 from the December 2000 lows
1254 is the February low
1248 to 1250 is the bottom of the November/December 2005 range
1245 is the August 2005 peak
1241 is the September 2005 peak
Dow: Closed at 10,972.28
Resistance:
10,985 is the March 2005 intraday high
The 18 day EMA at 10,999
The 10 day EMA at 11,005
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:
10,965 from Q4 2000 and November/December 2005
10,931 is the November 2005 high
The 50 day EMA at 10,926
10,890 is the December 2005 closing high.
10,868 is the December 2004 high
10,705 from the July/August 2005 peaks to 10,682 that is the September 2005 high
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): -0.5% actual versus -0.1% expected, -0.6% prior
Consumer credit, January (2:00): $3.9B actual versus $5.0B expected, $3.4B prior
March 08
Crude oil inventories (9:30): +6.8M versus +1.7M expected and +1.638M prior
March 09
Initial jobless claims (8:30): 303K actual versus 295K expected, 295K prior.
Trade balance, January (8:30): -$68.5B actual versus -$66.5K expected, -$65.1K prior (revised from -$65.7).
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
us stock market
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