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us stock market, trade stock
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3/13/06 Investment House Daily
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SUMMARY:
- Market tries to start the week positive but give back bulk of gains.
- Economic report lull filled by a bit more Fed-speak.
- Indices hanging in their ranges . . . still, and all things considered, that is not that bad.
Once more market cannot push a rally higher.
Friday the indices bounced where they had to, NASDAQ at the bottom of its range, SP500 and SP600 at their 50 day EMA. Monday they were ready to continue the move with Europe higher, a passel of mergers (e.g. COF) and upgrades (AAPL, NUE, JNJ, GE), and lower oil (59.74/bbl). That ignited the upside interest again and stocks started higher, trying to extend that rebound.
NASDAQ cleared the 50 day EMA with ease early on. All indices sported gains though once more SOX was lagging. Maybe that was the Achilles heel once more or maybe it was oil turning back up and closing 3% higher (61.77, +1.81). Maybe it was just the same old issues dogging the market (Fed hiking into a slowing economy with high energy costs). Whatever the cause, as oil rose, stock gains eroded. By afternoon NASDAQ had given up the 50 day EMA and the indices were mixed. Volume was lower; stocks lacked the punch to push higher as buyers remained unwilling to seriously commit. By the close the indices were basically flat, holding their range but nothing more.
The Fed's Yellen (San Francisco Fed) was quoted midday cautioning the Fed not to overshoot with rate hikes, harkening back to the FOMC minutes commentary from late 2005. One Fed president cursing the darkness, however, was not enough to convince the market that the Fed had any notion of slowing its rate hikes soon. Trying to argue the Fed knows what it is doing and will not overreact is trying to prove the exception; you have to see it to believe it. In any event, the market wasn't buying it on Monday.
Then there is the merger activity. Many are quick to say that the corporations know the economic conditions best and thus if they are ready to buy, buy, buy then things must be gravy out there. Of course, corporate executives are as emotional as someone in the eighth month of pregnancy and their timing is about as good as the Fed's. If someone in their industry buys someone, everyone starts looking for someone to buy. Back in late 2002 and early 2003when we wrote it looked as if the economy was starting to turn we also reported regarding the high corporate pessimism and how they were always wrong about economic turns based upon their perceptions of what a real economic turn is. Well, they are also notoriously wrong about when the economy is topping. They typically buy right into the slowdown. The market knows this, and thus the early spurt failed to excite buyers overall. Just look at the big M&A brokerages; they were down on the session despite all of this 'merger mania' out there.
In the end the market gave back most and in some cases all of the day's rally attempt, continuing the action that has left it mired in place for 2006. Sure it runs up in its range, but after flirting with breakouts, it sinks back down. As we have discussed at almost excruciating length, the confluence of factors confronting the market (e.g. slowing economy, renewed Fed hawkishness, high energy, slowing housing) remains too similar to 2000 for the market to make headway. Not that investors are out there saying, 'hmmm, this looks like 2000 to me' and thus not buying. It is the underlying issues that hamstring upside attempts. We even heard Cramer talk about this Monday on one of his CNBC spots, i.e. how it is very much like 2000 again. Hey; maybe if everyone starts thinking that we can start to bank on the opposite. Of course, the market has to show us that is the case, and this action today demonstrates it is not there yet.
THE ECONOMY
Mitigating Fed-speak not convincing to the market.
San Francisco Fed president Yellen cautioned Monday that the Fed needed sensitivity training. Well, so we spiced it up a bit. Ms. Yellen did say the Fed needed "sensitivity to the possibility of raising rates too far." Given the more hawkish tone of the past few weeks that in itself was rather dramatic. Of course she blunted the impact with the all too familiar phrases flowing from the Fed of late, e.g. "Fed decisions have become quite data dependent," the US is in "pretty good shape" regarding inflation but that core readings were at the high end of the comfort range.
Then there are the telltale signals that here 'sensitivity needed here' statements were just lip service. With respect to the already falling housing market, Yellen said the Fed needed "to see some cooling off." Hello. McFly. Where has she been when the housing data, all housing data, has been released the past several months? It got worse. Yellen said that because long rates were so low there has been only "a limited tightening of US financial conditions." That is much more hawkish than what other FOMC members are saying, e.g. how the accommodation has been removed.
Moreover, rates have quadrupled under the recent rate hikes. Yes you can say rates are still low historically, but you can also ask the Fed did it not think that the economy needed 1% short term rates? Did it just lower them that far on a lark? Is Yellen trying to say that rates need to be at some pre-set higher level in order to be considered a drag on economic activity. It is all relative, i.e. how hard the economic drop was, how weak or strong the recovery is, and what the future prospects are. Can you say that an economy that is already slowing on its own is in need of significantly higher rate hikes? You would nope the answer would be no.
In summing up, Yellen went back completely to the company line. Yes we need to be careful not to overshoot, but she doesn't "see weakness out there yet." Oh, now I understand. The Fed needs to be careful not to overshoot on rate hikes just as us common citizens need to be careful not to accidentally shoot someone with a loaded handgun. You never intend to do it and when it happens the shooter often thought beforehand it would not happen to him or her. Yet it does and there is a terrible price to pay. Once more the Fed is playing with a loaded gun aimed at our retirement accounts and it does not seem to really appreciate that the hammer is cocked and the trigger is about to trip.
THE MARKET
MARKET SENTIMENT
VIX: 11.37; -0.48
VXN: 17.25; -0.37
VXO: 11.6; -0.06
Put/Call Ratio (CBOE): 0.88; +0.01
Bulls versus Bears:
Bulls and bears rose again last week and for the second straight week 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: +4.99 points (+0.22%) to close at 2267.03
Volume: 1.726B (-3.01%). Lower, continued below average volume as NASDAQ tried to push through the 50 day EMA and the 10 and 18 day EMA but lacked the punch to make any headway. The rebound volume Friday was weak and this was weak as well and NASDAQ is barely off the bottom of its range.
Up Volume: 973M (-154M)
Down Volume: 704M (+85M)
A/D and Hi/Lo: Advancers led 1.14 to 1. Sheer power.
Previous Session: Advancers led 1.9 to 1
New Highs: 143 (+43)
New Lows: 45 (-10)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Techs started out with some energy, but it was all show. It rallied through the 50 day EMA (2269) with relative ease on the opening run and made it up to the 50 day SMA (2279), just past the 10 and 18 day EMA. That took NASDAQ through the first hour, and that also took NASDAQ to its session high. After that it faded the rest of the session, falling through the 50 day EMA for good in the last hour. A slow erosion all session but it was pretty clear by midday with the fade and the lack of volume that it would take some buying not seen in a while to rescue the move. NASDAQ is still in its range; after all, it held the range last week. This rebound certainly is wimpy to this point, however. Low volume and unable to move through the short term moving averages. It has to find some buyers, but as a growth index and with the concerns about the economic future (from most everyone but the Fed), it cannot break from its range. Indeed, it needs to find some more buying here at the lower end of the range or it is going to be facing a break lower.
SOX (-0.48%) was no help all day. It started higher but never made any real progress. By the close it posted its seventh consecutive downside session, closing at 500. That keeps it roughly at its early December highs where it paused after its November breakout. After seven sessions you would expect a relief bounce, but it has not moved as the market tried a bounce. If the rest of the market fails to extend the bounce (given the weak volume that is quite possible), SOX would like head lower once more.
SP500/NYSE
Stats: +2.55 points (+0.2%) to close at 1284.13
NYSE Volume: 1.511B (-5.64%). Below average volume for the third straight session the NYSE indices continue to hold their higher lows made last week, but unable to really extend them. No volume strength Monday, and the Friday move was on below average volume even if volume did tick higher. Still showing slightly improved price/volume action, but not strong price/volume action. Thus it is showing some positives but overall it remains weak because it cannot generate any real upside strength.
A/D and Hi/Lo: Advancers led 1.33 to 1. Modest upside breadth after the Friday rebound sent most all NYSE sectors higher.
Previous Session: Advancers led 2.44 to 1
New Highs: 159 (+36)
New Lows: 45 (0)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 continues with its ascending base, making an important hold at the 50 day EMA (1275) last week and bouncing Friday and Monday. Volume was higher Friday but still below average, and Monday trade fell back further. As noted above, price/volume action has improved but overall volume remains weak. In a base that is not that bad, and SP500 is working on a 15 week ascending base using the 50 day EMA to make some higher lows. The slightly improving price/volume action is a plus in that respect even if it is showing little strength right now. Indeed, SP500 continues looking decent; if NASDAQ and SOX looked a bit better we would be much more bullish on this pattern.
The small cap SP600 (+0.23%) added to its Friday rebound off the 50 day EMA (371), but as with SP500 it lacked volume and gave back most of the gain by the close. It too is attempting a higher low here at the 50 day EMA as it continues its lateral, slightly ascending pattern of the past 9 weeks. Making a higher low and rallying on some better trade here goes a long way to disrupting any potential double top developing. Simply put, SP600 is holding up where it needs to, continuing higher in its rising channel. It is in a classic uptrend but the action has weakened, namely the price/volume action. As with SP500, if NASDAQ and SOX looked a bit better, we would have no second thoughts about this pattern other than the somewhat weaker volume on that second peak hit in late January/early Febuary.
DJ30
DJ30 showed the same action as the rest of the market, rallying early and then giving most back by the close. After Friday's triple digit move it lacked any real strength, particularly as it tested the prior highs (11,137 closing) on lower and continued below average volume. Volume has remained below average for all but one session this month; little strength to push it though its pattern has held up well. DJ30 is coming off a test of the 50 day EMA (10,937) but it too has lacked any buying strength. As with SP500, however, it is also basing, and some low volume work inside the base is not a bad thing. Just want to avoid distribution when doing this, and DJ30 has done that for the most part. It is very much acting as if it is waiting for SP500 to finish its base so they can try to move in tandem.
Stats: -0.32 points (0%) to close at 11076.02
Volume: 215M shares Monday versus 257M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
The economic data resumes Tuesday with retail sales and the current account topping the bill. Both are dated by this time but they will both receive lots of play, particularly the current account given the propensity many have of looking at the wrong reasons for why the market moves as it does. Ramifications from the current account, as discussed last week, is something that you cannot really price into the market, primarily because no one knows what those ramifications are outside speculation of what 'may' happen 'at some point' if some as yet to be determined conditions are right. Yes, you can make book on that.
The economic data could give more indications of Fed action, but the problem we have today is that a lot of the data is dated. By the time is starts showing the weakness that Yellen and her compadres are looking for it is too late. It always amazes us that the Fed has to be so forward looking with respect to inflation, yet it refused to be forward looking with respect to what it is doing to the economy.
That is precisely what is keeping the market in limbo. The Fed is being data driven now (as if it was not being data driven for the prior 2 years), but it has a history of refusing to look at what the data really is showing. Case in point is Monday's comments by Yellen regarding the housing market. Apparently she wants the housing market at a standstill and the rest of the economy falling before she feels the Fed can stop. The great hope for investors is that Bernanke, based upon his prior writings and more recent statements, has other ideas about housing's impact on the economy and will act to stop acting after the March rate hike. The market is biding its time while determining if Bernanke is going to do what he says or turns out to be another in a long line of Fed clones.
The action Monday leaves us still skeptical as to the market's ability to break higher. NASDAQ and SOX look weak though one would expect SOX to make a relief bounce soon, and that bounce would help the overall market in its attempts to rebound off its recent lows. Again, SP500 and SP600 look just fine as they work through their bases. If they get some help from the chips and techs we could see a nice move up to the top of the range. The lack of strength thus far in the bounce by the latter two, however, is discomforting.
That leaves us still cherry-picking the leaders, looking for those that tested near support in the last selling or completed nice bases and are breaking higher with some authority. It also keeps ups looking for those stocks that have tried to rally but then throw up their hands and head lower. The market has some stocks breaking higher, some breaking lower, and many holding status quo as the economic future is written. Our job as investors is to find those plays that can make us money while remaining cautious in the current weak period. We want to make some solid money but know that this environment has the potential to run on you as it works through its issues.
Support and Resistance
NASDAQ: Closed at 2267.03
Resistance:
The 50 day EMA at 2269.36
2273 is December 2005 closing high.
The 10 day EMA at 2274
2278 is December 2005 intraday high.
The 18 day EMA at 2277
The 50 day SMA is 2279 and stopped the advance Monday
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 is still holding.
2218 from August 2005 peak
S&P 500: Closed at 1284.13
Resistance:
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:
The 10 day EMA at 1281
The 18 day EMA at 1281
The 50 day EMA at 1274.67
The December highs at 1275 (intraday) and 1273 (closing)
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 11,076.02
Resistance:
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:
11044 is the January high.
The 10 day EMA at 11,029
The 18 day EMA at 11,014
10,985 is the March 2005 intraday high
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 14
Retail sales, February (8:30): -0.9% expected, 2.3% prior
Retail sakes, ex-autos (8:30): -0.5% expected, 2.2% prior
Current account, Q4 (8:30): -$218B expected, -$195B prior
Business inventories, January (10:00): 0.3% expected, 0.7% prior.
March 15
New York PMI, March (8:30): 19.0 expected, 20.3 prior
Net foreign purchases, January (9:00): $56.61B prior
Crude oil inventories (10:30): 6.76M prior
Fed Beige Book (2:00)
March 16
Building permits, February (8:30): 2.13M expected, 2.216M prior
Housing starts, February (8:30): 2.03M expected, 2.276M prior
CPI, February (8:30): 0.1% expected, 0.7% prior
Core CPI (8:30): 0.2% expected, 0.2% prior.
Initial jobless claims (8:30): 298K expected, 303K prior
Philly Fed, March (12:00): 13.0 expected, 15.4 prior
March 17
Industrial production, February (9:15): 0.8% expected, -0.2% prior
Capacity utilization, February (9:15): 81.4% expected, 80.9% prior
Michigan sentiment, preliminary March: 88.0 expected, 86.7 prior.
End part 1 of 3
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