|
|
us stock market, trade stock
* * * *
3/16/06 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: LUK (took some interim option gain given the run)
Buy alerts: DIGE; VAS; NDAQ
Trailing stops: WIRE
Stop alerts: None issue
SUMMARY:
- NYSE indices rally for fifth day but NASDAQ, SOX turn over again and drag them back.
- CPI again shows no pass through from energy as history, once again, repeats itself.
- Housing continues its decline, jobless claims above 300K for second straight week.
- Bond market giving some backup to stock market's renewed 'one and done' theme.
- Half the market ready to test its run, all of the market trying to hang on.
Market runs out of gas on fifth upside session.
The NYSE indices managed to post another gain, their fifth straight, but it was a fight to hang on as the market got a bit winded over the course of the session. Indeed, while the NYSE indices may have run out of some gas, NASDAQ and SOX had little to begin with on this move, and when the tank ran dry on them Thursday they started down harder with NASDAQ volume ramping to the highest since early March when it tried for the breakout but failed, reversing intraday.
Stocks received some decent consumer price news (core +0.1% versus +0.2% expected) and the futures turned higher as it came across. Housing starts were lower as well and jobless claims turned in the second straight 300K+ week. That helped in the current, Fed-fearing environment. NASDAQ ran up to the February highs while SP500 and SP600 forged to new post-2002 highs (new all-time highs for SP600) yet again. Volume was running higher as a lot of those on the sidelines as this rally took off rushed in to get some 'me too' shares. Once again the market swung to the 'one and done' theme with the Fed, and after four upside sessions, the additional good news dragged a lot more wannabes into the market.
Of course the market rallied into the CPI number, and when it became fact, another little spurt prompted by the new buyers soon died out and the indices, all indices started to fade. NASDAQ managed to make it up close to the early March high, but even with the stronger early volume it could not punch through. The Philly Fed was weaker, and while that might be good regarding the Fed, the market sold on the news. The market sold further, and the techs and chips really started to suffer, when KLIC (semiconductor equipment) warned of weaker sales. The chips really swooned on that news, falling below their recent lows.
Volume really jumped on NASDAQ. It was up early, a positive sign as the techs moved higher. It remained high, however, as NASDAQ rolled back down and the chips undercut recent support. You can say that volume ramped up due to expiration this week, but if so, it was not proportionate with NYSE. NYSE volume rose, but it was quite a modest gain (and still below average), certainly not proportional to the NASDAQ volume jump. It may very well have been expiration related, but it was clear the action was based around selling tech and semiconductor issues.
That leaves the market in a somewhat bifurcated state. The NYSE indices rallied nicely, showing decent though hardly strong price/volume action, and they are set to test the break past resistance. NASDAQ did not make the breakout from its range, and it is falling back on stronger volume. SOX and SMH (semiconductor ETF) are falling through their recent support on stronger trade. They are still trying to find a floor.
The question, of course, is which side will prevail. The move higher was not that strong and as we noted earlier this week, that leaves it vulnerable to yet another shift in sentiment with respect to the Fed, oil, or any number of other issues. As we have seen this year, the emotional ebb and flow in the market on these issues can be dramatic: the market sold three times on fears the Fed was going to go beyond 5%, and now it is rallying because suddenly, and with virtually the same data to analyze, the Fed is not going past 5%. Even with that viewpoint, however, NASDAQ and SOX, both growth indices, lagged, could not make the breakout, and with respect to SOX, broke down. Despite all of the 'new high' euphoria on the financial stations the past two sessions, the same problems confront the market, and half of the market is not participating in the rally and breakout.
THE ECONOMY
Consumer prices remain tame as once again energy prices are not passing through . . . yet.
Prices overall rose in line at 0.1%, down from the 0.7% jump in January. The core rose 0.1% as well, and that was lower than the 0.2% expected. That put the year/year core at 2.06%, falling off from the 2.11% in January. Once more prices were up but they were not showing the dreaded 'pass through' of energy to the consumer side.
That pass through is the continued fear of the Fed and all economy watchers. The speculation has reached the point of 'not if but when' mentality. If prices remain high enough for long enough, it is presumed that at least some of the higher prices experienced by producers due to energy costs will have to be paid by consumers. It makes sense: businesses want to make the same profit margin if they can, and as soon as the consumer will pay it they will raise it.
Thus far that has not happened. Prices remain high but consumer prices outside the direct energy costs consumers pay (e.g. gasoline, home electricity and natural gas) are not rising at the same rate as energy costs to producers. Prices jumped in the early 1980's, and it was widely believed prices would work on through. The Fed was hawkish. It never happened. In 1984 prices jumped and the Fed hiked rates expecting a pass through. It never happened. In 1998 prices jumped and the Fed worried about a pass through. Again, it never happened.
Those were shorter term price spikes, and that may ultimately be the difference in this go round. Another issue, however, is one we saw last fall: when energy prices get high enough, consumer just stop buying the things they associate with rising energy costs. They stopped using gasoline and curtailed purchases last September and October as gasoline prices jumped to $3/gallon and oil prices spiked. That is one of the underlying fears producers live with. They are afraid that if they raise prices consumption will drop off and then take its time coming back. Again, the length of the price spike will tell more of the tale, but frankly, this is somewhat new territory with prices this high for this long.
Too much looking in the rearview mirror.
The above leads to another area of concern. The Fed is supposedly on data watch, but all of the data that is hashed and rehashed each day in the news is old data. We hang on those reports as if they tell the future with some great clarity. In reality, it tells where we have been but that is just the start. You have to look ahead and use your brain to surmise where the economy will be. THAT is what you need to come to grips with in determining where rates should go.
Look at where we are now and look at recent history. Gasoline has spiked back up to $2.45/gallon. No storms, no driving season, just high raw materials costs (oil which was up to 63.58 Thursday, up $1.81). The first storms that enter the Gulf will jack that price up. Then if one turns into a monster and heads toward the center of the Gulf, well, prices will easily hit $3/gallon even before landfall. What happened when prices hit $3/gallon in September? Consumption plummeted. Right now any sane person can recognize that gasoline is going to be at $3/gallon this summer. Any sane person, or at least one honest with the facts and himself, knows that will cause consumption of energy and other goods to fade. High gasoline prices are a tax on consumers. They are a tax on the economy because that money is burned and does not go to buying some discretionary item. Or, it is not spent at all because the consumer pulls in his or her horns to ride out the trouble. Either scenario is a real problem for the economy. High energy cost 'pass through' leading to inflation? Give me a break. The real issue is whether high energy costs cripple the economy.
With that in mind the Fed already has several rate hikes in the air falling toward the economy right now. Those are going to hit about the time gasoline starts its summer run. Should the Fed be lighting more bombs and putting them in the pipeline? The Fed should cease and desist now. At least stop at 4.75%; that at least won't spook the market.
Bond market starting to indicate Fed closer to being done.
What a difference a week can make. The bond market continues to trade all over the map. It rallied in February during the auctions and the reintroduction of the 30 year, then it got whacked with the 10 year rising to 4.80%. That at least started to right the curve. Now it is falling again, closing Thursday with just a 2 basis point spread (4.62% 2 year versus 4.64% 10 year).
The bond market is now factoring in just a 75% to 80% chance of a second hike to 5%. That is a dramatic change from working on pricing in a third hike two weeks back. A further drop in housing starts (-7.9%, though that was better than expected) and the second week of jobless claims above 300K (309K last week) is starting to work on the bond market and its handicapping of the Fed. The bond market is not so certain, once again, the economy can take the abuse.
This is big news. Just two weeks ago the market was figuring there would be at least 2 or 3 more rate hikes. Now it is figuring there will be one, maybe two, rate hikes. Hopefully Bernanke is as forward looking.
THE MARKET
MARKET SENTIMENT
We are getting more indications that the investor from 1999 and 2000 is coming back to the market. Every day on the financial stations there is talk of the 'retail' investor and the need for that group to return to the market for it to really move. That is absurd. Small investors don't move the market. Large institutions that control the small investor money moves the market. That is where most of the money goes; people put their money into mutual funds in order to get market exposure. They insure mediocrity by doing so, but they get market exposure. Again, that is the money that moves the market.
The 'retail' investor as discussed on the financial stations is the individual who buys and sells stocks directly. Schwab says its profits from the 'retail' sector are up around 50%. I have received several phone calls the past few weeks from friends who were in the market when it blew up in 2000. They are now seeing the indices approach post-crash highs and they want to 'get in.'
To us that is a negative sentiment indication, i.e. that the market is starting to move toward a peak as those that swore off the market sometime between 2001 and the 2002 bottom are now once again interested. Late to the party as usual, and likely to stay too long as well. This is not a great timing mechanism, however. As seen in the late 1990's, it can take quite some time before the broad participation finally climaxes in a top. It is, however, something to watch carefully.
VIX: 11.98; +0.63
VXN: 15.62; +0.18
VXO: 11.42; +0.33
Put/Call Ratio (CBOE): 0.32; -0.4. This is the lowest the put/call ratio in months. This, of course, likely has much to do with quadruple expiration Friday.
Bulls versus Bears:
While individual investor sentiment is getting bullish, investment advisor sentiment continues to turn more bearish. That is a continued positive. They continue to move further past those levels that marked bottoms and presaged market rallies in May and October 2005.
Bulls: 42.3%. Bulls continue to fall after holding steady the prior two weeks. From 60.4% at the start of 2006, the fall was hard in February, and is now leveling off (48.9% to 45.3% to 42.6%). It has undercut the two prior lows that helped spark rallies in May and October.
Bears: 33%. Another nice bump higher from 31.3%. 30.8% from 29.5% from 27.7% from 25.5%. It started this move just above 20%, the threshold level. Above 20% is considered better while below 20% is considered bearish for the market. Bears have surpassed the readings from the two prior market bottoms in May and October 2005 (30% and 29.2%, respectively).
NASDAQ
Stats: -12.28 points (-0.53%) to close at 2299.56
Volume: 2.405B (+12.24%). Volume was up early as NASDAQ gapped higher. Then NASDAQ sold off and volume continued to climb, reaching its highest level since early March when NASDAQ tried to breakout again and failed. Once more NASDAQ shows high volume as it reverses at the lower January resistance. At least it is consistent. Of course, this is not good price/volume action; reversing on volume at the top of a range shows the sellers are still there and ready to step in.
Up Volume: 710M (-969M)
Down Volume: 1.655B (+1.209B)
A/D and Hi/Lo: Decliners led 1 to 1. Basically flat breadth with the decliners leading by a hair.
Previous Session: Advancers led 1.58 to 1
New Highs: 230 (+46)
New Lows: 34 (-4)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Another gap higher by NASDAQ, but this time the move did not stick. NASDAQ rallied up to its early March intraday high (2325) and failed, its second time to fail near the late January peak (2314). NASDAQ gave up 24 points high to close but even with that selling it remains in the top of its 2006 trading range. It can check up mid-range, say at the 18 day EMA (2284) and make a higher low. I can also hit a drive 350 yards . . . when I am at 10,000 feet and have a tailwind. In theory, if things fall into place NASDAQ can hold near support and then breakout. In reality, this is another high volume reversal that shows sellers jumping in and selling techs as they hit the old high. That is not a good indication for NASDAQ's immediate prospects. It is still in position to do something interesting, but it has to overcome its weakness proclivities of late, and a high volume reversal at resistance does not typically indicate a reformed sinner. Expecting a test down toward the 50 day EMA (2273), but we are ready to be surprised; after all, this market has the lives of a cat this year.
SOX (-3.23%) looks crappy. It rallied Tuesday, added a small gain with a doji on the candlestick chart Wednesday, then tanked below its recent lows at 500 on Thursday. There is some support at 482 and 475ish. Needless to say, SOX looks less than good.
SP500/NYSE
Stats: +2.31 points (+0.18%) to close at 1305.33
NYSE Volume: 1.658B (+1.7%). Volume was up but still below average. Said it before, but not the caliber that will take it to the record books. Indeed, it makes it easier for the sellers on the other indices to drag the winners back down with them.
A/D and Hi/Lo: Advancers led 1.93 to 1. Another solid day of breadth.
Previous Session: Advancers led 1.84 to 1
New Highs: 347 (+89). New highs continue to lag even as SP600 joins in the breakout. You want to see this at least over 400 and indeed closer to 500.
New Lows: 29 (+1)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied again to new post-2002 highs (1310.45) before giving back almost two-thirds of the move. Volume was up again, not bad for another gain, but it was also still below average. As noted, the move lacks a lot of power even with the heralded breakouts. Now we see if it can hold onto the gains as it comes back to test the breakout above the late February high at 1298. Holding above 1300 on a closing basis Friday would be a good indication, something SP500 has not done since the bottom in late 2002.
SP600 (+0.33%) rallied to 386.34, moving just past its upper channel line in its uptrend. On cue that pushed the index back and it managed just a modest gain. SP600 is likely to come back to test now that it has reached up to the top of the channel. It might hang around some but for NASDAQ and SOX heading south; that will exert pressure on all of the indices, SP600 included. Still very solid as it trends higher in its nice upward sloping channel.
DJ30
DJ30 posted another nice gain and on rising, average volume. Solid gains since the breakout in late February, the test of the 50 day EMA, and the launch higher. Hard to argue with this move, and given its makeup and rather small cross section of the market it can likely weather NASDAQ's and SOX' travails.
Stats: +43.47 points (+0.39%) to close at 11253.24
Volume: 306M shares Thursday versus 274M shares Wednesday. Some expiration volume ramp up.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The market heads into expiration Friday in that bifurcated position noted above. NASDAQ reversed on volume and SOX broke sharply lower through recent lows. SP500 and SP600 hit new post-2002 highs, but they moved on lower volume and that leaves those moves open to attack if the sellers decide to return or if the buyers decide to bale.
Friday is likely to be a bit choppy given quadruple expiration, the NASDAQ reversal, and the SOX break through support. SP500 and SP600 will likely undergo selling given they were already looking a bit winded in the Thursday session. With NASDAQ and SOX applying the downside pressure we are looking for a test back to near support with respect to the NYSE indices.
That test will be the key for this move. The upside climb was on mediocre volume, good breadth, and weak new highs. They need to hold support and resume the move. That lower volume on the upside is going to be tested as well as the indices come back.
At the same time the market is once more looking at the Fed closing out the rate hikes earlier than expected. That can shift at any time; it has flip-flopped twice already this year. We need to note that SOX is under pressure and NASDAQ failed to make the breakout again even in a market once more viewing the Fed is close to through. The point: the move higher was not that strong and growth areas are already selling again on volume. That means we have to continue to be diligent with our positions despite the breakouts, and if we see any erosion it is better to play it safe. That many seem counterintuitive with all of the headlines about 4 year highs, but as noted before, that in itself can be an issue given the limited upside participation.
We are not expecting this issue to be resolved Friday. It is expiration and the tape will be colored accordingly. We are going to keep an eye out for stocks we have already pegged as showing strong action; even with expiration if they show us a good move we can always open some positions, gradually working into the stock. Despite all of the accolades for the market we know from history that these low volume moves are indications of indecision in the market overall, and we know that the market will ultimately make a decision that may or may not be in line with the prior move. We are going to watch the test, keep some powder dry, then commit more money when we see how the big investors handle this pullback.
Support and Resistance
NASDAQ: Closed at 2299.56
Resistance:
The recent high at 2325
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.
The 10 day EMA at 2287
The 18 day EMA at 2284
2278 is December 2005 intraday high.
2273 is December 2005 closing high.
The 50 day EMA at 2273
A minor peak at 2249 is still holding.
2240 is closing low in recent range.
2218 from August 2005 peak
S&P 500: Closed at 1305.33
Resistance:
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
1297.57 is the recent February high.
The January high at 1295
The late January peak at 1285
The 10 day EMA at 1291
The 18 day EMA at 1287
The 50 day EMA at 1278
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
Dow: Closed at 11,253.24
Resistance:
11,350 from the May 2001 peak.
11,401 from the September 2000 peak.
11,425 from April 2000 peak
Support:
11,176 - 11,186 from April 2000
11,159 is the February high.
11044 is the January high.
The 10 day EMA at 11,111
The 18 day EMA at 11,069
10,985 is the March 2005 intraday high
The 50 day EMA at 10,968
10,965 from Q4 2000 and November/December 2005
10,931 is the November 2005 high
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): -1.3% actual versus -0.9% expected, 2.9% prior (revised from 2.3%)
Retail sakes, ex-autos (8:30): -0.4% actual versus -0.5% expected, 2.6% prior (revised from 2.2%).
Current account, Q4 (8:30): -$224.9B actual versus -$218B expected, -$185B prior
Business inventories, January (10:00): 0.4% actual versus 0.3% expected, 0.8% prior.
March 15
New York PMI, March (8:30): 31.2 actual versus 19.0 expected, 21.0 prior
Net foreign purchases, January (9:00): $66.0B actual versus $56.61B prior
Crude oil inventories (10:30): +4.8M actual versus 2.25M expected, 6.76M prior.
Fed Beige Book (2:00)
March 16
Building permits, February (8:30): 2.145M actual versus 2.13M expected, 2.216M prior
Housing starts, February (8:30): 2.12M actual versus 2.03M expected, 2.303M prior (revised from 2.276M)
CPI, February (8:30): 0.1% actual versus 0.1% expected, 0.7% prior
Core CPI (8:30): 0.1% actual versus 0.2% expected, 0.2% prior.
Initial jobless claims (8:30): 309K actual versus 298K expected, 304K prior (revised from 303K)
Philly Fed, March (12:00): 12.3 actual versus 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
|
us stock market
trade stock
|
