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us stock market, trade stock
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3/18/06 Stock Split Report
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Stock Split Report Subscribers:
NOTE: Part 3 containing new plays will be forwarded later today.
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: DO
Trailing stops: None issued
Stop alerts issued: None issued
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 rounds out week with gains on a calm quadruple expiration
- Utilities drive gains in factory output.
- ECRI eases again, indicating growth has peaked for now but no economic rollover.
- Market likely to retrench some after expiration as NYSE indices test and NASDAQ tries to regroup.
Market completes a week of upside.
The indices all posted gains Friday after an iffy Thursday for NASDAQ and SOX. It was not a huge session as stocks started soft but then rallied back once more, NASDAQ and SOX included. That closed out a week of gains. A week of selling and the market was due a rebound. The NYSE delivered that and more with a trio of breakouts to new post-2002 highs. NASDAQ was up after rolling over Thursday on rising volume, threatening another run lower in its range. SOX bounced; that is about it.
Volume was huge on both NASDAQ and NYSE as the March contracts came to an end and positions were rolled out for the next month. Breadth was just slightly positive as the indices posted gains, but did not add much to the week. Indeed, the daily moves progressively declined to the end of the week. Not atypical in a rally; the market can't keep posting stronger sessions. It was a record week, however, at least for the small caps and transports as they set new all-time highs.
Quite a change from the prior week when the indices posted a week of losses with NASDAQ threatening a breakdown out of its range and SOX doing just that. The market went from selling on worries about rising long end interest rates and a strong employment report to once more pricing in an early end to the Fed's rate hikes. Down a week with some distribution on NASDAQ, then up a week with breakouts from DJ30, SP500, SP600.
The move was not as grand as made out on the financial stations. You cannot ignore a breakout, particularly after the indices were at the threshold starting March but reversed and sold off. Even with the breakouts, however, the low volume on the move higher is not something to ignore either. Volume rallied as the week progressed, but NYSE trade remained below average and NASDAQ's biggest volume session outside the Friday expiration was Thursday when NASDAQ gapped higher and reversed.
The volume shows indecision on the move as not all of the market was participating. With all of the talk about the retail investor rejoining the market there was certainly a dearth of strong volume on the breakout move.
In the end you have to look at a market that was flirting with a breakdown that turned it around for at least half a breakout. You cannot take much from Friday with the surging volume on the expiration. The real test comes this week. The market was out of gas and ready to test Thursday as NASDAQ gapped higher and reversed and SOX rolled over hard. Even the NYSE indices were ready for a breather, showing closes well off the intraday highs.
We expect a bit of a giveback to start the week given the way the indices were acting Thursday before expiration skewed the results. Then the real story of the breakout will be told with the NYSE breakouts trying to hold the line while NASDAQ tries to hold its range and SOX tries to find itself. The questions about the low volume climb will be answered then.
THE ECONOMY
Capacity hits highest level since 2000.
January was warm and industrial output fell due to lower utility output. February was colder and as thermostats were turned back up, utility production went back up. Indeed, the entire February gain was driven by the 7.9% rebound in utility output. It fell 11.5% in January, the largest drop on record. That pushed industrial production up 0.7%, right in line with expectations. The utility rise also boosted capacity utilization right back up to 81.2%, matching December levels, the highest since September 2000. That was still less than expected, however.
To put these in historical perspective, capacity utilization is running just over its 32 year average of 81% but still well off its peak rate of 85% in an expansion recorded in 1994-95. All in all production is running at solid levels, and the variations have been literally due to the weather. Back in September and October 2005 it was the Gulf storms that shoved output lower when the oil production areas were shut in and other production facilities in the south were either damaged by the storms or shut down or run at reduced capacity due to lack of market or export terminal. More recently the warm winter has impacted the utilities as well as the natural gas production market. Don't look now, but the storm season is not too far away. Aside from these seasonal impacts, however, output is solid. Not much of a leading indicator that we can draw upon, however.
ECRI leading index continues to slip.
ECRI's leading index fell for a third week. The annualized growth rate fell to 3% from 3.1%. That continues the decline in this very accurate leading indicator. Of course, the 3% growth level is not a bad level at all. What the data does show, however, is that growth is still slowing after hitting a peak late last year. Of course, now that the economy is finally getting the recognition it deserved for the past two years it is showing signs of peaking. It can still pull out of this slowdown; as we said before, there is nothing really wrong with the economy. The problem confronting it is the Fed and its propensity to go too far with rate hikes.
THE MARKET
MARKET SENTIMENT
Thursday we discussed the return of the 'retail investor' to the market, a subject addressed several times last week on the financial shows. Friday CNBC was trying to paint what is usually a negative indication in a positive light, giving it the old 'this time it is different' spin. Supposedly Joe average investor has learned his lesson this time and won't fall to the foibles of the past.
Of course, that assumes these are the same investors that were there in the late 1990's and into the 2000 crash. Many have moved on to other forms of investing, e.g. real estate, mutual funds, the lottery. That leaves a whole new crop of investors ready to make the same mistakes of the past. Even those that made it through the crash are still susceptible to the same old emotional pitfalls. Even the big boys running the funds succumb to their emotions. Last week there was a rush to the market that helped push it higher as the 'one and done' mentality took over and some fund managers felt they had to rush to the party. If they still get caught in that mindset, how is the novice going to avoid it?
Again, however, the return of the individual is not any reason to run for the exits. There is no accurate measure of how many are out there and thus the realization they are once more participating is no reason to expect a market top is imminent. It is another factor in the secondary sentiment category to consider, but it is hardly definitive in itself. Outside of last week's low volume ascent it is hard to say speculation is running rampant.
VIX: 12.12; +0.14
VXN: 15.36; -0.26
VXO: 11.19; -0.23
Put/Call Ratio (CBOE): 0.79; +0.47
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: +6.92 points (+0.3%) to close at 2306.48
Volume: 2.644B (+9.94%). Volume was at a billion shares in the first hour as NASDAQ rallied up 10 points then gave half back. It gyrated in that manner the rest of the session as techs stocks changed hands many times over as big investors rolled out positions and tried to set themselves for the next expiration.
Up Volume: 1.575B (+865M). A pretty even match, showing the market was in a position shuffling mode on expiration.
Down Volume: 1.03B (-625M)
A/D and Hi/Lo: Advancers led 1.1 to 1. Basically the same as the up/down volume and the overall index move. Breadth lagged on last week's move higher. Just not a lot of strength internally.
Previous Session: Decliners led 1 to 1
New Highs: 185 (-45)
New Lows: 48 (+14)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ tested lower early in the session, but held above near support on the low (2294) and then rebounded for a modest gain. Volume blew out the top on this expiration, the strongest volume since January 2005 when the market rolled over after the strong run to finish 2004. Why such volume on this expiration? Low volume ascent that showed a high volume reversal Thursday at the top of the range. There was a lot of position swapping as the big funds and hedge funds positioned themselves for the next move. The data do not give a clear picture as to just how they were setting up; the action leading into this session, however, was not that great whether you look at the selling that started the month or the relatively low volume rebound last week. That does not instill the most confidence, and expiration Friday is typically not a great indicator. NASDAQ could very well set up a higher low here above near support at the 18 day EMA or even the 50 day EMA and follow SP500 higher. It will have to prove it, however, as the price/volume action leading to this point has been less than satisfying.
SOX (+0.06%) reached lower as well and then snapped back to close flat, showing a doji on the candlestick pattern following the nasty Thursday rollover. It tapped toward some support on the low (489; the September and November highs at 486) and bounced. After that nasty drop Thursday, however, we don't see it making much of an upside attempt before it tries lower again.
SP500/NYSE
Stats: +1.92 points (+0.15%) to close at 1307.25
NYSE Volume: 2.004B (+20.86%). Well volume finally made it above average, surging to the best level since the January expiration. Of course that means little given it was expiration. Indeed, if we were to discount it was expiration, the modest price gain after a long run higher and the massive volume would suggest churning, i.e. high volume turnover. At the top of a run that suggests a lot of stock changing hands as the earlier investors in the run sell to the latecomers.
A/D and Hi/Lo: Advancers led 1.23 to 1. Modest accumulation, but with respect to the NYSE, no big deal as breadth was solid on the advance.
Previous Session: Advancers led 1.93 to 1
New Highs: 273 (-74). Never got very high on this rally despite DJ30, SP500 and SP600 posting new post-2002 highs. Weak volume on the upside move and to few new highs.
New Lows: 27 (-2)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 ran into 1310 for the second consecutive session and turned back once more. Thursday SP500 closed well off its high after hitting a new post-2002 high on the session. New closing highs Thursday and Friday, but unable to punch through 1310 either session. The magnitude of the gains slowed as the week advanced, nothing unusual, but it does indicate the run is a bit winded and needs a test. Again, there is nothing unusual about that; SP500 is setting up for a test of the breakout to that new 4 year high. The breakouts were a positive as was the close above 1300 on a weekly basis, the latter indicating a breakthrough that held up. It is likely to be given back to start this week, but as long as it can hold the breakout on the test it is likely to continue the move. Needs more upside volume once the move resumes, if it does resume. NASDAQ and SOX are weak and the NYSE move higher was on weak volume; even with the break higher the move still has to prove itself with an orderly test back toward the prior highs at 1295 and then a resumption of the upside move.
SP600 (+0.26%) posted yet another all-time high Friday, its third of the week. Thursday it too showed a closed well off its intraday high as it ran into the upside channel line of its 4.5 month uptrend. This channel has regularly provided support on the bottom side and resistance here at the up side. Indeed, as of Thursday SP600 looked ready to test back with the doji it showed that session. As with SP500, a test back at that point would be normal.
DJ30
As with the other NYSE indices, DJ30 posted another post-2002 high. Volume exploded to its highest level in 5 months; more expiration trading. DJ30 volume mirrored that of the NYSE on this move higher, i.e. low but slowly climbing toward Friday. DJ30 is showing no inclination of slowing its move other than smaller gains to end the week and of course having rallied for more than a week. A pullback early this week would be typical as it comes back toward the February high at 11,160 intraday and 11137 closing.
Stats: +26.41 points (+0.23%) to close at 11279.65
Volume: 480M shares Friday versus 306M shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
Thursday and Friday the upside move slowed on the NYSE indices while the downside for techs and chips accelerated ahead of expiration. Friday the techs and chips managed to hold the line and even bounce some. Perhaps they will turn this week and provide much needed support for the entire market. Outside of Friday and its expiration induced action, however, they were giving little indication they were going to do that, particularly on Thursday.
That makes this week a very important one (once again) for stocks. As discussed Thursday, this market likes to play close to the edge with mediocre strength on its upside moves, selling back and threatening support, only to move higher once more. It has managed to trend higher (outside of SOX) even with the relatively mediocre volume, most recently on the renewed belief that the Fed was just about done.
That is about the third time in the past three months that the conventional wisdom has moved from several more hikes to just two hikes back to several more hikes. Each time it has taken the market with it. Of course along the way long interest rates jumped and threw in a scare; the market is not without its jitters even with the move higher.
Of course, even if the Fed ceases its rate hiking, the market historically falls after it is done. It rallies in anticipation of the end of the hiking campaign, and then fades at some point after the Fed actually lets us know it is through. Why? Because the Fed usually goes too far and significantly slows the economy. The market prices this in before the economy actually runs lower. Then history shows the Fed typically cuts rates in 6 to 9 months as it tries to rectify the economic mess it made by hiking too far because it looks at lagging indicators such as employment in the latter stages of its campaign. Thus if the Fed is about through, this run is part of pricing that in.
We should not forget that oil prices are on the rise again, closing at 62.40 Friday. Gasoline prices are already approaching $2.50/gallon nationally, having spiked higher just the past week as some refineries prepare to go offline after running longer and stronger than normal after the Gulf storms in order to keep supply up as best as possible.
We have our doubts, but we have had doubts about the entire move higher and as usual, that did not stop certain indices from rising. We always look at the issues that impact the market and the market action to prepare for the moves, but we also know the market tells the story. We did not like the low volume ascent and feel that may still come back to bite the overall market on the butt, especially if NASDAQ and SOX cannot get it together and play a supporting role.
During the bounce we have been taking some positions rather conservatively while letting our existing positions ride higher. We anticipate some weakness to start this week; we would expect it after a week run higher regardless of low or high volume on the move up. The big issue is whether the downside forces will win out and drag the NYSE indices down with them. We took some interim gain Thursday on option positions as the indices rallied higher and then started to peel back. Monday we will look to do some more of that if we get some waffling in the move higher or an early upside move runs into trouble as on Thursday.
As for the rest of the week, well, stocks are pretty extended after this run. There are still solid stocks that were early leaders that are still setting up for their next move. As the rest of the market fades a bit they could start to lead once more, i.e. get some of the money rotating from the areas where some profits are taken.
Support and Resistance
NASDAQ: Closed at 2306.48
Resistance:
The recent high at 2325
2328 from the May 2001 peak
The January high at 2333
2477 is the January 1999 peak
2523 from the December 2000 low
3015 is the December 2000 peak and the October 2000 low
Support:
2288 from December 2000 low.
The 10 day EMA at 2290
The 18 day EMA at 2286
2278 is December 2005 intraday high.
The 50 day EMA at 2274
2273 is December 2005 closing high.
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 1307.25
Resistance:
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
1371 to 1373 is the December 2000 peak and the January 2001 peak
Support:
1297.57 is the recent February high.
The January high at 1295
The late January peak at 1285
The 10 day EMA at 1294
The 18 day EMA at 1289
The 50 day EMA at 1279
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 11,279.65
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.
The 10 day EMA at 11,142
The 18 day EMA at 11,091
11,044 is the January high.
10,985 is the March 2005 intraday high
The 50 day EMA at 10,980
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 20
Leading Economic Indicators, February (10:00): -0.3% expected, 1.1% prior
March 21
PPI, February (8:30): -0.2% expected, 0.3% prior.
Core PPI (8:30): 0.2% expected, 0.4% prior
March 22
Crude oil inventories (10:30): +4.836M prior
March 23
Initial jobless claims (8:30): 309K prior
Existing home sales, February (10:00): 6.5M expected, 6.56M prior
Durable goods orders, February (8:30): 1.0% expected, -9.9% prior
New home sales, February (10:00): 1.21M expected, 1.233M prior
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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