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world stock market, us stock market
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3/25/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: TRID; BOOM; LMT
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:
- Another nice midday shakeout and afternoon recovery.
- New home sales plunge as more recent data tells of continued decline.
- Aircraft pushes durables higher, but without them they tank.
- Why does the Senate want to raise our cost of living while lowering our standard of living?
- Market just about set for another breakout attempt just as FOMC meets.
Market closes the week quietly but on the upside, capping a solid consolidation move.
Once more stocks were challenged mid-session as an early gain was given back, but once more they held near support and rebounded for a positive close. That continued the nearly weeklong consolidation move that saw lower intraday dips and late recoveries, action that works to shake out the sellers and also shows us buyers moving back in on the dips, quietly accumulating shares.
We say quietly because volume remained mostly lower as stocks traded through the week. Tuesday saw a nerve testing rally and reversal, particularly on NASDAQ, that took NASDAQ to the threshold of its own breakout only to see it snatched away. That looked bad but the selling dried up immediately and stocks moved laterally the rest of the week, punctuated by some continued breakouts and upside moves from leaders.
When you consider the start to the week, it was a very good consolidation move after the nice rally (hard to call it strong given the volume) the week before. That rally was based upon a renewed sense the Fed was in the game for just 1 or 2 more hikes. This past week the mood shifted back more to a 2 or 3 or even more rate hike mindset, and early on that threatened to completely wipe out the rally. The ability to hold the line and move in an orderly lateral test the rest of the week, however, shows there is some underlying strength holding things together, at least for now as investors gear up for the Fed winding down.
Friday was more of the same as volume was mixed, higher on NYSE and slower on NASDAQ, but also still well below average. Breadth was decent but mediocre as well. Stocks rallied, gave it all back and more, then rallied back to close out with gains. SP500 continued its nice lateral consolidation and SP600 broke to a new all-time high (again) while NASDAQ and SOX joined SP500 in the lead for the session. NASDAQ moved to the late January and early February peak (2314), the intermediate high before the January high at 2333, setting up after a higher low for another run at that high. SOX was higher for the third consecutive session, but it is still languishing at the bottom of its March correction. Despite SOX' lagging position, the overall market is in good shape ahead of the FOMC meeting.
THE ECONOMY
New home sales tell the more recent housing tale.
When the February existing home sales report showed a 5.2% climb, market Fed watchers hunkered down for more Fed winter. After all, the Greenspan Fed targeted what it believed to be housing speculation, and if sales were still growing then the Fed, in typical fashion, would continue hiking until something broke. The Fed reverses the old saying we all know to 'if it ain't broke, fix it.'
Friday the new home sales data showed that while the market is not broken, it continues to decline despite the February existing home sales report. New home sales fell 10.5% to 1.08M annual units down from 1.21M in January. As noted Thursday, new home sales data is more contemporaneous than existing home sales as new sales are recorded as of the contract whereas existing home sales at closing. Thus there can be a 30 to 90 day lag on existing home sales versus new sales.
The two hottest regions saw a decline with the west leading with a whopping 29.6% drop. The south lost 6.4%. The Northeast and Midwest gained but their total accounted for than a quarter of new home sales for the past year. In other words the big markets suffered the worst blow, and that impacts the overall number more.
Inventories rose as sales declined. Completed homes for sale rose to 123K, up 15% year over year and 12% over the past four months. Completed homes don't sell as easily, and that doesn't bode well for the months to come either. In addition, builders are reporting an increase in cancellations. The total number of new homes on the market (includes both completed and under construction) rose to 544K, up 24% year over year. Inventories continue to climb as the market continues to turn south.
The average price rose 2.6% to $296.7K. You might consider that a sign of strength, but it is skewed by the high prices at the top of the market. If you look at the median price, it fell 3% year over year and it marked the fourth straight month of median price decline.
All of this points to the recent sharper decline in prices we reported on this past week. It is more of a 'leading' indicator for the housing market due to when the sales are counted, and thus it, along with the plethora of data we have reviewed the past year, give Bernanke the wiggle room he needs to stop hikes after this March meeting . . . if he decides to take it. He has voiced concern for the economy if the housing market folds, but whether that is just throwing the market a bone remains to be seen.
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Durable Goods Orders Jump . . . but not really.
Once again it was a story of transportation. Last month it tanked (-70%) and durable goods orders fell 8.9% (revised from -9.9%). This month transportation surged 13.4% with civilian aircraft up 52.5%. That sent durable goods up 2.6% versus the 1.3% expected. Strip it out and durables fell 1.3%.
In addition to transportation, another main driver was defense spending, up 104.1% after falling 32% in January. That means little because government spending is no indication of real economic strength. The private sector is the real gauge. Fortunately non-defense capital spending ex-aircraft rose 2.3%, a solid number and up from January. That is a continuing positive and much needed given what is likely a bit of softness in the consumer as we see how the housing market shakes out in this current slowdown.
Good points and bad points in the report, and it is always dangerous to pluck one data point for a month and make conclusions. The trend is still up but as with other economic reports, it is much, much more volatile, and as we know (all together now), volatility indicates at least the potential for a change in trend.
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China is an easy target to bash and it is in vogue to do so, but it is likely to hurt us.
The new protectionist game in Washington is getting a bit too serious for our own good. It was limited to the usual bickering and backbiting we are used to from Congress, but now New York's Schumer is in China trying to tell a superpower how to run its economy and doing it in a very public manner. Not that great an idea when dealing with the Chinese, but that is the least of the problem.
Democrat Schumer and republican Lindsey Graham want to impose 22% tariffs on Chinese goods if China does not proceed to revalue its currency at a more expeditious pace. The idea is that we are losing out on jobs and on the trade balance because of the currency differences. Supposedly tariffs would somehow balance the playing field and put us on equal footing, thus saving US jobs and helping close the trade gap.
The jobs saved would be largely in manufacturing. Now you would think of heavy industry, tools, machinery, etc. In reality we are talking about umbrellas, underwear, some toys, etc., jobs we have been losing for the past 50 years as our economy converted from a low tech manufacturing economy to a high tech manufacturing, information and technology economy. Indeed, we should lose these lower end jobs to cheaper labor regions. They don't increase our standard of living; new areas of industry, technology and services raise our living standards. Moreover, letting these jobs go to lower labor cost regions also helps our overall standard of living by making those goods cheaper to us and allow us to invest those extra savings in better lifestyles and better US industry.
Forging new technologies is how we have always raised our standard of living. Throwing up tariffs to protect jobs that would naturally migrate to lower cost regions only costs Americans more money in higher goods (basically another tax on our discretionary income). It diverts money from investment here in the US either through higher cost Chinese goods or the alternative, higher cost US manufactured goods. It is a high cost for our future and competitive advantage in order to preserve jobs that frankly don't improve our standard of living and should be elsewhere.
There is another cost associated as well. The trade gap is supposedly some horrendous issue that is going to lead to downfall. As former Treasury secretary Robert Ruben put it, at some point the trade gap could get high enough where it may cause others not to invest as much in the US, resulting in rising interest rates, nuclear winter, etc. That is about as vague as you can get. At some point even the worst golfer can make a hole in one if the conditions are right. But what happens if 22.5% tariffs do slow the Chinese imports as they are designed to do? The trade gap narrows. A hollow victory, however, because then China doesn't need to buy as many US treasuries. The dampening effect that has on yields diminishes or altogether disappears and we have interest rates at 7% to 8% as opposed to below 5%. Once more it is the US citizen paying for the tariffs that are designed to save a declining number of jobs that are mostly at the lower end of the economic ladder. Gee, that sounds like a real victory for the US.
As you can see, there are a lot of reasons tariffs are one of the worst ideas ever devised with respect to 'helping' the domestic economy. In reality they actually hurt the country imposing the tariffs. If the conditions are right, they can lead to a domino effect where countries retaliate with their own tariffs. Each economy then suffers from price shocks as consumer and producers have to buy locally at higher prices or foreign goods at the artificially higher prices. Inflation surges as demand far outpaces supply. If sane heads don't rise to the occasion you can have what occurred in the 1930's as economy after economy craters under the load of higher prices.
That is obviously an extreme case and the conditions have to be right for that to occur. No one really thinks that will occur, but it doesn't have to for us to suffer. We already gave away much of our technological lead when the conscious decision to hobble our economy was made back in the late 1990's. Of course we also gave away technology by the briefcase load to Chinese operatives who had basically free run of many strategic government areas. The Chinese auto industry owes its birth to pilfered corporate secrets from GM. Then with the tech implosion after the Fed drained the money pool and the executive and legislative branches overtaxed the economy creating those much heralded surpluses that in reality were bleeding desperately needed investment capital from the economy, investment in technology ceased for three years. We stood still and the rest of the world caught us.
Do we want to compound the problem by implementing tariffs that drain away more investment dollars in the US to pay for higher priced underwear? The folly of this makes you wonder. Then you realize it is an election year, one where democrats feel they can win back at least part of Congress and one where republicans feel that could happen as well. That makes for a strange dance of 'one-up' as the parties try to court votes by showing how pro-America they are. Thus we can expect this issue to remain alive through the summer, only to our detriment.
THE MARKET
MARKET SENTIMENT
Volatility remains low as measured by VIX, and the day to day volatility faded last week as well after an up and down ride to start the year. It is good to see volatility ease as the market consolidates. Other than that, volatility is not telling us a heck of a lot. The VIX can go into prolonged slumps as seen in the 1990's. It did not move higher until the market started its big run.
Sentiment as measured by bulls and bears ran past levels that started two prior rebounds the past year. The rebound two weeks back managed to jump the bulls up 4 percentage points while bears fell almost 3 points. This indicator did enough to spark a rally. It would be a very lame one if the move two weeks back was it after such a jump.
VIX: 11.19; +0.02
VXN: 15.91; -0.12
VXO: 10.43; -0.05
Put/Call Ratio (CBOE): 0.84; -0.05
Bulls versus Bears:
Bulls: 46.3%. Bulls are rebounding, up sharply from 42.3% last week after holding steady at that level for two weeks. Down 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% to 42.3% to 43.6%). It has undercut the two prior lows that helped spark rallies in May and October.
Bears: 30.5%. The rally has removed some of the bears from the market, falling sharply from 33% last week. This is a dramatic turn from the steady rise from right at 20% on this leg. The progression: 33% from 31.3% from 30.8% from 29.5% from 27.7% from 25.5%. Again, 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 surpassed the readings from the two prior market bottoms in May and October 2005 (30% and 29.2%, respectively).
NASDAQ
Stats: +12.67 points (+0.55%) to close at 2312.82
Volume: 1.942B (-3.23%). Volume faded from Thursday's already lower, below average trade. Not a great indication as NASDAQ posted a 0.55% gain, but when you consider NASDAQ is still in the upper half of its range and is working in a lateral consolidation, the lower volume is not bad.
Up Volume: 1.262B (+300M)
Down Volume: 659M (-371M)
A/D and Hi/Lo: Advancers led 1.82 to 1. Very solid breadth, commensurate with the day's gains and good to see as NASDAQ builds for another try at the January high.
Previous Session: Advancers led 1.13 to 1
New Highs: 181 (+37)
New Lows: 25 (-6)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Another solid session Friday as NASDAQ continues its more or less lateral move of the past 7 sessions that was punctuated by two distribution sessions. Its ability to hold the lateral move even with the distribution is a positive as NASDAQ made a higher low above the 50 day EMA (2280), putting it in position to make another run at the January high (2333). NASDAQ has been much more volatile than SP500, but despite the volatility it continues to set up for another run at the breakout from this higher low.
NASDAQ is getting some help from SOX (+0.98%) as the chips come off of the March low that took SOX out of its January and February range. It managed to hold the December highs near 500 and bounced to end the week. As noted before, the moves were not that strong and SOX is still below the 18 and 50 day EMA (508.57, 514). In short, an awful lot of overhead supply is immediately on top of the index, and it will take a lot more buying power than shown of late. On the positive side, chip leaders continue to perform; as noted Thursday, WFR, TRID, NVDA, SLAB, DIOD, RMBS were up again.
SP500/NYSE
Stats: +1.28 points (+0.1%) to close at 1302.95
NYSE Volume: 1.482B (+1.63%). Volume edged higher Friday as the NYSE indices posted another gain, but trade was still well below average. Trade is lower as the large caps continue to work laterally over near support. Good price/volume action that is setting up the next break higher.
A/D and Hi/Lo: Advancers led 1.51 to 1. Modest on a modest upside session.
Previous Session: Decliners led 1.03 to 1
New Highs: 164 (+33). Needs to get better, particularly with the small caps move to new highs and the mid-caps doing the same.
New Lows: 23 (-9)
The Chart: http://investmenthouse.com/cd/^gspc.html
Another easy and orderly lateral move over the 10 day EMA (1299), reaching down to tap that level on the low once more and then rebounding to post a modest gain. Basically ran in place on continued below average volume, but the modest reaches lower and recoveries are just what you want to see in a consolidation. Moreover, price/volume action remains in good shape as the index makes this lateral move on top of the January and February highs (1295), holding its breakout. Setting up well for the next move higher; it needs to show volume on that move to prove up the rally two weeks back that SP500 spent all week consolidating. Good action but needs a solid break higher.
SP600 (+0.54%) broke higher once more, reaching a new all-time yet again. SP600 is now above its upper channel line (388), and with the overall low NYSE volume as it makes the move it is going to find it difficult to hold the move unless trade picks up. One thing is for sure, the small caps continue to lead.
DJ30
DJ30 continues to hold its breakout, again similar to SP500, moving laterally above the 10 day EMA (11,227) on lower volume. It is consolidating the nice run higher off the 50 day EMA (11,034), not giving up its gains. That is always a sign of strength as buyers don't want to let go of positions they bought on the move higher.
Stats: +9.68 points (+0.09%) to close at 11279.97
Volume: 242M shares Friday versus 292M shares Thursday. Nice to see volume fade as it continues the lateral move.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
This is the week of Bernanke's first FOMC meeting as chairman. The market's gyrations for at least the past month (and more likely since the start of the year) are a result of the emotion swings as to what the Fed is going to do near term with its rate hiking campaign. As each group of new data comes in the market rallies if a bit weaker, wrings its hands if a bit stronger.
That up and down action tracking the economic data is worth considering in and of itself. In our seminars we teach that volatility typically always indicates some change underfoot. At a minimum it suggests a weak spot in a trend, and that is worth watching closely to see if the trend holds or breaks. This volatility in the market as it follows the economic data that is itself up and down is another alert to us that the trend in the economy is changing. We view it as one of those weak spots that does not necessarily mean a transition from expansion to contraction or worse, but as we have written the past few weeks, it needs the Fed to get off its back so a weak spot won't turn into a contraction.
The Tuesday and Wednesday FOMC meeting statement could give us some direction, but it likely won't change much from the January statement. Bernanke does not want to rock the boat in his first meeting. The Fed removed 'measured' from the last statement, clearing the way to stop the hikes. It will have no reason to alter that at this meeting; Bernanke basically gets a bye on this one and can leave us all pondering whether the Fed moves to 5% or 5.25%. If more data similar to the new home sales report hits, 5% should be it. Of course, you are dealing with the Fed and logic does not always apply.
The market is setting up nicely for another move higher, though the indices are still somewhat all over the map. SP500 and DJ30 are nicely consolidating their breakouts. NASDAQ failed a breakout attempt early in the week, but it has a higher low and is getting close to another attempt. SP600, however, is still moving to new highs while SOX is still buried well below its 50 day EMA. Yep, all over the place.
The market typically rises, though tentatively, ahead of the FOMC meeting. A lot is riding on this one, and the various stages of the indices make any rise a bit dicey if the Fed comes out a bit hawkish. The move up lacked volume and NASDAQ could go either way at this point. SOX has improved to end last week, and that helped buck NASDAQ up; if the chips resume their decline NASDAQ will find it hard to make a clean breakout or any breakout for that matter.
That said, the market's tenacity to this point is noteworthy, and we continue to track and move into stocks that make solid breaks higher. That means there is still leadership setting the pace. There are also a lot of stocks tagging along, including several of our plays that are rising but on very light trade. Even with the market trying to trend higher we have to take a pass on those; indeed, we typically always pass on those because we want to see the big money piling in as that gives the stock staying power not to mention a good push to start the play. Even with the market's tenacity, we need to see the upside move resume with volume as noted before. To do that it will need to convince itself the Fed is just about done.
So it comes back to the Fed and the market setting up for an upside move in anticipation of better news. It won't get anything new from the Fed, but that very well could be a positive. After all the Fed has already removed 'measured' from the statement in anticipation of slowing the move; that was viewed as a positive after the last meeting. Moreover, with economic data, particularly housing, slowing at a faster pace, the Fed will have the data it needs to call it quits in May. Now the market may not see it that way in its initial reaction because the market always overreacts in the near term.
In any event we will continue to look for upside plays and then see if they give us the right moves we can enter into. The large caps are setting up well and the techs are not bad. Chips are showing some good moves as well from the leaders and some more are still waiting in the wings. The small caps are already high and frankly in need of a pullback; they are primed for some selling on the FOMC result. Indeed, if the market drifts higher into the FOMC meeting it will be generally primed for a pullback. When it does it will need to hold near support as it has done. The week ahead will be interesting to say the least, but the market enters it in some decent shape.
Support and Resistance
NASDAQ: Closed at 2312.82
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:
The 10 day EMA at 2298.81
The 18 day EMA at 2294
2288 from December 2000 low.
The 50 day EMA at 2280
2278 is December 2005 intraday high.
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 1302.95
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 10 day EMA at 1299
The January high at 1295
The 18 day EMA at 1294.84
The late January peak at 1285
The 50 day EMA at 1283
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 11,280
Resistance:
11,350 from the May 2001 peak.
11,401 from the September 2000 peak.
11,425 from April 2000 peak
Support:
The 10 day EMA at 11,227
11,176 - 11,186 from April 2000
The 18 day EMA at 11,170
11,159 is the February high.
11,044 is the January high.
The 50 day EMA at 11,033
10,985 is the March 2005 intraday high
10,965 from Q4 2000 and November/December 2005
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
March 28
Consumer confidence, March (10:00): 102.0 expected, 101.7 prior
March 29
Crude oil inventories: -1.31M prior
FOMC policy decision: Expecting 25BP hike to 4.75% on Fed Funds rate and no change in statement
March 30
GDP, Q4 final (8:30): 1.7% expected, 1.6% prior
Chain deflator (8:30): 3.3% expected, 3.3% prior
Initial jobless claims (8:30): 300K expected, 302K prior
March 31
Personal Income, February (8:30): 0.4% expected, 0.7% prior
Personal Spending, February (8:30): 0.0% expected, 0.9% prior
Michigan sentiment final, March (9:45): 87.0 expected, 86.7 prior
Chicago PMI, March (10:00): 57.0 expected, 54.9 prior
Factory orders, February (10:00): 1.0% expected, -4.5% prior
End part 1 of 3
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