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us stock market, trade stock
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4/10/06 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: LEH; DO; VTS; RDC
Trailing stops: WFR; CHE; NWRE
Stop alerts: None issued
SUMMARY:
- Stocks fade for second session on oil worries, interest rate worries, and on lower volume as well.
- Gasoline futures push through $2/gallon but perhaps some relief in sight.
- Pullback on low volume is good, but at the lick log for the current move higher.
Plenty more worries send stocks lower again but holding support on low volume.
There were plenty of worries for the day once more, and they were again very similar to last week. Oil was up again, this time on worries of a US air strike against Iran's underground nuclear facilities. It cleared $68/bbl, closing at $68.74 (+1.35), moving in on $70/bbl long before any storms churn their way across the Atlantic. Gasoline is no shrinking violet, with futures moving over $2/gallon ($2.01, +0.03) and pump prices at $2.70. Interest rates rose as well but then backed off into the close with the 10 year yield falling to 4.95% (-0.03). The Fed Funds futures contract moved to a 50% chance (from 30%) of a June rate hike to 5.25%. Once more rates are working for the Fed, but the market the past two sessions has not shown it is comfortable the Fed would realize that.
Stocks started flat to higher but quickly turned lower. For the next two hours they bounced up and down around the flat line in very choppy trade but in a fairly narrow range. Over lunch SP500 broke through the 18 day EMA and was working on retaking the 10 day EMA as it traded at a session high. That, however, was it. Instead of continuing higher in the afternoon stocks slid lower as oil prices moved higher. SP500 managed to hold positive at its trendline, but that is about all. NASDAQ held its 18 day EMA. Both held their breakouts. SOX could not hold the 50 day EMA and SP600 slipped through upper channel line, showing a bit more weakness than their counterparts.
The market remained in limbo time-wise, in between a bunch of economic data and before earnings started while enduring the same overlays of energy prices and interest rates. Volume was again lower, coming in well below Friday's already lower trade. Once more the sellers were able to push stocks lower, but they were not overwhelming the market as the lower volume indicates. In addition many stocks continued to hold near support, enduring the pullback as best as possible. The lower volume and holding support are both key for this recent move higher, and it does not hurt the market is giving back some ground immediately ahead of earnings. That takes some of the froth out of the recent action, if you can call it froth. The action has certainly been choppy enough to create some froth. In any event, NASDAQ and SP500 are both holding their breakouts, coming back on light trade. That keeps the current move alive and set for a rebound IF the market can overcome the one-two punch of oil and rates that continue to doggedly move higher and higher.
THE ECONOMY
Gasoline futures spiking but may fade near term before getting much worse.
Gasoline futures moved past $2/gallon ($2.01), continuing their recent rally. A combination of factors is driving this rise. First, refineries that skipped scheduled maintenance after the 2005 Gulf storms had to shut down or risk serious safety and reliability issues ahead. Second, the government requires removing MTB's from the gasoline blend while simultaneously requiring more ethanol blends pursuant to last year's energy bill. That remixing and new blending limits the amount of product available, thus the declines seen over the past few weeks in inventory builds. That is tough to overcome with fewer refineries on line.
On the other hand the Lundberg Survey, a very accurate industry monitor, suggests that with the current level of oil supply and with refineries catching up with the demand for new mixtures while others come back online over the next couple of weeks, gasoline prices could correct rather rapidly.
This is predicated on oil prices remaining more or less in their recent band, and thus everyone is watching the current move higher. If prices stay within their range, however, the sheer physics of the situation will result in some correction. Of course, as we have seen with other pullbacks the Lundberg Survey has predicted, they may not last very long. Nonetheless, a respite from the high prices is much needed ahead of the summer storm season. We are hearing more and more anecdotal evidence from around the country that the current $2.70/gallon price is helping consumers make consumption choices. They are not the choices the consumer or the economy want, but prices are reaching the point where consumption decisions will turn on them.
THE MARKET
MARKET SENTIMENT
VIX: 12.19; -0.07
VXN: 16.4; +0.52
VXO: 11.67; -0.34
Put/Call Ratio (CBOE): 0.85; -0.06
Bulls versus Bears:
Bulls: 49.5%. Sharp jump from 46.7% after pausing for a week. Bulls have picked up steam the past three weeks as the talk about a surging economy and new index highs swells the ranks. Still below the 55% considered bearish, but well up from the 42.3% low that undercut the two prior lows in May and October. It helped due the trick in sparking this run.
Bears: 27.8%. Down from 28.3% last week and 33% on the high this cycle. Still well above the 20% level below which is considered bearish for the market. It started this move just above 20%, the threshold level. Bears surpassed the readings from the two prior market bottoms in May and October 2005 (30% and 29.2%, respectively).
NASDAQ
Stats: -5.75 points (-0.25%) to close at 2333.27
Volume: 1.921B (-5.93%). Volume fell for the second session, dropping further below average as NASDAQ faded for a second session. After a good volume breakout and solid upside trade, the lower volume shows the sellers remain muted even though the index is posting losses. Indeed, this is exactly the action you want to see: solid volume on the breakout and then lower, below average volume on the test that still holds the breakout.
Up Volume: 624M (+175M)
Down Volume: 1.285B (-208M)
A/D and Hi/Lo: Decliners led 1.33 to 1. Modest downside after getting a bit carried away Friday on the first down session of the current test.
Previous Session: Decliners led 2.18 to 1
New Highs: 126 (-52)
New Lows: 46 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ started the session positive and bounced back and forth along the flat line all morning. Then it rolled over at lunch and sold all afternoon, tapping the 18 day EMA (2327) on the session low before managing a last hour relief bounce. Key points: very low, below average volume; held the 18 day EMA and the breakout two Wednesdays back; many techs holding near support just as the overall index. All of this adds up to a good test of the breakout that positions NASDAQ for a rebound to continue its breakout. It is set up, but now it has to overcome energy prices and interest rates and resume the move.
SOX (-0.79%) was somewhat of a disappointment as it could not hold the 50 day EMA (512.28) it tapped on the Friday low, instead falling lower to close at the 10 day EMA (510.34). It undercut the 18 day EMA (509.45) on the low and rebounded modestly. If NASDAQ holds, SOX will be in decent shape to bounce as well, but it is at the fish or cut bait point on this pullback.
SP500/NYSE
Stats: +1.1 points (+0.08%) to close at 1296.6
NYSE Volume: 1.347B (-11.8%). Volume fell again as well, making it three consecutive down sessions on lower, below average volume. Volume has been NYSE's Achilles Heel this rally as it has been low overall whether the indices moved higher or lower. It has been higher on the upside, however, so at least there is some ongoing accumulation albeit rather weak. No accumulation, but no distribution either. Holding support on low volume as is NASDAQ, and with no sellers in control (though buyers have not shown any power to speak of on the upside sessions).
A/D and Hi/Lo: Decliners led 1.35 to 1. Very modest after that almost freakish spike on Friday.
Previous Session: Decliners led 4.17 to 1
New Highs: 91 (-72)
New Lows: 115 (+7)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied to the 10 day EMA (1300.90) on the high and was looking pretty decent midday. Then the lack of volume betrayed it and it rolled over, giving back most of the move and turning negative on the mid-afternoon low. It managed to hold the October/March up trendline (1294), and that bounced it a bit into the close. Still making higher highs at this point and now trying to make a higher low here as well as it holds just above the January and February highs (1294) it broke above in mid-March. As with the other indices, this is the make or break stand.
SP600 (-0.35%) fell a bit further through the upper channel line (391), managing to hold the 18 day EMA (389.54) with the late afternoon rebound. This is the level we expected SP600 to come back and test, and now the issue is whether it can make a higher low at near support or fades back to the trendline in its channel as it has done for the past five months. No higher NYSE volume to undermine its strength, but it has had a hard time trading above the upper channel line in this uptrend.
DJ30
The blue chips managed a modest gain on very low, below average volume. Trying to hold 11,100 and the breakout over the February high (11,159), trading below that level Monday, but not significantly so. Volume was up Friday on the selling, but still below average and not enough to take DJ30 below its breakout. Still looking for a hold here and a rebound, though it has that lower high. If SP500 finds strength the Dow will likely do the same. After hours AA reported a better than expected bottom line and that boosted the stock $2 after hours; looks as if DJ30 is going to get some help Tuesday.
DJ20 (Dow Transports) is worth mentioning. It is in a steady uptrend after breaking out in November 2005. It has faded the past two sessions but has held the 10 day EMA, looking very good and ready for a rebound. When it goes that will help the rest of the market.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
There is another dearth of economic news Tuesday, leaving the focus on oil and interest rates, with the addition of earnings results. Alcoa announced after hours and beat the street, enjoying a nice bounce after hours. The earning season is still light at this point, however, as the heavy reporting commences next week. This is something of a test run for next week, but we like how the market has faded to support ahead of the earnings overload. In a continuing uptrend that is always a positive as it keeps the market in check and set up for positive moves when the numbers come out. After all, stocks have anticipated some solid news given the breakouts from the major indices this year, the latest in March by NASDAQ. This pullback during the continuing uptrend gives stocks a launch point if results are as good or better than anticipated.
The action the past two sessions looks pretty bad but the internals are not. That means that the indices are ready to rebound from this selling if they get the catalyst they want. That could start tomorrow depending upon how AA's earnings are viewed with respect to the upcoming season overall.
They are ready to rebound, but they will have to do it. The fade is good but the indices are now just about out of rope to the downside if they want to keep these breakouts alive. The horse has been led to water, and the question now is whether it will drink. The market is at the lick log. Take your pick of trite sayings.
Thus we need to see some kind of recovery take hold even if it is simply a further lateral move for a session. Alcoa's earnings are nice but it also doesn't have a lot of tentacles across the entire market. Thus stocks will get a boost, but there won't be anything else to spur them on. If the prior breakouts are for real, as the NASDAQ breakout appears to be, however, then stocks should find their way higher after this nice pullback. In other words, the NASDAQ breakout was strong even in the face of oil and interest rate issues and it occurred on the heels of the FOMC meeting; thus, the move has deep roots and after a nice low volume test as seen Friday and Monday it will be set to move again. We are still looking for this test to yield some good entry points on some strong leaders that have pulled back with the overall market.
Support and Resistance
NASDAQ: Closed at 2333.27
Resistance:
2477 is the January 1999 peak
2493 is the February 1999 peak
2523 from the December 2000 low
3015 is the December 2000 peak and the October 2000 low
Support:
The January high at 2333
2328 from the May 2001 peak
The 18 day EMA at 2327
The recent high at 2325
The 50 day EMA at 2301
2288 from December 2000 low.
2278 is December 2005 intraday high.
2273 is December 2005 closing high.
A minor peak at 2249
2240 is closing low in recent range.
S&P 500: Closed at 1296.62
Resistance:
The 18 day EMA at 1299
The 10 day EMA at 1301
1311 is the March intraday resistance on this move.
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 October/March up trendline and the January high at 1295
The 50 day EMA at 1289.51
The late January peak at 1285
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 11,141.23
Resistance:
11,159 is the February high.
The 18 day EMA at 11,176
The recent March highs at 11,329 to 11,335
11,350 from the May 2001 peak.
11,401 from the September 2000 peak.
11,425 from April 2000 peak
Support:
11,097 is the last peak from the February top.
The 50 day EMA at 11,084
11,044 is the January high.
11070 is the October/January/February up trendline.
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.
April 12
Trade Balance, February (8:30): -$67.5B expected, -$68.5B prior
Crude oil inventory (10:30): 2.11M prior
Treasury Budget, March (2:00): -$81.0B expected, -$71.21B prior
April 13
Business inventories, February (8:30): 0.3% expected, 0.4% prior.
Export prices ex-agr., March (8:30): 0.1% prior
Import prices ex-oil, March (8:30): -0.5% prior.
Initial jobless claims (8:30): 305K expected, 299K prior
Retail sales, March (8:30): 0.5% expected, -1.4% prior.
Retail sales ex-auto (8:30): 0.5% expected, -0.6% prior
Michigan sentiment, prelim., April (9:45): 89.0 expected, 88.9 prior
April 14
Capacity utilization, March (9:15): 81.4% expected, 81.2% prior
Industrial production, March (9:15): 0.5% expected, 0.7% prior.
End part 1 of 3
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