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world stock market, us stock market
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4/11/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: DRIV; ATHR
Stop alerts issued: APH; CTSH; HOLX; LLL; NTES; DRIV
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 finds something concerning enough to send in the sellers.
- EIA forecasts $2.62/gallon gasoline this summer. Expecting a decline?
- If market needed a pullback ahead of earnings, it is getting it.
- Leaders have run a long way and are showing it.
Volume shows up but it is the sellers with the strength this time.
There were some more positives with Alcoa's earnings and NOK announcing better pricing on its phones, and that helped pop stocks upside at the open, coming back from two downside sessions. There was some promise, but that promise evaporated 15 minutes into the trading.
Stocks have weathered rising oil prices, gasoline prices, two years of Fed rate hikes, stronger rates, a slowing housing market, and as of the open, new insider trading charges against employees of MER and GS. The action has been choppy and aggravating, but the indices have staked out gains, breaking to new post-crash highs to end 2005 and again this year with NASDAQ joining the move on strong volume to end March.
Tuesday it could be the back-breaking straw came out of Iran when its president boasted Iran had enriched its first uranium. While this step is similar to the Wright Brothers first flight versus modern airliners, it is a key first step and combined with the New Yorker's article on a contingency nuclear strike, it rattled the market. Frankly I am glad the government is doing its job, i.e. evaluating risks and threats to the nation and drawing up contingency plans. That is one of its express duties under the Constitution, and with all of the dabbling in extra-constitutional areas, it is good to see the feds have their eye on the ball this time as opposed to 2000 and 2001. Be that as it may, the combination of all of these events was enough to bring out the sellers.
The selling was across the board as breadth jumped on the high side of 3:1 on both NASDAQ and NYSE. Materials (lumber, cement, metals), precious metals, and energy sold in addition to weakness in technology, semiconductors, retail, etc. Pretty much no sector was spared, and that made it look more like bets against the economy given all of the energy price issues, commodity price issues, and international intrigue. This just as many financial talk shows crow of a worldwide boom that is accelerating even as we speak. There is life where there was none just a few years back, but you always have to worry when an idea becomes mainstream: by the time it is commonly accepted its time is past.
The main problem with the 'boom' talk is that just as the boom is trying to take off energy is trying to ground it. We saw what happened in the US in 2005 when gasoline hit $3/gallon. It is one thing to say that demand is driving the price increases and thus the price increases are acceptable. That is true to a point. At some juncture, $3/gallon in 2005, prices become too high and demand contracts. Worse case prices stunt economic growth. The point: energy, commodity and other prices cannot rise without end, demand driven or not, without negatively impacting economic growth. At this point we have not hit that level given the post-industrial nature of the US economy and its more energy efficient operational mode. At some point, however, we will. Again, consumer demand destruction occurred last year at $3/gallon for gasoline.
Internals weak, volume up, some near term technical breakdowns.
Regardless of the cause and the motivations behind the move, stocks sold on rising volume and sharply negative breadth. A nice, orderly pullback turned into some distribution. SP500, DJ30, and NASDAQ gave up their more recent breakouts. SP500 broke below the 50 day EMA while the Dow and NASDAQ managed to hold above that support. SP600 fell further down into its channel after a rather uninspired attempt to break through that level.
Of the group, SP500 (and SOX if you want to go there) showed the most significant downside action as it gave back its March breakout and broke below the 50 day MA on rising volume. NASDAQ and the Dow also lost their breakouts, but they held the 50 day MA and thus remain in a bit better technical position. Regardless, the sellers took over the action and did so with strength. After the low volume climb on SP500 this was its vulnerability, i.e. those sitting on the sidelines decided to enter the market on the sell side.
Not the death of the market but evidence it is not bulletproof.
When the market got to the lick log it got licked. With the failed breakouts and the SP500 break below the 50 day EMA, that typically means at a minimum that rebuilding is needed. Of course as of the Tuesday close there was no bottom in place; the weak bounce in the last half hour merely kept the indices from closing on their lows, a difference without distinction.
We are not writing the market off after this move, but we look at this as a warning shot, an indication that despite the 'rah rah' talk regarding worldwide booms and the approach of economic nirvana, there is a point where investors view global issues and prices as detrimental to continued economic growth. The economy has progressed further than we thought it would with a year of oil prices over $50/bbl; again, it has not hit the wall with prices sustained even in the sixties. We suspect, however, that $75/bbl will be the point where the economy bucks.
In any event the market was unable to rebound off the orderly test, and the failed breakouts and SP500 breakdown below the 50 day EMA means rebuilding is necessary. Damage has been done but at this point nothing irreparable. It cannot, however, sell much more. It has already given up the easy pullback to test the breakouts for a rebound. Now it has some tougher work to recover. It can do it, but now it needs an offset to the rising international issues that threaten prices to a dangerous extent. Earnings could not do the trick Tuesday, but with this continued pullback they may provide both an opening (lower stock prices) and a catalyst (better than expected guidance perhaps?) in the coming weeks.
THE ECONOMY
EIA predicts $2.62/gallon oil for the summer.
Given that most of us are paying over that level for a gallon right now, that is almost comforting. It most likely correctly includes a calculation that the current spike as the result of the changeover from MBTE to ethanol (E85) and the delayed maintenance shutdowns for many refineries will subside once the changeover is made and the refineries are back up to capacity as we discussed in the Monday report.
As in most instances, timing is everything. One has to ask why is the changeover mandated right now on the cusp of the driving season just as refineries the feds asked companies to keep operational despite needed scheduled maintenance after the Gulf storms are going offline for maintenance? Maybe there is no better time. Certainly not after the storms. Of course the summertime is out, and during the winter heating oil was being produced. Well, not that much heating oil anymore as the US uses more natural gas now for heating; seems that would have been the better time to do it.
Regardless, we are experiencing gasoline shortages in the US right now, and thus the climb in prices. Houston, a refinery Mecca, is experiencing shortages of 'plus' and 'premium' grades. If you drive a luxury vehicle, finding fuel with the higher octane readings is more of a challenge. Phoenix is also experiencing the same issues: higher grades are in short supply with station outages becoming more common.
As discussed Monday, this is due to abate over the next few weeks. Of course, if world events intervene and oil spikes through $70/bbl any softening may simply keep prices where they are now. Regardless of how you slice it, this summer is going to be a high price gasoline summer, and the issue to us is how high it goes and at what point the consumer balks.
THE MARKET
MARKET SENTIMENT
VIX: 13; +0.81
VXN: 17.04; +0.64
VXO: 12.6; +0.93
Put/Call Ratio (CBOE): 1.02; +0.17. Closed over 1.0 for the first time in three weeks. Closes above 1.0 start to indicate excess anxiety and downside speculation. When everyone thinks things are falling in an otherwise decent market, that is a contrary indicator. Just one close above that level is typically insufficient, however, to start a turn.
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: -22.92 points (-0.98%) to close at 2310.35
Volume: 2.179B (+13.43%). Volume jumped above average for the first time on a downside session since mid-March. NASDAQ has shown good price/volume action (up on up sessions, down on down sessions) through the breakout two weeks back. This distribution after a nice easy pullback shows sellers coming into NASDAQ with force. NASDAQ did tap the 50 day EMA on the low and bounced some, however, and higher volume can be a plus on a 50 day EMA test. With the SP500 break below its 50 day EMA, however, that will have to prove itself to be the case.
Up Volume: 454M (-170M)
Down Volume: 1.715B (+430M)
A/D and Hi/Lo: Decliners led 2.79 to 1. Breadth definitely skewed to the downside, jumping back up to its Friday level following the jobs report.
Previous Session: Decliners led 1.33 to 1
New Highs: 77 (-49)
New Lows: 63 (+17)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ sold through its breakout point at 2333 and tapped the 50 day EMA (2301) on the low. Modest rebound in the last half hour took it off that level to close the session, but it was too little to make any real difference. The key negative points: failed early gap higher, higher volume selling, giving up the breakout. Positives: Held the 50 day EMA. Not a lot of good to say about the session as NASDAQ was set up well to rebound and continue the breakout. Now it has some more work to do; it did not break down what with the 50 day EMA hold, something that keeps its upside prospects in tact.
SOX (-1.47%) gave up the 50 day EMA (511.93) Monday and then the 10 and 18 day EMA (509) Tuesday as SOX gave up its solid early April move. It landed at 500, the rough support level it held after the early March sell off. That level marks the early December range where the index peaked before selling back and then starting its January run where it hit its two year high. Whatever. SOX fell apart after trying to put together a move off a three week lateral consolidation at 500.
SP500/NYSE
Stats: -10.03 points (-0.77%) to close at 1286.57
NYSE Volume: 1.58B (+17.27%). Volume rose but did not top average as the NYSE indices faded across the board. It was not above average trade, but it was still stronger than most sessions the past three weeks. Definitely some distribution on the NYSE as the low volume rally is met with some stronger volume selling.
A/D and Hi/Lo: Decliners led 2.69 to 1. Not the 4:1 seen Friday, but very solid downside breadth nonetheless.
Previous Session: Decliners led 1.35 to 1
New Highs: 80 (-11)
New Lows: 133 (+18)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 tried 1300 on the high just as it did Monday, and just as it did Monday, it faded from that level. This time there was no holding the October/March up trendline (1296) nor the 50 day EMA (1289.39). SP500 gave up its mid-March breakout over the January and February highs (1295) as well. That pushes it back down in a range between 1250 and 1295 spanning January and February. The stronger volume says more sellers entered on this downside and gave this drop through support a bit more credence. SP500 is not in full downside flight, but unlike the other indices it has given up its support and has some rebuilding to accomplish before it is ready to make a new run at the highs.
SP600 (-1.26%) fell through its 18 day EMA (389) after cracking back below its upper channel line (392.50) on Monday. It flirted with a further move higher above its channel with a strong move 2 weeks back when NASDAQ broke out, but that move waffled and as the action the past three sessions demonstrates, failed. SP600 is in full swan dive effect to the up trendline (381), just below the 50 day EMA (318.52). This move is getting a bit long in the tooth after the November breakout. This is its fourth test of the 50 day EMA in this trend. It can make another run and it is definitely hard to bet against. Much depends upon how the rest of the market responds to the break lower, particularly SP500.
DJ30
DJ30 sold as well. It undercut 11,100, a price support level, but marginally. It managed to hold the 50 day EMA (11,084) and the October/January/February up trendline (11,075) after undercutting them intraday. As it held the trendline DJ30 is obviously still in its near term trend, and unlike the other indices, it only modestly gave back its breakout over the February high (11,159). This is the point it needs to hold if it is going to do so. After three downside sessions on NASDAQ and its hold at the 50 day EMA, DJ30 and NASDAQ can provide some leadership. The will have to overcome rising selling volume, however, something they have not dealt with since this last break higher started.
Stats: -51.7 points (-0.46%) to close at 11089.63
Volume: 266M shares Monday versus 207M shares Tuesday. Rising volume as DJ30 sold, but also as it undercut the 50 day EMA and up trendline and recovered to hold those levels. That can be a good indication as it shows buyers stepping in at support to buy.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
If earnings were the focus Tuesday the market never did get a clear picture. Some good results were overshadowed by geopolitical events that continued to pressure energy and ratcheted up market concern about pre-emptive strikes and thus even higher energy costs.
Wednesday there will be more earnings and some economic data as well with the trade balance, oil inventories, and the Treasury budget. Not necessarily heavy hitters outside the inventories though there is that amorphous belief that at some point the trade gap will evoke a mass exodus from the dollar. Always a worry but not on the front burner right now with all of the external issues.
The lower volume pullback was upset Tuesday, but as noted, NASDAQ remains at support and SP600 is still in its channel. Of course SOX has fumbled its early month run and SP500 broke the 50 day EMA. The sellers not only took control Tuesday, but this time they were in the majority as measured by the recent volume action on the indices. Now we see if this selling was event driven (Iran) and Tuesday got it out of its system.
More and more leaders are taking high volume hits and trading below support (e.g. WFR, HOLX, FTO, BWNG, HOLX, etc.) while others continue to test and hold near support levels. Every rally needs leadership and this rally has energy, metals, telecom, medical instruments and others, but Tuesday they were all under pressure.
If this market needed some air let out ahead of earnings, it is getting it. We could do without the higher volume and the breakdowns, of course, and with SP500 breaking the 50 day EMA and NASDAQ giving up its breakout the market has a deeper hole to climb out of and will need earnings as a catalyst.
Question is whether earnings will be a catalyst. Everyone says they will be good, but the market has already baked that into the cake with the March move higher. One thing we note is that many leaders have made strong moves to this point similar to SP600 and are in need of more of breather. SP600 broke out in again in November and thus far has rallied for over 4 months. Individual stocks have made impressive runs up the short term moving averages and have quickly undercut those levels the past week. Earnings may not provide any additional boost that has not been already built in, and these pullbacks to this point could simply be in anticipation of earnings that will be good but will also be within expectations.
Given the selling Tuesday and NASDAQ's hold at the 50 day EMA, we expect to see some relief off that level. May not be much of a move and with SP600 still above its up trendline in the channel we may see some more weakness before any relief. If we do get a lower volume bounce it will be one to use to square up some positions and see what leaders that held support are still in position to move higher and still have room to move, i.e. are not too extended with this last run. There is definitely more risk right now and that is why we have been closing some positions as they broke near support and will look at low volume bounces back to resistance as opportunities to close some plays that are marginal performers or if the market continues to show sluggish action overall.
Support and Resistance
NASDAQ: Closed at 2310.35
Resistance:
The recent high at 2325
The 18 day EMA at 2325
2328 from the May 2001 peak
The January high at 2333
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:
2310 is the October up trendline.
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 1286.57
Resistance:
The 50 day EMA at 1289.39
The October/March up trendline and the January high at 1295
1297.57 is the recent February high.
The 18 day EMA at 1298
The 10 day EMA at 1398
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:
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 11,089.63
Resistance:
11,097 is the last peak from the February top.
11,159 is the February high.
The 18 day EMA at 11,163
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:
The 50 day EMA at 11,084
11075 is the October/January/February up trendline.
11,044 is the January high.
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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world stock market
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