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world stock market, us stock market
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4/12/06 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ANSS; SIRF
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:
- Modest rebound no salve for Tuesday selling as bond rates rise, gasoline inventories fall.
- Trade gap narrows as imports decline faster than exports.
- Mortgage applications fall for first time in three weeks
- AMD guidance is low, setting up a limp into a long weekend
- Real action returns next week.
Relief bounce unable to alter Tuesday selling.
The market has a lot of issues still facing it, and though it has hardly caved while facing the problems, it has been a very choppy move. Choppy action can occur for many reasons, but two typical causes are extra-market issues and long advances needing consolidation.
As discussed Tuesday, much of the market leadership has run a long way and is showing volatile action that suggests the need to sit down and take a rest. As for the extra-market issues, there are a sack full, but Wednesday the market focused on rising bond rates, surging gasoline prices, and Iranian nuclear desires.
Sure the market was higher Wednesday even with these issues, but the gains were hardly noticeable, volume was extremely light, breadth was a pancake, and the action was once again an intraday rollercoaster. Up early on a smaller trade gap, lower after gasoline inventories tanked again, higher into lunch, then lower in the afternoon ahead of more turmoil with Iran over its nuclear ambitions. Simply put, the upside attempts were simply not strong enough to fend off each news story and thus the ping pong action.
Chips tried to show some leadership and posted the best gain on the session ahead of AMD's after hours earnings. Likely some short covering was driving the chips higher after they gave up their early April bounce this week just in case AMD beat the street. As it turns out AMD beat on earnings but its guidance is below expectations.
With the Good Friday holiday, Thursday is the last session of the week, and thus volume is already tapering off. Tuesday trade showed distribution, but it was also likely position squaring ahead of the holiday. It is often done mid-week given that all of the players are available versus the last two days of a short week when many have already ducked out the door. Tuesday was still a distribution session, but we recognize that some of the action was preparing for the long weekend early.
In any event, the Wednesday action did nothing to recover from Tuesday's higher volume selling. SP500 tried to recover the 50 day EMA, doing so intraday, but it gave that key level up midday and could not take it back before the close. Indeed, none of the indices made significant upside moves that recaptured any key lost ground. That left the Wednesday action as basically a nonevent in terms of rebutting the Tuesday selling and failure of some key support. At best it was a relief bounce that bounced very little. With a long weekend just around the corner, however, we shouldn't expect much anyway as no big money will want to get very aggressive until next week.
THE ECONOMY
Trade gap narrows, but with oil as the main driver, a significant change is not going to happen.
The February trade gap narrowed to a mere $65.7B from $68.6B and the $67.5B expected as imports fell 2.3% while exports fell just 1.2%. In short, it was more a game of attrition as exports faded for the first time in four months.
Oil imports for the month basically held steady from January. Thus the slight improvement is going to evaporate in March and April and likely beyond because oil prices have surged in the interim period. Thus the trade gap improvement is going to disappear and the gap will expand. It is significant to note that the narrower than expected gap reported Wednesday was still the third largest on record.
Thus as we have said before, as long as we are importing a lot of high-priced oil we are going to have a large trade deficit. We don't manufacture a lot of the goods that the rest of the world can afford so we are not going to produce our way out of this. Think of it in terms of the Federal budget deficit. Seventy-plus percent of our tax dollars go toward so-called 'nondiscretionary' spending, e.g. the social security, Medicare, and welfare debacles that are rife with fraud and corruption. If you accept those 'nondiscretionary' areas as sacred and untouchable (part of the 'three legs') then you are never going to make an appreciable dent in the budget deficit without a 20 year boom that we enjoyed starting with the Reagan economic revival.
With the trade gap, if we cannot wean ourselves from oil consumption with respect to vehicles (ethanol, hydrogen power) and energy consumption (more nuclear, solar, wind), then we are not going to impact the trade gap unless oil prices fall on their own. We have no control over oil prices other than creating a recession here in the US and thus lowering worldwide demand for oil. Of course if we do that China and India will benefit as we suffer. Hardly an equitable outcome from our standpoint.
The point: everyone worries over the trade gap as creating some vague point where other countries will dump dollars in favor of 'stronger' economies and currencies. That has yet to show up for reasons we discuss often (e.g. other countries' need for US consumption of their products), but if we want to combat that possibility, trade tariffs on Chinese goods and similar 'external' measures are not going to do the trick. We have to change here to develop energy sources that circumvent the need for oil. With the correct incentives we can develop the technologies to do just that, and at the same time give us the technology that the rest of the world would be lining up to buy. That is how we can recapture our technological lead, yet all we have come up with thus far is requiring more ethanol and some modest tax credits on hybrid cars. That is not going to do it.
An aside on hybrids. A study just released concludes that the environmental costs related to the manufacture and disposal of hybrids results in more damage to the environment than manufacturing, operating and disposing of a conventional gasoline combustion vehicle. Most are only comparing the amount of hydrocarbons burned during the operation period, but this study expands the review to the beginning and the end of useful life as well. With the materials required to produce the vehicles and the disposal impacts (e.g. more batteries), the overall environmental impacts are greater. It then becomes a matter of what your target environmental impact is. Right now most are concerned with greenhouse gases and thus the emphasis on fuel consumption. That may or may not be the most important environmental impact.
Mortgage applications drop 5.5%
This was the first drop in three weeks with industry analysts saying nearly 4 year highs in mortgage rates as the main inhibitor. The 30 year mortgage rose to 6.50% (+0.01), the highest level since June 2002 (6.53%).
Purchase mortgage applications fell 4.7%. Refinancing fell 6.6%. These declines put the indices below year ago level as activity continues to decline. It is not a sharp decline but more of the slow, steady decline as interest rates move higher in a slow, steady fashion.
The most interesting aspect with respect to housing, however, has yet to develop. Long interest rates have shot higher the past two weeks after breaking through 4.80% on the 10 year bond. Mortgage rates are likely to move even higher, and when mortgage rates spike the issue will be just how fast the housing market fades. It has been slow to this point but rates have been on a relatively controlled rise. When I used to get tired and a bit wild in my pitching days the coach would come out and say things were getting a bit too interesting for the fans. That meant I was getting yanked. This jump in long term bond yields is going to make things a bit interesting in the housing market in the months to come, particularly when consumers get bummed about $3/gallon gasoline without any storms in the Gulf.
THE MARKET
MARKET SENTIMENT
VIX: 12.76; -0.24
VXN: 17.04; 0
VXO: 12.07; -0.53
Put/Call Ratio (CBOE): 0.83; -0.19
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: +4.33 points (+0.19%) to close at 2314.68
Volume: 1.593B (-26.91%). Volume imploded as NASDAQ tried to bounce, certainly no answer to the Tuesday higher volume selling. Well, maybe it was; the inability to garner any significant upside trade shows no one willing to get heavily involved after the selling and ahead of the weekend.
Up Volume: 892M (+438M)
Down Volume: 651M (-1.064B)
A/D and Hi/Lo: Advancers led 1.3 to 1. Hardly an answer to the heavy decliners Tuesday.
Previous Session: Decliners led 2.79 to 1
New Highs: 65 (-12)
New Lows: 63 (0)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ put together a modest bounce off the Tuesday intraday test of the 50 day EMA (2302) but the above average volume on the selling faded to a trickle on the bounce. NASDAQ did not recover the breakout over 2333, closing at the October up trendline. It is still holding the 50 day EMA, and that keeps it in the uptrend. It has to find a catalyst to bounce it, and earnings are the most likely event. They have to be good enough to overcome energy, Iran, and rates, and AMD's earnings were not providing much tech bounce.
SOX (+0.62%) led the action Wednesday ahead of the AMD earnings, rebounding off the Tuesday test of support at 500. It managed to wave at the 50 day EMA (511.71) on the high before fading to close below the 18 day EMA (508.55). It is hanging onto support and showed some life. AMD, however, is not likely to pump it full of energy on Thursday.
SP500/NYSE
Stats: +1.55 points (+0.12%) to close at 1288.12
NYSE Volume: 1.396B (-11.62%). NYSE trade lagged as well, and without the volume SP500 could not punch back up through the 50 day EMA. Likely not going to see any appreciable rise in volume Thursday ahead of a three-day weekend.
A/D and Hi/Lo: Advancers led 1.11 to 1. Declining breadth has definitely had the edge the past week with its -4:1 last Friday and the -2.7:1 Tuesday.
Previous Session: Decliners led 2.69 to 1
New Highs: 50 (-30)
New Lows: 106 (-27)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied through the 50 day EMA (1289) on the high (1290.93) but with the sharply declining trade it could not hold the move. It remains below that key level as well as the January and February high at 1295. It also is below the October/March up trendline (1296). In short, SP500 is at a point where it needs to hold the line and recover. The Wednesday move was a pretty weak effort; at least it held the line but it still has to rebuild after breaking some key support.
SP600 (+0.49%) rebounded with the rest of the market, but it has not fallen to the bottom of its channel at the up trendline (381) and the 50 day EMA (381.72). Its history in this channel indicates a test of that level is due, particularly given that SP600 tried a move above the upper channel line but failed. Kind of like the bigger they are, the harder they fall. Still looking for a test closer to the trendline before it resumes the move higher.
DJ30
Used the 50 day EMA (11,086) and the October/January/February up trendline (11,087) as support and bounced modestly as well. Good hold of the trendline but of course volume was not there. It is set up to continue the move even though it gave up the February high (11,159). If it can get out of the week still holding the trendline it is in good shape for next week when everyone comes back into the market.
Stats: +40.34 points (+0.36%) to close at 11129.97
Volume: 212M shares Wednesday versus 266M shares Tuesday on the selling.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Last session of the week ahead of the Friday holiday. Retail sales are out before the open along with GE's earnings. Retail sales are going to be as influential as GE. AMD was not lighting up the tech sector after hours, at least in a positive way. AMD is seen as the clearer indication of the PC market versus INTC, and though earnings were strong the guidance was not. Michigan April preliminary sentiment is out as well, and we get an initial read on how all 200 consumers covered feel about higher energy prices.
We are not expecting a lot of fireworks ahead of Friday given the long weekend; much of the preparation for the weekend took place Tuesday. AMD might make things a bit interesting for semiconductors, however, and thus techs. We were anticipating more of an up and down session similar to Wednesday to close out the week, but with AMD we will watch how techs hold the 50 day EMA and SOX hangs onto support at 500.
In short we are not expecting the type of action that will generate a lot of strong leader moves. We talked with several floor traders and about half are not planning on doing much after the lunch if they make it that far. The pretty much guarantees another light volume session, and that is not going to tell you much regardless of which way the market moves, but particularly if it is to the upside. Given the higher volume selling earlier, any upside move will have to have solid volume to give it any kind of counter strength to the distribution.
About the best we can look for Thursday is for NASDAQ, DJ30 and SOX to hold their support and leave the market in position to try an advance next week. We will look to use another modest drift higher as an opportunity to clear out of some marginal plays. Of course it may do better and we will continue eyeing leaders that are in position to move and not overextended; leaders lead, and if we see some taking off on volume we will take a few positions.
Next week will tell more of the story when everyone gets back into the market. This low volume rebound leaves the market open for some more downside if the sellers remain in the market; a low volume bounce to the 10 day EMA on NASDAQ will set up the index for a test of the break lower the past four sessions. Thus far the market has shaken off each selling attempt and fought back. The selling this past week has given it another golden opportunity to do that again. Again, Thursday likely won't tell the end of this recent story, but we will use it if the opportunity arises.
Support and Resistance
NASDAQ: Closed at 2314.68
Resistance:
The 18 day EMA at 2324
The recent high 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:
2313 is the October up trendline.
The 50 day EMA at 2301.79
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 1288.12
Resistance:
The 50 day EMA at 1289.34
The October/March up trendline and the January high at 1295
1297.57 is the recent February high.
The 18 day EMA at 1297
The 10 day EMA at 1297
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 11,129.97
Resistance:
11,159 is the February high.
The 18 day EMA at 11,160
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.
11,088 is the October/January/February up trendline.
The 50 day EMA at 11,086
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): -$65.7B actual versus -$67.5B expected, -$68.61B prior
Crude oil inventory (10:30): 2.11M prior
Treasury Budget, March (2:00): -$85.5B actual versus -$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 2
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