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us stock market, trade stock
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4/14/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: AH
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:
- Stocks fend off rising rates, continue the relief bounce into the holiday weekend.
- Retail sales rebound, Michigan sentiment higher but rates jumping along with gas.
- After softening, leading indicators have firmed, indicating no recession, for now.
- Trying to avoid the 1970's.
- Pullback leaves stocks in position to bounce with earnings.
Techs lead modest relief bounce into the weekend.
NASDAQ continued its modest, low volume bounce off the 50 day EMA test, leading the market higher Thursday ahead of a 3-day weekend. All major indices moved higher, but the techs and small caps had the decisive advantage. Retail sales were in line, Michigan preliminary sentiment topped expectations by a nose, and some decent earnings helped keep the Wednesday 'momentum' going despite the 10 year bond topping 5%, oil topping $70 (70.82, +0.73), gasoline futures surging further ($2.11/gallon, +0.02), and Fed governor Kohn worrying about demand and a 'narrow margin of unused resources' (Phillips Curve talk, a.k.a. I never saw an expansion I liked). You have to wonder how long the consumer can be sanguine with gasoline hitting $2.70/gallon so early in the season, but this far it has not stalled enthusiasm. If oil hits $75/bbl, however, we could see the consumer choke point, particularly if that coincides with $3/gallon gasoline.
Thursday such thoughts were on the back burner as those few in the market were more upbeat. It was not enough to change the landscape much. Volume was very low once more. Breadth was decent on NASDAQ but negative on NYSE. SP500 could not clear its 50 day EMA and SOX failed a run at that level as well. NASDAQ and SP600 continued their bounces off support, but NASDAQ did not recover its breakout point. Basically it was no change in position from Wednesday with the indices still having to shake off the Tuesday distribution.
Leaders continued to hold pretty darn well with tests of the 18 day EMA and 50 day EMA the prior two sessions yielding rebounds Thursday. As with the indices there was no major change, but the ability to hold support and take a breather is always a good sign for a continued rise. With earnings starting in earnest this week the pullback is still a good thing, and the fact that many stocks held support (along with NASDAQ and SP600) keeps the upside potential alive.
THE ECONOMY
Some positive economic reports while long rates and gasoline jump.
Michigan preliminary sentiment (all 200 respondents) felt a hair better than expectations to start April, coming in at 89.2 versus the 89.0 expected and 88.9 in March. Bravo for all 200 respondents. Amazing what a mild winter will do for your spirits in Michigan.
March retail sales rose 0.6% overall, better than the 0.5% expected, a good recovery from a weak February (-0.8%, originally reported -1.4%). Take out autos and they rose 0.4% (0.5% expected, -0.3% February). Autos rose 1.6% after falling 2.8% the prior month.
The revisions to February were significant, and they will help push annualized spending for the quarter near 5.5% versus the 0.9% Q4 gain. Big swing there, but it also shows that Q4 2004 was pretty strong and made the 2005 comparison tougher.
After that, however, we will see. Jobs are supposedly keeping the consumer upbeat in the face of rising energy costs, softening home prices, and higher interest rates. We can speculate all we want about whether housing prices or interest rates will impact the consumer, but the key from our perspective is what has always hurt the consumer (outside of job losses): high priced gasoline.
Costly gasoline cuts a wide swath in the US consumer's life. It's a big country and it takes a lot of gas to just move around our cities. There is a fixed cost just to go to work, etc. We also like to vacation by car. We like to boat, fish and hunt. We go to the mall to spend. We go to regional malls to spend. The more gasoline costs the less we have to spend on discretionary items. Higher prices curtail travel (cost of gas) and purchases made along the way (hotels, restaurants, etc.). Boats suck down fuel faster than the V-8 truck used to trailer it to the lake. High prices mean low boat sales. The ripple effect is quite wide.
Last year we saw what $3/gallon gas did to consumer demand. Fortunately, it was brief and the damage subsided quickly. Also, it was not all gasoline impacting consumption as the dislocations caused by the storms had its impact outside of gasoline prices. Thus the demand issues won't arise as quickly as gasoline hits $3/gallon this time, but if it stays at that level it will have a significant effect. As discussed the past two weeks, the Fed has to be careful about driving with the rearview mirror. You can look at the strong Q1 and conclude things are rocking. They are for now. The question is how long they will do so when one of the most integral elements of our daily existence takes more and more of our disposable income. The economy is strong, but high gasoline will strain it and test the strength. It is a real drag on consumers to Spend $60+ to fill up each week. If prices continue to rise into the Fed meetings, a considered pause would be warranted. It won't happen, but it would be warranted.
ECRI leading indicators have improved, money supply still growing.
One big worry earlier in the year was ECRI's weekly leading indicator index. That index was falling, not indicating recession, but falling. If it continued to do so it would start forecasting a recession ahead. Over the past few weeks, however, it has stabilized and is trying to turn back up. Thus there was no confirmation of the weakness and for now that suggests continued expansion. This is a solid indicator, so when it speaks you have to listen.
How long can it hold the line? Gasoline prices will play their role and of course so will the Fed. We heard Kohn Thursday and his Phillips Curve/demand driven dogma that is on par with the alchemist's attempts to turn lead into gold. In short the idea is if we get too prosperous with people working and factories humming, inflation automatically arises. Hmmm. Tell that to the economy from the early 1980s into 2000. No inflation then even with surging employment and lots of capacity usage.
One thing the Fed is not doing that it did in 2000 is drying up the money supply. Money continues to grow impressively, with M2 rising $23.1B to $6.978T in the first week of April. M1 jumped $34.8B to $1.4T. This continues a steady, 2-year expansion in M2. The Fed may be raising rates, but there is a lot of money still out there if you are willing to pay a higher price for it. Rates alone are not high enough to cause the slowdown yet; if gas prices get high enough they will have a much more profound impact in a much shorter time. Thus the Fed is keeping money supply pretty high so things don't seize up as they did in 2000. It is a tough spot for the Fed as it wants to avoid the 2000 bungle yet keep growth with inflation at bay. All of that money makes the task hard; as noted last week, Steve Forbes says there is too much sloshing around, threatening more inflation. With gold running away it is easier to draw that conclusion as well.
Fed trying to avoid the 1970's all over again.
As we wrote about in 2004 and early 2005, this inflation pressure has its roots in how the economy recovered from this recession. Demand never really substantially slackened during the recession due to the unique events including 9-11. People poured money into their homes with remodeling, etc., and that kept the demand side of the equation moving forward. Supply (business) investment, however, died for three years. No new investment, no new technological innovation; just stagnation. Then the first incentives were demand driven (remember the rebates?). It was not until the tax cuts and investment incentives passed that there was renewed investment in the supply side. By then, however, the seeds of inflation were sewn because supply had been playing catch-up to demand ever since. Inflation occurs when there is excess liquidity coupled with demand exceeding supply. Supply has lagged all along because of increased demand incentives as the first fiscal incentives and business' reluctance to invest after getting burned so bad in the 2000 meltdown. Business was very distrustful of governmental action at that time; it was the Fed and excess tax collections that led to the cataclysmic meltdown. Thus, they were even more hesitant than usual to get back into the game.
Thus we are in a period threatened with inflation on one hand and the destructive force of high energy prices on the other. Energy prices are not inflationary; they destroy more demand than an inflation pressures they produce. The Fed is raising rates on the one hand but keeping money supply strong on the other, trying to walk a tightrope. It is a very treacherous path and some like to compare it to the 1970's. At that time, however, the US economy was burdened with incredible governmental obstructions and was already in a malaise before the energy crisis hit. Fed governors who were on the FOMC at that time warn about 'monetizing' the higher energy prices as they did in the 70's and thus triggering nasty inflation. We have a strong economy this time and the Fed needs to recognize the difference.
In the 1970's there was no business investment, and the massive liquidity when straight into consumer demand. Inflation shot out of control. This time we have business investing (finally) and we don't want to choke that off with rates that are too high and then end up where we were in the 1970's with demand forcing up inflation. That is why the Fed is keeping money supply rising as it raises interest rates. It is trying to strike a balance where money costs more so there is not too much easy money, yet money is available for businesses to expand supply. The balancing act really gets critical if energy does spike. If the Fed has raised rates too much the demand destruction will outstrip any so-called 'neutral' monetary policy stance.
Of course this all assumes the Fed is looking ahead. Its rhetoric is rearview mirror as we heard Thursday from Kohn. You would like to think the Fed is applying the type of analysis we just walked through, and you would think so given the massive amount of collective brainpower on the FOMC. As we have said before, however, all of the firepower is no good if emotion takes over and starts calling the shots. Unfortunately for us, the Fed's history time and again is one where emotion apparently overcomes reason because time and again the Fed cites lagging indicators as reasons for hiking rates to the point where the economy gags.
THE MARKET
MARKET SENTIMENT
VIX: 12.38; -0.38
VXN: 16.34; -0.7
VXO: 11.82; -0.25
Put/Call Ratio (CBOE): 0.86; +0.03. One close over 1.0 last week on Tuesday when the market distributed. Not enough to push a new jump higher.
Bulls versus Bears:
Bulls: 53.2%. Another sharp rise, up from 49.5% and 46.7% the week before that. Rapidly approaching that 55% level considered bearish. On the low this cycle it hit 42.3%, a level below the prior lows in May and October 2005. The market moved higher after that but it did not show us a strong surge.
Bears: 24.5% from 27.8%. Well off its high at 33% for this cycle, a level that topped the prior two highs that gave way to strong rallies. Above the 20% level below which is considered bearish, but heading lower fast. It is coming full circle, having 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: +11.43 points (+0.49%) to close at 2326.11
Volume: 1.57B (-1.39%). Another dreadfully low volume day on an upside session. Volume jumped as the index sold on Tuesday and then faded as NASDAQ rebounded modestly to close out the week. Some pre-holiday weekend shuffling accounted for some of that trade, but you cannot brush it all off; there was some distribution, i.e. high volume selling.
Up Volume: 1.147B (+255M)
Down Volume: 403M (-248M)
A/D and Hi/Lo: Advancers led 1.47 to 1. Not bad breadth given the market and the poor showing in NYSE. Techs definitely had more of the bid
Previous Session: Advancers led 1.3 to 1
New Highs: 89 (+24)
New Lows: 44 (-19)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ continued its move off the 50 day EMA (2303) after testing that level on the Tuesday low when the index sold off hard. No volume on the rebound, and it failed to take out the 10 day EMA (2328) after trading above that level intraday. No strong move but it did hold support after the distribution. On the Thursday high it hit 2333, the January peak, and faded back. Took some air out of the ball ahead of earnings, but held support and is ready to move up if earnings can provide enough positive guidance.
SOX (+0.30%) rallied to the 50 day EMA (511.56) intraday and then backed off, closing at the 18 day EMA. After a promising upside move off a three week lateral consolidation to start April, it gave the move back, falling once more to support at 500. Modest bounce to end the week, and AMD's guidance didn't exactly light the sector on fire. LRCX provided a good outlook, however, and that energized semiconductors in general. In good position to move higher if they can get some more good news.
SP500/NYSE
Stats: +1 points (+0.08%) to close at 1289.12
NYSE Volume: 1.241B (-11.13%). Very weak trade once more, fading well below average as SP500 posted a fractional gain. The one significant volume session last week was the Tuesday downside day that showed distribution on the NYSE. Wednesday and Thursday did little to alter that session.
A/D and Hi/Lo: Decliners led 1.21 to 1. Even with index gains breadth was negative, an indication that the move had weaker undertones.
Previous Session: Advancers led 1.11 to 1
New Highs: 67 (+17)
New Lows: 169 (+63)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 sold early, but again managed to hold some support near1283 and bounced. It could not recapture the 50 day EMA (1289) and frankly has barely moved to retake any ground the past two sessions. It is basically trying to hang on having given up its breakout as well as its up trendline from October (1296.50). SP500 needs some help this week; NASDAQ is trying to give it but some of the large caps are going to have to deliver on earnings guidance.
SP600 (+0.24%) continued its bounce from a wave at the 50 day EMA (381.95) on the lows each session this week. It tested lower again Thursday and then rebounded for a gain. It is smack in the middle of its uptrend channel, having given up the attempted move out of the channel failed. It has once more come back to test the trendline and this is setting up another attempt higher.
DJ30
Again, not bad action on DJ30, posting a minor gain Friday. The real key is the nice hold of the 50 day EMA (11,088) and the October/January/February up trendline (11,092) this week and the signs of life as it tests that key support. Made a lower high to start March, but it does not look ready to roll over given the action in the pullback and the fact that it is mostly holding its breakout over the February high (11,159).
Stats: +7.68 points (+0.07%) to close at 11137.65
Volume: 230M shares Thursday versus 212M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
The earnings doors are opening and we are going to get bombarded with results. The key as always and as seen at the end of last week is guidance. Those with good guidance are rewarded. Those that waffle get waffle stomped. The economy is expanding, but the market always looks ahead, wanting constant reassurance that growth not only occurred but is going to continue. That is the only way stock prices maintain an upward trajectory.
Investors have additional variables to factor in such as how high energy and gasoline prices climb, the impact of higher rates on consumers and the housing market, and how far the Fed is going to go in its fight against inflation. The bet circulating among many floor traders and market makers is whether the Fed or high gasoline prices take the economy down first. That sums up the history of rates and gasoline prices: either one can take down the economy, and now we have both teamed up.
That keeps us on edge with this continued rally, but near term, despite the distribution on Tuesday, we still like the pullbacks we see across the market. Most are not high volume breakdowns, just pullbacks to consolidate solid moves. Some are holding the 18 day EMA, and a bit more than we want fell to the 50 day EMA. That still leaves many leadership caliber stocks (basically most of those on the report) in position to rebound on some better earnings guidance, and that gives us opportunity in leaders. Again, that pullback coming in ahead of earnings gives stocks firmer footing and more upside potential given some good results and guidance. Given the distribution, the week ended up fairly well at least with positioning for the week to come. What it does with that positioning tells the story.
Support and Resistance
NASDAQ: Closed at 2326.11
Resistance:
The 10 day EMA at 2329.
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:
The recent high at 2325
The 18 day EMA at 2324
2316 is the October up trendline.
The 50 day EMA at 2302.75
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 1289.12
Resistance:
The 50 day EMA at 1289.34
The October/March up trendline and the January high at 1297
1297.57 is the recent February high.
The 10 day EMA at 1295
The 18 day EMA at 1296
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 11,137.65
Resistance:
11,159 is the February high.
The 18 day EMA at 11,158
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.
11,097 is the October/January/February up trendline.
The 50 day EMA at 11,088
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 17
New York Empire State PMI, April (8:30): 24.0 expected, 31.2 prior.
Net foreign purchases, February (9:00): $66.0B prior
April 18
Building permits, March (8:30): 2.080M expected, 2.179M prior
PPI, March (8:30): 0.4% expected, -1.4% prior.
Core PPI, March (8:30): 0.2% expected, 0.3% prior.
Housing starts, March (8:30): 2.045M expected 2.120M prior.
FOMC minutes, March (2:00)
April 19
CPI, March (8:30): 0.4% expected, -1.4% prior
Core CPI (8:30: 0.2% expected, 0.1% prior
Crude inventories: 3.23 million
April 20
Initial jobless claims (8:30): 313K prior
Leading Economic Indicators, March (10:00): 0.0% expected, -0.2% prior.
Philadelphia Fed, April (12:00): 15.0 expected, 12.3 prior.
End part 1 of 3
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