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world stock market, us stock market
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4/27/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CTSH; CRDN; CYMI
Trailing stops: None issued
Stop alerts issued: Cleaned out some energy & commodity issues as they headed lower on the Chinese rate hike. AHC; CLF; MRO; NUE; SIRF; TLM; FORM; TRID
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:
- Bernanke provides the catalyst, but has to rescue the market first.
- Market rebounds, but the move is somewhat hollow.
- Bonds look to have peaked for now.
- With commodities softer, NASDAQ has to take the lead without help from MSFT and other mega cap techs.
- GDP and other data likely to be strong, but market has to prove up the Thursday move.
Bernanke pulls double duty after China raises rates.
Wednesday we opined that Bernanke's testimony to Congress' Joint Economic Committee might provide the next market upside catalyst, not so much by what he said but by what he did not say. In other words, by not articulating any change in course he would help the market out given the market has already figured one or two more hikes in the pipeline. Well, Thursday Bernanke did much more than that, and it is a good thing that he did.
The day started weak and got uglier. China gave early risers reason to go back to bed when it announced it had raised interest rates. While many would applaud such a move, markets always have a visceral reaction to rate hikes, primarily because they signal government intervention, and history shows intervention typically succeeds in lousing things up. Thus markets across the world were lower and US futures indicated the indices would pop the support they had so carefully faded back to the past week.
Then came Exxon's earnings and it missed on both revenues and the bottom line. Marathon missed as well. Every day the analysts on the financial stations talk about how oil earnings are only going to keep going higher and higher and thus you should pour your money into them. Then, even as oil hits a new dollar high, the oil companies miss. The reaction was sharply lower, but it also begs the question of earnings manipulation given all of the bad publicity XOM received last quarter for its record profits (record profits for any company on the planet. Ever.). Remember how CSCO always beat the street by a penny prior to the 2000 meltdown? Or how about MSFT, always coming in just above expectations? They would choose when to book their revenue and thus keep earnings growing nicely above expectations. Looks as if the oil companies, in an attempt to manage their PR a bit better, are trying the same thing. Problem is, no one on the planet really believes that XOM, one of the best run companies there is, really missed. Thus it looks even worse: the 20,000 pound elephant is trying to hide behind a fig bush and it just looks silly.
The one-two punch of China rate hikes and energy earnings misses pushed futures lower and after the open, the indices as well. Commodities were getting hit in addition to energy on the belief that China's insatiable demand for materials might abate if the Chinese were serious about slowing their economy. In reality, the rate hike was like putting a pebble on railroad tracks ahead of a fully loaded, 250 car gravel freight train. With materials and commodities soaring to such lofty levels, however, any potential cloud on the horizon engenders some panic that a storm may be coming.
That fear pushed NASDAQ down to its 50 day EMA just after the open. Ditto SP500. SOX was in full dive mode as well. It had a pretty ugly look to it.
Bernanke wears a white hat to Congress.
Then Bernanke showed up at Congress and offered plain, common sense, and easily understandable answers to Congress. Although we put in a call to The Guinness Book of Records, that was not the big news. The big news was his written statement where Bernanke had the gumption (stones, guts, etc.) to say that even though the risks between inflation and deflation may not be balanced (he said they still leaned toward inflation), the Fed would have no qualms about pausing and letting things play out a bit before determining if any action was necessary. It was if the doors blew open and a fresh spring breeze moved through the Federal Reserve. This is exactly what we wrote about Wednesday as to what we suspected the Fed might do, but we felt there was a snowball's chance in hell of it happening. The beauty of it is, Bernanke had no issue saying just that.
What was also beautiful is that Bernanke made it sound so rational and logical to do just that. Did the recent strong economic data change his views on the rate hike campaign? No. He explained it was all part of the ongoing analysis and that reports go back and forth. We were stunned. We preach that volatility in numbers or reports show change is in progress, requiring careful attention to market reaction. Bernanke basically said that is how he viewed the data right now, and it was worth a considered pause to see how things work out. He again noted the potential economic problems ahead if housing slows too fast. He noted that oil had some inflationary effects, but that he was also very concerned about its destructive force on the economy. Basically he looked at the economic data and saw slowing as well as strength and has a broad enough view of the big picture to say it was suggesting change. He also has the confidence so early in the job to say a pause could very well be the right action near term.
Many were afraid that if Bernanke showed any hesitation with respect to inflation fighting the market would crucify him. We always said the market wants a Fed chairman who will do the right thing versus the expected thing. Bernanke's calm recitation of why a pause might be warranted was met with an immediate market bounce that turned the indices positive and helped recover from the China and Exxon story. After a pullback to test that move, it rallied even higher as Bernanke calmly explained why such action would be warranted. Most commentators noted how clear and reasoned his responses were. The market seemed to like that as well.
The market may have made more out of what Bernanke said than what was there, however. Bernanke was clear that a pause was just a pause; it did not necessarily mean termination of rate hikes. Moreover, after the Greenspan era, perhaps the market was just gushing over the fact it understood what the Fed chairman actually said. There were no coy smiles, no self-congratulatory statements of pleasure that his answers were vague and evasive. The market received some straightforward assessments of the economic climate and other issues that Congress regularly throws the Fed chairman's way (e.g., benefits of tax cuts, impact of current account deficits, budget deficits, etc.). One that stuck in my mind was his clear de-linking of the trade deficit and the budget deficit with respect to dollar values. He correctly pointed out that the budget deficit had nothing to do with dollar levels. It was the trade deficit that had the potential negative impact on the dollar, but Bernanke also pointed out that there was no empirical evidence of this. In short, the market found something to like on pretty much every topic covered (again, because it understood what he was saying), and thus maybe took things a bit too far.
Bernanke was not enough: China made the hill too high to climb.
By the close, however, the Bernanke bounce was not enough to really set the markets on the next leg higher. Bernanke provided the catalyst we said he would Wednesday night, but he had too much to overcome with China and Exxon tanking the commodities and energy markets.
Thus, while NASDAQ and SOX resumed some leadership and the indices rallied higher on strong volume, the move was lacking. SP600 was lower, falling through its 18 day EMA as the small energy and commodity stocks sold. Breadth was negative. SP500 could not clear resistance (yet again). Stocks moved higher, but most did not. That just was not satisfying and not convincing.
Bernanke's words were positive, but they could not offset China's interest rate rise. If China wants to slow growth that will inevitably impact commodities prices. Sure gold and materials were primed to fall on any negative news given their runs, but China signaled for the first time in over a year that it wanted to cool growth. After the run in commodities, prices were not going to withstand a possible assault from China.
Speaking of primed for a fall, you could pretty much bet a fall was going to occur given CNBC started running a promo on a new series touting how investors could profit from the "hot commodities" market. If you want commodities, Jim Rogers was touting those two years ago when RTP (copper) was $80 (it is now at $220). The risk/reward ratio right now for these stocks is extremely high. We have to let them correct back again now that China changed the game by raising rates and then see how they set back up, i.e. whether they come under accumulation once more after this dumping.
THE ECONOMY
Bonds bounce off of resistance as Fed talks of pausing.
As the strong economic data hit the tape the past week bonds sold off, raising their yield. The Fed funds rate is 5% and the 10 year bond hit 5.13% early today before Bernanke's speech. That 5.13% is just below a resistance point at 5.14%, and with the China rate hike on top of all the strong economic data of late, bonds rallied to that resistance. At that point rates failed to push higher, however, undercut by the Bernanke mention of a pause even if the balance was skewed toward inflation.
Given it took major economic news and a Chinese rate hike to get it there, the move has likely spent the yield rally for now. Without the Fed pushing on the lower end for a few months through the summer, part of the pressure on long rates is relieved. With oil and gasoline prices running higher and potentially pressuring economic growth in the summer (mainly through a drop in consumer consumption), more upward pressure is relieved as well.
With the technical resistance met and the Fed likely to pause through the summer, bonds should find a bit of breathing room here. The yield curve is still flattish (17BP spread), but it has improved and despite the rally in bonds Thursday, it remained in decent shape as both the long end and then short end moved.
What is the significance? It gives equities a bit of breathing room as well. One of the fears in the market is a jump in interest rates that chokes off housing, consumer purchases, and business investment. If rates halt their steady decline and make a pullback for a few months, that gives the economy and thus the market a shot in the arm.
THE MARKET
MARKET SENTIMENT
VIX: 11.84; +0.08
VXN: 15.21; -0.34
VXO: 10.77; +0.23
Put/Call Ratio (CBOE): 0.74; -0.33
Bulls versus Bears:
Bulls: 48%. Sharp drop from 53.2% the prior week and reversing a steady climb the past month. Sentiment was approaching the 55% level that is bearish; that makes the pullback welcome. It rose from 42.3% on the low this cycle, 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: 26%. As with bulls, bears are moving in the right direction, reversing a month of declines. A good jump from 24.5% last week but still well off its high at 33% for this cycle, a level that topped the prior two highs that gave way to strong rallies. The 20% level and below is considered bearish. 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: +11.32 points (+0.49%) to close at 2344.95
Volume: 2.669B (+23.47%). Volume shot off the scale, hitting the highest level since January 2005 when the market started that nasty sell off to begin that year. Impressive trade as NASDAQ gapped lower and recovered for a gain. The action shows accumulation, but with NASDAQ closing off the high by 17 points (over half of the intraday gain), it was not clear cut accumulation session.
Up Volume: 1.643B (+482M)
Down Volume: 999M (+31M)
A/D and Hi/Lo: Decliners led 1.19 to 1. NASDAQ was higher and NASDAQ 100 was even stronger (0.88%) but breadth was negative. Most tech stocks fell on the session. Not the kind of internal weakness you want to see.
Previous Session: Advancers led 1.04 to 1
New Highs: 164 (-35)
New Lows: 54 (+10)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped lower and tapped the 50 day EMA (2315) on the low. It found support and reversed off that level. It held that key support as well as the up trendline (2325), a good show of strength, and then allied to 2363 on the high. Volume was excellent. Unfortunately, NASDAQ failed to hold most the move, giving back more than half the gain (18 points) by the close. That kept NASDAQ over 2333 (January high), but the fade off the high characterized the move as weak or waffling. NASDAQ got the catalyst to move, and it did; it just couldn't hold most of it and the majority of NASDAQ stocks traded lower. Thus the move was rather hollow, giving us the jump we wanted but not showing any internal strength. That leaves NASDAQ still with something to prove.
SOX (+1.30%) was a solid performer after it once more undercut the 50 day EMA (513) by 7 points and then rebounded for a solid gain off that level. Solid move as SOX tries to make a higher low at the 50 day. Good start and now needs some follow through. NASDAQ needs SOX to follow through as well and drag it along.
SP500/NYSE
Stats: +4.31 points (+0.33%) to close at 1309.72
NYSE Volume: 2.081B (+17.69%). Volume jumped on NYSE as well, the highest level since March 2005. A good reversal as SP500 tested support at the 50 day EMA and rebounded to post a gain. Good volume on a reversal. Now we have to see if it can continue the move.
A/D and Hi/Lo: Advancers led 1.03 to 1. Very modest breadth as SP600 was negative for the session, suffering from the selling in energy and commodities.
Previous Session: Advancers led 1.23 to 1
New Highs: 167 (-31)
New Lows: 138 (-12)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 opened flat but quickly sold off, dropping to the 50 day EMA (1294) on the low. That quickly reversed as Bernanke's speech was released with SP500 making a classic run higher through lunch, rising and testing, rising and testing. It rallied through 1310 resistance from the March intraday highs, hitting 1315 intraday. It could not hold the move. SP500 faded, tried another run just before the last hour, then faded from that as well. It posted a gain and a high volume one at that. The reach lower and rebound suggests an intraday reversal, but it also closed well off its intraday high and breadth was doggy. It was a good response. As with NASDAQ, it has to show us something more now.
SP600 (-0.61%) struggled all session, under the gun early after XOM and MRO reported weaker than expected earnings. SP600 tested down into the center of its uptrend channel, hitting 390 on the low. It managed to rebound and cut its losses almost in half, though it could not hold the 18 day EMA (393.34) on the close. Decent rebound but quite noticeable given it was the only major index to close lower. Still capable of a higher low; time to show it.
DJ30
DJ30 was again showing some of the better action. It struggled early as well, falling to the 10 day EMA (11,296) on the low and then rebounding to post a gain and a new post-2002 closing high on rising volume. Nice higher low and continuation of the Wednesday move higher. DJ30 continues to perform even though it houses oil and industrial stocks that were under fire Thursday.
Stats: +28.02 points (+0.25%) to close at 11382.51
Volume: 361M shares Thursday versus 178M shares Wednesday. A lot of volume from XOM (27.3M) and MSFT (98.6M) pushed the index trade higher.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Well, Bernanke did provide the upside impetus, and as expected, it was not just a 'swoosh' higher. He had to overcome China's rate hike and some weaker than expected (and not really believed) energy earnings, and that mitigated the impact of his 'potential pause' announcement. With a lot of data out Friday (Q1 GDP, Michigan sentiment, employment cost index, and Chicago PMI), there is still a lot of potential worry over whether the Fed will keep going or implement that pause near term.
One thing to keep in mind, however, is Bernanke's statement that the recent strong economic data has not changed his thinking about where the economy is. He views Q4 2005 as extraordinarily weak due to the storms, and Q1 2006 extraordinarily strong due to the rebound. Thus even though we get some strong data again Friday, we think the market will ultimately look past that data and still prepare for the Fed pause. After all, the Fed has talked of slowing the rate hiking since last year, well before any palpable economic slowing, something the Greenspan Fed did not even consider. Thus, another strong batch of economic reports is not likely to sink the rebound attempt.
The rebound attempt still has to prove itself, however. Yes volume was excellent, but it was not a clear cut upside surge as the indices closed off their highs and breadth was weak. Leadership was still hard to find; technology tried to step up, but it was shaky. Semiconductors were about the best, but even those were hit and miss. DJ30 looks good, but it is just 30 stocks. No, Thursday was not enough to convince anyone the move is going to continue.
There were some good moves, however, and despite the close off the highs and the carnage in the energy stocks and commodities, we were taking positions in stocks that were delivering bounces from tests or good patterns. We are going to continue looking at those Friday after the flood of additional data. Again, we feel that bonds have peaked near term and that will give stocks a bit of a push here as the market starts to anticipate the May FOMC meeting and what the decisions will be at that point. That combination provides some more upside room here that we can position ourselves to take advantage of before the Fed announces it is done for now, stocks pop on the news, and then stocks fall back after the speculation becomes fact.
Have a great evening! FYI: Rose Bowl replay at 8ET Friday on ESPN Classic.
Support and Resistance
NASDAQ: Closed at 2344.95
Resistance:
The February closing high at 2361.
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 18 day EMA at 2335
The January high at 2333
2328 from the May 2001 peak
The recent high at 2325
2325 is the October/March up trendline.
The 50 day EMA at 2315
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 1309.72
Resistance:
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 October/March up trendline at 1307
The January high at 1303
The 18 day EMA at 1302.57
1297.57 is the recent February high.
The 50 day EMA at 1294.35
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 11,382.51
Resistance:
11,401 from the September 2000 peak and the recent intraday highs
11,425 from April 2000 peak
Support:
11,350 from the May 2001 peak is giving way.
The recent March highs at 11,329 to 11,335
The 10 day EMA at 11,296
The 18 day EMA at 11,256
11,159 is the February high.
11,158 is the October/January/February up trendline.
The 50 day EMA at 11,153
11,137 is the last peak from the February top.
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 25
Consumer Confidence, April (10:00): 109.6 actual versus 106.4 expected, 107.5 prior
Existing home sales, March (10:00): +0.3% versus -3.0% expected; 6.92M actual versus 6.65M expected, 6.91M prior
April 26
Durable goods orders, March (8:30): 6.1% actual versus 1.8% expected, 3.4% prior (revised from 2.7%)
New home sales, March (10:00): 1.213M actual versus 1.10M expected, 1.066M prior (revised from 1.08M).
Crude oil inventories (10:30): -0.2M actual versus -806K prior
Fed Beige Book (2:00): Growth modest, moderate and steady.
April 27
Initial jobless claims (8:30): 315K actual versus 305K expected, 304K prior (revised from 303K)
April 28
GDP advanced, Q1 (8:30): 4.9% expected, 1.7% Q4
Chain deflator, Q1 (8:30): 2.7% expected, 3.5% prior
Employment Cost Index (8:30): 0.9% expected, 0.8% prior
Michigan sentiment (final), April (9:45): 89.0 expected, 89.2 prior
Chicago PMI, April (10:00): 58.0 expected, 60.4 prior
Rose Bowl Replay, 2005, (8:00PM): UT 41, USC 38 expected
End part 1 of 3
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