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world stock market, stock prices
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5/16/06 Investment House Daily
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SUMMARY:
- Stocks stuck in the Monday rut, unable to rebound ahead of CPI.
- WMT notes gasoline prices starting to erode buying while HD sales slump.
- Housing starts drop 7.4% . . . again
- PPI jumps on gasoline costs but core is bouncing and behaving.
- Some positive tech earnings after hours, but CPI, oil/gas inventories are the key for Wednesday and ability to rebound from this inflation fear-induced sell off.
Anemic bounce attempt fizzles ahead of Wednesday inflation read.
Stock futures bounced after NASDAQ held at the 200 day SMA Monday and stocks in general looked a bit sold out. It helped that housing starts fell 7.4% and core PPI was just 0.1% versus the 0.2% expected. Bond yields tanked (the 10 year moved from 5.19% Monday to 5.10% Tuesday) on the PPI data, but despite that selling investors were not all that sure it meant inflation was at bay. Stocks thus started with some upside momentum, but that dissipated rapidly.
Thus, though everything bounced early (even oil and other commodities), holding the move was difficult for the indices though the market at large showed a slight blip higher on the A/D line. Stocks tried an afternoon rally, coming back and turning SP500 and SP600 positive, but the move lost momentum and then lost direction, drifting lower into the close. In the end only SP600 managed to hold positive.
Basically stocks held their position, idling ahead of the Wednesday CPI and energy inventories. Volume was lower on NYSE and just modestly higher on NASDAQ, a further sign of the indecision ahead of the CPI as investors assessed the situation looking up from down inside a hole. Breadth was also modestly positive, indicating that after a week of selling there was some firming as stocks try to find enough footing to rebound.
Thus far it is just firming; stocks failed to significantly move off the dime. The inflation fears were stoked by the recent blow off move in commodities, confusing that ballistic, late rally surge on excess speculation with an inflation indication. When the housing starts came in weak and the core PPI showed no pass through of energy costs (as in 1994 and 1984), you could hear the collective 'what the hell. . .?' from the individual investors who were told the past week that inflation was careening out of control and the Fed had to get tough and hike interest rates at 50BP at the next meeting(s) to get it under control.
Now I know I wasn't too swift in math, but a 0.1% increase in core inflation is 50% less than the 0.2% increase expected. That continues a string of modest core PPI increases with an occasional outrider. I do know when you take out a highly volatile component of an array and the remainder holds at a constant rate of growth you have a good read on actual growth levels. Without question energy is causing producers to pay more and eat less, but other elements are not rising because of energy. Thus the inflation is in the energy component, and when you consider the inflationary aspects versus the destructive aspects of higher energy prices, in the real world (and that is not necessarily the Fed's world) the scale tips to the destructive aspects.
Again, the action basically was a pause; can't really call it running in place because there was no running anywhere as stocks mostly held their position from Monday. After hours there was some earnings buzz from HPQ and AMAT. At first both were up, but then AMAT faded while HPQ managed to hold its gains. Mixed once more. After the PPI, the CPI has everyone's attention. If it too comes in quite tame then the recent sky is falling chant regarding inflation will likely be reconsidered and give the market a bit of momentum to bounce off of this recent dump lower.
THE ECONOMY
WMT, HD report decent quarters, but their guidance leaves investors wondering.
WMT posted its best sales growth in several years, but in the same breadth noted that yes indeed, gasoline prices were starting to impact consumer purchases. As discussed a few weeks back, WMT through its Wal-Mart Superstores and Sam's stores has made a key change since the last energy spike: selling gasoline at its stores. It does the same thing here as elsewhere, undercutting the competition and attracting more buyers. Thus, even though its customer may be paying more for fuel and thus less able to spend as much in the store, it is still paying money to WMT and WMT is taking its cut. Shrewd or just lucky, it is working for WMT and COST.
On the other hand, a lot of retailers cannot sell gasoline. It would be kind of awkward to carry a couple of 5 gallon cans into The Gap and ask for ethyl. Of course the kids a the Gap would think you were talking about the buyer in the backroom; ethyl is as archaic as hi-test. The point is, while WMT and COST are set up to deal with this, most retailers are not, and thus most retailers are going to start feeling what WMT says it is already seeing, and they won't have a means to offset it. Gasoline simply cuts into what consumers have in their pockets to spend. If they want to get to the mall they have to have gasoline. The more it takes, the less in the pocket for the mall.
Home Depot went a bit deeper. It reported earnings that rose 19% but it missed sales estimates. It blamed a slowdown in flooring of all things; I suppose people are building additions or new homes and leaving out the floors for now. It certainly sounds as if this is just a but more indication that housing is not driving higher as it was. It may also have something to do with HD's operations the past year. Many contractors I talk to basically stopped going there because they are tired of making the drive and then getting just half of the items on their list because HD has stock outs on the others. With gasoline prices as high as they are, making two trips is not in the cost structure for many small businesses. Go ahead and blame the flooring, but not many are going to believe that only flooring sales slowed.
Housing starts fall 7.4%.
What it does show was alluded to above: further slowing in the housing market. Starts came in at 1.85M versus the 1.95M annual rate expected. That pushed starts to the slowest level since November 2004. That is hardly a plummet, but in the context of other data it continues painting the picture of a slow sector: prices dropping year over year, inventories are way up, weakness at the high end, homebuilder confidence at a 12 year low. Permits fell below a 2M annual pace for the first time since 2004.
January was a big month for starts thanks to some warm weather, but starts have faded again since. Maybe housing will suddenly fall off the table if this energy thing keeps percolating higher or the inflation fears continue to push rates higher and thus mortgage rates. For now, as it has been for over a year, housing is making an orderly decline. No bursting bubble, no sudden collapse of consumer wealth. That is what we felt would happen and it is what we need to see continuing as gasoline prices continue to gig consumers.
PPI jumps on gasoline prices, but core is as tame as a sedated puppy.
Prices jumped 0.9% in April, bolstered by a 4% gain in energy prices. Gasoline rose 12.3%, heating oil rose 13.7%. Ouch. Food was up just 0.1%. The core (less food and energy) rose just 0.1%, 50% less than the 0.2% expected.
As noted above, this created some confusion among investors as to just what is the status of inflation. Is it spiraling out of control as many were saying the past few days as commodities spiked? Well, no. Commodities price increases can indeed signal inflation as investors run to them in an effort to preserve the value of their assets as paper money erodes in value when inflation rises.
Of course price rises are not the equivalent of inflation. Why are prices rising? Up until last week many said it was all demand driven. Then when commodities shot higher, they abandoned that stance along with their backbones and in a panic proclaimed inflation. The past few weeks it has been rampant speculation coming to a peak, pushing prices higher until there were no more buyers. Crash. Inflation occurs when there is too much money around and it has nowhere to go so it pushes everything higher. There is indeed a lot of money looking for homes, and thus some of this represents some inflation. The surge over the past few weeks is not inflation driven, however. It is not demand driven either (copper demand did not rise 88% as did prices recently). It was rampant speculation that got out ahead of itself.
In short, you just cannot say because commodities prices rise there is inflation. It is a possible indication of inflation, but it is not inflation. You then have to look behind the numbers to see what pokes its head out. This past few weeks it was a mad rush to commodities as techs continued to weaken and the money had to go somewhere. Chase the momentum until it stops. Well, it stopped last week for the near term and needs to regroup. In terms of the PPI, it is not inflation.
THE MARKET
MARKET SENTIMENT
VIX: 13.35; -0.22
VXN: 17.33; -0.71
VXO: 12.34; -0.53
Put/Call Ratio (CBOE): 1.01; -0.22. Third session above 1.0 on the close but also fading back from the high hit Friday. Still, this level indicates significant concern remains about the market's prospects, and that is a good contrarian indicator. It is not conclusive in itself, but it is an indication. It helps that the overall put/call ratio from all markets held above 1.0 on the close on Monday as well. The Tuesday data was not in at the time of this writing.
Bulls versus Bears:
Bulls: 44.3%. A rebound in bulls from 43.9% after a slide from 53.2% at the April peak. We can anticipate a decline next week given the dive lower in stocks Thursday and Friday. Overall still in a nice decline. After a month climbing from 42.3% back close to the 55% level considered bearish, the recent slide is a much needed decline. It rose from 42.3% on the low this cycle, a level below the prior lows in May and October 2005.
Bears: 26.8%. Bears declined as bulls 28.6%. The NASDAQ decline and overall market chop and volatility had its effect on bears as well, rising from 25.8%. Not as dramatic a move as the Bulls as they are still well off their high at 33% on the last cycle. Up from 24.5% on the low this time around. The 33% high hit last cycle topped the prior two highs (30% in May 2005, 29.2% in October 2005) that gave way to strong rallies. The 20% level and below is considered bearish. It started this move just above 20%, the threshold level.
NASDAQ
Stats: -9.39 points (-0.42%) to close at 2229.13
Volume: 2.101B (+1.94%). Volume moved higher but just modestly and remained below average as NASDAQ tested its 200 day SMA for the second session. No distribution, just another day sitting on the 200 day SMA.
Up Volume: 736M (+38M)
Down Volume: 1.332B (-14M)
A/D and Hi/Lo: Advancers led 1.03 to 1. Even on the day, and that is not a bad way to finish with NASDAQ trying to regroup on the 200 day.
Previous Session: Decliners led 1.82 to 1
New Highs: 79 (+15)
New Lows: 106 (-42)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ tried to bounce but it was lagging again on Tuesday, never making it positive after giving up the higher open early on. It bounced but could not overtake the Monday high. It undercut the 200 day, staying above the Tuesday low, and then managed to hold near the 200 day SMA (2229) on the close. An inside day, and not the best indication of a bounce coming. Below average volume once again as it sits on the 200 day support, trying to hang on and put together that oversold bounce. After this much selling it is due for a bounce to test the drop through the 50 day EMA. Now if the economy is truly going into the tank, it may not get one or it may not be much of one. All we can do at this point is see how the bounce off the 200 day shapes up and what it can deliver.
SOX (-0.56%) spent another day below the 200 day SMA (491.84), making a weak tap at that level on the high. Some chips were looking decent and still look ready to try a bounce, but AMAT's numbers, after causing an early bounce in the after hours, won't help as it sold off after that early rise.
SP500/NYSE
Stats: -2.42 points (-0.19%) to close at 1292.08
NYSE Volume: 1.689B (-9.72%). Volume fell back close to average as SP500 tapped toward the 50 day EMA, but then faded back without a real challenge. It will need volume as it makes the run toward that old support level or it is going to get bounced back in a classic failed test. Just have to see how the bounce pans out.
A/D and Hi/Lo: Advancers led 1.09 to 1. Flat on the session, showing nothing nefarious. As we noted last week, the overall A/D line, however, peaked in April after flattening out for three weeks, and it peaked again in early May and has faded on this pullback. That means almost two months of a flat A/D line. We are watching this closely, because new highs have helped drive the market, but even as the indices hit new highs time and again in Q1, the A/D line did not run with them. Signs of some erosion as the move continued.
Previous Session: Decliners led 1.35 to 1
New Highs: 43 (+12)
New Lows: 123 (-63)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 never challenged the 50 day EMA (1300), hitting 1297.88 on the high; close but it never made a real run at it. Volume was lower and it lacked the upside push. As it was it basically held steady, hanging with the January and February peaks. Decent, but would prefer to see it on the other side of the 50 day EMA making this test. Distributed on the way lower, now trying to hold the line and rebound. Monday volume was up on the test lower and rebound. Tuesday was a sluggish, do nothing session. Wednesday needs to show something positive to the upside.
SP600 (+0.13%) closed positive, but it was also unable to challenge the 50 day EMA (390) or its trendline running just above that level. It too is holding over the January and February highs, trying to find some footing above 380 make the move to recover the uptrend. Energy stocks were licking their wounds Tuesday, and that helped it, but all it did was hold up for now.
DJ30
DJ30 closed flat, right at the 18 day EMA (11,426) on rising, slightly above average volume. Holding above the prior highs and easily above the 50 day EMA (11,284) and the up trendline (11,265). The pattern is rather ambiguous, showing a doji at the 18 day after the Monday attempt at a bounce. Overall it is holding its breakout and is still easily in its trend.
Stats: -8.88 points (-0.08%) to close at 11419.89
Volume: 307M shares Tuesday versus 300M shares Monday. A bit better volume but with DJ30 going nowhere it suggests some churn right at the 18 day EMA. Not much more volume so we don't want to overanalyze it.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
The CPI out before the open is the marquee report, but sneaking up an hour after the open is the oil and gasoline inventory report, and with WMT's comments that will be the second shoe to drop for the session. If the CPI is as tame as the core PPI, given the decline in housing starts, weaker regional manufacturing, the gasoline impact on consumers WMT noted, HD's falling sales, and the peel back in commodities prices from the momentum spike, there would be good reason for investors to shift back into a Fed pause mode after overreacting to the inflation scare. Of course, that is beneficial to market.
The mode may shift, but it has to be a shift with some strength. NASDAQ is sitting on the 200 day SMA while SP500 and SP600 are below the 50 day EMA. They have to muster some strength on the rebound to have any chance of resuming the rally near term. HPQ stirred some interest with its earnings, but AMAT was down after initially jumping on its results. One boost, one drag. It will take a quite benign inflation number and some solid gasoline and oil levels to really goose SP500 and SP600 to make a serious run at the 50 day EMA and get NASDAQ moving with a head of steam back toward the 200 day.
We are seeing some relative strength turn up in the sectors that started getting hit last week such as energy, while gold and metals are a day or two behind, still needing to finish their pullback. There are still plenty of stocks looking solid; basically most held their position Tuesday as did the market, waiting on the next inflation data to see if the sky is falling again or whether they can venture higher. If the news is good we are going to continue looking at them because they held up during the recent blood-letting and they will lead higher on any rebound what with being leaders that refused to knuckle under.
Support and Resistance
NASDAQ: Closed at 2229.13
Resistance:
2240 is closing low in February range.
2273 is December 2005 closing high.
2278 is December 2005 intraday high.
The 10 day EMA at 2282
2288 from December 2000 low.
The 18 day EMA at 2299
2300 from the April intraday lows.
The 50 day EMA at 2307
The late January highs at 2325
2328 from the May 2001 peak
The January high at 2333
The February closing high at 2361
Support:
The 200 day SMA at 2229
2218 is the August 2005 peak before the sell off through October 2005.
2205 is the December 2005 closing low.
2182 is the September 2005 peak and interim high from November 2005.
S&P 500: Closed at 1292.08
Resistance:
1297.57 is the recent February high.
The 50 day EMA at 1300
The January high at 1303
The October/April trendline at 1305
The 18 day EMA at 1306
1311 is the March intraday resistance on this move.
1315 is the May and May 2001 peaks
1317, the recent intraday highs from April.
1324 to 1329 from the October 2000 lows.
Support:
The late January peak at 1285
1280 from the April lows
1272 is the December 2005 closing high and March 2006 closing low
1250 to 1248 from the November and December 2005 lows.
Dow: Closed at 11,419.89
Resistance:
The 18 day EMA at 11,426
11,425 from April 2000 peak
11,452 from December 1999 peak
The 10 day EMA at 11,462
11561 is the DJ30 closing high
11,638 from January 2000
11,723 is the January 2000 closing high
11,750 is the January 2000 intraday and all-time high.
Support:
11,417 from the recent April highs.
11,401 from the September 2000 peak and April 2001 highs
11,350 from the May 2001 peak
The March 2005 highs at 11,329 to 11,335
The 50 day EMA at 11,284
11,265 is the October/January/February up trendline.
11,159 is the February high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
May 15
NY Empire State Index, May (8:30): 12.4 actual, 15.0 expected, 15.8 prior
Net foreign purchases, March (9:00): $69.8B actual, $80.5B prior (revised from $86.91B)
May 16
PPI, April (8:30): 0.9% actual, 0.8% expected, 0.5% prior.
Core PPI, April (8:30): 0.1% actual, 0.2% expected, 0.1% prior
Housing starts, April (8:30): -7.4% (1.849M actual) versus 1.95M expected, 1.96M prior
Building permits, April (8:30): 1.984M actual versus 2.040M expected, 2.094M prior
Industrial production, April (9:15): 0.8% actual versus 0.5% expected, 0.6% prior
Capacity utilization, April (9:15): 81.9% actual versus 81.5% expected, 81.4% prior
May 17
CPI, April (8:30): 0.5% expected, 0.4% prior
Core CPI, April (8:30): 0.2% expected, 0.3% prior
Crude inventories: +272K prior; gasoline +2.1M prior
May 18
Initial jobless claims (8:30): 318K expected, 324K prior
Leading economic indicators, April (10:00): 0.1% expected, -0.1% prior
Philly Fed, May (12:00): 12.5 expected, 13.2 prior
End part 1 of 3
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world stock market
stock prices
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