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world stock market, trade stock
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5/18/06 Investment House Daily
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Investment House Daily Subscribers:
* NOTE * *
Jon Johnson was called unexpectedly to be a panel member on a market/economics forum this evening and thus the reports will be somewhat later. We apologize for the late delivery tonight. Unfortunately the notice was too short to notify any subscribers in the area of his appearance at the event. Next time we will try to get the information out sooner. Thank you.
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MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: SPSS
Trailing stop alerts: None issued
Stop alerts: HELX; OIS; RHAT
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 Daily alert service you can sign up at the following link:
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SUMMARY:
- Stocks try the rebound but sellers undermine it once more.
- Five Fed speeches further muddy up the 'transparent' Fed.
- Leading economic indicators negative, Philly Fed reverses its decline.
- Still seeking relief bounce but no takers.
Techs try to lead a bounce but they get chopped off at the knees.
Futures were up pre-market. After eight down sessions on NASDAQ they had nowhere else to go. NASDAQ bounced as did the other indices. After 10 minutes they had hit the highs for the day, however. They tried to hang on after the initial pullback, moving laterally midmorning to the last hour. If the market was improving they would have used that long consolidation to rally into the close. As is obvious, the market is not improving and stocks sold into the close. Still oversold, but as of Thursday still no one ready to cover shorts or step into the breach.
There was a lot more information again today with respect to the economy, and also Fed commentary on the same. The Leading Economic Indicators at -0.1% were lower than expected while the Philly Fed broke its downtrend and posted an unexpected rise. The LEI is mostly a 'so what?' report now, so it did not do much to allay fears the Fed will continue hiking and go too far. The Philly Fed showed strength, something the market likes but can't act like it does because of the Fed.
Speaking of the Fed, Bernanke and four of his horsemen were out riding the range Thursday, spreading their wisdom and fertilizer. Bernanke spoke to a banking crowd regarding banking regulations; Fed governor Moskow introduced him and told everyone not to ask any question regarding the economy. That is okay; all of the other Fed speakers Thursday had plenty to say. Oh, Bernanke did say he was worried that all of the creative financing arrangements (no down payment, all interest, etc.) would lead to more delinquencies. Bernanke remains rightly worried about the housing market and its impact on the economy, but that is a flickering candle in the ongoing inflation maelstrom. The big news, at least to the market, were comments that the next meeting could see 50BP hike or a pause. As you can imagine, the market LOVED that comment.
As the market tried to rally, sellers still moved in, not ready to cover shorts or hang onto long positions. That undermined everything the market tried. NASDAQ kept trying to rebound, but the sellers did not give up. That took NASDAQ below the flat line in the last hour, and when that happened the selling really picked up once more.
Volume was lower at least, but that was not a good thing early as the market tried to bounce. Not enough buyers to push it up, and thus it did not take much to send it lower when the buyers backed off. Breadth held positive for a long time, but the last hour onslaught caught up with it. It was not another out and out slaughter as far as the internals, but there still is no real inclination for shorts to cover and bargain hunters to put in a bid.
That leaves the market still in an oversold condition, and we noted a lot more despondency among the traders and brokers. The sentiment indicators remain about where they were though the bulls are fewer and the bears are rising. Dell's earnings barely moved it at first but then it ran higher 1.20 or so while AMD soared on an announcement Dell was going to start using its chips. MRVL posted solid results and enjoyed a good late session. Inflation is still the main worry (as that means the Fed goes too far), but those earnings were throwing off sparks. With the market this dried out from the selling it may catch a blaze Friday and start that relief bounce.
THE ECONOMY
Bernanke plays it close to the vest but his pals are throwing bombs.
Bernanke did not stray much off course in discussing banking matters and the various agreements under which world banks operate. He mentioned his fear about rising defaults with the creative financing at the end of the housing surge, but that was as far off base as he got.
His henchmen were not so concerned. Poole told reporters he had no conclusion about the June meeting. No problem with that, but then he added that there could be a 50BP rate hike or a pause. He was just adding emphasis to his 'no decision' position going into the June meeting, but when the word hit the wires late in the session it poured some more oil on the afternoon fire. Of course, Poole does not vote right now, so who the hell cares, right?
Lacker, the Richmond Fed president, is one of the inflation attack dogs. Moskow is another. Lacker has been making most of the waves the past few months, however, being newer and thus having more shock value than Moskow. Thursday he was barking again, saying the inflation rate was 'borderline acceptable and perhaps moving beyond.' He got more specific, saying that unfavorable inflation numbers . . . are going to require a higher path for real interest rates, and are going to make a pause less likely.'
Well, if that was an attack it was nothing like some of the bombs Moskow has thrown in the past. I know Moskow, I have heard his comments. Lacker is no Moskow, at least not yet. After all, Moskow back in his best growling days would have laughed at the idea of a pause, and then suggest the only pause he would consider would be in deciding whether to hike 25 or 50 BP so he could put the most people out of work. Lacker's 'less likely pause' is mere child's play.
Of course, we are glad it was. Right now if the market had to take some really serious news it would be in trouble. Some would applaud the tough stance, and it might even help a bit, but the real issue that is causing this selling is the fear the Fed will do what it always does: go too far and precipitate an economy slide at best or a recession at worst. All Q1 the market staggered higher in choppy trade, worrying about this. Now that the numbers are coming in a bit hotter and the Fed is becoming more opaque versus transparent, the market is selling off. A Fed that is talking both ends of the fence (pause or 50 BP hike) when there are inflation fears breads the worst fear, i.e. Fed overkill. After voicing concerns regarding going too far, we have not heard much about that of late as those Fed members are likely told to hold back on that given the inflation data. Problem is, the markets want to hear that as well: tough on inflation but also cognizant of what tough stances have done in the past.
Leading economic indicators slide even as they rose.
No that is not a quote from the last presidential campaign. The LEI has turned into one of the least watched economic indicators, and when it came out at -0.1% Thursday (0.1% expected), the market blipped momentarily higher and then got on with the selling. It wasn't completely ignored; March was revised up to 0.4% from -0.1%, a huge revision. That basically wiped out any potential Fed hike-related positives from the lower April ready. After all, that is what the government said it was in March and it was off by a mile. Not only does the report fail to garner much respect anymore, the numbers reported are apparently way off. Thus the collect yawn. In theory it is supposed to project economic activity 6 months down the road. Some day I will tell you my 'in theory versus reality' joke, but suffice it here to say that in 2005 it was a contrary indicator, i.e. wrong, and we are not going to put much stock in it right now.
The Philly Fed climbs but then doesn't.
No this is not a quote from the last presidential campaign either. The Philly region posted a rise to 14.4 versus the 13.2 in April; expectations were for a slowing to 12.5. Wow, sounds like trouble. Hold on, the Philly Fed overall number doesn't reflect its components; they are separate questions. It's like having a survey about the weather. The first question is 'is it raining?' It is not so the truthful answer is 'no.' But, there are clouds building, barometric pressure is falling, a cold front is closing in, there is thunder, there is lightening. The rest of the questions ask you about those conditions and you see that while it is not raining, it is just about to cut loose.
The headline reading on the Philly Fed is just like the 'is it raining' question. The other sub-indices tell the real story. New orders dove to their lowest level since September 2005. The employment index fell to the lowest level since September 2003 after a 20 month high in April. Prices paid jumped to 55.3 while prices received fell to 10.3. That is not a picture of strength.
THE MARKET
MARKET SENTIMENT
VIX: 16.99; +0.73. VIX has topped the October 2005 highs when the market bottomed and is now working on the April 2005 highs (17.74 closing) when SP500 bottomed in that selling as well. If this is just a sharp correction in a continuing bull move versus a major stock fade, these levels are getting to the point that would start triggering a new leg up.
VXN: 20.31; +0.75
VXO: 15.82; +0.84
Put/Call Ratio (CBOE): 1.22; -0.3. Fifth session over 1.0 on the close. It was down, but a lot of the positioning was done Wednesday, and Thursday was no slouch. The overall put/call ratio that combines all options markets moved back up through 1.0 Thursday (1.07) for its third close over that 1.0 level. This is getting ripe as well.
Bulls versus Bears:
Bulls: 46.3%. Bulls rebounded for the second week, rising from 44.3% and 43.9% before that. Bulls had been declining from the April peak at 53.2%. This rebound is surprising given the hard fall to end last week. After a month climbing from 42.3% back close to the 55% level considered bearish, the recent slide was good until this rebound. It rose from 42.3% on the low this cycle, a level below the prior lows in May and October 2005.
Bears: 25.3%. Bears were in sync with bulls, falling even as the market sold off to end last week. A significant drop from the 26.8% last week and the 28.6% the week before. This time around they peaked well below the 33% hit on the high the last time bears started growling. 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: -15.48 points (-0.7%) to close at 2180.32
Volume: 2.108B (-13.01%). Volume fell back below average as NASDAQ gapped higher but then dove lower in the afternoon. Too little volume early to maintain the gains, allowing the sellers to come back in and push it lower once more. All of the volume the past two weeks has been downside as institutions unload technology shares after MSFT, CSCO and friends disappointed.
Up Volume: 781M (+336M)
Down Volume: 1.305B (-660M)
A/D and Hi/Lo: Decliners led 1.65 to 1. Advancers led all session until the dive lower in the last hour. Given the sell off the breadth was not horrid.
Previous Session: Decliners led 2.72 to 1
New Highs: 64 (+2)
New Lows: 111 (-29)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Gapped higher but hit its zenith in the first 10 minutes. It fought gamely to hold the gains, but late in the session with the Fed comments and the other indices in a dive, NASDAQ gave up the ship as well. It closed right on top of the January 2005 that marks the midpoint of its two year ascending triangle. As noted Wednesday, this is the range where it needs to find some support and deliver a somewhat convincing upside move to put in a bottom.
SOX (-0.89%) sold again but it also held near 475 again, a point of support from various peaks in 2005. As with NASDAQ, after a string of downside sessions (nine through Thursday), this support is where SOX needs to find some terra firma.
SP500/NYSE
Stats: -8.51 points (-0.67%) to close at 1261.81
NYSE Volume: 1.833B (-12.1%). Volume dropped but was still significantly above average as the NYSE indices logged another downside session.
A/D and Hi/Lo: Decliners led 1.62 to 1. As with NASDAQ, not the crushing levels seen on this sell off.
Previous Session: Decliners led 4.56 to 1
New Highs: 18 (-11)
New Lows: 152 (-68)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 is heading for a date with its 200 day SMA (1257.82) though the selling has tried to slow some this week if you overlook the CPI driven dive on Wednesday. The 200 day is roughly in the range of the November and December 2005 lows as well as the February 2006 lows. Those are not the best support levels, but as they are coincident with the 200 day SMA and as SP500 has had its tail kicked the past week, we expect to see some support there.
SP600 (-0.95%) tried to rally as well, but it rolled over and fell through 380 support and is now looking toward the March lows and early January highs at 370. The small cap action has somewhat mirrored the large caps, but they are still well above their 200 day SMA (363.30) while SP500 has already made the swan dive to that level. 370, however, looks solid for SP600.
DJ30
The Dow continued its selling even with HPQ's earnings report, slicing further below the 50 day EMA (11,275) and its up trendline (11,270). Volume backed off but was still above average as DJ30 failed to hold the March highs and is not sitting right on top of the February peak (11,097 to 11,137). The January high at 11,043 is right there as well. In short, DJ30 has the support it needs if it can rustle up some buyers.
Stats: -77.32 points (-0.69%) to close at 11128.29
Volume: 338M shares Thursday versus 399M shares Wednesday. Volume remained above average as DJ30 continued its selling. Want to see that trade slow at this support.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
No scheduled economic reports for Friday and we didn't see any Fed figures on the schedule, but that does not mean they won't make comments. It is expiration and stocks have been hammered heading into the event as positions were adjusted given the selling. Lots of option activity and lots of share volume leading right into the session.
That may mean Friday is rather quiet. We hope not. Would like to see some of this selling start turning into at least a relief bounce. Thursday we heard some real concern in the voice of some traders as some stocks that had held the 50 day EMA or other price support through Wednesday started to slip further. As discussed above, the sentiment indicators are jumping and are getting ripe. As noted Wednesday, however, sometimes they wait awhile before they fall from the tree. That additional push lower Thursday may have flushed some of the last sellers out and clear the way for the relief bounce that tried to take hold Thursday but was just not quite ready. Sometimes snatching away a rebound just as it looks ready and turning back down puts the final nails in that particular leg lower.
There is definitely plenty of room to bounce. This has been a sharp correction, and we had to close some positions Thursday that were doing that slide through support. Many are still holding a support level, and with the sentiment indicators popping higher that combination can bring them back around. Indeed, those that held on and those that made deep tests that still held some support are prime candidates on a rebound.
Same issues as Thursday, however, i.e. how strong the rebound is with respect to volume and breadth. Friday will be harder to gauge given expiration and the pretty impressive volume this week leading into it. Thus we have to view it as a relief move and as such it is more treacherous to buy into. We will continue to look at stocks that have pulled back to support and those that have gone about their own business and set up further upside moves during the selling. Time to be choosy and move in gradually because no matter how good it looks, the market overall just got whacked will go through stages in recovering if indeed this is the move that starts the recovery.
Support and Resistance
NASDAQ: Closed at 2180.32
Resistance:
2205 is the December 2005 closing low.
2218 is the August 2005 peak before the sell off through October 2005.
The 200 day SMA at 2229
2240 is closing low in February range.
The 10 day EMA at 2250
2273 is December 2005 closing high.
The 18 day EMA at 2276
2278 is December 2005 intraday high.
2288 from December 2000 low.
2300 from the April intraday lows.
The 50 day EMA at 2298
Support:
2185 to 2182 is the September 2005 peak and interim high from November 2005.
2162 to 2155 from December 2005 and September 2006
2100 from the early and mid-2005 peaks.
S&P 500: Closed at 1261.81
Resistance:
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
1280 from the April lows
The late January peak at 1285
1297.57 is the recent February high.
The 50 day EMA at 1298
The January high at 1303
The October/April trendline 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:
1250 to 1248 from the November and December 2005 lows.
1245 from the August 2005 high and 1241 from the September 2005 high
1225 from the March 2005 high
Dow: Closed at 11,128.29
Resistance:
11,159 is the February high.
11,270 is the October/January/February up trendline.
The 50 day EMA at 11,275
The March 2005 highs at 11,329 to 11,335
11,350 from the May 2001 peak
The 10 day EMA at 11,363
The 18 day EMA at 11,373
11,401 from the September 2000 peak and April 2001 highs
11,417 from the recent April highs.
11,425 from April 2000 peak
11,452 from December 1999 peak
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:
11,097 to 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.
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): 0.6% actual versus 0.5% expected, 0.4% prior
Core CPI, April (8:30): 0.3% actual versus 0.2% expected, 0.3% prior
Crude inventories: Gasoline +1.3M; crude -100K
May 18
Initial jobless claims (8:30): 367K actual versus 318K expected, 32K prior (revised from 324K)
Leading economic indicators, April (10:00): -0.1% actual versus 0.1% expected, 0.4% prior (revised from -0.1%)
Philly Fed, May (12:00): 14.4 actual versus 12.5 expected, 13.2 prior
End part 1 of 3
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