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world stock market, us stock market
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5/23/06 Investment House Daily
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Investment House Daily Subscribers:
Corrects previous part 1
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: BHI
Trailing stop alerts: RMD
Stop alerts: AKAM; ANN; KGC; RNWK; SLB; TTEC
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SUMMARY:
- Stocks try to rebound again but once more the sellers undercut the gains.
- Market, techs in particular, struggles under threat of new corporate scandal.
- Bernanke mea culpa to Congress over Bartiromo debacle.
- Making a bottom, making sausage, or just a pause on a deeper sell off?
Another bounce gets body blocked.
Foreign markets rebounded from the Monday trashing and commodities were higher as well. Indeed, all stocks were moving higher early following a good showing by the futures market before the open. NASDAQ gapped higher just as it did Friday while SP500 raced higher off of its 200 day SMA.
The move was fairly broad though hardly the strength shown on the downside moves last week. Volume was a sore spot during the morning move higher. Many stocks moved on solid early trade (energy stocks as a group showed strong early volume) but overall volume was lagging as the market rebounded off the recent selling.
That volume became the Achilles heel in the afternoon. The rebound was almost a necessity after the hard sell off, but the volume showed no overall sponsorship. Stocks peaked in the first hour, made a very nice intraday consolidation, but then rolled over after a lower high with 2.5 hours left in the session. The semiconductors left the building at that point, trying to beat the Memorial Day traffic. When the chips were down NASDAQ joined in, jettisoning 35 points from the early afternoon high to the close.
The NYSE indices were not immune; they closed lower as well, giving back their earlier rally or rebound attempts. Unlike SOX and to a lesser extent NASDAQ, they managed to close above their recent lows and continued the recent 'lateral' move, as ragged as it may be. Despite the lost gains for the NYSE indices they are still working on a bottom though it looks a lot like making sausage in the 1920's meat plants. Of course, it is still in the grinding stage as the indices trade up and down in fairly wide ranges, trying to transition from a sell off to a bounce of some sort, relief or otherwise.
Thus far each bounce attempt has failed and done so rather spectacularly outside of the Friday expiration rebound. While a bottom may still form we were watching our positions today, and if they failed to bounce or recovered or tried to recover their 50 day EMA but reversed and failed, we exited them. They may still bottom but that failure of the test of the 50 day EMA breach is a bearish signal. With semiconductors heading lower again ahead of the rest of the market similar to what they did two weeks back, we viewed bearish action below the 50 day EMA as a precursor to further downside.
As noted, the NYSE indices are still holding their recent lows, trying to work laterally and nail together a floor to bounce from the two weeks of selling. Sentiment indicators still remain at high negative levels, a contrary indicator that often signals an upside move. As noted over the weekend, it can take more time after the sentiment indicators hit extremes before the recovery actually starts. If a recovery is coming, that must be the case right now.
THE ECONOMY
Oil prices, inflation get the blame, but bond yields continue to fall.
Rising oil prices received some of the blame Tuesday for the selling along with the standbys, particularly inflation worries. Of course the 10 year bond yield moved lower to 5.02%, well off the 5.19% recent peak that the inflation bears used to argue inflation was at hand. If inflation was really coming (and not the higher but still modest inflation we see today) rates would not swing back 16 BP so easily.
The new corporate scandal.
There is another reason we briefly touched Monday night, and that is the new corporate scandal related to backdating option grants. These are the options that are paid as part of the executive compensation. Most people think of technology companies when you talk about this given all of the uproar in techland over proposed requirements to expense such options. They are much more widespread than that with nearly all corporations giving executives restricted stock or stock options. GE, CAT, many oil companies; you name the sector and you can find most of the players compensating executives with options.
Nonetheless, much of the focus has been on NASDAQ stocks because this is where the problems are being uncovered. The latest casualty was KLAC, and with the disclosure that a probe was underway the stock fell over $6 the past two sessions (13%). It is a SOX component so it is no wonder SOX took the low road the past two sessions. Other tech stocks are under scrutiny, and thus it is no surprise NASDAQ is showing weakness as many fear this is just the tip of the iceberg. It is not particularly surprising that NASDAQ started to struggle with the MSFT earnings and the contemporaneous early reports of the options problem. Very similar to the tech swoon after the Justice Department brought its anti-trust lawsuit against MSFT before the 2000 crash.
The real fear behind this is not necessarily the damage done from another scandal, but the typical congressional response: more regulation versus enforcing existing laws and simply prosecuting the wrongdoers with haste. Sarbanes-Oxley remains one of the major drags on the US economy as small publicly traded businesses struggle with the costs, other small businesses decide not to go public, and companies from other countries decide not to list on a US exchange. This is a major drain on smaller business, and it has a chilling effect on our ability to compete internationally. If fewer companies decide to turn public and tap into those funds to further their growth, we don't get the same strong innovation we enjoyed pre-Sar-Ox.
Bernanke tells Senate banking committee he made a mistake.
It what marked the end of the first phase of Fed transparency under Bernanke, the Fed chairman said he would not be releasing information related to monetary policy except through Federal Reserve channels. The statement came in response to a question about the Maria Bartiromo interview one weekend about a month back when Bernanke 'clarified' his statement to Congress about when the Fed might feel a pause in a rate hiking campaign was warranted. He was concerned the market mistook his meaning and thus the retraction. As we said at the time, the market did overreact somewhat, but it had already taken that back before the weekend of the ill-fated 'retraction.' Thus the retraction only exacerbated the situation, pushing the market further in the opposite direction (lower).
As we also said at the time, the disclosure to only one media figure was questionable, and how the story was held until the 'Closing Bell' segment on CNBC that next Monday was rather despicable. The story was 'saved' until that hour, and when released the market had the reaction you would anticipate: down. For a Fed chairman to give an exclusive and then allow the story to be held almost two days borders on breach of fiduciary duties. For the media to act in complicity is, well, rather typical. It does, however, give new meaning to CNBC's buzz phrase 'the most important hour of the trading day.' Yes, if you withhold market moving information obtained in a questionable manner until the last hour, it certainly does become the most important hour of the day. Similar to the media giant in the James Bond flick 'Die Another Day' who manufactured his own news for his ends. Before you start defending Bartiromo, think back to all other Fed statements. They maybe made at private events, but all of the news media gets the information immediately. It is not doled out to one and held only to be released to create maximum impact and to give that reporter a scoop.
This is serious stuff. At a minimum the SEC needs to conduct an investigation to see if any illegal trading was done with respect to this withheld story (e.g. Bartiromo and any other CNBC employees, relatives, etc.), and Bernanke may need to receive an official censure from Congress. He got off scot-free Tuesday and by his answer and demeanor he knew it. At a minimum he violated ethical standards of a public official. Add on top of that how his words literally move world financial markets and you have a very serious issue that has been swept under the rug. The Feds went after Martha Stewart for making one trade on one stock. She went to jail for it. Here we have news that literally moved the market, news that was improperly disseminated by a public official and then improperly held and released with reckless disregard if not actual intent to have the most impact.
THE MARKET
MARKET SENTIMENT
VIX: 18.26; +0.54. Still holding near the April 2005 highs when the market bottomed.
VXN: 22.18; -0.36
VXO: 15.92; -0.15
Put/Call Ratio (CBOE): 1.14; -0.07. Eighth consecutive close above 1.0. About as ripe as you can get.
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: -14.09 points (-0.65%) to close at 2158.76
Volume: 2.201B (-5.22%). Volume remained above average but was lower as tech stocks tried to rally early. The lower volume showed less enthusiasm on the upside and thus stocks could not hold the gains when the sellers re-entered. On the other hand, the turn back lower was not accompanied by a surge in volume so no distribution. That is a faint silver lining as NASDAQ continues to try and hold the recent lows.
Up Volume: 735M (+180M)
Down Volume: 1.428B (-262M)
A/D and Hi/Lo: Decliners led 1.26 to 1. Was only modestly positive (1.4:1) intraday, so the move lacked some internal strength as well, making it an easier target for the sellers.
Previous Session: Decliners led 2.22 to 1
New Highs: 56 (+6)
New Lows: 96 (-74)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Three gaps higher in four sessions and only one has held up to the close. Tuesday NASDAQ rallied to last Fridays high (2200) and again stalled. There is some resistance there from a November 2005 interim high and a December 2005 low, but nothing ironclad. It stopped NASDAQ like a brick wall Tuesday as NASDAQ shed 40 points high to low in a rather spectacular reversal. The only thing lacking was a huge spike in volume. The intraday price action remains very bearish but it is holding a modicum of support near 2140.
SOX (-1.62%) left the building after lunch moving to new lows on this selling. Still near a small ridge of support at 462, but with big name chips selling in anticipation of who will be the next victim of the options pricing scandal and the rejection of the Friday rebound to the 200 day SMA (492), it will take a turn of events to bring SOX around. It was heading downside before the rest of the market turned lower, and it is heading downside now. Don't like that parallel, but now that we have said it and have reasons to believe SOX is not ready for a significant recovery (more options issues), it will bounce. Technically, however, it is very weak.
SP500/NYSE
Stats: -5.5 points (-0.44%) to close at 1256.57
NYSE Volume: 1.908B (-6.82%). Volume remained above average but fell as SP500 tried to run higher and then reversed. Still no shrinking violet as far as trade, and with the reversal to negative it cannot be viewed as a positive.
A/D and Hi/Lo: Decliners led 1.2 to 1. The NYSE indices turned negative late in the session, so the modest downside breadth is not unusual. As Bear Bryant responded to a reporter's question after the 1982 UT/Alabama Cotton Bowl and Texas' comeback, if the game had been 10 minutes longer Texas probably would have beat them by 10 more points. The point: if the session were longer it would have been worse.
Previous Session: Decliners led 1.96 to 1
New Highs: 30 (+3)
New Lows: 123 (-53)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 continued its upside move off of its 200 day SMA (1258), but after hitting close to 1275 it peeled off 17 points to close negative and just below that level. It was a breach of the 200 day SMA on the close, and technically that opens all kinds of bad boxes, but in reality it is still trading in the same range for the past four sessions. That still keeps it trying to put in a bottom here. Trying and doing are two opposites in the market; you don't get money for the effort. Weak intraday action and other than the lateral move and the amount of selling there nothing to suggest it is ready to bottom. That is why it is likely to do that in the not too distant future. By bottom we mean some sort of bounce more than a half session or session long. What it makes of that remains to be seen.
SP600 (-0.58%) rallied as well intraday, coming close to the 10 day EMA (382) on the high but then reversing with the rest of the market to close negative. As with SP500 it is bouncing around in the same range the past four sessions between 370 support and 380 resistance. As with SP500, we are just looking for a bounce from this level to test the breakdown from its uptrend.
DJ30
DJ30 is showing the same action as SP500 and SP600, bouncing up and down in a rather wide range above support. If you look at DJ30's pattern you see a potential head and shoulders; you can just about ALWAYS see a potential head and shoulders pattern when a market is weak. First things first. If it can hold here near the April low just over 11K (11,040 to 11,075; the 'neckline') and rebound and take out 11,340 or so it breaks up the pattern. As I tell my little league team, however, you have to field the ball before trying to throw. In other words, DJ30 has to make the bottom before it can bounce. It has not fielded the ball yet.
Stats: -26.98 points (-0.24%) to close at 11098.35
Volume: 315M shares Tuesday versus 340M shares Monday. Volume slipped to average as DJ30 continued working laterally this week. The volume does show there was not a lot of buying interest just as on NASDAQ and NYSE.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Finally some economic news to maybe give the market something to focus on other than speculation as to the Fed, commodities, gasoline, inflation. Durable goods orders, new home sales and crude/gasoline inventories. That still pales ahead of Thursdays GDP revision and its deflator, and Friday's spending and income and PCE readings. Those are considered the heart of the Fed's inflation focus and thus carry a lot of weight after the heightened inflation worries of the past three weeks that saw the culmination of the huge commodity price spike. That of course coincided with the rising inflation concerns: when commodities finally entered a blow off phase on this run, a phase that could not be sustained, inflation worries became entrenched. Great timing.
Be that as it may, the market is still grinding the sausage, at least on the NYSE indices and likely on NASDAQ. SOX has just about given up the process with its second session lower after failing at the 200 day SMA following the Friday rebound. We still very much want to see a rebound here if it is nothing more than a relief bounce to test the recent support that was broken. That gives us a better entry point on some downside plays. If it develops with some strength given the high sentiment indicators, all the better. Either way the market remains oversold, and thus downside plays are risky outside of the stock that is in a long term trend lower and has just made a test of the down trendline.
We still believe a bounce is coming, but the timing of these is always the rub. We felt strongly a bottom was in the making back in September of 2002, but it took until October to make the final low, reverse, and then show us the follow through buying that reveals the buying was not just a one day event. With the recent fresh lows hit Tuesday (and Wednesday on SOX), we still have to see another rebound and then a follow through to the upside 4 days to a week later. Given the Friday rebound attempt was trashed this week, it still has to put in a new reversal day to start the clock.
That leaves us still watching this volatility of the past few days as the buyers and sellers slug it out. That is the essence of tops and bottoms, i.e. when the market moves back and forth intraday and day to day but in something of a confined range. This is a neophyte range but nonetheless it is showing volatility after a sharp sell off. SOX is trying to bug out but the NYSE indices are still making the attempt.
We will continue to watch for upside trades off of this bottom making attempt. We are also looking for some downside, but as noted above, until we get a relief bounce the downside is trickier given stocks have built up a lot of oversold pressure and would not take much, say a lighter PCE, to send them screaming back up. Better to be a bit patient, choose some good plays to take us either way, and let the indices show us their hand for the next near term move. They will do that soon enough.
Support and Resistance
NASDAQ: Closed at 2158.76
Resistance:
2185 to 2182 is the September 2005 peak and interim high from November 2005.
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 18 day EMA at 2247
2273 is December 2005 closing high.
2278 is December 2005 intraday high.
The 50 day EMA at 2284
2288 from December 2000 low.
2300 from the April intraday lows.
Support:
2162 to 2155 from December 2005 and September 2006
2100 from the early and mid-2005 peaks.
S&P 500: Closed at 1256.58
Resistance:
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
1280 from the April lows
The 10 day EMA at 1278
The late January peak at 1285
The 50 day EMA at 1294
1297.57 is the recent February high.
The January high at 1303
The October/April trendline at 13011
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 200 day EMA at 1258
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 11,098.35
Resistance:
11,159 is the February high.
The 10 day EMA at 11,252
The 50 day EMA at 11,257
11,290 is the October/January/February up trendline.
The 18 day EMA at 11,302
The March 2005 highs at 11,329 to 11,335
11,350 from the May 2001 peak
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 24
Durable goods orders, April (8:30): -0.5% expected, 6.4% prior
New home sales, April, (10:00): 1.135M expected, 1.213M prior
Crude oil inventories (10:30)
May 25
GDP, Q1 (8:30): Next iteration. 5.8% expected versus 4.8% prior reading
Deflator, Q1 (8:30): 3.3% expected, 3.3% prior
Initial jobless claims (8:30): 318K expected, 367K prior
Existing home sales, April (10:00): 6.75M expected, 6.92M prior
May 26
Personal Income, April (8:30): 0.7% expected, 0.5% prior
Personal spending, April (8:30): 0.6% expected, 0.6% prior
Michigan Sentiment, final, May (9:45): 79.0 expected, 79.0 prior
End part 1 of 3
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world stock market
us stock market
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