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6/19/06 Investment House Alerts Report
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IH Alert Subscribers:
We are running a bit late this evening as we are caught in that Houston area deluge and flooding potential. We had to batten down the hatches after the market closed, making sure all of the equipment and files are secure, backed up remotely, etc. We will crank it out as fast as possible while we keep an eye out on the weather.
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: CSX; SMH
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Stocks try to put on a positive face, sellers win out.
- Market keys for this week split, but lack of leadership, at least to the upside, is pulling indices lower again.
- Follow through possibility fading but not dead.
Early bounce turns to selling as indices stall at near resistance.
Futures were up, but it was all for show as the sellers entered after the opening bell bounce. Stocks sold through midmorning, tried a midday bounce that took them back to flat, but then rolled over in the afternoon session. A late bounce cut some losses, but even that faded into the close.
The indices failed at near resistance (the 18 day EMA for SP500, NASDAQ, and SOX), leaving the indices sporting some fairly hefty percentage losses with the small and mid-caps getting the worst of it (-1.6%) as the energy and metals that tend to populate those indices were knocked around pretty hard to start the week.
Volume was lighter, nothing unusual about that after expiration, but it was much lighter with trade falling well below average. No distribution, so a faint silver lining peeked out of the clouds. Further, SP500 held its up trendline and NASDAQ held over 2100 support. Another faint flicker of silver. No follow through of course, but still some signs of life after the Wednesday and Thursday rebound last week.
On the other hand you can't ignore the downturn once more, this time at near resistance. That is typically a sign of weakness. Further, breadth expanded downside in excess of -2.5:1. Now that is nothing compared to the negative and positive breadth last week that saw in excess of 3:1 both ways, but it shows leaders were hard to come by as most stocks sold off. Indeed, the leadership was to the downside with energy, metals, and materials getting clocked. Chips tried to stake out some leadership early on an INTC upgrade, but by the close they were trading down in sync with NASDAQ, SP500, etc. Leadership is hard to come by, and that is the key ingredient in any market. Until this market can find some terra firma and some leadership can build some bases it is a tough go.
THE ECONOMY
There was a dearth of economic data Monday, something of a welcome relief. It did not help the market, however.
Bonds try to find equilibrium.
The bond curve remained inverted with a 4 BP gap, but yields also rose once more with the 2 year at 5.17% and the 10 year at 5.13% (+0.1% each). That continued the recovery from the sharp meltdown in yields when the Fed was talking so tough about rates before Wednesday when Bernanke offered something of an olive branch, though it looked pretty wilted.
At that time the 10 year yield fell several basis points below the Fed Funds rate (5%) with the 2 year matching that 5% rate. Since Wednesday, yields have jumped as bonds sold on the notion that perhaps the Fed is not going to be as draconian in its approach to inflation, i.e. burn the economy in order to save it.
The rise in overall rates is a positive. Rates remain inverted, however, and that is the negative. The inversion has come back from almost 9 basis points pre-Bernanke on Wednesday, so there is improvement in the inversion as well. At these levels you typically don't get a recession, but a flat to inverted curve points to slowing economic activity.
Bonds are trying to find equilibrium right now, gyrating back and forth as they assimilate all of the news and data. Bernanke's supposedly weak approach to inflation started the process as yields jumped for fear he would not stand up to inflation. That jump was also fanned dramatically by the blow off top in commodities (gold fell 9.30 to 572 Monday after that bump higher last week) that many mistook as indicating inflation was coming on strong.
Then the tough guy Fed talk sent yields tumbling and the inversion up. That was the pendulum swing in the other direction, the weak economy direction due to a Fed overreaction. Now they are swinging back with higher yields but still the inversion. Bonds have not come to equilibrium yet, but it is very noteworthy that the inversion remains despite bonds moving more than 17 BP from the recent yield lows. Something is still nagging the bond market about the Fed and the economic activity ahead.
THE MARKET
MARKET SENTIMENT
VIX: 17.83; +0.58
VXN: 22.04; +0.35
VXO: 15.76; +0.84
Put/Call Ratio (CBOE): 1.1; -0.17
Bulls versus Bears:
The two are converging, hitting their lowest ratio since March 2003 when the market followed through on a continued rally after spending three months testing the bottom off of October 2002 that ended the bear market. This is a positive and supports the strong move higher Thursday that started with the Wednesday rebound.
Bulls: 38.7%. This brings the bulls to their lowest level in this cycle, well off the 53.2% at the April peak. It surpassed the 42.3% hit on the last low. The current level puts it below the May and October 2005 readings that saw new upside runs.
Bears: 34.4%. Big spike higher from 31.5% the prior week. That eclipses the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005).
NASDAQ
Stats: -19.54 points (-0.92%) to close at 2110.42
Volume: 1.754B (-30.16%). Volume fell well off Friday expiration levels, but it was also well off the Wednesday and Thursday trade as well. As noted above, that means no severe selling, i.e. the sellers did not swarm NASDAQ like made fire ants. The early bids simply died off and that allowed a relatively few sellers to come in and push things lower. That keeps alive the chance for a follow through later in the week, but we saw how that fared the last bounce attempt. Not well.
Up Volume: 433M (-382M)
Down Volume: 1.263B (-423M)
A/D and Hi/Lo: Decliners led 2.61 to 1. After last week this seems just so-so. It is not. It is significant though less than that nasty whipsaw breadth last week.
Previous Session: Decliners led 1.95 to 1
New Highs: 51 (-2)
New Lows: 138 (+50)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
As we figured over the weekend, NASDAQ was weak to start things off, stalling out just below the May closing lows last week (2159) as well as the 18 day EMA (2151). Monday NASDAQ was higher on the open, but it still came nowhere near those resistance levels as it stalled and headed lower. Pretty much an all-day trend lower with a midmorning laterally move that failed and then a last hour bounce that could not hold into the close. Lower volume so no harsh dumping. Held above 2100 support, tapping 2104 on the low and bouncing some. Those are two positives as a counter to the point loss, the weak breadth, and the failure at resistance. Again, that leaves NASDAQ with a chance at finding a higher low on this move. It will need to find some leadership, but technically, though weak, it can still add to last week's rebound. It can. It can also continue its downtrend with this second failure at the 18 day EMA since the peak in late April.
SOX (-0.96%) was one of the positive indices early on, actually showing some relative strength on an INTC upgrade and some general stirring in techs over the NOK merger/joint venture with Seimanns. That did not last, however, as SOX tapped the 18 day EMA (456.78) on the high and slipped below 450 and the 10 day EMA (450.31). SOX is one of our keys for the week, and this time it was not the downside leader. It tried to show some moxie. It could not hold the move, but it did not sell as much as it would typically do when the other indices are this weak. Thus a bit of relative strength, and another modest positive. Looking at the pattern that certainly seems a stretch to be calling this selling a positive.
SP500/NYSE
Stats: -11.4 points (-0.91%) to close at 1240.14
NYSE Volume: 1.516B (-24.52%). Very low, below average volume as well after four consecutive high volume moves last week. As with NASDAQ, the sellers were not riding herd over the NYSE indices, there were just no buyers, and when the bids dried up a few sellers made some hay to the downside.
A/D and Hi/Lo: Decliners led 2.78 to 1. Not chopped liver though as with NASDAQ, well off the -3.5:1 and +4:1 seen in last week's gyrations. As noted this weekend, those moves were themselves aberrations as the market sought to come to grips with the tough Fed speak and then Bernanke's wilted olive branch peace offering.
Previous Session: Decliners led 1.72 to 1
New Highs: 31 (+5)
New Lows: 156 (+53)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 turned lower from the 18 day EMA (1257), tapping at that level on the session high before rolling over. That also kept it well below the 200 day SMA (1261) after the test of the early June breach of that key level. As with NASDAQ, low, below average volume shows little selling, just a lack of bids. SP500 managed to hold near its old 2003/2004 up trendline at 1241. As with NASDAQ that keeps it in the hunt for a follow through this week, but it also has the look of a failure at near resistance to start the third leg lower.
SP600 (-1.64%) was whacked as the energy sector and metals (many small companies from each sector populate the small cap indices) were hammered. SP600 made this turn lower after bouncing up to the 200 day SMA (366) Thursday, but that was all the upside it could muster. The small caps led the entire move off of the October 2002 low. Now they are getting sold. This is another indication the market is pricing in slower economic growth. Small cap stock prices rise when growth is ahead because small caps need growth to drive prices as they mostly don't pay dividends, etc. When future economic growth is questioned, the small caps suffer.
DJ30
The blue chips are in relatively the best shape of the big indices. DJ30 failed at the 18 day EMA (11,014) after three tries at that level, turning over Monday on lower, average volume. DJ30 tapped at the 200 day SMA (10,888) on the low and recouped some of the losses. It is threatening to stall at the 18 day EMA as with the other indices with this last bounce looking very similar to the late May recovery that ultimately failed. How it handles the 200 day will tell the tale as to whether this is the third leg lower or the start of some firmer bottom building.
Stats: -72.44 points (-0.66%) to close at 10942.11
Volume: 332M shares Monday versus 452M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Saturday we talked about the key points to watch this week for the market. First was price/volume action. Stocks sold Monday, not good price action, but the volume was sharply lower and just flat low overall. That means no more dumping, just a lack of buyers that allowed stocks to fade lower. As noted above, that lack of distribution leaves open the door for a follow through attempt as the week progresses. Modest positive.
Bond yields rose again while the bond curve held its 4 BP inversion. The rise in yields is a positive regarding economic activity, but the continued inversion is a negative. Trying to turn positive and indeed it is in much better shape than during the height of the tough Fed speak. Overall improving but still a market negative with that inversion.
SOX sold off but it tried to lead early, showing relative strength all session. Yes its percentage losses matched NASDAQ and friends, but it usually sells off more than the other indices. It closed lower, but unlike the last two selling rounds it did not blaze the path lower Monday. Another modest positive.
Leadership remains in the toilet. Biotechnology tried to show some courage last week but that ran out the door Monday. Healthcare is still trying to make a name for itself, but the positive moves in those sectors were still scattered. Chips showed some relative strength, but we don't want to confuse that with leadership. Again, we see scattered stocks that look very nice for upside moves. There are just not a lot of them bunched up in sectors ready to break higher from good bases or breakout tests. This remains the major weakness for the market as it tries to stem the selling. It lacks a lot of stocks ready to break higher from positions of accumulation.
That leaves the market in relatively weak shape in a continuing downtrend with an outside chance at a follow through this week. The light Monday selling volume showed the sellers did not simply use last week's rebound as a punching bag. Nonetheless, it is hard to find groups of solid stocks ready to break upside. Given the light volume Monday we may see the rebound now as outlined over the weekend, but there is not much to show the market is making its bottom here despite all of the bottom talk after the Thursday rocket shot higher gratis Bernanke. Thus the weakness is likely to continue overall as the market makes its third run lower where it will hopefully start finding some firmer footing.
Support and Resistance
NASDAQ: Closed at 2110.42
Resistance:
The 18 day EMA at 2151
2152 is the August 2004/April 2005 up trendline.
2162 to 2155 from December 2005 and September 2006
2185 to 2182 is the September 2005 peak and interim high from November 2005.
2205 is the December 2005 closing low
The 50 day EMA at 2213
2218 is the August 2005 peak before the sell off through October 2005.
The 200 day SMA at 2229
2234 is the early June high
2240 is closing low in February range.
Support:
2100 from the early and mid-2005 peaks
2063 is modest, soft support
2050 from the summer 2005 lateral range lows.
2045-47 from June and October 2005 lows and June 2004 highs
S&P 500: Closed at 1240.14
Resistance:
1250 to 1248 from the November and December 2005 lows.
The 18 day EMA at 1257
The 200 day EMA at 1261
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
The 50 day EMA at 1274
The late January peak at 1285
The early June high at 1288
1297.57 is the recent February high.
1315 is the May and May 2001 peaks
1317, the recent intraday highs from April.
1324 to 1329 from the October 2000 lows.
Support:
1245 from the August 2005 high & May intraday low; 1241 from the September 2005 high
1241 is an old trendline from the August 2003/August 2004/October 2005 lows.
1225 from the March 2005 high
1213 from December 2004 high to 1215
1205 from the August lows
Dow: Closed at 10,942.11
Resistance:
10,965 from Q4 2000
The 18 day EMA at 11,013
11,044 is the January high.
11,097 to 11,137 is the last peak from the February top.
The 50 day EMA at 11,127
11,159 is the February high.
The March 2006 highs at 11,329 to 11,335
11,279 is the late May high
11,350 from the May 2001 peak
11,401 from the September 2000 peak and April 2001 highs
Support:
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
The 200 day SMA at 10,888
10, 737 to 10,730 from December and February lows
10,705 - 10,965 from July/August 2005 range top to bottom
10,678 to 10,665
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
June 20
Housing starts, May (8:30): 1.950M expected, 1.973M prior
Building permits, May (8:30): 1.870M expected, 1.849M prior
June 21
Crude oil inventories (10:30): -980K prior
June 22
Initial jobless claims (8:30): 305K expected, 295K prior
Leading economic indicators, May (10:00): -0.5% expected, -0.1% prior
Durable goods orders, May (8:30): 0.4% expected, -4.4% prior.
End part 1 of 3
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