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6/21/06 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: ODFL; SMDI; MAN
Trailing stops: None issued
Stop alerts: CSX; PGNX
SUMMARY:
- Market bounces back, posts a modest follow through session.
- Market sentiment hits more extremes, helps propel follow through session.
- Indices at the crossroads as stocks work on rebuilding patterns. Trying to forge a summer rally but likely a bit more work to do.
This time stocks hold the early gains, rally almost to the close.
On the last bounce only SP600 could post a follow through session to the late May reversal session, and that rebound attempt ran out of steam at the 18 day EMA on NASDAQ and the 50 day EMA on SP500. After the rebound last Wednesday the market was looking for another follow through session, and this time another index joined in as NASDAQ (+1.62%) and SP600 (1.8%) rallied together on rising volume.
The market got a good start on some strong Morgan Stanley and Fedex earnings reports. Futures were up and the market opened higher, but we have seen that before. This time, however, the early gains were not quickly tossed aside. All of the indices held the early pop and continued rising through early afternoon. Things calmed down over lunch as the indices went flat line, but then they goosed it a bit higher in the afternoon before a last hour modest fade.
The earnings helped as the market is primed for that kind of news after selling off for a month ahead of earnings. Kind of set up for an upside release on this kind of news. This is still the upbeat part of the 'warnings' season as companies come out and tout their good quarters as the numbers start to come in. Thus we get the good news now. The bad news, i.e. those warning for the quarter, will come starting next week and the first week in July. For Wednesday, the good news was all there was, and it was timely given a market that had sold off hard and was trying to piece together another move.
Volume bit shaky, NASDAQ/SP500 cannot clear near resistance, patterns trying to rebuild.
Volume was up but trade was still below average on both NASDAQ and NYSE; definitely summertime trade. With it being summer and lower volume, does that mean you don't worry about the overall trade being low, just that it is still higher? In all cases you like to see strong trade as that shows most of the players are in the game and thus you get fewer nasty surprises when those holding back enter the market on the other side. Thus with the higher but still low trade you have those in the market pushing for a rally. The market can keep rallying if those in play are buying. We just have to be aware that it can be short-lived if those on the sidelines come in and don't join the upside but instead sell into that move. Wednesday there were no sellers in sight.
NASDAQ and SP500 cleared near resistance intraday (the 18 day EMA), but could not hold the move into the close. Ditto for SOX. NASDAQ also tapped at its up trendline and could not punch through that resistance either. Key point for those indices as this modest follow through tries to advance. Kind of a crossroads of sorts as the 18 day EMA is where NASDAQ stalled on its last rebound attempt, though it did not have a follow through behind it.
One of the issues for the market is the lack of strong stocks in good patterns to lead a sustained move higher. Wednesday a lot of stocks rebounded from the recent selling, but that does not automatically mean they are in position to surge steadily higher. We do see, however, some pattern rebuilding ongoing with some reverse head and shoulders bases trying to form. That pattern often forms as part of the bottoming process; saw quite a few of those in late 2002 and early 2003 as the market bottomed (TSCO was one of the early leaders in that recovery and this pattern tipped us off to that run). These patterns are still a work in progress for now, however, and as with head and shoulders patterns they can fall apart even as they start to look good.
Thus a modest follow through sparked by some good earnings results and guidance, but the move was only enough to take NASDAQ and SP500 back up to near resistance. This is where the rubber hits the road to see if there is any strength to this rebound attempt and follow through.
THE MARKET
MARKET SENTIMENT
VIX: 15.52; -1.17. After spiking to 23 last week on Fed worries, volatility dropped to its 50 day EMA Wednesday. The other sentiment indicators have come into line with it and helped spark this follow through. It remains to be seen if that will be enough or if this time the market needs more fear than in prior rebounds in this rally.
VXN: 19.66; -1.37
VXO: 14.23; -1.29
Put/Call Ratio (CBOE): 0.92; -0.05. Weeks of closes above 1.0 showed the kind of activity in the options market that can indicate a rebound, but there is also a lot more day to day action in the options market than in years past, and that tends to pump up the ratio more.
Bulls versus Bears:
Last week they were converging and this week they actually met at 35.6% each. 35% bulls is bullish and the highest level since the October 2002 bottom. Bears are higher than they have been on any time in this rally. It is always bullish when bulls/bears converge, and super bullish of they cross over. If the market continues the rebound after the Wednesday follow through they will likely not make the cross, but even back in late 2002 they did not cross one another when the market bottomed after that long downtrend. This is more than good enough to rouse the upside as it means there is enough money on the sidelines to sustain a push higher as opposed to flaring out after a brief move.
Bulls: 35.6%, down sharply form 38.7% last week. A new low on 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: 35.6%, up from 34.4% last week. Not as dramatic a move higher as last week (up from 31.5%), but easily posting a new post-2002 high as it 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: +34.14 points (+1.62%) to close at 2141.2
Volume: 1.911B (+17.28%). Volume rose above Tuesday levels, thus giving the rising volume on a follow through session, but it was anemic volume in the bigger picture, coming in well below average. Volume beat out Monday and Tuesday, but that was pathetic trade, and Wednesday was lower than all of last week's sessions. Thus it is not a rip roaring, clear indication that the buyers are back in force.
Up Volume: 1.71B (+859M)
Down Volume: 181M (-570M)
A/D and Hi/Lo: Advancers led 2.5 to 1. Solid breadth but not an overwhelming level for a follow through. Was stronger intraday, approaching 3:1.
Previous Session: Decliners led 1.26 to 1
New Highs: 51 (+13)
New Lows: 120 (-43)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
As we said last night, NASDAQ was heading toward the 18 day EMA (2145.60) on this move, and that is where it went Wednesday. It cleared the 18 day intraday, tapping the 2004/2005 up trendline on the high (2153) but then faded to close below both of those resistance levels. Volume was up, thus the follow through session with the strong price gain. Still below average, however, so not a lot of force behind the move. As noted Tuesday, that leaves NASDAQ to show its stripes on this move as the 18 day stalled NASDAQ on the last rebound attempt in late May after the first leg lower in this selling. NASDAQ doesn't really have a pattern here, just a sell off and now an attempted bounce.
SOX (+2.09%) bounced as well, making a higher low after three modestly lower sessions following last week's move up to the 18 day EMA (455.62) and fade from that test. It is now right back at the 18 day, moving above that level intraday (460.09 on the high) before closing spot on that resistance. This is where it failed in early June after bouncing from the first leg lower, and again last week. As with NASDAQ, it is lick log time for the chips. They showed some relative strength this week, something they had not done on prior moves lower. That showed some grit that the market did not have in May. Now we see if it can make more of this. A lot of chips still look like cow chips though INTC and AMAT have put in some bottoming work the past four weeks.
SP500/NYSE
Stats: +12.08 points (+0.97%) to close at 1252.2
NYSE Volume: 1.66B (+10.83%). Volume was up but from very low Monday and Tuesday levels and still below average. As with NASDAQ, lower than all of last week, so not a really strong move though it does qualify as a follow through as volume was up on the move.
A/D and Hi/Lo: Advancers led 2.88 to 1. Solid but off the nearly 4:1 reading before the afternoon fade.
Previous Session: Decliners led 1.28 to 1
New Highs: 35 (+11)
New Lows: 130 (-40)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied through the 18 day EMA (1254.51) as well (1258 on the high) but could not hang onto that move into the close. Very similar to NASDAQ with the test of the 18 day last week, the fade, the higher low and then a follow through that came up to test the 18 day once more. Still some thick ice overhead with the 200 day SMA (1262) just ahead. This is still the same action as in late May and early June though at that time it went on up to the 50 day EMA. May try the 200 day here, and that is where it will tip its hand.
SP600 (+1.80%) was the other clear follow through index with NASDAQ, something it pulled off in late May as well. The move Wednesday, however, only got SP600 to the 10 day EMA on the close (361.41), still well below the 200 day SMA (366) that stalled the bounce last week. As with SP500, we could see a move to that point, but after that, dicey.
DJ30
Sold triple digit price gain on rising though below average volume. The move took DJ30 just past the 50 day EMA (11,119) on the high, but as with the other indices, it backed off from resistance on the close. Stalled out at the 50 day in early June, and now the Dow has rebounded to the neckline of the head and shoulders pattern spanning March to early June that sent it lower this month. This is where it needs to make a stronger upside move or continue down with the third leg lower. The latter appears more likely at this point.
Stats: +104.62 points (+0.95%) to close at 11079.46
Volume: 309M shares Wednesday versus 274M shares Tuesday. Higher but still below average and below all of last week's trade.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Crude oil inventories were greater than expected at 1.4M bbl, but gasoline was lower at a mere 300K versus the 1.1M anticipated. That broke a string of 10 weeks of rising gasoline inventories. Refinery runs were at 93.3%, up from 92.7%, but that is still well off the 98% to 99% typical for this time of year. Still have some lingering effects from last year's storms.
Thursday some more economic data with the weekly jobless claims, Leading Economic Indicators, and durable goods. That is a pretty substantial plate of data though the LEI is pretty much a lagging indicator now. Durable goods orders, though dated, will provide the market some data to chew on, however.
What it does with that data will be key. The market rebounded to next resistance as we anticipated, showing some better volume (though still too light) on the move. Price/volume action is one of our keys to the moves this week, and while it improved Wednesday, you can hardly call the trade an affirmation of a new upside move. Indeed, the light volume puts this follow through basically in the category of the last one that showed mediocre trade and just SP600 posting a follow through session, a follow through that did not get much following by investors.
The positioning is a bit better this time with the higher low and immediate return to resistance, the same resistance that stalled the move on the last rebound attempt. WE could see SP500 continue up to the 200 day SMA, DJ30 on to the 50 day EMA, and NASDAQ back up to its up trendline. From there the market shows us what it has on this move.
There are some stocks that continue in solid patterns, though as noted before their numbers are not the kind you see when the market is ready to break higher; sectors are usually teaming with good patterns in that instance. There are some patterns in the building process. As noted earlier, there are some reverse head and shoulders trying to form in sectors such as metals, heavy machinery, and heavy construction, but those patterns are still only about two-thirds completed. Signs of life that could push the indices a bit higher to next resistance, but still needing work, and that means a bit more downside. Not a crashing thud, just some more work. Indeed, if the patterns are decent, they should hold up as the market tests again, going about their own business and then ready to move higher when the market finishes its next pullback.
So for Thursday we are looking for the indices to try next key resistance and then come under some pressure that takes them back down for another test. Not necessarily of the caliber of the first and second leg, but finishing off the selling with another shakeout. That allows the stocks working on their bases to finish them up; a follow through often leads to more base building that leads to stronger moves down the road. A follow through shows us that the buyers are back in the market, and that means putting money back to work and accumulating shares. Once the bases are formed the stronger moves are made.
Thus we view this all as part of the bottoming process. The follow through was not huge, and that likely means more bottoming action to come, but it is part of that action as more money gets put to work. We will continue to look for those stocks that are ready to move higher from solid positions now. We are also looking for the indices to turn lower once more from resistance and will see what we can get out of our downside plays. We don't expect a collapse on any downside given the Wednesday follow through, but a sharp enough move to shake out some more sellers and put some fear back into the market.
Support and Resistance
NASDAQ: Closed at 2141.20
Resistance:
The 18 day EMA at 2146
2154 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 2206
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 1252.20
Resistance:
The 18 day EMA at 1255
The 200 day EMA at 1262
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
The 50 day EMA at 1272
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
1243 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 10,079.46
Resistance:
11,044 is the January high.
11,097 to 11,137 is the last peak from the February top.
The 50 day EMA at 11,119
11,159 is the February high.
11,279 is the late May high
The March 2006 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
Support:
The 18 day EMA at 11,016
10,965 from Q4 2000
10,931 is the November 2005 high
The 200 day SMA at 10,894
10,890 is the December 2005 closing high.
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): 1.957M actual versus 1.870M expected, 1.863M prior
Building permits, May (8:30): 1.932 actual versus 1.950M expected, 1.973M prior
June 21
Crude oil inventories (10:30): 1.4M actual versus -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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