|
|
money investment, financial investment
* * * *
6/26/06 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: ARRO; ININ; EFT; JCP
Trailing stops: None issued
Stop alerts: OXY
SUMMARY:
- More mergers & acquisitions as stocks continue low volume lateral move.
- May housing sales remain strong as market continues its orderly fade.
- Stocks rising toward FOMC meeting but reluctant to show any strength.
No real excitement even with some decent gains and more merger activity.
Once more corporations are paying up for acquisitions with JNJ buying PFE's consumer products unit and PD (copper) taking a play from the APC book and buying Inco and Falconbridge. Both JNJ and PD got whacked similar to APC when it announced its deal (and again on Monday). New home sales for May were up as opposed to down, but that had little effect as Fed-watchers did not like the data but most realized sales were pushed by lower prices and incentives and were inflated because the high number of cancellations is not all reflected in the sales data.
The market basically yawned at the news as it continued its slow lateral plod ongoing for over a week. Stocks were up at the open but struggled through a rather volatile morning, finally catching some firm footing just before lunch with the SP500 tapping toward its old up trendline. That began an afternoon recovery that pushed the indices to session highs and beyond (particularly on the NYSE indices). Nice to see a recovery from a positive open that threatened to sell off but then found a steady bid to the close.
Other than that bullish intraday action, the technical action remained the same, i.e. low, low volume, modest breadth, relatively narrow lateral range below near resistance and above near support. Leaders are still showing signs of getting on track, but while they are taking a stab at an early move higher, they will need to get the overall market to make its move as well. The lateral consolidation action is a positive, but as is always the case, it has to make the move at some point. With the FOMC meeting Wednesday and Thursday there is some reluctance to step in, leaving volume low. In the absence of heavy trade at least the drift is higher into the meeting as anticipated.
THE ECONOMY
New home sales rise when expected to fall.
May new home sales rose 4.6% when expected to decline, basically the opposite from the durable goods orders released Friday. Sales enjoyed their best gain since December and the South posting its best gains since October. As with that report, the details tell the story the headline does not.
First, home prices fell 2.6% in May over April. Year over year, however, prices still rose 2.4%. Nonetheless, 2005 was the peak in housing and though higher they were early in the year, prices have peaked and are off of their record highs. Homebuilder sentiment has fallen and with it building permits are falling as well.
You would think homebuilders were slowing their pace ahead of the drop off in the market, but that goes against history; builders typically build until sales drop to nothing. This time they are getting aggressive with sales along. In January 18% of homebuilders were cutting prices. In June that rose to 41%. They are using more realtors and more incentives.
Second, the number does not reflect cancellations that builders are reporting more recently. This is one of the pitfalls of counting sales at the contract versus the closing as is done with existing home sales. Until the market slows, however, the new homes recorded at the contract time give you fresher data.
It is true that home supplies are much higher than last year, and that alone is a sign the market is slowing. All of these indications add up to a slowing and not a crashing housing market, just as it has done since the peak in 2005. That is exactly what you want to see. The concern with housing as with any sector in the economy as well as the economy overall is that the Fed goes too far and engages in overkill that turns a nice slowdown into an ugly collapse. Thus far we are still very much in an orderly slowdown; we just hope the Fed does not take too much comfort in that as it ponders its further role in restricting the economy.
THE MARKET
MARKET SENTIMENT
VIX: 15.62; -0.27
VXN: 20.83; +0.47
VXO: 14.33; -0.61
Put/Call Ratio (CBOE): 0.74; -0.26
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: +12.2 points (+0.58%) to close at 2133.67
Volume: 1.446B (-10.77%). Lowest volume of the year, even lower than the pre-holiday volume ahead of Memorial Day. With the FOMC 2-day meeting with talk of a 50 BP rate hike and ahead of the Fourth of July holiday (Tuesday). This is truly low volume, and that can be good when a market is trying to consolidate. With summer getting seriously underway, however, we don't want to weight this too much as consolidation for a breakout. Looks good but the indices are still in a downtrend and are testing that resistance on this low trade.
Up Volume: 915M (+209M)
Down Volume: 514M (-368M)
A/D and Hi/Lo: Advancers led 1.55 to 1. Decent but quite modest by recent standards. With a consolidation attempt, though, quiet is better.
Previous Session: Decliners led 1.06 to 1
New Highs: 59 (+12)
New Lows: 88 (-38)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ put together a decent session, posting a nice price gain on though on no volume. Other than the up and down trade through the morning you would have had to take a pulse to see if anything was alive. That was not totally the case of course as some leadership was stirring again, but the overall index remains in a narrowing range (good) on low volume (also good) as it bumps up against the 18 day EMA (2140) resistance while holding above support at 2100. That keeps NASDAQ in its downtrend, and though it is trying to build for a breakout, it has yet to show any strength other than a modest bump in volume last Wednesday when it tried a follow through. It is setting up for an attempt at a break higher, but it is fighting summertime trade as it seeks enough buyers to breakout from the trend.
SOX (+0.65%) is moving laterally as well, below resistance at 450 and the 18 day EMA (453). Still trending lower, and about the only positive is unlike other market sell offs, it has not moved sharply lower ahead of the rest of market. It too is working sideways in a narrowing range on low volume, trying to break up the downtrend but without a lot of volume to do it.
SP500/NYSE
Stats: +6.06 points (+0.49%) to close at 1250.56
NYSE Volume: 1.345B (-4.78%). Not the lowest trade of the year but lower and well below average as the NYSE indices posted some nice gains, particularly SP600. Good low trade as it works laterally over the up trendline and below near resistance.
A/D and Hi/Lo: Advancers led 1.65 to 1. Modest breadth here as well despite the solid small cap gain on the session.
Previous Session: Decliners led 1 to 1
New Highs: 41 (+15)
New Lows: 184 (-1)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 walked laterally once more on very low volume. It put in a decent gain, but that just takes back what it gave away to end last week. All week it was up and down with a narrowing trading range. That keeps it in the consolidation above the 2003/2005 up trendline and below the 18 day EMA (1252) that is sitting on the large caps just as on NASDAQ. Still trending lower, but stretching that move laterally, trying to break the trend just by moving sideways. It is right at the down trendline now, so the large caps are at the lick log.
SP600 (+1.07%) put on an impressive performance as it moved through the 18 day EMA (365). Before we breakout the ginger ale and Vienna sausages it still has its 200 day SMA (366.26) directly overhead. Money flow for the small caps has improved and the SP600 has moved just through the down trendline. This is the test we expected, the move to the 200 day SMA. We expected it to stall at that level and in the bigger picture that is the most likely course at this juncture. The small caps were big leaders Monday, however, showing a lot of interest. It will be easy to read the move: it either breaks through the 200 day or it fails. Very much a key point to watch.
DJ30
The blue chips moved up through the 18 day EMA (11,017) as well, but they have done that before on this move as well. Still working laterally over some near support at the 10 day EMA (10,997) on continued low volume. The lateral move has broken the downtrend just by moving laterally. Still has some serious resistance ahead, however, at the 50 day EMA (11,107) that is coincident with price resistance as well. Not bad, but as with the SP600, still has something to prove.
Stats: +56.19 points (+0.51%) to close at 11045.28
Volume: 202M shares Monday versus 222M shares Friday. Fading volume as the blue chips move laterally at near support, trying to consolidate and push a breakout.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Existing home sales get their shot and Consumer Confidence is out as well Tuesday as the market continues waiting for the FOMC decision Thursday. Seeing some positive movement in DJ30 and SP600, and the other indices are consolidating as well, trying to set up a new move higher. Leadership continues to stir, having overcome the hard selling and setting up decently, but the indices still have to make the move and trade just has not been strong enough to support any kind of serious move.
If you are consolidating, that is not necessarily a bad thing. At this point the market is trying to overcome a downtrend and set up a break higher versus just easing back after a good break higher. Typically a break through resistance requires an extra push, and this low summertime volume despite some movement in leaders is not showing the strength. May be the quiet before the storm, but with the indices right at the down trendline from May, we need to see more of a storm on an upside move.
SOX is still hanging in with its own consolidation, and we liked the move in the small caps; more speculative by nature, if the money moves back in with any real idea of rallying you would expect to see the growth areas getting the money versus the defensive groups. Thus a good sign but just a sign until we see some more upside strength.
We will continue looking for solid stocks making their moves higher as a sign of a potential market break higher. At the same time we are very cognizant of the indices butting against the short down trendlines. It is all coming to a head here right as the Fed gets ready to meet and decide our financial future. 5.25% is a done deal and the market knows it. Now investors are trying to assess anything more and just what economic impact will result. In May the worst was presumed. Bond yields have since recovered though a slight inversion remains (5.25% two year versus 5.23% 10 year). As we said over the weekend, if the Fed gives 50 BP the market will figure it is over. Otherwise it will be hard for the Fed to raise 25BP and give an indication it will be through at 5.5%. That will be harder for the market to swallow. Thus we anticipate a continued move higher into the meeting result, but then the tread hits the road.
Support and Resistance
NASDAQ: Closed at 2133.67
Resistance:
The 18 day EMA at 2140
2157 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.
The 50 day EMA at 2197
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 2228
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 1250.56
Resistance:
The 18 day EMA at 1252
The down trendline at 1253
The 200 day EMA at 1262
The 50 day EMA at 1269
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
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 11,045.28
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 11,108
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 10 day EMA at 10,997 continues to hold as it did last week.
10,965 from Q4 2000
10,931 is the November 2005 high
The 200 day SMA at 10,900
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 26
New home sales, May (10:00): 1.234M actual versus 1.15M expected, 1.180M prior (revised from 1.198M)
June 27
Consumer confidence, June (10:00): 103.9 expected, 103.2 prior
Existing Home sales, May (10:00): 6.61M expected, 6.76M prior.
June 28
Crude oil inventories (10:30): 1.385M prior
June 29
GDP, final Q1 (8:30): 5.6% expected, 5.3% preliminary
Chain deflator, Q1 (8:30): 3.3% expected, 3.3% preliminary
Initial jobless claims (8:30): 310K expected versus 308K prior
FOMC decision (2:15); Expecting a 25BP hike according to the Fed Funds Futures contract but there is talk of a 50 BP. If we see a 50 BP that will likely mark the end of the hikes.
June 30
Personal income, May (8:30): 0.2% expected, 0.5% prior
Personal spending, May (8:30): 0.4% expected, 0.6% prior
Michigan sentiment, final (9:45): 82.5 expected, 82.4 prior
Chicago PMI, June (10:00): 59.0 expected, 61.5 prior
End part 1 of 3
|
money investment
financial investment
|
