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investment help, financial investment
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7/05/06 Investment House Daily
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MARKET ALERTS:
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Buy alerts: None issued
Trailing stop alerts: GRMN
Stop alerts: None issued
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SUMMARY:
- North Korean missile launch, employment forecast shoot down post-holiday market.
- Maybe market can get back to business with earnings and jobs reports ahead.
World events help stall market at next resistance.
North Korea's launch of 7 missiles shot down the Monday pre-holiday drift higher with the indices giving back most (and in NASDAQ's case, all) of that move. Futures were already under pressure after ADP released its employment forecast suggesting the Friday jobs data is going to be much stronger than expected (368K). ADP one of the big payroll management firms and thus when it sees a lot of jobs it carries some weight.
Stocks gapped lower and sold further. Midmorning the indices found bottom and started a slow recovery the next three hours. Heading into the last hour stocks looked ready to break upside and shave even more losses, but waffled. They managed to hold much of the afternoon move but that hardly was enough to mitigate the damage that saw NASDAQ lose in excess of 1.5% and the small caps give back 1.24%.
Looking for a reason to sell.
As noted over the weekend, a bit more upside rally after the big move higher last Thursday both before and post-FOMC announcement and stocks would need a rest. Monday they continued their drift higher, moving closer to next resistance. That close to next resistance after a decent rally and investors were ready to hit the jettison button when the North Korean missiles flew and worries jobs were going to come in stronger and thus keep the Fed on high inflation alert. Ready made excuse, and when coming back from a holiday the market will sell some first and then look around. If that guy in pajamas in North Korea had not shot his rockets off investors would have found a reason to sell some.
We have done some looking around as well, and the action was not that bad. There was a lot of gloom; Mark Haines on CNBC didn't need a mood ring to let you know how he felt. His voice was 'anchorly' somber when noting the futures and the NK missile launch. You have to like the gloom, particularly when the market action does not support the doom scenario.
No real damage compared to the gloom.
What are we talking about? Most of our stocks held up well. We took some gain with some trailing stops on stocks we could probably have left alone, but we preferred to lock in some gain, see what happened, and if they came back up we would look at them again. We are going to be doing the latter because the market did not get clubbed, at least not a lot of leaders, as you would think happened watching the financial stations.
So we have leaders holding up. What else? Breadth was negative, but it closed much better than the -4:1 early on. Volume jumped above Monday, but I could have traded more shares than traded Monday. Volume was still well below average, hardly any selling affirmation. The indices were lower but they also held some near support. NASDAQ did not hold its trendline but it did hold the 18 day EMA and the May low. SP500 tapped its 50 day EMA on the low and rebounded, holding that support.
Down but not collapsing, recovering off of support. Plenty of gloom but leadership holding up and volume not bad. Thus we like the gloom talk because the technical indications don't show a return of sellers.
THE MARKET
MARKET SENTIMENT
Short interest is reaching back to the top of its range for the past 12 months which happens to be the 5 year high as well. This is another contrary sentiment indicator: the higher it gets the more likely the market will move higher. As one trader put it, the shark cannot stay down with three barrels in it, and at this level of short interest the shark has three barrels in it. It does not necessarily mean a rally will come and surge and surge. It does indicate that too many are betting the market is going lower and lower, and not everyone can be right because there has to be trades in order for anyone to make money. Thus when short interest hits key levels the market simply has to turn back for a while. It is close.
VIX: 14.15; +1.1
VXN: 19.78; +2.1
VXO: 13.25; +1.66
Put/Call Ratio (CBOE): 1.32; +0.36
Bulls versus Bears:
Bears rose but so did bulls, and after kissing last week that just kept them from a crossover move that historically is a very strong indication of sentiment being really ripe for a move. With the strong price/volume and leadership move it looks as if the sentiment did its job.
Bulls: 37.4%, back up from 35.6% last week. That stalls somewhat the sharp decline the prior week (down from 38.7%), but still at a low level after a high at 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: 36.3%, up from 35.6%, but not enough to crossover the bulls, typically a surefire indication that the market is ready to rumble. Still chasing the bulls and would have caught them but for the Thursday rally. Nice climb to 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: -37.1 points (-1.69%) to close at 2153.34
Volume: 1.628B (+110.35%). Volume was up a big percentage but it was still below average. This is the level of trade on 6-28-06, and that was lackluster. Thus we are not bent out of shape on this one, i.e. we are not viewing this as distribution ready to take NASDAQ back down.
Up Volume: 222M (-290M)
Down Volume: 1.391B (+1.139B)
A/D and Hi/Lo: Decliners led 2.16 to 1. Not great breadth, and overall breadth remains down, making lower highs. Well off the early -4:1, however, and breadth has been back and forth depending upon the session.
Previous Session: Advancers led 1.47 to 1
New Highs: 68 (-23)
New Lows: 64 (+26)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped lower but fought back in the early afternoon to tap the 50 day EMA (2188) where it closed Monday. It could not hold the recovery and faded back to hold near the May low at 2150. Tapped the 18 day EMA (2147) on the low and bounced slightly. It could not hold the trendline at (2162) as we suggested Monday, but it is close enough for horseshoes. Looking for it to hold this level, and as we said Monday, that sets up the run to the next level, i.e. through the 50 day EMA and toward the 200 day SMA (2228).
SOX (-3.16%) posted a nasty loss as the options scandal spread further, particularly in semiconductors (e.g. MRVL). It managed to hold above its recent late June lows, but it has the look of that leading the market lower as it did in May and June. We will be watching this one closely as it has been a downside leader, but we note that it is also suffering much of the options scandal, taking the brunt of the blow.
SP500/NYSE
Stats: -9.28 points (-0.72%) to close at 1270.91
NYSE Volume: 1.494B (+94.77%), Volume jumped as well on NYSE, but as with NASDAQ trade was well below average, just matching some of the levels from two weeks back. As with NASDAQ we are not viewing this as suggesting the sellers have taken control.
A/D and Hi/Lo: Decliners led 2.58 to 1. As with NASDAQ, it was -4:1 early in the session. Not a complete comeback but a good recovery from a level turning extreme.
Previous Session: Advancers led 2.82 to 1
New Highs: 71 (-40)
New Lows: 83 (+30)
The Chart: http://investmenthouse.com/cd/^gspc.html
The large caps sold as well, undercutting the 50 day EMA (1268) on the low and then managing to recover and hold that level relatively easily. Volume was up as noted, but still well below average and no real comparison to Monday's half session trade. Basically this was a good test of the recent move higher. Yes it gave back much of the Monday move, but given the news in the market it was contained. May come back a bit more Thursday, but looking for SP500 to hold either at the 50 day EMA or the 200 day SMA (1263) as stated Saturday.
SP600 (-1.24%) was hit as well as it too undercut the 50 day EMA (373.56) but then rebounded to hold that level on the close. It did not make it up to next resistance at 382, but doesn't look like it needed to. Nice test of the 50 day EMA, and we expect it to hold somewhere around this level.
DJ30
Saturday we were looking for a test of the 50 day EMA (11,108) to set up the next move higher after DJ30 jumped last Thursday. Wednesday it gave us that test, tapping at the 50 day on the low and recouping some losses. Higher volume but still below average. Not a big deal at all. May give us another flat session Thursday before starting higher; jobs report will impact the timing on this one.
Stats: -76.2 points (-0.68%) to close at 11151.82
Volume: 248M shares Wednesday versus 134M shares Monday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
North Korea says it is ready to test fire another 3 or 4 missiles, but we think the market is going to start looking more at the Friday jobs report and the earnings that are about to start hitting, and the latter two will drive more of the action given the Fed and what earnings guidance says regarding the future.
In addition, despite the gloom Wednesday, the market action was not poor. A good surge and now a lateral move to back and fill some, consolidating the big run higher for the next upside move. We have said it is not a great time of year for a rally attempt, but the action suggests it is still trying to set up more upside.
If the ADP prognosis turns out to be on the high side, then the market will be set to move higher. That report very much impacted the market Wednesday; again, if the jobs are lower than the 367K or so ADP suggests, the market is primed to move higher.
Thursday the ISM services, initial jobless claims, and oil inventories (delayed due to the holiday) are released. They could have some play on the market, but overall we are expected another flat session as the market tries to shake off the gloom from Wednesday. We expect the indices to hold around the 50 day EMA once more as they continue to consolidate that Thursday blast higher and set up the next move.
Thus we are going to look around for some upside plays that we feel are primed to make an upside move once the market finishes this pullback. We took some gain off the table early on some solid stocks that ended up holding pretty well. We are going to look at them again as they complete their pullback and set up for the next move that will make us some more money. High short interest, good test of last week's break higher, leaders still in good shape. Lots of issues confronting the market both within and without, but even with that it is holding up and setting up. Hard to ignore and thus we will be looking at more upside despite the time of year, approaching earnings, etc.
Support and Resistance
NASDAQ: Closed at 2153.34
Resistance:
2161 is the August 2004/April 2005 up trendline.
2162 to 2155 from December 2005 and September 2006
2177 is the December 2004 high.
2185 to 2182 is the September 2005 peak and interim high from November 2005.
The 50 day EMA at 2188
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:
The 18 day EMA at 2147
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 1270.91
Resistance:
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
The 50 day SMA at 1275
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:
The 50 day EMA at 1268
The 200 day EMA at 1263
The 18 day EMA at 1259
1247 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 11,151.82
Resistance:
The 50 day SMA at 11,181
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 50 day EMA at 11,108
11,097 to 11,137 is the last peak from the February top.
The 18 day EMA at 11,067
11,044 is the January high.
10,965 from Q4 2000
10,931 is the November 2005 high
The 200 day SMA at 10,915
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.
July 3
ISM Index, June (10:00): 53.8 actual versus 55.0 expected, 54.4 prior
Construction spending, May (10:00): -0.4% actual versus 0.2% expected, -0.2% prior (revised from -0.1%).
July 5
Factory Orders, May (10:00): 0.7% actual versus 0.0% expected, -2% prior (revised from -1.8%).
July 6
Initial Jobless Claims (8:30): 315K expected versus 313K prior
ISM Services, June (10:00): 59.0 expected, 60.1 prior
July 7
Non-farm payrolls, June (8:30): 160K expected, 75K prior
Unemployment rate, June (8:30): 4.6% expected, 4.6% prior
Hourly earnings, June (8:30): 0.3% expected, 0.1% prior
Average workweek, June (8:30): 33.8 expected, 33.8 prior
End part 1 of 3
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investment help
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