|
|
money investment, investment help
* * * *
7/10/06 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: ZUMZ; TEX
Trailing stops: None issued
Stop alerts: FORR; SBUX; SMDI; XING
SUMMARY:
- Market gives back an early run, closes mixed with NYSE still holding, techs/chips still weak.
- Home sales falter further, bond curve backslides.
- Early earnings results fail to give any affirmation of continuing economic strength.
- NYSE index rebound may get some help from oversold SOX, NASDAQ.
Bounce to start week takes on the same old look.
Monday left stocks not much different than where they were at the Friday close, at least if you are talking about the NYSE. Those indices continued their consolidation of the strong move up two Thursdays back, posting modest gains on low volume as they tested higher, ending the session holding support once more. NASDAQ and SOX continued their moves as well, but unfortunately for them that move is down after breaking through near support Friday.
There was no real news to send stocks higher early on, just a relief move from the Friday turn lower. Stocks looked decent through the first hour, but then the same action took over, i.e. a fade, furthered by reports from KB Homes that orders were down and cancellations were up along with MER downgraded the entire technology sector. Talk about a broad call; all technology is going lower. That is an economic call more than anything, and with the action on the NASDAQ and SOX the past 2.5 months, the market appears to be making the same call as well.
Indeed the growth areas continue to struggle, and that can mean that economic growth prospects ahead are lower. At the same time the industrials, energy, metals, healthcare, and food performed nicely, either continuing their recent consolidation or bouncing higher. Thus you have some defensive areas improving, a sign of concern about the future, but also some stocks tied directly to growth prospects as well (e.g., steel, energy, industrial equipment), indicating those areas are building in growth as well. Definitely some mixed signs about future growth prospects, but really not a lot of change: techs weakening while other areas holding up quite nicely.
Technically the NYSE indices held up nicely. They did squander an early lead to close just modestly higher, but this was still part of the consolidation action of the past week, holding support on modest trade in an orderly pullback despite the tumult MMM caused with its earnings warning last week. Volume was lower, breadth was positive at 3:2. Again, another day of consolidation over support.
NASDAQ and SOX continued lower after NASDAQ broke near support at the 18 day EMA and the May low last Friday. Volume backed off, but it was no doubt a continuation of the Friday higher volume selling, so we didn't take much comfort from the slower trade. The one consolation is that SOX sold hard again, and that is getting it oversold and ready for another rebound to test its downtrend; after 4 trips lower in this trend this last move is setting up a more substantial rebound. That does not mean the downtrend is over, but its timing is coinciding well with the consolidation above support by the NYSE indices. You have to look hard to find the silver linings with respect to tech.
The market choice remains the same: can the NYSE indices withstand the technology selling and put together a sustained move? While some of the NYSE success is due to defensive plays, there are still some growth sectors performing well, e.g. metals, materials, energy; those suggest further economic growth even as technology struggles, suggesting growth will be challenged ahead. Those stocks that are holding up are looking quite good. We are really looking hard at them for an upside move with a bit of strength. That will give the market a bit of leadership to the upside for a more sustainable near term rebound. Of course, until they can do that all we have is a pretty good looking picture in those NYSE stocks.
THE ECONOMY
Economy continues to signal the Fed has done its job.
Monday we received yet another report on the housing sector. That is nothing new of course; housing has been as closely scrutinized as Lance Armstrong's urine samples given housing kept the economy afloat in the last recession and so many turned to it as an investment vehicle as opposed to stocks or other financial instruments.
It is also no secret that housing has been in decline since early 2005. Mortgage applications falling, inventory bulging, prices falling each month this year, homebuilders whacking expectations. More of the latter came from KB Monday as it reported orders were down and cancellations were up yet again. The cancellations are really the last sign that the market has cooled as new buyers are no longer interested. Speculators have been moving out as well as inventory builds and the turnover rate rises.
Housing was an early target of the Fed in its rate hiking. Housing has clearly turned down though it does remain solid. To some that means there could be more work to do, but the problem with economic growth is once you turn it back, it typically does not simply snap back after the pressure is removed. Unfortunately, the Fed has turned beyond housing in its quest to stem inflationary pressures. Thus housing is going to continue suffering as the Fed continues its work on sealing off inflation. Fortunately housing is still solid and of course it is always an early recovery sector; thus some slowing as the economic expansion matures is not unusual. Further, Bernanke's comments show he is well aware of what happens if you get too tough and housing falls off significantly, i.e. the threat of significant economic slowing increases dramatically.
Bond market backing down again.
Speaking of threats of significant economic slowdown, the bond curve is getting squirrelly again with rates falling below the Fed Funds rate and the curve becoming a bit more inverted. When the Fed started talking tough bonds overreacted. They jumped in price as yields faded and the curve inverted again, indicating the Fed would go too far if it was serious about this tough talk. As the market absorbed the idea of a new tougher Fed, yields rose and the curve inverted once more. After the last Fed statement which was perceived as more conciliatory, rates have fallen even more as the curve inverts a bit more.
Monday the curve stood at 5.17% for the 2 year note and 5.13% for the 10 year note. That is roughly the spread it has held since the FOMC meeting, sometimes a bit more. Yields dropped, however, as bonds take back some of the notion the Fed is going to hike for sure in August. Indeed, yields are below the 5.25% Fed Funds rate, a sign the bond market lacks confidence the Fed is doing the right thing in continuing with rate hikes. As long as the curve remains uncertain, even if the yield curve does not invert further, a flat curve below the Fed Funds rate typically portends slower economic growth in the future somewhere in the range of 1.5% to 1.9%, hardly at trend.
Gasoline hits $3/gallon nationwide.
Lots of pressures are adding to the price of gasoline once more. Lower inventories the past two weeks are not helping, the summer drive is in full swing, and oil hit a new current dollar high the past week. That has pushed gasoline to $3.00/gallon nationally, just a penny off the high hit after Rita last fall. The biggest bump higher came immediately after North Korea shot its missiles off last week; nothing like a guy in pajamas with the capability to shower Japan, Asia, and in the near future, North America, with a few nuclear missiles to inject a little instability in all markets, including energy.
The question this time is whether the more gradual build in price this time (the third time gasoline has approached $3/gallon in the past 11 months) is going to slow demand as it has in before. Both times prior, demand has slowed at $3/gallon nationally and both oil and gasoline faded. As we said two weeks back in discussing how gasoline had settled in just around $2.89/gallon, it would take an exterior event to push it higher. That event appears to be the North Korean pajama missiles. Thus far this summer consumers have not stalled their travel plans due to gasoline, but consumer credit in May fell to $4.4B from $9.3B as rising credit card debt did not offset falling auto loans. Now that we are back at $3 we come to the lick log, and we are watching for the demand figures this week and next to see if the reaction is as clear as before.
THE MARKET
MARKET SENTIMENT
VIX: 14.02; +0.05
VXN: 20.82; +0.65
VXO: 13.24; -0.24
Put/Call Ratio (CBOE): 0.92; +0.03
Bulls versus Bears:
Bulls: 38.7%. With the Thursday advance investment advisors turned more bullish, up from 37.4% and 35.6% the week before. After a decline from 53.2% at the April peak bulls are on the rise once more. On this pullback, however, they hit the lows for this rally, i.e. since 2003. That put it below the 42.3% hit on the last low and the May and October 2005 readings that preceded new upside runs.
Bears: 34.4%. After kissing bulls two weeks back the bears are on the decline this week, down from 36.3% the week before. Just missed crossing over with the bulls, but that in itself is not a bad indication for the upside. That prior week put Bears at a new post-2002 high, eclipsing 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: -13.13 points (-0.62%) to close at 2116.93
Volume: 1.62B (-10.12%). Volume backed off as NASDAQ continued its break through near support. No official distribution, but with the Friday selling this was basically a continuation of that downside move.
Up Volume: 354M (-7M)
Down Volume: 1.254B (-177M)
A/D and Hi/Lo: Decliners led 1.23 to 1. Very modest downside breadth despite the losses. NASDAQ 100 and semiconductors (-0.83% NASDAQ 100) were the primary targets of the selling, suggesting the downside was more limited than the headline results made it out to be.
Previous Session: Decliners led 2.56 to 1
New Highs: 47 (-3)
New Lows: 118 (+15)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ continued the Friday break lower through the May low near 2150 and the 18 day EMA (2143) as NASDAQ seeks the next support level near 2100, now just a morning dip away. As noted, most of the damage was to the large cap techs as they are already tapping at the June low (1516.85 closing), the lower level of the four week range for the large cap techs. Maybe that will act as support and help the techs bounce to assist an NYSE bounce off support.
SOX (-1%) was the downside leader once more, continuing the fade from resistance in its downtrend at the 18 day EMA (442.17). Semiconductors remain massive under-performers in their entrenched downtrend, and Monday was another day at the office, grinding out those losses. The downside, however, is setting up an upside bounce that will likely top the 18 day EMA when it occurs. Thus far it has four bounces up to the 18 day EMA, and a run usually gets four or five such moves lower. After this whacking it will be ready to at least bounce up to the 18 day EMA, a 22 point move to that resistance and a 40 point move to the 50 day EMA. Aggressive, but quick money when it starts.
SP500/NYSE
Stats: +1.86 points (+0.15%) to close at 1267.34
NYSE Volume: 1.278B (-10.45%). Again very low trade, well below average, as the NYSE indices continued their low volume consolidation. Very good action, quite the opposite of NASDAQ.
A/D and Hi/Lo: Advancers led 1.57 to 1. Modest upside breadth as the indices posted modest gains. Better internal action than the price gains indicate.
Previous Session: Decliners led 1.61 to 1
New Highs: 70 (-10)
New Lows: 76 (-1)
The Chart: http://investmenthouse.com/cd/^gspc.html
Another solid day of consolidation on low volume if not a bit disappointing that SP500 gave up an early move through the 50 day SMA (1268). SP500 closed with a modest gain just above the 200 day SMA (1263.45) and right below the 50 day EMA (1268.72), showing a hammer doji on top of that support. It is doggedly holding its pattern, trying to form the right shoulder to that 8 week reverse head and shoulders. But for NASDAQ's tumble this would be quite exciting. It is not bad and well positioned for a rebound even with NASDAQ and SOX selling. It just makes the sustainability a bit sketchier.
SP600 (+0.04%) showed its own hammer doji at the 18 day EMA (369), just above the 200 day SMA (367.25). On the high it tapped the 50 day EMA (373.33) and faded. It remains, just as SP500, working on its consolidation, trying to form the right shoulder to its own reverse head and shoulders pattern as it is in the eighth week of its correction that is setting up the next upside move. Hard to be upset with this action; you just have to be patient with it.
DJ30
And yet another hammer doji Monday as the Dow moved up to tap the 50 day SMA (11,169) and closing on top of the 18 day EMA (11,086). Low volume as it too works on the right shoulder to the pattern, holding at the May closing lows as it does. Handled the MMM selling decently, and will have to handle some more pressure with the AA earnings. We think it will handle it fine, and we are still looking for the bounce this week.
Stats: +12.88 points (+0.12%) to close at 11103.55
Volume: 207M shares Monday versus 253M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
No scheduled economic data Tuesday, just earnings results from AA and others, as well as some potential warnings; season is starting but warnings from late announcers are still a possibility. Tech action is indicating a disappointing Q3 guidance season, but the AA revenue miss raises the question about the industrial side as well. AA results were lackluster in January and were only decent in April; it is not the best run company from the looks of it with a huge commodities surge and yet continually disappointing investors. It is thus not a likely harbinger of earnings to come for the industrial side of the economy.
The NYSE indices remain set up to make an upside move and while NASDAQ and SOX are a lag, as touched upon earlier, their very weakness the past two sessions as the NYSE stocks have held their ground may contribute to the upside move. In other words, NASDAQ and particularly SOX are reaching the point in this downside move where they will need to come up for air, and SOX could have a much more sustained move higher given the number of rotations it has shown on this leg lower. That in itself can provide us an upside play in addition to the strong stocks that have held their ground and are set to move higher. More aggressive and higher risk, but a relief move from this selling is often sharp.
With no real change in the NYSE indices from Friday, and indeed solidifying their positions given the NASDAQ and SOX declines, we are going to continue looking their way for upside moves as the NYSE recovers. Another downside to start things off Tuesday could be the trigger that sends stocks back up. Remember, with NASDAQ and SOX selling further and NASDAQ breaking up its attempt to form an upside pattern, the sustainability of any move will be questionable unless we see some power from the NYSE stocks as they take advantage of the nice test of the follow through session seven sessions back.
Support and Resistance
NASDAQ: Closed at 2116.93
Resistance:
The 18 day EMA at 2143
2162 to 2155 from December 2005 and September 2006
2164 is the August 2004/April 2005 up trendline.
2177 is the December 2004 high.
The 50 day EMA at 2181
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 2228
2234 is the early June high
2240 is closing low in February range.
Support:
2100 from the early and mid-2005 peaks
2072 is the June closing low
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 1267.34
Resistance:
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
The 50 day SMA at 1272.35
1280 is the recent July peak.
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 200 day EMA at 1263.45
The 18 day EMA at 1261.61
1248 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 11,103.55
Resistance:
11,097 to 11,137 is the last peak from the February top.
The 50 day EMA at 11,112
The 50 day SMA at 11,169
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 11,086
11,044 is the January high.
10,965 from Q4 2000
10,931 is the November 2005 high
The 200 day SMA at 10,924
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 10
Wholesale inventories, May (8:30): 0.8% actual versus 0.5% expected, 1.3% prior (revised from 0.9%).
Consumer Credit, May (3:00): $4.4B actual versus $3.2B expected, $9.3B prior (revised from $10.6B)
July 12
Trade balance, May (8:30): -$65B expected, -$63.4B prior
Crude oil inventories (10:30)
July 13
Initial jobless claims (8:30): 320K expected, 313K prior
Treasury Budget, June (2:00): $20.0B expected, $22.9B prior
July 14
Retail sales, June (8:30): 0.4% expected, 0.1% prior
Retail sales ex-auto, June (8:30): 0.5% expected, 0.5% prior
Michigan sentiment, preliminary, July (9:45): 85.5 expected, 84.9 prior
Business inventories, May (10:00): 0.4% expected, 0.4% prior
End part 1 of 3
|
money investment
investment help
|
