|
|
money investment, investment help
* * * *
7/20/06 Investment House Alerts Report
* * *
IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: NGA
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- Bernanke more hawkish, Fed undecided, earnings better but still disappointing, market punts.
- Bernanke says the same thing but is perceived as more hawkish while FOMC minutes show Fed indecision.
- Philly Fed is next round of data to show slowing, but earnings guidance providing Fed all of the information it needs.
- Earnings slowdown continues to dog market as environment takes on a familiar look.
Bernanke rolls snake eyes as earnings issues hamstring rebound attempt.
Yet another 'Bernanke bounce' ran into the wall Thursday. The Fed chairman was back before Congress, but his words did not hold the same sway they apparently had Wednesday. Stocks were weaker, something normal after a strong run, but that weakness got out of hand as the day wore on, particularly for technology.
The main culprit is the usual one: the information that the market uses to price the future earnings growth. That means primarily forward looking economic data and earnings guidance. While earnings are predominantly positive, they along with guidance are not living up to expectations. More of that hit the market Thursday: APPL and MOT were good; INTC, QCOM and F not. What we call 'eat-tailers' (lower priced restaurant/food service companies) showed more weakness as PZA and YUM (KFC, Taco Bell) noted a definite weaker consumer environment.
Thus it seems the higher energy prices and slowing economy are having their impact on the consumer despite predictions of jobs and wage growth keeping citizens impervious to continual increases. That is not the case in the past and that is not what it is now. If you throw enough at the consumer for a long enough period, at some point he cracks. With more going into the tank for gas, less goes elsewhere, and that is why the eat-tailers are suffering. Consumers have to cut back, and we are starting to see that with slowing retail sales, etc. That translates into slowing earnings growth. It is not pointing to earnings decline at this point, but then again, the Fed is still active.
Though the market was already down, when the FOMC minutes came out the decline picked up some speed. After two years the FOMC was confused as to whether rates are restrictive or neutral. With that kind of firm, decisive leadership stocks turned even lower into the close. Banner day all around.
Technically it was of course disappointing after the Tuesday reversal on volume and the Wednesday surge on even stronger trade. The selling left SP500 and DJ30 lower, but theirs was a more typical pullback after a strong surge out of the cellar. Volume was lower as they bumped resistance and faced back. The losses were under 1%. Not a great day but livable.
NASDAQ and SOX gave back their entire gains, however, failing at the nearest possible resistance at the 10 day EMA. Their volume was lighter as well, but the techs are in a downtrend, and their earnings guidance is at best mixed. INTC was a huge disappointment and this time, unlike the past two earnings quarters, its problems spread across tech, hitting the communications companies and others INTC supplies. That is a heavy burden on NASDAQ.
It is also a heavy burden on the rest of the market. Techs are growth stocks, and their slowing earnings growth expectations showing up in the current results is an indicator of economic slowing, and that is not good for the market overall. Same with the small caps. They were clobbered Thursday as well, and they are growth stocks. Sure the defensive areas get some money and perform better as we have seen, but if the tech issues spread there is not as much growth opportunity for most sectors, tech or otherwise. That makes NASDAQ's problems the rest of the market's problems if the Fed has not played the cards just right. That is a tough bet given its track record.
Thus the 2% sell off on NASDAQ and the 2.7% SP600 decline is an albatross around the entire market longer term. SP500 and DJ30 can still continue higher on this rebound, but something needs to get those earnings growing again. With the Fed still active and undecided, that is a big factor and the market is still factoring it in.
THE ECONOMY
Bernanke a bit more hawkish, but FOMC minutes show indecision.
As noted, the market was not too fired up after the June FOMC minutes. While you have your camps on both sides, i.e. the hawks and the more dovish, the consensus was that the Fed just did not know whether the current policy stance is restrictive, neutral, or accommodative. After two years of rate hikes, obviously slowing economics, surging energy prices, and a mature expansion, the Fed does not know. Hmmm. Investors took that as they usually do: they backed off.
The most telling data is out there.
Well, there is plenty of information for the Fed to use to figure it out. Thursday the Philly Fed was much weaker than expected, posting an anemic 6.0 versus the 12.0 expected and the 13.1 prior. The headline number is independent of the sub-indices, so you can get a headline that is not necessarily supported by the smaller indices. This time they were down as well, giving the overall number more credence than in some of the past months.
While the regional PMI reports have slowed some, the confirmation of the slowing is with the earnings guidance we are seeing. Expectations were for continued solid guidance, and it is not materializing. While current earnings are mostly in line to better, if you wait for the earnings to slow you have, as they say, waited too long. Greenspan was fond of saying if you wait to see inflation you have waited too long. Too bad the Fed hardly ever gets the mirror image right, i.e. if you wait to see economic slowing, you have waited too long. The last recession the Fed caused shows us that. The Fed overreacted to no inflation and then failed to respond to the dump lower.
Bernanke's Fed says it is aware of all of this and does not want to go too far. Talk is cheap. The FOMC minutes show there is a lot of talking but no decision making, instead deferring to past tactics, i.e. feeling your way along, 'reading' the current data. In layman's terms: guessing. The Fed needs to look at history, see that patterns repeat, and then play the percentages. In baseball you pitch the left-hander against the right-handed lineup. Why? The percentages say it is the thing to do. Sure there may be a guy that still jacks one out, but most of the time you will be right. Instead, the Fed likes to think it is smarter and can react to current data. Well boys and girls at the Fed, your ability to react in the heat of battle is no better than anyone else.
The data is clearly slowing from the economic reports. Consumers are starting to slow as we hear from more of the day to day retailers (e.g. DXP, YUM on Thursday, TGT earlier in the week). The companies are saying earnings growth is going to slow. History tells us that inflation pressures lag the market. Thus if things are obviously slowing and the financial markets are selling, odds are that the inflation you see is the last gasp. That means it is time to maybe sop up a bit more liquidity by selling some treasuries, but definitely don't overdo it and definitely stop with the rate hikes. In short, if your car is careening toward the cliff you don't worry about the tune-up the car may need, you worry about stopping that car.
We only worry over this because there is a big split in the economics community as to the economy's strength. Many are looking only at business spending and current profits to make their calculations. No doubt that is a serious part of the economy as the 2001 recession showed us, but as we have often said, you need both sides firing (consumer and business) to make the economy work. Now we see profits might not be as good as many thought they would be in Q3. That is why we say with the lowered guidance coming out for Q3 it is critical the Fed get off the brakes soon.
THE MARKET
MARKET SENTIMENT
VIX: 16.21; +0.66
VXN: 23.22; +0.39
VXO: 15.54; +1.37
Put/Call Ratio (CBOE): 1.02; +0.14. Back over 1.0. Seven out of eight sessions above 1.0.
Bulls versus Bears:
Bulls: 42.1%. Ever so slight of a dip in bulls after a continued brutal market, down from 42.2%. There was a big spike higher from 38.7% two weeks back, but we hoped for more here. At this level we note it is below the levels hit on the last market sell offs. On the last pullback bulls 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: 33.7%. Up slightly from 33.3%, but still lower than the 34.4% hit three weeks back. Kissed the bulls to end June, just missing crossing over with the bulls, but that in itself is not a bad indication for the upside. Hit a new post-2002 high in that late June move, 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: -41.3 points (-1.98%) to close at 2039.42
Volume: 2.135B (-11.7%). Topped 2B shares for the second consecutive session, the third straight above average day. Lower volume means less selling than buying on Wednesday, but it was not a light volume day as NASDAQ turned back and sold off all of the gains.
Up Volume: 393M (-1.447B)
Down Volume: 1.728B (+1.164B)
A/D and Hi/Lo: Decliners led 2.98 to 1. Jacked up to almost match the strong advancing breadth Wednesday. Very volatile and that is typically not a great indication. NASDAQ 100 dropped 1.59% versus overall NASDAQ at -1.98%. The large caps were not the downside leaders; just an overall whacking.
Previous Session: Advancers led 3.35 to 1
New Highs: 54 (-2)
New Lows: 129 (+40)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped a bit higher but never challenged the 18 day EMA (2094) before rolling over. Tried a midmorning rebound but then gave it up at lunch with the Bernanke tougher talk, the weak Philly Fed, and then the coupe de grace, the FOMC minutes and their indecision. NASDAQ gave back more than its Wednesday gains, breadth basically flipped, and volume was still above average though lower. In short, NASDAQ looks pretty crappy here as it is immediately sold after a stronger advance.
SOX (-2.50%) stalled at the 10 day EMA (414.48) and sold right back down to the bottom channel line in its downtrend. MOT was solid but INTC undercut SOX and took down many of the other chips that sell in the wireless and telecom areas. Not much relief Friday given AMD's earnings after hours.
SP500/NYSE
Stats: -10.68 points (-0.85%) to close at 1249.13
NYSE Volume: 1.693B (-9.22%). Volume backed down to average, a significant drop and better to see than on NASDAQ.
A/D and Hi/Lo: Decliners led 2.08 to 1. Paltry compared to Wednesday, though not insignificant.
Previous Session: Advancers led 6.08 to 1
New Highs: 67 (-9)
New Lows: 85 (+29)
The Chart: http://investmenthouse.com/cd/^gspc.html
Tapped the 50 day EMA (1263) on the high and then rolled over, unable to find its feet at that near resistance at 1260 on up to the 200 day SMA (1265). It managed to check up the selling at the old trendline at 1249. Maybe it can find some support there as there are some late June interim peaks at that point as well. Still in position to hold this test after the strong Wednesday move and then attack the 200 day SMA again. It has to get over that level and challenge1280 before it pulls back into a consolidation or it is likely to just head back down.
SP600 (-2.71%) imploded, failing at the 18 day EMA (363) and tanking back, giving up nearly all of its Wednesday gain. Right back down toward the June lows (350). If it fails here, hopes of a double bottom are gone. Small caps are more growth oriented, and if the economy is slowing as the guidance is starting to indicate, small caps will be suffering. They are doing that now; the will suffer more if the economy slips more.
DJ30
The blue chips were down as well but weathered the tempest better, closing just below the 200 day SMA (10,941). Volume was still above average and close to Wednesday trade. Held up fairly well given INTC's collapse, and along with SP500 it has the best opportunity to hold and rebound after this more 'normal' test following a reversal session Tuesday and a strong surge Wednesday. Has to overcome the techs to do so.
Stats: -83.32 points (-0.76%) to close at 10928.1
Volume: 330M shares Thursday versus 343M shares Wednesday. Lower but still above average volume as the blue chips faded to test the strong reversal and surge Tuesday and Wednesday. Now comes the big test for DJ30.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Bernanke, FOMC minutes, and a lot more earnings are in the bag, leaving Friday potentially quiet. The week before a war erupted, this week earnings, CPI, and the Fed chairman. Lots of factors for the market to digest.
More earnings were out after the close. GOOG met expectations from what we could tell, but after gyrating all around it was up a dollar or so late. The fact that was all it could do is not necessarily positive for tomorrow. It didn't sell, but the problem is GOOG has its own language that we are not even sure they understand themselves. MSFT managed to more than satisfy are hours as it was up. AMD followed its rival INTC and was hammered after hours.
Tech will thus likely struggle more with its mixed results. That leaves SP500 and DJ30 to try and pace the upside, overcoming the tech and small cap uncertainty. Tall order because the techs have led the action to the downside. The large cap NYSE indices looked better than everyone else Thursday, but again, NASDAQ is an albatross around their neck.
They may get some help from some more short covering ahead of the weekend. While things have died down in the Middle East, anything could trigger more hostilities. Thus we anticipate some moderate short covering to help put a floor under the selling Friday. In any event, Friday is not likely to answer the question about the NYSE indices' ability to move higher unless, of course, they implode. In other words, a gain won't tell you whether they are going to continue higher and get to the early July highs so they can at least try and form a handle.
Doesn't sound too encouraging, but the abrupt turn in NASDAQ and SP600 shouldn't be ignored. The techs have led the market as noted, and their turnaround puts a lot of pressure on DJ30 and SP500 in their attempts to make it up to those July highs and try to work on a handle to set up another move. Friday we are likely to be rather quiet with new buys unless we see something big develop. That could still be very cloudy, however, as options expire and positions are shuffled as they have been this week already.
Support and Resistance
NASDAQ: Closed at 2039.42
Resistance:
2045-47 from June and October 2005 lows and June 2004 highs
2050 from the summer 2005 lateral range lows.
2072 is the June closing low. Cracking through this level.
The 10 day at 2074
2100 from the early and mid-2005 peaks (and the 18 day EMA as well).
The 50 day EMA at 2149
2177 is the December 2004 high.
2185 to 2182 is the September 2005 peak and interim high from November 2005.
2190 is the July 2006 high
Support:
2037 at the October 2005 closing low
2019 is the April 2005 interim high
2008 is the January 2005 low
1971 from an October 2005 peak and 1973 from a March 2005 low.
S&P 500: Closed at 1249.13
Resistance:
The 200 day EMA at 1265
1272 to 1268 is the November and December 2005 closing highs and March 2006 closing low
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:
1249 is an old trendline from the August 2003/August 2004/October 2005 lows.
1239 from the late June consolidation range.
1225 from the March 2005 high
1223 is the June 2006 closing low.
1213 from December 2004 high to 1215
1205 from the August lows
Dow: Closed at 10,928.10
Resistance:
10,965 from Q4 2000
11,044 is the January high.
The 50 day EMA at 11,053
11,097 to 11,137 is the last peak from the February top.
11,228 is the July closing 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 200 day SMA at 10,941 is cracking
10,931 is the November 2005 high
10,890 is the December 2005 closing high.
10, 737 to 10,730 from December and February lows
10,706 is the June 2006 closing low
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 17
New York Empire State Index, July (8:30): 15.6 actual versus 21.8 expected, 29.0 prior
Capacity Utilization, June (9:15): 82.4% actual versus 81.9% expected, 81.8% prior (revised from 81.7%)
Industrial production, June (9:15): 0.8% actual versus 0.4% expected, -0.1% prior
July 18
PPI, June (8:30): 0.5% actual versus 0.3% expected, 0.2% prior
Core PPI, June (8:30): 0.2% actual versus 0.2% expected, 0.3% prior
Net foreign purchases, May: $69.9B actual versus $46.7B prior
July 19
CPI, June (8:30): 0.2% actual versus 0.2% expected, 0.4% prior
Core CPI, June (8:30): 0.3% actual versus 0.2% expected, 0.3% prior
Housing starts, June (8:30): 1.850M actual versus 1.900M expected, 1.953M prior
Building permits, June (8:30): 1.862M actual versus 1.920M expected, 1.946M prior
Bernanke testimony to Congress
Crude oil inventories (10:30): +151K versus -5.985M prior
July 20
Initial jobless claims (8:30): 302K actual, 332K prior
Leading Economic Indicators, Jun (10:00): 0.1% actual versus 0.2% expected, -0.6% prior
Philly Fed, July (12:00): 6.0 actual versus 12.0 expected, 13.1 prior
FOMC minutes, June 29 (2:00): Split on whether neutral or not.
End part 1 of 3
|
money investment
investment help
|
