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us stock market, trade stock
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8/24/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CAM; NVDA
Trailing stops: CXW; TRMB
Stop alerts issued: GS; PLCE; PPDI; SU; TRMB
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market has to absorb another housing report, recovers after another test.
- Durable goods orders fall but trend remains as businesses keep spending.
- New home sales add injury to insult on top of existing home sales (or should it non-sales?)
- Retail feeling the same pinch the consumer is feeling.
- Ready to go but needs a reason.
Market fights off another housing report, continues its consolidation.
Stocks tried to rally at the open, coming back from a weaker overall durable goods report and some lowered guidance from WSM and CHS in the retail sector. They started higher, but as is often the case with a stronger open, they had a hard time holding onto it.
They were doing fine until the next iteration of housing, the new home sales. They really tanked, and on top of the weak existing home sales reported Wednesday the picture, at least for housing, is pretty poor. Stocks sold on the news, tried to recover to the session high, but then folded up the tent for the morning. Had the look of some harsh selling with the retail sector falling on volume given the housing report and the lowered guidance and large cap equipment stocks under pressure. Bond yields were heading lower again with the inversion between the 2 year and the 10 year growing to 8 points by the close. That all suggests some economic issues down the road.
Right now, however, we are looking for the third bounce higher in this current rally, and late in the morning stocks found bottom. SP500 and DJ30 used the 10 day EMA once again while NASDAQ and SOX found their floors at the 50 day EMA. That led to an afternoon recovery, but mid-afternoon the rebound stalled. Stocks moved laterally for an hour, threatened to sell off to start the final hour of trade, but then found a bid and rebounded to the close. That left NASDAQ, DJ30, SP500 and SOX positive while the small and mid-caps continued to struggle below positive.
Leaders did the same thing, dipping intraday but then rebounding into the close. Once more they tested support and recovered, still in very nice pullbacks from last week's move. Two days of shakeouts and still at near support. They certainly look ready. Indeed we started to nibble some Thursday, and we see several of our plays, many covered last night, still ready to make the rebound. In addition, energy came back to life Thursday, showing some strength early, then coming on late in the session. If they start working as well then the market has gathered some near term upside momentum to send it higher.
Technically the consolidation continues with yet another challenge, some selling, then a rebound in the afternoon. As with the leaders just discussed, the indices held support and recovered after some more worrisome economic data. Good to see the rebound. While we are not looking for new market highs right now, the market is showing it wants to try one more leg up. Volume was down on NASDAQ, up slightly on NYSE, but still very low overall. As we have noted all week, that is what you want in a consolidation. The market pullback was a bit too pat, a bit too easy up to Wednesday. It has now been rattled some, pushed back and forced to recover. This shaking out, this recovering from some adversity, is good for the next rebound attempt. It has not shown the move yet, but it is set to make the move. Now it just needs to show the beef.
THE ECONOMY
Durables post their first loss in three months in their trend higher.
July was not a good month for transportation products as civilian aircraft orders fell 10%, basically offsetting a 9% rise in defense aircraft and parts spending, while civilian land vehicle and parts orders fell 7%. That dragged overall orders down 2.4%, well ahead of the 0.5% decline expected.
Of course you can never leave a report at just the headline number. If you take out transportation (and you can do that because transportation is extraordinarily volatile month to month), orders rose 0.5%, better than expected, but the lowest of the last three months of gains.
Okay. Taken in isolation it is just a number. Here are the recent readings, starting with March: 6%, -4.7%, 0.3%, 3.5%, -2.4%. Ex-transportation: 3.4%, -1.0%, 1.6%, 2.2%, 0.5%. That still shows a strong trend. Moreover, orders overall remain near the highs of the cycle, just shy of levels hit in 2000 before the crash and topping levels hit in 1994 just before the Fed sat on the economy.
The year over year numbers are solid as well. Durables are up 11% year/year and 15% ex-transportation. Unfilled orders rose 1.4%, up 20% year/year. Unfilled orders for non-defense capital goods is up 32% year/year.
Those non-defense capital spending ex-transportation numbers are always significant. They basically show what businesses are spending on capital equipment. As we saw in 2000, the economy cannot live by the consumer alone. When the Fed dried up the money supply businesses could not get any funding. That means no spending. That killed the economy. In July, at least, businesses were not dead. Spending on capital goods rose 1.5%, much stronger than the 0.4% expected. Businesses continue to spend all of that cash we keep hearing they have. Thank goodness, as it seems the consumer is clamping down on spending.
Strong numbers. They are in the past, of course, but for now strong numbers with a decent trend. There were strong numbers in 1994 before the Fed decided to cool things off. It got it somewhat right that time and the market recovered and the economy rebounded without causing another recession on the heels of the 1991 recession it caused. In 2000, well, we know that story. Orders were very high before they imploded. There is a disclaimer put at the end of every financial commercial you see on television: past results do not guarantee future outcomes. This is very true in economics: the economy seems to rock along until the road falls away beneath it. And of course, gravity works on the market just as it works on everything else.
New home sales as sorry as existing home sales.
July was not a firecracker month for housing. New home sales dropped 4.3% (-2.7% expected) and 21.6% year over year on the heels of what we termed a manhood robbing 11.2% yearly drop in existing sales. If the 11.2% drop was manhood robbing, then this number basically turns the market into a eunuch. Inventories rose to 6.5 months, a 10 year, 8 month high (November 1995), lower than the 7.3 month level for existing home sales but at this juncture you say tomato, I say tomato (you have to sing it; the text just doesn't deliver the message).
The only saving grace is that new home sales are only 20% of the market. Oh, yeah, but existing home sales are in the tank as we just noted. Moreover, new homes are considered more of a barometer of the economy because builders have to be building and consumers have to be buying. It is no aftermarket where houses just change hands as we roam from the mountains, to prairies, to the oceans, white with foam.
With new homes taking a clubbing along with existing homes the picture of a housing market malaise is completing. It is no surprise. We noted the market was slowing back in late spring 2005. No collapse, just a slowing. Now that the economy is cooling more, it is only natural housing sales are cooling. Sure interest rates are low again, but at this point in the cycle the market simply had to slow. Now the question is how much and how long. Some are already talking about buying homebuilders, and if your timeframe is next year and beyond some nibbling now is not a bad move.
Retailers starting to show the pinch.
More and more retailers are starting to report a slowing consumer. Not just anecdotal reports; they are lowering their guidance as the consumer feels the bite of high energy prices and, whether the Fed believes it seriously or not, a slowing economy.
Thursday was a split ticket, but the fact that the ticket is turning split is noteworthy. CWTR blew out earnings and jumped higher. CHS and WSM reported decreasing store traffic with WSM noting a 'softening in consumer demand' in its Pottery Barn stores. We can expect more and more of this, and be ready, because before the holiday season starts there will be worries about whether the holiday sales will be any good.
This occurs in the midst of the Jackson Hole economic conference this week with the Fed chairman and other central bankers in attendance. One of the hotter topics this year is the 'Sacrifice Ratio.' It is basically an offshoot of the idiotic Moskow comments in 1999 and 2000 that more people needed to lose there jobs in order to prevent inflation. The ratio measures how many people have to lose their jobs in order to keep the economy from overheating. Okay, who wants to fall on the knife? Whose going to take it for team? You can bet it won't be the Fed or our government officials. They will vote themselves pay raises and increase our taxes without ever thinking of attacking the system and rooting out waste and corruption. No, turn to the masses that make the country run and put the needle in the vein once more.
It is absurd. It doesn't track history. In the late 1990's the unemployment rate hit 3.8% and there was no inflation. Yet Moskow and others whispered into Greenspan's ear (and from the size of it, it took a lot of whispering) and convinced him to move away from his free market views where the Fed Funds rate followed markets and to a micro management position. No inflation ever showed up. We ended up worrying about DEFLATION instead once the Fed over-tightened the screws and was a main cause of the recession. The 1990's are just one period in history that showed you could have strong growth without inflation. It happened in the 1980's before that. In the 1960's it worked again after Kennedy lowered taxes and set off another boom. Why on earth does the Fed jettison empirical evidence in favor of a theory that simply does not track economic history? When you figure it out, call your senators and congressmen.
THE MARKET
MARKET SENTIMENT
VIX: 12.4; 0
VXN: 19.52; -0.77
VXO: 11.3; +0.04
Put/Call Ratio (CBOE): 1.04; -0.29. Fourth session to close above 1.0, tilting the balance toward another near term bump higher.
NYSE Short Interest:
Short interest is hitting levels it hit last September. At 6.0 it is the highest of the year and definitely in the upper end of the 5 year range (6.78 is the 5 year high). This is a contrary indicator as well: when it is high the market tends to rally. Of course when it was last this high in September 2005 the market bounced modestly before rolling over into the October sell off and eventual bottom. Right now, however, we are just looking for that third bounce before it tests further and thus this is a good indication along with the put/call ratio and the good consolidation in the indices and the leading stocks.
Bulls versus Bears: A somewhat unusual reading with bulls and bears falling together.
Bulls: 40.0%. Bulls fell from 40.9% as the market moved up ahead of the current consolidation. Somewhat contra-intuitive given the market put in a decent move. Has waffled some the past few weeks (40.2%, 41.5% the week before, still well above the 38.7% in July. It remains 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: 34.7%, much lower than the 36.6% reading last week. Bears continue to become more endangered, sliding from 37.1% hit in July. The 37.1% was the highest level in this entire cycle, easily clearing the 34.4% hit in late June back when bulls and bears kissed, just missing a crossover. 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: +2.45 points (+0.11%) to close at 2137.11
Volume: 1.441B (-4.63%). Volume contracted on NASDAQ once more. Not bad given that it reached down to the 50 day EMA on the low before recovering for the session. That means no selling as it sold lower, just a good shakeout once more.
Up Volume: 982M (+403M)
Down Volume: 438M (-455M)
A/D and Hi/Lo: Advancers led 1.05 to 1. The definition of mediocrity, but given this is still a consolidation, not bad.
Previous Session: Decliners led 2 to 1
New Highs: 48 (-2)
New Lows: 66 (+1)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher, but as usual, it found holding the gains difficult. So difficult it lost them in the morning after the housing data. Volume never ramped up, however, as NASDAQ dipped to a new low on this consolidation, tapped the 50 day EMA (2119) and then rebounded in the afternoon to close once more above the 10 day EMA (2129). NASDAQ continues so slide back from the strong gaps higher the prior week, and Thursday it almost filled the last gap on its low (2122; gap point is 2115) before rebounding. A very good test with yet another reach lower and recovery. It is once again set to make the bounce as its leaders are looking solid as well in their own pullbacks. It is at the point it needs to make a move.
SOX (0.46%) tested back as well, falling a bit further on the low down to the 50 day EMA (430) on the low and rebounding for a positive close. Very nice, orderly test of the move through that 50 day EMA last week as SOX continued higher after breaking its downtrend. This is excellent, textbook action. It is also just a pretty picture until it shows us that break higher. Then it becomes a work of art.
SP500/NYSE
Stats: +3.07 points (+0.24%) to close at 1296.06
NYSE Volume: 1.25B (+2.98%). Volume crept a bit higher once more but still well below average as SP500 tested near support and rebounded again. Still very good action, positioning SP500 for a rebound. SP600? Well, maybe it can make a higher low here.
A/D and Hi/Lo: Advancers led 1.17 to 1
Previous Session: Decliners led 2.18 to 1
New Highs: 71 (-26)
New Lows: 47 (+17)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 continues to show nice action, tapping the 10 day EMA (1290.96) on the low again and rebounding to close positive. Very nice action once more as SP500 tests near support (not just the 10 day EMA but the June peak as well) and holds the line. As with SOX it is a very nice picture but it has to deliver the goods. The 50 day EMA and the 200 day SMA (1275.50, 1274.90) are practically on top of one another. The action indicates a break higher and then the important test of the re-cross will be on once the upside move runs out of some gas.
The small cap SP600 (-0.18%) continues its travails, lagging the rest of the market, but at least it did not sell off and get stuck at the bottom of the range as it did Wednesday. Thursday the small caps rebounded to hold some support at 360, showing a nice hammer. After a pullback that can signal a change in momentum and a rebound, but it is just a signal. It still has to start the move. If it holds here and rebounds it will make a higher low following the higher high last week. That is not necessarily a watershed event, but it would indicate it is trying to work its way through a pattern.
DJ30
More good action from the DJ30 as well, showing a nice tight doji at the 10 day EMA (11,282) on more very low volume. It is holding that near support and that keeps it over the early June high as well (11,285), a double layer of ice and some good footing for DJ30 to move higher. Again, a break upside from here puts 11,500 into play.
Stats: +6.56 points (+0.06%) to close at 11304.46
Volume: 170.7M shares Thursday versus 170.4M shares Wednesday. Pretty much the same, below average volume I would say.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The scheduled economic data is spent for the week, but there is that central banker conference in Jackson Hole that will be adjourning and we are supposed to get a statement from chairman Bernanke. We will see if he is more conciliatory than Moskow earlier in the week. Of course, an angry Wyoming badger would be more amiable than Moskow, at least with respect to inflation fighting at this stage of the cycle. The market is set up and needs a trigger to go ahead and touch off the third leg of this rally; perhaps big Ben can do it.
The immediate issue is the weekend ahead. The market has spent the week testing the prior week's move. It has come back to near support, shaken out a couple of times, and looks ready to move. Many of the strong movers tow weeks back have tested near support and are ready as well. Friday can be a very good upside day for the market. There is an old adage, buy on Monday, sell on Friday. We want to see more than just a one-day move on this third leg, ideally another week or more of gains. Thus we have to decide if we want to start several positions ahead of the weekend in the event the market rallies.
If we see solid moves from leaders that put in good moves two weeks back and have made a good test, we are willing to go ahead and move in. If the rally ignites into a third leg we are going to get more than a single upside day. We will likely not get a lot of volume; trade was low all week and Friday in late summer is not likely to attract a lot of volume overall. We are not necessarily looking for a move that will take the market to a new high, however, just the next leg up on a solid rebound off the July low. That does not mean we get a ton of trade, but we do want to see some decent volume in the leaders as they rebound to show us there is more than passing interest.
Thus we head into Friday willing to take some positions on the strong stocks that have led the move to this point and are ready to lead again. During the rebound we will be looking at laggards as well, and if we get some movement upside we will be looking to comb them out of report. We also saw energy stiffen a bit Thursday. Some of them may be able to get back up without Viagra. As usual, we are going to take what the market gives us.
Support and Resistance
NASDAQ: Closed at 2137.11
Resistance:
2158 from the May 2005 low.
2168 is the August intraday high.
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
The 200 day SMA at 2225
2230 is the June 2006 peak. This is what we are shooting for on the next leg. About.
Support:
The 10 day EMA at 2129
The 50 day EMA at 2119
2100 from the early and mid-2005 peaks
2072 is the June closing low
2050 from the summer 2005 lateral range lows. It has held the past three weeks.
2045-47 from June and October 2005 lows and June 2004 highs
2037 at the October 2005 closing low
2020 is the July closing low
2019 is the April 2005 interim high
S&P 500: Closed at 1296.06
Resistance:
1294 is the January 2006 high and 1297.57 is the February 2006 high.
1315 is the May and May 2001 peaks
1311 is the April closing high.
1324 to 1329 from the October 2000 lows.
Support:
The 10 day EMA at 1291
The early June high at 1288
The late January peak at 1285
1280.37 is the recent July peak.
The 200 day EMA at 1275
The 50 day EMA at 1274.50
1259.50 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.
Dow: Closed at 11,304.46
Resistance:
The March 2006 highs at 11,329 to 11,335
11,350 from the May 2001 peak
11,384 is the August intraday high.
11,401 from the September 2000 peak and April 2001 highs
11,642 is the May 2006 closing high
11,670 is the May intraday high
Support:
The 10 day EMA at 11,282
11,279 is the late May closing high
11,243 is the early August peak closing high.
11,228 is the July closing high.
The 50 day EMA at 11,156
11,097 to 11,137 is the last peak from the February top.
The 200 day SMA at 11,046
11,044 is the January high.
10,965 from Q4 2000
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
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 23
Existing home sales, July (10:00): 6.33M actual versus 6.55M expected, 6.60M prior (revised from 6.62M)
Crude oil inventories (10:30)
August 24
Durable goods orders, July (8:30): -2.4% actual versus -0.8% expected, 3.5% prior (revised from 2.9%)
Initial jobless claims (8:30): 313K actual versus 315K expected and 314K prior
New home sales, July (10:00): 1.072M actual versus 1.105M expected and 1.12M prior (revised from 1.131M)
End part 1 of 3
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