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8/28/06 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: DRIV; SPY
Trailing stops: XPRSA
Stop alerts: SLB
SUMMARY:
- Market starts bounce on a modest volume bump, just misses new August highs.
- Economic data picks up the pace but market may ignore it the first half of the week.
- Not a bad start to third leg higher, but needs to build on the gains as in the prior legs.
Third upside leg trying to get underway.
The week started soft, at least pre-market, as there was little news to drive stocks higher. For a week loaded with economic data, the calendar was pretty bare Monday. In energy, WNR announced it was buying GI, giving GI a massive pop, but diving oil prices (70.61, -1.90) and plunging natural gas and gasoline in response to Earnesto's projected track away from Gulf oil facilities kept the rest of the energy market in check at best.
Without oil providing any leadership the market had to turn back to what worked in the second leg a couple of weeks back, e.g. technology, semiconductors, healthcare, and some consumer stocks. Well, they came through, though it was not a blowout session. WMT reported its sales were 2.7%, at the top end of the range. INTC and NVDA received upgrades, helping generate some continued excitement in the chips. It helped in the absence of a lot of other data, but we can also say that after a solid weeklong pullback the indices were ready to move higher
After a soft start the market again showed some character with all of the indices turning positive and then driving higher into lunch. There they consolidated just below the August highs, then surged higher just before the last 2 hours of trading, looking pretty strong as the afternoon session really got underway. That move failed just as it seemed to get its legs under it as the indices struggled soon after taking out the old August closing highs. They spent the last two hours trending lower, but a hold and modest bounce in the last half hour kept things looking decent overall.
Technically it was not a bad session at all. After the fade last week to near support the new week started with some immediate upside in response, exactly what we wanted to see. Volume was up, showing the upside was accompanies by a bit more real buying interest. Trade was still pretty woeful, however, so there was no surge in buyers. Of course, we cannot really expect any real volume strength (and we are not) given this is the last week of summer before the Labor Day weekend, historically a low volume week. Thus to see rising trade on the upside was enough with respect to volume.
In addition to a bump in trade, breadth was solid (2.3:1 NYSE) and the overall gains were decent. Leaders were bouncing as we anted, but it was not a uniform move. It definitely was not a session where everything was rowing together.
That left SP500 and NASDAQ, after intraday moves above their August closing highs, back below those levels on the close. That was a disappointing move. It would be much better for a quick 3 to 4 day move for that first one to put a bullet into the recent resistance levels. It looked as if they were going to do it with the strong move to start the afternoon session, but as noted, it could not hold the move into the close.
In sum, the bounce was decent and is trying to get the third leg of the late summer rally going, but it has to get it in gear. The second leg started somewhat pensive before a big gap higher got it really rolling, so a nice, rolling start here on Monday is not a bad indication at all. Given the Labor Day weekend, however, we want the market to put in a couple more strong sessions on this leg right away to give us some room to start taking some gain off the table and then waiting to see what post-Labor Day brings.
THE ECONOMY
Economic data starts back up Tuesday.
A big week of data got a quiet start though the dump in oil, natural gas, and gasoline prices are very significant for the economy, though oil, even with the decline, is still above $70/bbl, and it is hard to put that in a scenario that is a positive for the US. The drop in wholesale gasoline prices to $1.77/gallon, off $0.11. Recall that it was bumping near $2.10/gallon earlier in the year, and thus we are already seeing a big drop in retail prices and will likely see another sharp decline as well if this latest drop holds. That will be a big boost for the consumer at an important time of the year.
The sleeper report may be the FOMC minutes released Tuesday afternoon. In recent months they have been known to move the market because the Fed was in the throes of a pause or no pause decision. We know there was one dissenter from the pause, and how strong the comments are may push the market. It may. The pause is in effect, and unless the minutes say something to the effect "we will pause but we are ready to hike at a moment's notice because we are uncomfortable as hell doing this," it likely will remain in effect. Something to do with a theory I learned in high school about a body in motion wants to remain in motion. Whoever came up with that never saw me run; my body definitely does not want to stay in motion.
If the FOMC minutes don't provide any surprises, the layout of the data for the week may fall right into place with a rally through Wednesday, maybe Thursday. GDP is on Wednesday but the real meaty data starts Thursday with the personal spending and income figures then the jobs report Friday. Investors will probably take pause ahead of that, and that is why we like the light economic calendar through Wednesday to give the move that started Monday two full days to expand before the weightier data hits.
THE MARKET
MARKET SENTIMENT
VIX: 12.18; -0.13
VXN: 17.23; +0.25
VXO: 10.93; -0.36
Put/Call Ratio (CBOE): 0.98; +0.17
Bulls versus Bears:
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: +20.41 points (+0.95%) to close at 2160.7
Volume: 1.39B (+5.02%). It was no surge in volume, but it is a late summer rally and we simply cannot get all bent out of shape on trade. What we can say is that NASDAQ was higher, and volume, late summer or note, moved with it. In a low volume environment, volume was higher on an upside session. If we were looking for a rally to take us to a new high this would be a concern. We are looking for the third leg of a low volume late summer rally. In this situation, higher relative volume, even if low volume overall, is good volume.
Up Volume: 1.122B (+322M)
Down Volume: 255M (-242M)
A/D and Hi/Lo: Advancers led 1.77 to 1. Would like to see more from this end of the internal spectrum.
Previous Session: Advancers led 1.12 to 1
New Highs: 71 (+17)
New Lows: 45 (-9)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
After the weeklong fade to the 10 day EMA (2136) and the 50 day EMA (2122) on the Thursday low, a nice, relatively crisp bounce off of that support. On the high NASDAQ cleared the August closing high (2164), but it just could not hold that move to the close, fading slightly. It closed near the session high despite an afternoon fade that kept it from a new August closing high. Volume was up. Not a bad start for the third leg higher we are looking for. Not as roaring a start as we would have liked, but as noted above, the other legs stumbled a bit as those moves began, so this, with its higher though low volume, was not bad at all.
SOX (+1.1%) led the market aided by an INTC, NVDA upgrade. NVDA was a bat out of hell, but it lost its nerve in the afternoon. Given that, SOX closed near the session high in a solid though hardly spectacular move off last week's 50 day EMA (430.32) test. Decent start to the move, but we really want to see some more power from this group especially, enough to take it past the 450 resistance and closer to 475 than not.
SP500/NYSE
Stats: +6.69 points (+0.52%) to close at 1301.78
NYSE Volume: 1.158B (+8.77%). As with NASDAQ, no blowout trade but rising relative volume as NYSE indices moved off near support. Exactly what we wanted to see as the move resumed.
A/D and Hi/Lo: Advancers led 2.34 to 1. Solid internal here as the smaller and larger cap stocks enjoyed gains despite energy's weakness.
Previous Session: Advancers led 1.08 to 1
New Highs: 135 (+63)
New Lows: 29 (-10)
The Chart: http://investmenthouse.com/cd/^gspc.html
Pretty much the way you want to see it happen, i.e. the test back to near support last week following the strong break higher the week before (the second upside leg). Trying to get the third leg underway and not bad action with better trade and solid breadth. The one thing lacking was that clear break to a new closing high (1302.30). It had it intraday (1305.02) but the afternoon weakness sent it back down. Again, still not a bad start to the third leg; now it has to drive it harder and extend that move just as it did two weeks back. As for the crossover by the 50 day EMA over the 200 day SMA, it continued Monday with the advance (1276.41 versus 1275.71). SP500 still has to bury 1302 to give this move some strength because many traders are looking at that level as resistance where it will fail. Of course, that is always the case when an index tries to break resistance. If it can do it, those traders have to cover up like mad, and that fuels the rally.
SP600 (+0.91%) did the best it could from its position, coming off a higher low attempt at some support at 360. It tried to clear the 50 day EMA (364) but could not hold the move to the close. Still, it is trying to put in the higher low and continue to build a base after turning from leader to laggard over the past 4 months. Decent and whatever it contributes to the market is lagniappe.
DJ30
Same action with the blue chips, a good move off the 10 day EMA (11,295) where it held on the close last week and the Dow received some rising volume as well. It too had a new August closing high (11,382) but frittered it away in the lat session. Nonetheless, a similar solid start as with the other indices, and in position to drive higher in the third leg of the rally.
Stats: +67.96 points (+0.6%) to close at 11352.01
Volume: 180M shares Monday versus 150M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Consumer confidence at 10ET and the FOMC minutes at 2:00ET are the scheduled headline reports. Confidence has the potential to impact the action if it falls off from expected high levels and the Michigan sentiment standard set last week, but any low reading will be taken with a few grains of salt because gasoline prices are really dumping lower. They are already lower at the pump (bought at $2.59/gallon in Houston over the weekend, down from $2.73/gallon the week before), and the sharp decline in gasoline wholesale futures is only going to help. That takes a big load off consumers' minds, and the smart money will be factoring that in quickly after the number hits.
Barring a major outside disruption, the market has positioned itself to rebound given the expected results from the economic data. In other words despite all of the data coming out this week, the market has factored in expectations and has set up to bounce given those expectations. Thus we still anticipate a couple of strong upside sessions here despite the boatload of data at the end of the week. That data may act as a governor on the move as the end of the week approaches, but the market has its head down right now and is in position to make the next move.
We are going to keep looking at those stocks that can deliver strong moves in a short period. They are still quite a few in position to do that and they did not yet make their move on Monday. A soft start once more gives us the best entry point on them, but as seen in the prior two legs, once the move starts it tends to be a gapper. Thus we won't chase stocks that gap sharply unless we get a good intraday test early and they start back up. We have a lot of good positions in place that will make us good money on another run, positions taken as the stocks showed us their entries. Given that we will be looking for good entries and try to avoid chasing the bus.
Support and Resistance
NASDAQ: Closed at 2160.70
Resistance:
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
2197 is the August 2004/April 2005 up trendline
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:
2158 from the May 2005 low.
The 10 day EMA at 2136
The 50 day EMA at 2120.75
2100 from the early and mid-2005 peaks
2072 is the June closing low
2050 from the summer 2005 lateral range lows
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 1301.78
Resistance:
1302 the recent August highs
1311 is the April closing high.
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
Support:
1294 is the January 2006 high and 1297.57 is the February 2006 high.
The 10 day EMA at 1293.54
The early June high at 1288
The late January peak at 1285
1280.37 is the recent July peak.
The 200 day EMA at 1275.71
The 50 day EMA at 1276.41
1261 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 11,352.01
Resistance:
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 March 2006 highs at 11,329 to 11,335
The 10 day EMA at 11,295
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 11,168
11,097 to 11,137 is the last peak from the February top.
The 200 day SMA at 11,054
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 29
Consumer confidence, August (10:00): 102.5 expected, 106.5 prior
FOMC minutes, August 8 (2:00)
August 30
GDP prelim, Q2 (8:30): 3.0% expected, 2.5% prior
Chain deflator, Q2 (8:30): 3.3% expected, 3.3% prior
Crude oil inventories
August 31
Initial jobless claims (8:30): 315K expected, 313K prior
Personal income, July (8:30): 0.5% expected, 0.6% prior
Personal spending, July (8:30): 0.8% expected, 0.4% prior
Chicago PMI, August (10:00): 57.0 expected, 57.9 prior
Factory orders, July (10:00): -0.8% expected, 1.2% prior
September 1
Non-farm payrolls, August (8:30): 125K expected, 113K prior
Unemployment rate, August (8:30): 4.7% expected, 4.8% prior
Hourly earnings, August (8:30): 0.3% expected, 0.4% prior
Average workweek, August (8:30): 33.9 expected, 33.9 prior
Michigan sentiment final, August (9:45): 79.0 expected, 78.7 prior
Construction spending, July (10:00): 0.0% expected, 0.3% prior
ISM Index, August (10:00): 54.7 expected, 54.7 prior
End part 1 of 3
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