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us stock market, trade stock
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8/31/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: AEOS (interim gain on the gap up on strong sales)
Buy alerts: CPRT
Trailing stops: AMX
Stop alerts issued: APH
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:
- Sluggish market cannot extend to a fourth session of gains, churns on higher volume.
- Retail sales not bad, not great.
- PCE lower on the monthly, higher on the yearly: same story . . . for now
- Chicago PMI lower but still strong
- Factory orders ride lower on the transports
- Jobs report adds to the intrigue of the Friday before Labor Day.
NASDAQ tries another comeback, finds SP500 too heavy to drag.
Stocks were up modestly on the open, but despite the plethora of data (maybe because of it), they could not get another solid leg going. Same store sales were just so-so with winners and losers as usual, but given the August back to school push, the so-so was not good for the sector overall. Personal income and spending were in line, factory orders were okay, Chicago PMI remained solid, and the PCE was acceptable. Basically middle of the road across the board.
After three up sessions that was definitely not enough to get investors in the buying mood, particularly with the jobs report out Friday and the three-day Labor Day weekend ahead that leads into the much beloved month of September. Stocks made an upside effort and even gained some strength on NASDAQ and the smaller caps, but that died out after the Chicago PMI. Stocks traded modestly lower most of the session, and then, true to form of late, put in an afternoon rebound that turned all indices positive. That folded up the tent, however, in the last half hour and all but the small and mid-cap indices closed lower as the techs and chips joined the large caps in playing the laggard game. The leaders that had pushed the action Monday through Wednesday ran out of gas Thursday, and without them driving the cart, prices sagged late.
Technically the indices posted modest gains below next resistance on rising volume. That is a mouthful but it is important. NASDAQ tapped at its old up trendline from August 2004/May 2005 as well as the July high and faded. SP500 tried 1305 again and failed again. SP600 posted a gain, but after trying to make a move to the 200 day SMA it stalled at the 90 day MA and faded, showing a tombstone doji on the candlestick chart; that is potentially a sign of some exhaustion. SOX was down but it looked decent, technically, fading back to test and hold the 90 day MA it broke above Wednesday. Many of the chips just took a breather, still looking solid and hardly tired in this move. That is a contrast to some of the indices themselves.
As for Friday the indices are going to find some tougher going simply because of the jobs report and the ISM coming right before a key holiday, or at least a holiday ahead of a key month. If the jobs report is just right, i.e. at expectations showing good growth but not surging, the market can find a pair of fresh legs, at least early on. We would use another push higher to take some gain and lock down some marginal positions, but we won't go wholesale on clearing out as we offered as one option. In a decent economy you can see gains in early September even if the month craps out. Thus we could get yet another push higher to start the month as some new money is put to work, but then we have to see how the September forces work for us. They can be a bear chewing on your shorts, but they can be a boon sometimes as well.
THE ECONOMY
Back to school has same store sales good and bad.
It is the same old story in retail: the haves do well, the have nots don't. Many times you look at the economic cycle to determine what stores will prosper and which ones suffer. In recessions or significant slowdowns you see WMT, TGT and other discounters really perform as consumers try to make every dollar count. In good times those discounters still get business on the staples (paper products, detergent, etc.), but higher end and specialty retailers really boom. Right now we are moving from good times to lower levels. There is definitely no recession or significant slowdown at this juncture, but there is a transition afoot. The retail sector shows this with the mixed results turned in for August.
August is important because of the back to school shopping for clothes, school necessities (no longer pencils and paper but now iPods, computers, cell phones), and general gearing up for the fall. Thus there was some disappointment from stores such as GPS (-7% vs -3.4% expected), PSUN (-8.9%), and HOTT (-7%). Even JCP was down (-0.5%) and men's apparel store JOSB tanked 6.1%. There were more upside reports, however, as ANF and its band of naked teens gained 6%, BEBE surged 12.5%, LTD +9%, JWN +7.1%, AEOS +11%, WTSLA +8.7%. All of those were better than expected.
All in all back to school was similar to last year: decent but no blowout. Mediocre is the word we heard often as analysts described the season. Of course, when you look back over the past five years, even during the economic expansion when was there a buying season you can recall that was described as blowout or above expectations? Retailers are never satisfied, but lucky for them, neither is the US consumer.
PCE holds the line as Personal spending and income rise modestly.
Personal income and spending were in line at 0.5% and 0.8%, respectively. The PCE inflation measure rose 0.3% in July, up from 0.1% in June. The core, taking out energy rose but at 0.1% was less than the 0.2% expected. Break out the party favors. Year over year, however, it rose 2.4%, the highest since September 2002. The best you can say is the core was below expectations month over month. The worst you can say is that there was no change in the current inflationary pressures in the economy.
That is what Lacker and Moskow are focusing on, afraid that the Fed was too late in battling inflation and that it is now out of the bottle. That is the fallacy of Fed monetary policy making. It deals in the past in that its indicators of inflation are lagging, but it does not appear to use history. History shows inflation lags the economic cycle. History shows the Fed overdoes the tightening, thinking it still has to tighten when it should have stopped. History shows the Fed stopping when it should be cutting. Yet, the Fed looks at contemporaneous lagging data when driving the monetary policy train, a train, mind you, that has no tracks and therefore is very easy to get off course.
In any event the news was heralded on a monthly basis and scorned on a yearly basis. All in all, inflation is quite modest on the one hand and then again, is high compared to other occasions. Indeed, back in the early 1970's this was the inflation rate when there was an uproar about inflation. Oh if they only knew. That was before inflation skyrocketed with the oil embargo, overregulation, over-taxation, and general anti-growth policies in the US. The Fed poured money into the system to cover the oil shock but with a stagnant economy stifled by a staggering increase in federal regulation, all that accomplished was a massive spike in inflation with interest rates near 20%. What it proved was you have to have policies in place to promote economic activity. That is the best way to take on and overcome shocks to the system, something Reagan brought as part of his philosophy when he became president and pulled us back to greatness as opposed to an interesting 200 year experiment that was failing.
Chicago PMI fades modestly, but tops expectations.
Midwest manufacturing, considered the harbinger of the national seen (91% correlation; and we get a big 1-day warning as the ISM is out Friday), fell to 57.1, down from 57.9 but topping the 57.0 expected. Low inventories and moderate employment (employment rose to 55.1, but so did productivity) dragged it lower. Those are not necessarily bad elements, however, as low inventories can mean more production to come, and productivity keeps inflation pressures lower. Indeed, new orders continued at a strong 59.6 pace while production was 61.7. Prices even softened some to a 5 month low at 75.2.
Basically the index remains at a very strong level, moving in a narrow range this year with a monthly average of 58.0. This growth rate tops levels seen in the late 1990's, and shows the vigor of the recovery aided by incentives to invest in capital equipment. Indeed the recent data from Q2 GDP shows strong business investment continues, and that bodes well as the year plays out. It will definitely help mitigate any slowing effect due to consumers backing off spending due to falling housing prices.
Factory orders fade but strong ex-transportation.
Factory orders fell 0.6% (-0.8% expected) well off the 1.5% gain in June (revised from 1.2%). Take out the very volatile transportation element, however, and they rose 1.1%, the fifth consecutive gain. Shipment levels were flat, inventories rose 0.6%, backlogs held at 1.3%. That put the inventory/shipment ration at 1.17 months, up from May's record low at 1.15 months.
The big picture: orders continue to run at an overall strong pace this year despite the dips in the overall numbers in April (-2%) and in the most recent July report. How they fare in the second half depends upon business investment; as noted above, the consumer is a bit whipped and it is up to business to carry more of the load ahead. It went dormant early in the decade, but it now has incentives to spend as well as strong balance sheets. That will be necessary this fall as the consumer struggles and the economy slows on that side of the ledger. As in 2000 and 2001 when the housing market gave the economy support, the business side will have to lend the support in late 2006 and early 2007.
THE MARKET
MARKET SENTIMENT
VIX: 12.31; +0.09
VXN: 17.39; +0.59
VXO: 11.31; +0.29
Put/Call Ratio (CBOE): 0.9; -0.06. Just hanging out as is the market.
Bulls versus Bears:
Bulls: 42.1%. After a sideways move for a few weeks, bulls are starting higher, rising from 40.0% the week before (40.2% and 41.5% the week before). Bulls are still well below the early 2006 highs and even the April high. The low of the cycle was in June at 38.7%. It remains below the levels hit on the last market sell offs in October 2005 and March 2006, but above the June low when it kissed the bears.
Bears: 33.7%. Continuing the decline from 34.7% last week and the 36.6% the week before and 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: -1.98 points (-0.09%) to close at 2183.75
Volume: 1.778B (+4.51%). Volume continued to rise, coming in just shy of average Thursday as NASDAQ gapped higher, ran slightly, but then closed lower. A bit of churn after four upside days, i.e. higher volume turnover. That shows shares changing hands faster and at the peak of a move it suggests at least a pause and likely a pullback.
Up Volume: 674M (-570M)
Down Volume: 1.085B (+647M)
A/D and Hi/Lo: Advancers led 1.1 to 1. Dead heat as the up and then down action often produces.
Previous Session: Advancers led 1.58 to 1
New Highs: 104 (-11)
New Lows: 32 (-2)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher and tapped at the old August 2004/May 2005 up trendline at roughly 2197 and the July high (2195.50) before turning over for a modest loss in the last half hour. Simply ran out of steam after showing gains on rising volume, coming up short of breaking the July high, and of course well short of the June high (2234) where it bounced down from the 200 day SMA (now at 2224.53). It took a breather ahead of Friday, and it will have to show some hidden strength to really push higher Friday with a move it can hold to the close.
SOX (-1.0%) faded right back Thursday, leading the downside move as it came back to test the 90 day MA (447.47) on the low, the resistance it cleared Wednesday. It is still holding near support at 450, but has the mid-June high at 459 immediately ahead, but there is more resistance at the June high at 479. The 200 day SMA (482.20) backstops those resistance point. Good day of rest. Question is, can it turn back up and lead the market higher.
SP500/NYSE
Stats: -0.45 points (-0.03%) to close at 1303.82
NYSE Volume: 1.327B (+3.55%). Rising trade but still well below average as SP500 stepped laterally and the small caps tried a move to resistance but turned back. No accumulation, no distribution, just modest churn as the index went nowhere.
A/D and Hi/Lo: Advancers led 1.49 to 1. Middle of the road.
Previous Session: Advancers led 1.7 to 1
New Highs: 182 (-30)
New Lows: 19 (-4)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 once more looked at 1305 and once more could not break through. Volume was up slightly, but it could not help push the index through that level. It remains set up very nicely to move higher, but it very well might come back to the 10 day EMA (1298) before it makes the try. This could be good for next week if new money comes in, but it has to make the strong push through this near resistance to get the downside players cashing in their chips and thus driving the index harder.
SP600 (+0.1%) added a fraction on the session, but that came after an earlier run higher that took SP600 to the 90 day MA (370.22) on the high, still short of the 200 day SMA (371.31) we looked to act as resistance. That may be close enough; the small caps lagged of late, and the move this week is not really indicative of a new leg higher for this class of stocks even though this week they did outperform the large caps. On the candlestick chart it showed a tombstone doji below the 200 day, and that often suggests, as it did in mid-August, that a pullback is coming. It made higher lows on the two August lows, but this is the lick log for the index at this resistance and likely where it will come back down and continue working on its base.
DJ30
DJ30 tapped at 11,400 again on the high and again could not hold the move as volume remained very low. This is the last resistance point before the high up over 11,600, but DJ30 is angling higher on low volume to this resistance, not the strongest set up to take it out. It will likely need a test lower a bit to set up another break higher unless an injection of new money early next week can break higher from here. All in all not a bad pattern, but one that needs a bit more work before it can really take on this resistance and the May high.
Stats: -1.76 points (-0.02%) to close at 11381.15
Volume: 156M shares Thursday versus 180M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Jobs report before the open and the ISM shortly after the open will keep things interesting early on as the market prepares for the three-day weekend and then the official start to the fall season known as September.
September can be good or it can be bad, but historically it is in the top two months as worst for stocks. The past three years it has been pretty nice to the market, at least the week after Labor Day. That week can be good as it was in 2003, 2004, and 2005. It can start decent but turn ugly as in 2002. It can also be brutal as it was in 2000 and 2001, setting off a cascade lower.
Much depends upon the economy's outlook and where the market is. If the economy is expanding it can be a good lead in to further gains to end the year. If the economy is slowing it can be the forerunner to slowing economic data down the road as stocks start selling off to avoid the Christmas rush. It can also set up a bottom in October, particularly when the market has been selling off already on economic worries and September and October work together to scare straight all of the investors still in the market.
This year we have had selling in the summer, but then this late summer rally has pushed DJ30 and SP500 up nicely. We also have slowing economic data with housing really starting to flag and more and more mixed economic data. We have been expecting another pullback in the market after this late summer run, and the combination of weakening economic data and the large cap run to end summer give the sellers some room to work once summer ends and everyone gets back to work.
You can always get a pop higher to start the first week of September as new money is put to work. We saw that even in 2002 as the market set up for a last plunge lower into the October bottom. If you see that early push higher in these economic conditions you have to be as wary as a cat in a doghouse because that initial rush in can lead to a longer rush lower. It doesn't mean you cannot be in the action, you just have to accept it can be a wild time and be ready to act.
As noted above, if we get a pop Friday we will look at taking some gain off the table as well as closing some plays that are struggling to hang on; if they are struggling in the move higher this week they will be severely exposed if next week brings selling. At the same time we have a lot of strong stocks that we have taken some gain on and that can give us another pop next week even if it is just a short 'hello to September' rally as new money is put in the market. We can use that to our advantage as well with existing positions, taking some more solid gain off the table even as we look at any upside move with skepticism.
Skepticism because we still see another shakeout ahead before the market can try to find bottom. The indices are certainly set up for at least a modest shakeout attempt after these low volume moves higher. After that it may be set to move higher once more. After all, the Fed has paused, and in reality a pause means finished. The bond market is saying finished and more, indicating cuts will be needed. That is somewhat sobering because it indicates that a shakeout in September and/or October may not be the bottom. Either case we look at what the leaders are doing, how the market responds off attempted bottoms (i.e. follow through attempts) and then act accordingly. We plan to go into that period a bit light and lean, sitting on profits taken off the table as the market moves up just ahead of that action.
That does not mean we will jettison all positions. Again there are strong stocks that are holding up very well (e.g. NVDA) that we have taken some gain in, and given that and their strength we can see how they are treated as the month starts. If the leaders are rudely greeted, well, we have our answer. We do believe we could get some early upside to start the week, however, and that will give us some more room to take some gain off the table and then size up the almost inevitable attempt to sell the market later that week or the next week.
Support and Resistance
NASDAQ: Closed at 2183.75
Resistance:
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 2224.5
2230 is the June 2006 peak. This is what we are shooting for on the next leg. About.
Support:
2177 is the December 2004 high.
2168 is the August intraday high.
2158 from the May 2005 low.
The 10 day EMA at 2156.7
The 50 day EMA at 2128
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 1303.82
Resistance:
1311 is the April closing high.
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
1326.70 is the May 2006 high
1334 is an October 1999 peak
Support:
1302 the recent August highs
1294 is the January 2006 high and 1297.57 is the February 2006 high.
The 10 day EMA at 1298
The early June high at 1288
The late January peak at 1285
1280.37 is the recent July peak.
The 50 day EMA at 1279.55
The 200 day EMA at 1276.78
1262 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 11,381.15
Resistance:
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:
11,350 from the May 2001 peak
The March 2006 highs at 11,329 to 11,335
The 10 day EMA at 11,333
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 11,192
11,097 to 11,137 is the last peak from the February top.
The 200 day SMA at 11,064
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.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
August 29
Consumer confidence, August (10:00): 99.6 actual versus 102.5 expected, 107.0 prior (revised from 106.5)
FOMC minutes, August 8 (2:00): Some read it hawkish, some dovish. Looked to be long on the reasons not to hike.
August 30
GDP prelim, Q2 (8:30): 2.9% actual versus 3.0% expected, 2.5% prior
Chain deflator, Q2 (8:30): 3.3% actual versus 3.3% expected, 3.3% prior
Crude oil inventories
August 31
Initial jobless claims (8:30): 315K expected, 318K prior (revised from 313K)
Personal income, July (8:30): 0.5% actual versus 0.5% expected, 0.6% prior
Personal spending, July (8:30): 0.8% actual versus 0.8% expected, 0.4% prior
Chicago PMI, August (10:00): 57.1 actual versus 57.0 expected, 57.9 prior
Factory orders, July (10:00): -0.6% actual versus -0.8% expected, 1.5% prior (revised from 1.2%)
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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