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us stock market, trade stock
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9/09/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CVD
Trailing stops: None issued
Stop alerts issued: None issued
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:
- Stocks post a relief bounce to end a week that saw return of some distribution to start the fall season.
- The great debate continues: economic growth ahead or a slowdown to recession.
- Stocks holding up as fall starts, but real direction for the season has yet to show itself.
Friday relief bounce keeps rally in play after first week of September.
It was not a week that saw a continuation of the late summer rally, indeed, stocks had to bounce on Friday just to keep the second leg in tact. Not a bad bounce, bumping off near support after two downside sessions. Volume was lower, but leaders remained in decent shape.
Not bad action given more Fed-speak, more housing issues (LEN warned re Q3, joining the ranks of house builders having to finally deal with reality), NSM to miss its forecast, and BRCM having more options issues. It did not hurt that oil was off again, falling below $67 on the close, taking out another dollar level ($66.25, -1.07). Overcoming all of that bad news it must have been true strength indeed.
Nah. Technically it was a decent move but not a strong move, basically a relief bounce from two days of selling. Volume fell back below average as stocks moved up, hardly enough to offset the two days of modest distribution (rising, above average volume selling). The moved did keep the indices above support with NASDAQ, SOX and even DJ30 still looking the best as far as a further rebound attempt is concerned. The tech and chip leaders that helped push the market higher in the summer rally remain in decent shape to continue higher, and that keeps a further try at the upside interesting.
There is that distribution that cannot be ignored and that has to keep us defensive heading into the second week of September and its rather storied downside past. Yes we like the look of tech and chips, but the distribution shows there was some dumping of those shares bought in August, enough to force the indices to give up the last leg of the run higher. In short the September trend has not been established yet as the late summer rally tries to hang on in the face of the return of some sellers.
We will be looking at the upside and some downside as we see who wins out as the September season really gets underway. This is definitely a time of potential transition for the market given the low volume rally to end summer, the start of some distribution as September got underway, and the historical weakness in this month. It makes sense to be patient at this point and let the trend come to us. Once it does it will be pretty easy to follow. We are seeing some good upside moves and downside moves and we are nibbling at positions in anticipation of the next move, but we have pared positions and will basically continue to nibble until we see the bigger trend assert itself. At least football season has started so we can relax a bit while we pass some time in the market. It may not be much time, however, given the second week of September is here. Once we get past Monday, September 11, we likely see some definite movement.
THE ECONOMY
Further expansion or a slowdown to recession?
We have discussed the issue of economic slowing with respect to the Fed's action the past several months, noting that Bernanke appears to be trying things a bit differently from his predecessors, i.e. really attempting to do what is right and avoid overcorrecting regardless of what is said about his abilities. To us he has done a better job of at least focusing on what is important and tailoring his policies to fight the real battle as opposed to the perception or political battle.
As the economy data continues to turn from strong to mixed to weaker, the debate has started to rage on the financial stations: expansion or recession? As usual the question is framed in polar opposites as opposed to gradations of an expansion or slowdown. All or nothing, brinksmanship, and your basic sensationalism tend to frame the debate; makes for more interesting sound bites.
Typically, the answer is not one or the other, but a blend or average of the two extremes. You can make arguments either way as to what is going to happen, but as we have stated numerous times the past several months, the mere fact that there is a change in the economic data from solid expansion to sporadic slowing shows that there is at least a temporary transition to economic slowing. That, however, only sparked the debate: all or none?
Continued growth factors.
There are reasons to look for continued growth, and they are pretty convincing. The national ISM held solid, coming in at 54.5 last week while the services came in better than expected at 57.0. The regional manufacturing reports came in solid as well with Chicago posting 57.1. Those levels suggest 3+% GDP growth rates, and that is hardly an economic slowdown and far, far from a recession. Business investment remains strong, running at a 12% yearly growth rate. Real consumer spending gained 0.5% in July, and gasoline's fairly precipitous drop the past two weeks will only help keep consumer spending going.
Economic slowing factors.
There are also reasons to expect further economic slowing to come. They tend to be more macro in their scope versus specific data points you can point to and declare 'aha!', but historically they are important for the economic future. Oil has dropped and gasoline and other fuels along with it, but transports continue to struggle. With declining fuel costs they should perform better; the fact they are not suggests other reasons for their weakness, e.g. future economic slowing and thus the correction in their stock prices ahead of time.
Bond yields remain flat to inverted, though the inversion has improved the past week (4.81% on the 2 year, 4.78% on the 10 year). Nonetheless it still indicates at least economic slowing as the 2 year and 10 year yields are virtually identical. The 'other' inversion, however, the one between the Fed Funds rate at 5.25% and nominal interest rates has only marginally improved to 44 basis points. That suggests the bond market anticipates the Fed will have to actually cut rates in the future, and we all know that the Fed doesn't cut rates until it not only has seen the whites of a slowdown's eyes, but they have already whisked on by. In other words, the Fed doesn't cut until it is too late. You have to put a lot of credence in the bond market; historically it is very accurate with its economic forecasts and the Chicago Fed's recent study confirms what we already knew, contrary to the hogwash Greenspan was peddling the last year of his tenure.
Housing continued to slump with several homebuilders fessing up the past three weeks that, golly gee, the quarter is just not going to be that good. Mortgage applications have plunged, prices are softening year over year, cancellations continue to jump, and new and existing home sales are tanking. The consumer many be spending now, but historically, as Bernanke has pointed out, sharp declines in housing are followed by sharp declines in consumer spending.
There will be slowing.
Again, the transition from expansion across the board to mixed economic data that sparked the very debate about further expansion or recession tells us there is economic slowing occurring. The factors outlined above indicate there will be more slowing. The $3 trillion question is how far does it go. The data suggests no recession . . . at this juncture. ECRI continues to show economic slowing but not at levels that historically indicate a recession. The bond yield curve has recovered to a modest inversion, and has not reached sharply inverted levels that forecast recession. A prolonged inversion can forecast a recession as well, but it is not at that point yet either.
Thus with the still mixed data, at this juncture there is going to be further slowing, but currently it is not suggesting recession levels. Economic expansions have up and down cycles within them, and some slowing is typical. This expansion is over three years old, and thus all of the speculation given that expansions have a life cycle of about 3 years.
One of the best economic indicators has not given its final word yet: the market. This pullback is steeper than the prior two (both occurred in 2005) and on par with the 2004 correction, the first correction after the early 2003 test of the October 2002 reversal. This pullback has put in a bottom on SP500, DJ30 and on NASDAQ. As we noted in the summer, if this can hold on any further pullback or just continue building higher, that is the best indication there is that the economy is going to continue growing because the market, particularly the growth areas such as NASDAQ, moves ahead of the economy. If it has set the bottom and does not give it up then it is telling us there won't be a nasty economic slowdown.
THE MARKET
MARKET SENTIMENT
VIX: 13.16; -0.72
VXN: 19.82; -0.45
VXO: 12; -0.86
Put/Call Ratio (CBOE): 1.02; +0.08. Second close above 1.0 during the week, indicating anxiety is returning.
Short Interest:
NYSE short interest continues moving higher, up to a new 5 year high Friday at 6.94 (up from 6.82 Thursday). A ballistic run since late August is suggesting a stock rally. Short interest is a contrarian indicator, and when it jumps higher that can signal a market rally. It is not a great timing device, however, and is often off by weeks. Nonetheless we are going to keep it on the radar and watch for other indications the selling experienced to start September is fading.
Bulls versus Bears:
Bulls: 43.2%. Bulls continue to rise, up from 42.1% last week and 40.0% the week before, a post-June high (bulls and bears kissed in June. That is still, however, well below the peaks from January and April, and well below the 55% level considered bearish.
Bears: 33.7%. Bears held steady, stalling the steady decline from the 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: +10.5 points (+0.49%) to close at 2165.79
Volume: 1.511B (-20.35%). Volume slipped back below average as NASDAQ rebounded. Not unusual on a Friday but indicating there was no accumulation on the move.
Up Volume: 919M (+388M)
Down Volume: 568M (-760M)
A/D and Hi/Lo: Advancers led 1.22 to 1. Very modest breadth as NASDAQ bounced off the 18 day EMA.
Previous Session: Decliners led 1.8 to 1
New Highs: 58 (+10)
New Lows: 47 (-9)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ did what it had to do, holding the 18 day EMA (2154) and bouncing after two downside higher volume sessions washed away the late August move higher that took NASDAQ back to 2200. It even showed a bit of character with a weaker open rebounding to a very decent close. Want to see NASDAQ hold near this 2150 level (the 90 day MA is at 2145 and can now act as support as well), work laterally for a few sessions or so, then break higher once more. It is forming a reverse head and shoulders pattern that can propel it out of this base that started in with the April double top. The breakout is a move through 2200 and on up to the 200 day SMA (2223); NASDAQ obviously still has a lot of work ahead of it. If it holds this support and starts putting in that move, however, we are going to have a lot of nice plays moving higher for us while it makes that move.
SOX (+0.72%) spent another day testing the 50 day EMA (434), fighting off the widening BRCM options probe as it tries to keep its recovery move alive. SOX broke its downtrend in August, then the 50 day EMA later that month. This is its second test of that move. Critical time for it to hold and form up and deliver the next break higher. We see many solid patterns in the semiconductor sector and they will provide good upside gains if the semiconductors are making their move upside.
SP500/NYSE
Stats: +4.9 points (+0.38%) to close at 1298.92
NYSE Volume: 1.314B (-10.62%). Volume fell on NYSE as well, showing a lack of buying power as its indices tried to bounce back. The selling volume was up but below average; some consolation and it also leaves the door open for buyers to step back in. Certainly the SP500 and DJ30 patterns are solid accumulation patterns.
A/D and Hi/Lo: Advancers led 1.59 to 1. Back to positive and middle of the road on the rebound.
Previous Session: Decliners led 1.95 to 1
New Highs: 69 (+21)
New Lows: 45 (+4)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rebounded to recover the 18 day EMA (1296), stalling out at the 10 day EMA (1300). That recovered some lost ground from Wednesday and Thursday, but it was not a very impressive recovery from a pretty impressive price drop. As with NASDAQ, SP500 suffered some distribution midweek and now has to hold and fight back. Still don't like the look right here as the rebound was modest and that harsh drop looks to push it back toward the 50 day EMA (1283) and the double bottom 'hump' at 1280. Nice pattern up to last week and now has to recover.
SP600 (+0.25%) managed to hold the 50 day SMA (363) again after the two hard thumps lower Wednesday and Thursday. It is still working on its base, but after coming back hard from a test of the 200 day SMA (372) it does not look as if it is ready to take on the leadership mantle quite yet. A move over the 200 day SMA would be a start, a suggestion the small caps are back. It would also be another indication that the economy is going to hold up and continue its expansion given that the small caps are very economically sensitive.
DJ30
The blue chips looked pretty darn decent Friday, posting the second best gain of any of the indices. Nice bounce up off the 18 day EMA (11,338) after a thumping took them down to that near support. Good response to the distribution, but with the return of very low volume it still has to show the move. It is at a point where it could easily test back to the early August high (11,242 closing) or the 50 day EMA (11,231) before it is ready to try the move higher again.
Stats: +60.67 points (+0.54%) to close at 11392.11
Volume: 161M shares Friday versus 213M shares Thursday. Two days of distribution last week though still quite low volume as it made the pullback. No heavy selling, but more selling volume on those downside sessions than the upside volume on the last leg of the rally.
The chart: http://www.investmenthouse.com/cd/^dji.html
SEPTEMBER: THE SECOND WEEK
Week one is under the belt and the indices are a bit worse for the wear, suffering two distribution sessions in selling that also took back the late August gain, the third upside leg of the late summer rally. The first week of September was not a continuation of the rally by any stretch, and that was something of a disappointment as the first week often provides some upside before September starts taking its toll.
Despite the inability to advance the late summer rally the leaders from that move remain overall in good shape. Many techs tested back during the selling, but held near support. Some of them were bouncing Friday with some good trade behind them. They are heading into a tough time but thus far they are doing it with some style.
Now, of course, we see what the real direction will be. The economy is showing mixed signals and the debate is on about how slow it gets. The market, as usual, has been out in front, starting this correction back in April and May before the issue really heated up. Now the market shows us what the economy is going to do by how it holds the current base. The indices outside of SP600 are in pretty nice patterns that are ready to move higher. If the do not, however, that is still not the death of the market or the economy. They can still fade from here, something September often brings with it, but as long as they hold their bases overall they are not predicting an economic meltdown. It may take a bit longer to finish the base, suggesting further economic slowing, but that is still a positive overall.
Thus we approach this week from a rather agnostic position. We have some upside positions and some downside positions, and we are going to continue looking at both for a couple of reasons. First, this market is providing plays both ways right now and we always look for the juiciest returns. There are many strong stocks in very solid, bullish patterns, and that is hard to ignore when looking across the market. Second, we simply want to go with the market whichever way it breaks here. Our goal is to take what the market gives regardless of its direction. We don't want to look just for one direction for gain; that keeps us out of the action when the market sells. As the market is in decent shape but the economy is at the crossroads and September is upon us, it behooves us to note the calendar as we make our plays.
Support and Resistance
NASDAQ: Closed at 2165.79
Resistance:
2168 is the August intraday high.
The 10 day EMA at 2167
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
2201 is the August 2004/April 2005 up trendline
The 200 day SMA at 2224
2230 is the June 2006 peak (2234 intraday)
2250 is the March 2006 closing low.
Support:
2158 from the May 2005 low.
The 18 day EMA at 2154
The 50 day EMA at 2137
2100 from the early and mid-2005 peaks
2072 is the June closing low
2050 from the summer 2005 lateral range lows
S&P 500: Closed at 1298.92
Resistance:
The 10 day EMA at 1301
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.
1326.70 is the May 2006 high
1334 is an October 1999 peak
Support:
The 18 day EMA at 1296
1294 is the January 2006 high and 1297.57 is the February 2006 high.
The early June high at 1288
The late January peak at 1285
1280.37 is the recent July peak.
The 50 day EMA at 1283
The 200 day EMA at 1278
1264 is an old trendline from the August 2003/August 2004/October 2005 lows.
Dow: Closed at 11,392.11
Resistance:
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:
11,384 is the August intraday high.
11,350 from the May 2001 peak
The 18 day EMA at 11,338
The March 2006 highs at 11,329 to 11,335
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 11,231
11,097 to 11,137 is the last peak from the February top.
The 200 day SMA at 11,081
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 12
Trade balance, July (8:30): -$65.5B expected, -$64.8B prior
September 13
Crude oil inventories (10:30)
Treasury budget, August (2:00): -$64.0B expected, -$51.3B prior
September 14
Initial jobless claims (8:30): 315K expected, 310K prior
Retail sales, August (8:30): -0.1% expected, 1.4% prior
Retail sales ex-autos (8:30): 0.3% expected, 1.0% prior
Business inventories, July (10:00): 0.5% expected, 0.8% prior
September 15
CPI, August (8:30): 0.2% expected, 0.4% prior
Core CPI, August (8:30): 0.2% expected, 0.2% prior
New York Empire Index, September (8:30): 14.0 expected, 10.3 prior
Capacity utilization, August (9:15): 82.5% expected, 82.4% prior
Industrial production, August (9:15): 0.2% expected, 0.4% prior
Michigan sentiment, preliminary for September (9:45): 83.5 expected, 82.0 prior
End part 1 of 3
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