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us stock market, top stock pick
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9/14/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: DIOD (took some interim gain)
Buy alerts: None issued
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:
- Market closes mixed as indices show some wear after an up week.
- Gas station sales lower but retail sales advance anyway as consumers spend the extra money elsewhere.
- Microsoft copies Apple again.
- Market has moved, pausing now as it awaits the CPI
Market struggles to hold its ground after a solid advance.
With four up sessions under the belt, some key resistance just broken, and the CPI Friday, you could expect stocks to take a moment. They did that Thursday with the indices closing mixed as NASDAQ and SOX squeaking out a gain. There was plenty to ponder with August retail sales better than expected even with a gasoline sales drop, lower jobless claims, downgrades of GE and BA, and some lowered guidance in the chip sector. Not bad news, but not good news. After four up sessions it simply was not the caliber of news that would push stocks either way.
Thus stocks started soft and were choppy all morning as they traded in negative territory. Once more, however, they caught a bid and moved higher into the afternoon. It did not hurt that oil once more turned lower (63.22, -0.75) after a higher start. It turned on the natural gas inventory reading, and dragged the energy stocks lower with it. Some afternoon selling tried to take it lower but in the last hour stocks made a steady albeit unspectacular recovery to close near session highs. At the close they were still flat to negative, NASDAQ is still just below the June high, and the indices simply look tired after a solid rebound in answer to last week's selling.
Technically the market showed little change in position but the lack of power that showed up Wednesday was more apparent Thursday. Volume was lower on the session as NASDAQ tried on three occasions to beat the June closing high but could not seal the deal. Even if it did the volume was low and it would not have meant much. The other indices simply paused with rather gentle pullbacks. The small cap SP600 faded the most, but it also managed to hold the 200 day SMA with a rather mild, lower volume test.
Volume was lower on both NASDAQ and NYSE so there was not much chance of punching through in anyway. Breadth was negative even though some of the indices finished positive. That pretty much sums up the session right there. The leaders were pretty quiet as well, taking a break for the most part. Indeed, some of the early leaders are already testing their move (e.g. MU), coming back to early support. As we said Wednesday, these early leaders are going to be pulling back as the market tests, setting up the next move.
They will do that as long as no September missile comes flying in. Thus far the action continues positive with good price/volume action, good leadership, and knocking down the resistance levels. Surviving Friday and the CPI with another good consolidation would be perfect as the market consolidates another good move as it works on showing a return to economic expansion down the road after an interim slowdown these two quarters.
THE ECONOMY
Retail sales top expectations despite falling gasoline prices.
August sales rose 0.2% versus the -0.2% expected. That was well off the 1.4% in July, but a gain when a loss is expected is always positive. It is also a positive because gas station sales, a very real part of retail sales and a very real burden on consumers, fell 1%. Thus retail sales rose when they were expected to fall despite a drop in a large component of sales. In English you ask? Lower gasoline prices freed up money, and that money was happily spent on other, discretionary items and services. That is what we anticipated would happen as discussed last week given the strong drop in price at the pump, and it bodes well for consumption on the consumer side. The consumer needs some help given housing has slowed and housing prices are about to take a big tumble.
Now even with this data some were saying Thursday that the drop in gasoline prices would not have any real positive impact on consumer spending. They were trying to extrapolate data from the level of sales while gasoline prices rose, saying that since retail spending did not decrease significantly as prices rose, it won't increase as gasoline prices fall. The data itself suggests that is not accurate: retail sales rose even as a major component of retail sales declined. Consumers were in fact spending more money and on items other than gasoline. Specifically, they went back to the restaurants. After a decline in the early summer the restaurants are coming back with retails sales climbing 0.7% as gasoline prices went the other way.
It goes beyond that, however. Don't you feel better going to the gas station and seeing prices at $2.40/gallon (some places lower, some places higher) versus $3.00 to $4.00? There is a psychological aspect to prices that continue to spiral, and there is one for prices that decline from high levels. In the former the consumer feels pressure and starts to think twice or three times about a purchase. As prices decline sharply the consumer is not only relieved prices are lower but perceives things are better. A happier consumer is a spending consumer.
When you look at bit deeper into the numbers it still looks good. Looking at the 'core' retail sales (less autos and gasoline) you get a 0.4% rise (in the number, that is). You certainly have to ex-out the autos as well because the unit data previously reported and the sales data don't jibe (ex-auto sales were 0.2%, matching the overall reading). Thus even though autos showed a gain in sales, take them out and you get a higher reading overall. That shows you that consumers were spending more on other items given gasoline price declines freeing up money.
Is it suggesting inflation? Look at what gold did, down another $10 to $586. Still elevated but well off of the $735 in May and starting to trend lower again after failing a test of its 200 day SMA breakdown on Monday.
It is Apple versus Microsoft all over again.
It was not a well-kept secret, but nonetheless when MSFT announced its Zune to rival Apple's iPod there was much fanfare on the financial stations. Zune offers some features the iPod doesn't, such as wireless connectivity. Zune also has its own 'iTune' service as well. It is clear that MSFT is going after what Apple has . . . again.
Apple lost the first round when its CEO was too focused on the wrong rival. Through foolishness, arrogance, and as Bill Gates put it, stealing, Apple lost its market edge to Microsoft and we are all running comparatively crappy Microsoft operating systems now. Gates quoted (though he purportedly credited the wrong author) "good artists copy, great artists steal" as he justified creating Windows on the Apple model.
Now Microsoft is at it again, moving in on Apple's turf once more. Nothing wrong with that; competition is good. The interesting aspect of all of this is not that MSFT is putting out another device that will basically imitate what Apple created, but that MSFT has to do it as a form of survival. We wrote quite some time ago about how the Jobs/Gates tale had come full circle with Apple (and Pixar) being the creator yet again (iMac, iPod) while Microsoft was just a mature cash cow living on Windows sales. Sure MSFT came out with its game box, but that was a survival move as well. The 'visionary' Gates had said in the past that the PC would become the center of the household. He was worried the success of game stations such as Play Station would supplant the PC, relegating MSFT to a niche market. Thus the X-Box birth. It has been a loss leader for MSFT since its inception as MSFT tried to 'me too' onto the game market.
This new handheld is the same theme. Gates is worried the iPod will bridge the gap from notebook to handheld and again MSFT would be left out. Thus in a survival move MSFT has copied once more. Cannot say MSFT stole because this time Apple did not hand over the keys as it did in the 1980's. This is just a knockoff. Once more creativity shows it is dead at Microsoft.
Again? Sure. First it was Windows, a cheap knockoff of Apple's operating system. Then X-Box. Before Zune, however, there is Windows itself. MSFT was supposed to have the latest and greatest version of its operating system out in the summer. Didn't make it. In the fall. Not going to make it. Now it is scheduled for after the first of the year. Not any specific time of the year, just sometime after 2007 starts. MSFT cannot even deliver on what made Gates billions, its operating system. MSFT has serious problems. It is a mature company with one cash cow that generates all its revenues. It is a cash cow under attack. MSFT's forays into other areas have been failures, perhaps they were entered even knowing they would be failures but to keep MSFT in the game until some day there was finally that merger between the PC and the entire household. Gates' plan is obviously just to keep MSFT alive until that happens and hopefully have an established base to generate more operating system revenue into the future. Innovation? There never was any at MSFT so we should not expect it now with ZUNE. We are wondering if we should expect it with the release of Vista sometime (maybe) in 2007.
THE MARKET
MARKET SENTIMENT
VIX: 11.55; +0.37
VXN: 17.49; -0.1
VXO: 11.52; +0.62
Put/Call Ratio (CBOE): 0.94; +0.19. Jumped right back up at the first sign of weakness, but we also have to realize this is expiration week and the volume of puts and calls is up, particularly puts, as they are rolled out to the next expiration.
Bulls versus Bears:
Bulls: 45.8%. Up from 43.2% last week and 42.1% before. Steady climb this month toward the 55% level considered bearish. Still well below the peaks from January and April, and well below the 55% level considered bearish.
Bears: 35.4%. Bulls may be rising but so are the bears. As the market gets higher they are growling, coming back strong from a 33.7% the two prior weeks. This has reversed somewhat 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: +1.06 points (+0.05%) to close at 2228.73
Volume: 1.903B (-1.75%). Volume backed off as NASDAQ basically stalled out at the June closing high. Still at a relatively high level, indicative of expiration week. The volume has been solid this week, in part due to that expiration. It has also been positive in regard to accumulation, i.e. up on up days, down on down price days.
Up Volume: 1.045B (-294M)
Down Volume: 728M (+198M)
A/D and Hi/Lo: Decliners led 1.25 to 1. Tells the story of the session, i.e. down while overall NASDAQ eked out a small gain. Just no power.
Previous Session: Advancers led 1.76 to 1
New Highs: 86 (-39)
New Lows: 49 (+2)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Modest gain on slightly lower but still above average volume. As noted, stronger volume is characteristic of expiration week. NASDAQ tried three times to take the June intraday high (2234), but it could not do the deed. It started to sell in the afternoon, but again found some buyers and bounced higher into the close. It is above the 200 day SMA (2223) but still likely to show a pullback or consolidation in place before it is ready for a real move higher to start the next upside leg.
SOX (+0.33%) struggled as well, but the action is very nice as the chip index works laterally and slightly lower as it tests the strong break off of the 50 day EMA (438.01) Monday and Tuesday. Looking for a bit more consolidation to set SOX for another strong move and a run up to the 200 day SMA (481).
SP500/NYSE
Stats: -1.79 points (-0.14%) to close at 1316.28
NYSE Volume: 1.45B (-12.38%). Volume faded as the NYSE indices faded themselves. That is just the action you want to see. Yes it is expiration week and volumes are higher, but in any event it is acting as it should in a healthy market.
A/D and Hi/Lo: Decliners led 1.46 to 1. Modest downside matching the session.
Previous Session: Advancers led 2.17 to 1
New Highs: 105 (-81)
New Lows: 30 (+3)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 peaked at 1320 Wednesday, just below the May high at 1326.70. Thursday it faded but managed to hold the early (1314.67), managing to rebound off the session low in the last hour after it was sold some n the afternoon as well. Holding up decently as it starts a test to catch its breath after the bounce on some rising volume.
SP600 (-0.55%) took the brunt of the selling along with the mid-cap SP400 as the energy sector took it on the chin once more, continuing the weakness shown the past week. SP600 remains above the 200 day SMA (372), however, a key level given it failed to hold that break in early September and rolled back over. Now it needs to show the strength to move on through. Thus far it si, but it is also very early in the move.
DJ30
As with the other NYSE indices, a modest pullback and a modest late bounce toward the close on lower volume. After a good week that took DJ30 above next resistance (the early September high at 11,488) it is going to pause some before trying to take on the May high at 11,670.19 and then 11,750.28, the all-time high hit in 2000. With the CPI on Friday and a good move for the week under its belt, this is the perfect time for it to do so.
Stats: -15.93 points (-0.14%) to close at 11527.39
Volume: 203M shares Thursday versus 214M shares Wednesday. Volume remains elevated overall but still below average. As with the other indices, however, it has shown positive price/volume action.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The market has made another upside move and is now in the pause mode, awaiting the CPI and more speculation as to what the Fed will do at the next meeting. Stocks and bonds, based upon their action, are pretty much set in saying the Fed will do nothing. The best for the market right now is a number that is in line so it can go about its business of pulling back to test the last leg higher. A softer number could be a positive though it would likely ignite more upside before the indices are really ready to take on new highs and next resistance.
The number will likely be in line as inflation pressures have not really started to tank in the numbers even though a decrease is showing up in the leading indicators such as ECRI ever since the peak of inflation in October 2005. With energy starting to 'get right', however, we should start seeing the softening show up. That will only be good for the market, but the move we are seeing now has already anticipated some if this softening.
As the market is still in the testing mode after a run we still want to let it come to us and set up the next move with the leaders. Many have just taken a day or two off and could use a bit more rest before the next leg. We would like to see Friday as basically a quiet session, but it is expiration and we note the last expiration was somewhat up and down though the indices managed a solid upside close. That expiration was similar to this one as the market had just pushed higher on the second leg of the late summer rally and was ready for a test. After some gains on expiration it pulled back to near support before continuing higher.
In this situation we have to be patient, keep our eyes on good leaders that are testing back or are setting up as the next wave to break higher, and let them show us when they are ready to enter. That may mean we have to sit on our hands some Friday as we wait for the plays to set up. We like the action the market is showing us and the internals are solid. Leadership remains strong as well. Thus we ride through the pullback and remain ready to pick off the leaders as they start back up. As always some will be out in front of the pack and we will be watching for those as our first marks.
Support and Resistance
NASDAQ: Closed at 2228.73
Resistance:
2234 is the June 2006 peak (intraday)
2250 is the March 2006 closing low.
2316 from interim tops in January and March 2006
Support:
The 200 day SMA at 2223
2205 is the August 2004/April 2005 up trendline
The 10 day EMA at 2194
2190 is the July 2006 high
2185 to 2182 is the September 2005 peak and interim high from November 2005.
2177 is the December 2004 high.
The 18 day EMA at 2176
2168 is the August intraday high.
2158 from the May 2005 low.
The 50 day EMA at 2148
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 1316.28
Resistance:
1324 to 1329 from the October 2000 lows.
1326.70 is the May 2006 high
1334 is an October 1999 peak
Support:
1315 is the May and May 2001 peaks
1311 is the April closing high.
The 10 day EMA at 1307
1302 the recent August highs
The 18 day EMA at 1302
1294 is the January 2006 high and 1297.57 is the February 2006 high.
The early June high at 1288
The 50 day EMA at 1288
The late January peak at 1285
1280.37 is the recent July peak.
The 200 day EMA at 1279
1265 is an old trendline from the August 2003/August 2004/October 2005 lows.
Dow: Closed at 11,527.39
Resistance:
11,642 is the May 2006 closing high
11,670 is the May intraday high
11,750.28 is the all-time high
Support:
The 10 day EMA at 11,445
11,401 from the September 2000 peak and April 2001 highs
The 18 day EMA at 11,395
11,384 is the August intraday high.
11,350 from the May 2001 peak
The March 2006 highs at 11,329 to 11,335
11,279 is the late May closing high
The 50 day EMA at 11,270
11,243 is the early August peak closing high.
11,228 is the July closing high.
11,097 to 11,137 is the last peak from the February top.
The 200 day SMA at 11,093
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 12
Trade balance, July (8:30): -$68.0B actual versus -$65.5B expected, -$64.8B prior
September 13
Crude oil inventories (10:30): -2.9M actual versus -1.5M expected
Treasury budget, August (2:00): -64.6B actual versus -$67.0B expected, -$51.3B prior
September 14
Initial jobless claims (8:30): 308K actual versus 315K expected, 310K prior
Retail sales, August (8:30): 0.2% actual versus -0.2% expected, 1.4% prior
Retail sales ex-autos (8:30): 0.2% actual versus 0.3% expected, 0.6% prior (revised from 1.0%)
Business inventories, July (10:00): 0.6% actual versus 0.5% expected, 0.9% prior (revised from 0.8%).
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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