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us stock market, trade stock
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9/18/06 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts: NVDA (took some interim gain on latest position)
Buy alerts: CWTR; WFR; WTSLA
Trailing stop alerts: None issued
Stop alerts: EBAY
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SUMMARY:
- Stocks tap resistance again, slip back on lower trade to hold last week's gains.
- Oil prices rise, oil prices fall, but Fed risk remains the same?
- Another day ahead of the FOMC, another slog likely.
Consolidation attempt continues as investors focus on Wednesday's FOMC meeting.
There were lots of stories pre-market, but none that were major market movers out of oil prices. After a harsh sell off oil was again bidding a bit higher (63.80, +0.47 on the close), and that had stocks on the defensive before the open. Oil started higher then reversed to negative; the market did the opposite, i.e. started lower and then recovered as oil turned negative. In the afternoon, however, oil again reversed and closed higher. Stocks lost their bid, tanked, and then recovered modestly into the close as oil held onto gains at the bell.
The rest of the news was not market moving, at least not enough to push stocks either way. The economic outlook was a gloomier to the nation's CEO's according to the last survey, but as the Commerce Secretary put it, the drop was along the lines of Mark McGuire hitting 63 home runs versus 69. Of course that begs the question whether the market was on performance enhancing substances (not saying McGuire did it, of course), and the Secretary noted that the tax cuts were a major part of the economic success and the last thing it needs is to gold cold turkey.
There was also talk that Ford and GM are thinking merger in order to better compete, AMAT increasing its stock buyback, the FSL privatization deal became fact, and a lot fewer foreign buyers of US treasuries in July versus June. None of that was enough to energize or undermine stocks. They just drifted up and down along the flat line until the close. If the session continued another 15 minutes they may have continued that late bounce for some nice gains. Likely as not, however, they would have continued their intraday action, i.e. turning back over once more.
Technically it was another attempt at consolidation without giving anything back. Both NASDAQ and SP500 tapped at the Friday high and next resistance, just managing to post a big higher intraday high before fading back to close basically flat. These two taps at next resistance and then intraday retreats indicate these indices are not ready to break on through here but are likely going to need to at least continue this lateral move trying to start. Remember, they broke above some key resistance last week and are now tapping next resistance, thus far fleeing from each try. They are likely going to come back and test that resistance to see if it will now hold as support. Until it is tested it is just soft support, i.e. something that should hold but has to be proven.
Volume was lower than expiration Friday, but still above average volume on NASDAQ and indeed close to the Wednesday and Thursday levels. In other words still strong, and thus showing some churn in tech stocks below resistance. That typically means a pullback to test, and that is just what the index needs to set up the next move upside. Given the FOMC meeting is Wednesday, this is not surprising action after a strong move higher. NYSE volume was much lower, coming in below average on the session and lower than last week. Not bad to see lower trade as it tapped resistance and faded; no churn, no dumping.
Intraday the bullish action tried to assert itself again but when oil turned up in the early afternoon the upside in stocks died off and they had to bounce late to close positive. In short they tried the same bullish action but failed to pull it off Monday, another sign the move is a bit tired.
Overall the market was tired and needed to rest, but it also refused to give up any gains. Like to see a market that won't give it back after it takes it. That said, we expect it to do just that. Well, at least some of it back to the potential support that was just resistance before this last push higher. That means NASDAQ back to the 200 day SMA and SP500 back to the March and April trading range. That would be normal and good action to set up a next move if it will take it. Thus far the upside volume has been stronger, and that shows big money buying. Right now we don't see any dumping, and if all holds, that means a test and then another move back up. Still September, however, and thus still looking over the shoulder.
THE ECONOMY
Economic Monday
Monday the market was hit with many economic forecasts. One well-known economic house lowered its Q3 growth rate to 1.7% from 2.4% while others posted commentary regarding the Fed, 2007, etc. We all know there is going to be slowing; we wrote about that last week. The economy is slowing and will continued to do so to end the year, but the real issue is whether it is transient or the start of a more entrenched slowing.
We have discussed various aspects at length, and though we concluded there was slowing to come still, the place to look now was the market and whether it continues to work on these bases or rolls over and wrecks them. We will get some type of pullback yet to come, but whether it is contained within the current base is the real issue. Right now the market has put together a solid move. It is challenging the May highs and indeed the post-2002 highs in some instances. That invites the sellers to try and do their best. How the market comes out of that will give us a much better picture of what the economic future holds.
Economic absurdity: Oil goes up, oil goes down but inflationary impact remains steady?
Legitimate discussion of what type of slowing would occur was overshadowed by the ridiculous. Some put out reports opining that the Fed would be more inclined to raise interest rates again if oil prices continued to fall. Yes, seems absurd. When oil prices were running higher the fear was the Fed would see that as inflationary and find that as reason to continue hiking rates, fearing some 'pass through' into consumer prices. It did not happen in 1982 to 1984 and it did not happen in 1994, but it, like the Phillips Curve, is always out there lurking in the minds of central bankers. Nonetheless, it is a Fed concern and thus a legitimate discussion as well.
As for the flip side of the theory, it is hard to call that really legitimate. You really have to be searching for reasons for the Fed to hike to pull that one out. Let's see, you are worried as prices rise that the consumer will be able to spend less on discretionary items because more funds are funneled into energy. Thus something of a stagflation argument with the worry about energy prices passing through and a slower consumer at the same time, forcing the Fed to hike (given the Fed's usual mindset). Now that oil prices are falling you are worried because the consumer has more money the Fed will feel it has to hike to prevent another supposed 'runaway' consumer? Under this theory you should just hike and hike and then hike some more as everything is a potential reason for the Fed to hike rates and slow the economy further.
Even if the report was just pointing out possibilities of Fed hikes it still is rather simplistic. It ignores all of Bernanke's comments since taking over the Fed and his concerns of moving too far with a mature economic expansion, a housing decline, his rather artful reduction in the real inflation hotspot, i.e. money supply. The Fed has even commented that rising energy prices may increase inflationary pressure; is it going to also believe that prices falling back to still elevated levels now sparking a buying binge? Not likely. If prices fell into the forties maybe there would be such a sigh of relief as to create a buying spurt. Given the economic slowing the Fed anticipates, however, that would be a welcome event, not one to fear and then hike rates again in a panic.
THE MARKET
MARKET SENTIMENT
VIX: 11.78; +0.02
VXN: 18.45; +0.7
VXO: 10.64; -0.37
Put/Call Ratio (CBOE): 0.97; +0.15. Put activity climbed once more even post-expiration as the market stalled out once more at Friday's resistance.
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: +0.16 points (0%) to close at 2235.75
Volume: 1.967B (-22.03%). Volume fell off the table following a strong expiration surge, but even at this lower level it was still above average and it topped the Wednesday and Thursday trade levels that saw NASDAQ climb higher. With the tap at resistance and close well off the high, the higher volume represents some churning at resistance. After a move higher this higher volume turnover suggests stocks are trading hands rapidly, finding it hard to find willing holders. That often indicates a fade back, something we anticipate given NASDAQ just crossed the 200 day SMA.
Up Volume: 928M (-415M)
Down Volume: 734M (-418M)
A/D and Hi/Lo: Decliners led 1.12 to 1. Modest gain, negative breadth. Another indication of the lack of commitment on the upside after the run to this point.
Previous Session: Advancers led 1.07 to 1
New Highs: 107 (-22)
New Lows: 40 (-2)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Showing signs it needs some rest with this doji that tapped the same resistance on the high (the bottom of the January through March 2006 trading range (2240 to 2315) and fell back to close flat. Volume was still strong, and as noted that indicates some churn. After a run that suggests a test. NASDAQ is sitting on top of the 200 day SMA (2223), a good place to try and hold on that pullback. Thus far it is being a bit stingy with its gains and that is always a good sign. That means it has a better chance at holding near the 200 day; it may undercut it some but thus far no indication it is ready to turn over.
SOX (+1.10%) rallied and gave back some gain Friday. Monday it rallied to the same spot, the June closing high (475), and though it faded once more it managed to hold onto a bit more than it gave back off the high. SOX looks very good here as it made its test ahead of the rest of the market and looks as if it wants more. AMAT was up on word of its further buyback and a new chip-making process by INTC, moving through the 200 day SMA on strong volume. SOX looks as if it wants to lead higher on up to its 200 day SMA (481), but if NASDAQ takes a breather, it is likely to do the same. We see several chip stocks that continue to look solid (e.g. WFR, SMSC, RTEC).
SP500/NYSE
Stats: +1.31 points (0%) to close at 1321.18
NYSE Volume: 1.501B (-31.89%). Volume faded back just below average on NYSE as its indices rallied up to the Friday high and faded back to the close. No real distribution or churn given the fade in volume, just not enough to punch the indices higher through next resistance.
A/D and Hi/Lo: Decliners led 1.23 to 1. As with NASDAQ, rather inauspicious breadth, matching the trade that saw the NYSE indices trade basically flat.
Previous Session: Advancers led 1.42 to 1
New Highs: 119 (-70)
New Lows: 21 (-10)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 again ran up to the may high (1326.70; 1324.87 on the high) and faded back. It didn't have enough volume to hang on and push the large caps on through. After the run to this point it looks as if it is going to test as well, and the past three sessions have basically been a consolidation. The failures at the May high, however, suggest more of a pullback though at this juncture we are looking at something along the lines of the September high (1313) or the 10 day EMA (1312), or even the 18 day EMA (1306). Again, it is at its old post-2002 high, and we have to be on the lookout for any selling. That distribution two weeks back has faded some but is still out there as SP500 bumps into the May high. If the sellers are going to make a move, this is where it is likely to come from.
SP600 (+0.06%) continued its lateral move over the 200 day SMA (372.28), showing a nice doji above that level. Of all the indices, it and SOX actually look ready to hold their position and make their move higher from here without a lot more rest.
DJ30
DJ30 was not in the mood to flirt with the old highs Monday, barely bumping positive on the session before fading to close negative, albeit modestly. Volume was lower and back below average as the blue chips moved laterally on low trade. DJ30 has basically moved laterally for three sessions now, putting in something of a consolidation below the May high (11,670.19) and the all-time high at 11,750.28. Likely to get the dips down to the 10 day EMA (11,482) or the 18 day EMA (11,428) before it is ready to move higher and take on that May high for keeps. Recall that everyone is really positive about DJ30 hitting that new high. Given that enthusiasm it is likely to take a breather before it does.
Stats: -5.77 points (0%) to close at 11555
Volume: 192M shares Monday versus 365M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Economic data gets back into the picture again with PPI, housing starts, and building permits. While the PPI may have some impact if costs are up, we all know energy costs are now lower and commodities prices are fading as well. Thus no one is going to put too much into a modestly higher PPI. Given the FOMC meeting is Wednesday, there will be even less reason to get too worked up over it.
The real driving force right now is the move up to this point that has DJ30 and SP500 at the May highs along with NASDAQ clearing the 200 day SMA but dealing with a thick layer of resistance starting right at 2250. In short, the market has rallied well, is at a key inflection point in September, and is in need of a modest consolidation before trying to crack though key resistance levels.
Given the FOMC Wednesday, we anticipate more of a consolidation move and likely a bit lower Tuesday. Thus far the indices have shown remarkable resiliency, however, as SOX and the small caps continue to hold their own and set up to push higher. Those are key components to the upside that were missing right before the market topped in May, thus necessitating this correction. They are back in the action for now, giving the market some support and the chips are particularly providing some leadership.
Thus the market continues to have positives as even as it stalls out here and takes a much deserved breather. We continue to watch for potential negatives, but thus far the action continues to be positive. We will continue to look for leaders moving up ahead of the rest of the market and work into them as the opportunity presents, but with the indices still needing more of a breather we will work into them in an orderly fashion as we see how the test pans out and wait for the rest of the market to catch its breath and move higher to challenge those post-2002 highs once more.
Late Monday Target (TGT) came out and upped its same store sales guidance to 5% from a 3% to 5% range, saying sales would be at least 5%. Does that show a resurgent consumer that needs to be feared, or is it just a recovery in the discount sector that suffered some damage as gasoline prices ate particularly hard into the lower income level's purchasing power? Definitely more of the latter. TGT has already run far as has much of the retail sector. They may get a bit more early mileage out of this but after that many run the risk of fading back.
Support and Resistance
NASDAQ: Closed at 2235.75
Resistance:
2234 is the June 2006 peak (intraday): still trying to get through.
2250 is the March 2006 closing low.
2316 from interim tops in January and March 2006 (the 2250 to 2316 range is the Q1 trading range for NASDAQ)
2376 is the April high, the post-2002 high
Support:
The 200 day SMA at 2223
The 10 day EMA at 2207
2206 is the August 2004/April 2005 up trendline
2190 is the July 2006 high
The 18 day EMA at 2188
2185 to 2182 is the September 2005 peak and interim high from November 2005.
2177 is the December 2004 high.
2168 is the August intraday high.
2158 from the May 2005 low.
The 50 day EMA at 2155
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 1321.18
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 1311
The 18 day EMA at 1306
1302 the recent August highs
1294 is the January 2006 high and 1297.57 is the February 2006 high.
The 50 day EMA at 1290
The early June high at 1288
The late January peak at 1285
1280.37 is the recent July peak.
The 200 day EMA at 1280
1265 is an old trendline from the August 2003/August 2004/October 2005 lows.
Dow: Closed at 11,555.00
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 11,482
The 18 day EMA at 11,428
11,401 from the September 2000 peak and April 2001 highs
11,384 is the August intraday high.
11,350 from the May 2001 peak
The March 2006 highs at 11,329 to 11,335
The 50 day EMA at 11,292
11,279 is the late May closing high
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 11,100
-Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 18
Current Account, Q2 (8:30): -$218.4B actual versus -214.0B expected, -$213.2B prior
Net Foreign Purchases, July (9:00): $32.9B actual versus $75.1B prior
September 19
PPI, August (8:30): 0.3% expected, 0.1% prior
Core PPI, August (8:30): 0.2% expected, -0.3% prior
Housing starts, August (8:30): 1.75M expected, 1.795M prior
Building permits, August (8:30): 1.74M expected, 1.763M prior
September 20
Crude oil inventories (10:30)
FOMC policy statement (2:15): No change expected from 5.25% Fed Funds Rate
September 21
Initial jobless claims (8:30): 310K expected, 308K prior
Leading Economic Indicators, August (10:00): -0.2% expected, -0.1% prior
Philly Fed, September (12:00): 14.5 expected, 18.5 prior
End part 1 of 3
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