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money investment, day trading
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10/26/06 Investment House Daily
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SUMMARY:
- Investors overcome stronger than expected new home sales as NASDAQ, SP600, SP400 breakout.
- New home sales rise unexpectedly, but prices continue their fall
- Durable goods orders take off with Boeing orders. Ex-trans gain 0.1%
- Earnings bombs still going off, but after weathering the worst, more solid reports are starting to break the other indices higher.
Stocks shake off midday selling attempt as NASDAQ breaks to a new post-2002 high.
Stocks were set to move higher as futures were buoyed by some solid earnings reports, a stronger but not so strong durables report, and just some generally bullish action in NASDAQ and the smaller caps the past couple of sessions.
After that higher start, however, new home sales came in with a 5.3% gain. Investors feared the Fed, after citing the slowing housing market as a major reason for its temperance with interest rates the past three meetings, would change its mind and start putting the screws to the economy again.
That sentiment had a half life of 30 minutes. NASDAQ sold back to the 10 day EMA once more and bottomed. For the rest of the session it was all upside. Oil started backing off (60.36, -1.04 on the close) and stocks picked up steam all session. Financials were off some after a couple of solid sessions, but retail rallied along with technology and semiconductors, and they plowed the way higher to close at session highs. DJ30 remains winded and lagged the field, but it lagged to a new record high.
Technically you have to like the action as it continues to show accumulation, and very importantly, that accumulation is spreading out. NASDAQ joined SP500 and DJ30 with a new post-2002 high. SP400 and SP600 broke out from the handles of their double bottom with handle bases. That is the next step in taking on their all-time highs as well, following in the footsteps of DJ30, SP500, and now NASDAQ.
Volume was up on NASDAQ, and while lower on NYSE, was still above average and solid, building on the strong Wednesday trade. The move continues to spread out. We have written lately about the turnaround in the A/D line from August, and that continued Thursday with both NYSE and NASDAQ posting better than 2:1 upside readings. As NASDAQ and SP600 joined the move, you would expect this to happen. If not, there would only be generals leading and no soldiers following.
Leadership remains solid as well as money rotates from the big industrial leaders to techs and small and mid-caps. It is not entirely rotating out of those stocks; they are still moving higher. Many are taking a pause, however, and some of the money, along with new, is moving into these other sectors. That is healthy for the market; NASDAQ had to make a move and this one is key. SOX was not left out as it posted another solid session, moving further back over the 50 day EMA. It is not breaking out by any stretch. It is, however, recovering and continuing its base building just as SP600 did in August when it looked to be on the ropes. It stuck to it, kept building, and Thursday it broke out. SOX is lagging, but it is not leading downside right now.
THE ECONOMY
New home sales rise 5.3%.
After the decline in existing home sales and prices previously reported, Thursdays rise in new home sales rattled investors. The gain in sales was the first in 3 months. It was no watershed event, but the rebound when expectations were for another decline shook things up given the Fed has cited the housing market as an important point in its decision to pause. Will the report alter this? Not in itself. It is one blip higher in response to those interest rates that dove lower in August when bond rates plummeted. Rates fell and mortgage applications and refi's surged. Thus the rise in these sales.
Prices still tell much of the story. As with existing home sales, year over year prices for new homes dropped, falling 9.7% at the median, posting their largest drop in 35 years. Builders are trying to move that inventory of homes. Completed homes on the market rose to 157K, up 50K (47%) from the supply on the market September 2005.
Pricing is the key. Lower rates helped bump up sales, but prices continued to fall. That means buyers found an appealing combination of lower rates and lower prices and jumped on them. Rates are heading back up once more, and we will see the activity drop back as it does. There is still more work to do in the housing market. It has absorbed a lot of losses, but it is not over yet. It is not going to totally collapse in our view, but housing is not ready to bottom and turn back up just yet.
Durable goods jump on BA airplane sales.
The 7.8% gain swamped the 2.3% expected, the largest gain in six years. Take out commercial aircraft (+183%) and the gain was 0.1%, and that was less than expected. Not so great but not a loss. Defense capital goods spending was strong at 41.9%, contributing to the gain. That is not where you want to see the gains from. You want to see private investment at strong records. In that respect, business investment rose 1.1%, posting another solid gain, pushing it above 12% year over year.
The bottom line is that you can write the number off as a freak based on the Boeing sales, but other durable numbers have tanked when aircraft sales sank. The trend is still a rise in durables, regardless of the month to month volatility, and with business investment still at a solid clip that helps overcome (but not totally) any consumer angst over lower housing prices.
THE MARKET
MARKET SENTIMENT
VIX: 10.56; -0.1
VXN: 16.59; -0.19
VXO: 10.35; -0.08
Put/Call Ratio (CBOE): 0.76; -0.08
Bulls versus Bears:
Bulls: 52.7%, up modestly from 52.2% where it held for 2 weeks. Still advancing toward that 55% level considered bearish. Up from 49.5% and 47.4% before that. This has caught the April high and is moving closer to the January peak at just over 60%. 55% is considered a bearish indication.
Bears: 30.1%. Actually rose a bit from 30.0% as bears hold near 30% after dropping rather sharply from 35.4% before that and the 37.1% hit in July (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). It is still well above the 20% level considered bearish, and if it holds at a high level even as bulls move higher, it acts as a governor on the bullishness. 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: +22.51 points (+0.96%) to close at 1389.08
Volume: 2.453B (+12.07%). Nice volume jump as NASDAQ broke to a new post-2002 high. That is another example, and critical in its timing, of the positive price/volume action we have seen on this move. Nice.
Up Volume: 1.685B (+459.664M)
Down Volume: 680.713M (+44.713M)
A/D and Hi/Lo: Advancers led 2.11 to 1. Solid advance in breadth as NASDAQ made its new post-2002 high. That is exactly what you want to see to show this is not a one-trick pony.
Previous Session: Advancers led 1.26 to 1
New Highs: 232 (+99). Getting there but could use more.
New Lows: 48 (+10)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
It set up nicely and then made the breakout, rallying past the April high (2376) on the best volume since mid-September. Two solid volume sessions pushed NASDAQ to the breakout to that new post-2002 high, and now it is in the ranks of DJ30 and SP500, trying to drag the small and mid-caps with it. MSFT recovered after hours following an initial dip; NASDAQ could get even more upside support to end the week.
SOX (+1.16%) tested the 50 day EMA (451) on the low and then put some more mileage on it, closing at 461. No breakout; it is still below the September and October highs. Nonetheless an important move as it recovers form last week's selling and puts in some more work on its base. That is what we want: steady consolidation action.
SP500/NYSE
Stats: +8.89 points (+0.5%) to close at 1389.08
NYSE Volume: 1.744B (-4.37%). Volume faded some on NYSE, but it was still above average and quite solid. Plenty of volume the past few sessions to support the breakouts from SP600 and SP400.
Up Volume: 1.13B (-67.479M)
Down Volume: 579.959M (-35.992M)
A/D and Hi/Lo: Advancers led 2.21 to 1. As with NASDAQ, nice to see the solid breadth as the small caps and mid-caps broke higher.
Previous Session: Advancers led 1.69 to 1
New Highs: 383 (+60). Good and close to getting there.
New Lows: 11 (-5)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 posted another solid gain as volume, while lower, continued well above average. SP500 has put in a very solid move after the Monday break higher from yet another short lateral consolidation. It takes a short break and then surges higher as new money chases it higher.
SP600 (+0.85%) solid breakout above the October high that puts SP600 in the footsteps of DJ30, SP500 and now NASDAQ. There is still some resistance ahead at 402 from another peak, but this opens the door for SP600 to make a run toward the all-time high hit in early May 2006 (406).
DJ30
DJ30 continues higher but its moves are slowing after that strong break upside Monday. Lower volume, smaller moves; a bit winded, but it is not fading, rising the momentum of that money chasing the winners higher.
Stats: +28.98 points (+0.24%) to close at 12163.66
Volume: 237M shares Thursday versus 238M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Q3 GDP hits tomorrow, and that will be a significant piece of data because investors just want to see just how weak this weaker quarter really was. It is just the first iteration and as we have seen in the past some sizeable adjustments can be made. Expectations are in the 2% range, but it could be lower. Recall that imports jumped, and while that is not a sign of weakness in the US it does detract from GDP. It may not show up in this first round, but by the final number released in November may see it dip below 2%. The flip side of that is that oil prices dropped sharply and that set off some solid consumer buying to start Q4. Thus the current quarter is off to a good start and the holiday season looks much better now.
NASDAQ and SP600 have made their breakouts and we are likely to see a bit more upside momentum on Friday if the GDP doesn't spook anyone. MSFT missed on its revenue guidance, but investors liked what they heard in the conference call and it went from trading lower to trading higher. We are at the stage of the earnings season now where we feel the market has weathered the bad news and is looking for the good news. Hence the NASDAQ and SP600 breakouts.
There may be some profit taking ahead of the weekend given the solid surge higher this week after a week of consolidation, but we are still going to look for opportunity as money keeps spreading out and sending solid stocks on breakouts or higher after breakout tests.
Support and Resistance
NASDAQ: Closed at 2379.10
Resistance:
2376 is the April high, the post-2002 high. Just cracked through this level.
2384 is an interim peak from January 1999
2493 is an interim peak from February 1999
Support:
The 10 day EMA at 2348
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
The 18 day EMA at 2328
2316 from interim tops in January and March 2006 trading range
2273 is the recent September peak
The 50 day EMA at 2262
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
2229 is the August 2004/April 2005 up trendline
The 200 day SMA at 2228
S&P 500: Closed at 1389.08
Resistance:
1389 is a low from November 1999
1398 is a low from January 2000
1401 is a low from April 2000
Support:
1378 is a low from May 2000
1371 to 1373 is the December 2000 peak and the January 2001 peak
The 10 day EMA at 1373
The 18 day EMA at 1363
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
1339 is the late September closing high
The 50 day EMA at 1335
1334 is an October 1999 peak
1326.70 is the May 2006 high
1324 to 1329 from the October 2000 lows.
Dow: Closed at 12,163.66
Resistance:
Still climbing up the 10 day EMA but struggling a bit. 8.2% above the 200 day SMA. It tends to being struggling when it gets to the 10% level where it typically will start to falter.
Support:
The 10 day EMA at 12,049 has acted as support all the way up. When it breaks on the close that is noteworthy.
The 18 day EMA at 11,960
11,750.28 is the prior all-time high
11,723 is the January 2000 closing high
The 50 day EMA at 11,700
11,670 is the May intraday high
11,642 is the May 2006 closing high
11,488 is the early September high.
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
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 25
Existing home sales, September (10:00): -1.95 at 6.18M versus 6.25M expected, 6.30M prior
Crude oil inventories (10:30): -3.3M versus +5.02M prior
FOMC policy statement (2:15): Fed Funds Rate at 5.25%, still watching inflation.
October 26
Durable Goods Orders, September (8:30): 7.8% actual 2.3% expected, 0.0% prior
Initial jobless claims (8:30): 308K actual versus 308K expected, 300K prior.
New Home sales (10:00): +5.3% (1.075M) actual versus 1.05M expected, 1.021M prior (revised from 1.050M)
October 27
GDP advance, Q3 (8:30): 2.1%, 2.6% prior
GDP Chain Deflator, Q3 (8:30): 2.8% expected, 3.3% prior
Michigan sentiment (revised), October (9:45): 92.5 expected, 92.3 prior
End part 1 of 3
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money investment
day trading
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