|
|
money investment, investment help
* * * *
11/02/06 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts: GES
Buy alerts: VCLK; AQNT; NYX (bonus)
Trailing stop alerts: CMRG; INTC
Stop alerts: HPOL; NICE; UARM
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 Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Market hit with more disappointing economic news, rebounds from early selling.
- Same store sales post impressive misses as productivity flattens
- Jobs report to top the marquee as NASDAQ tries to restart the consolidation.
Stocks handle further downside economic data with modest losses.
Wednesday investors had a fill of worse than expected economic news and suffered some distribution. Thursday same store sales were a rather massive disappointment (60% missed estimates), productivity was flat, and wages were higher. Three strikes. Stocks sold again on the open, pretty much as expected. They bottomed, however, in the first half hour and managed a rather solid morning rebound to positive as oil prices slid again (57.88, -0.83). Sure it was positive by a gnat's butt, but it was a recovery nonetheless. After that rebound they could not move higher, however, working laterally the last 5 hours to close basically flat, just that gnat's butt from positive.
Technically it was a downside session but things improved a bit. Another sell off early but then stocks held the line and recovered to flat on lower volume. After dumping lower Wednesday, NASDAQ and SP600 were still not in great shape after Thursday, basically starting anew on a consolidation attempt. DJ30 and SP500, however, showed some good action at the 18 day EMA once again, undercutting that near support intraday but recovering to show nice lower volume doji's at that level. Very nice pullbacks, and if they occurred earlier in the run we would be all fired up about moving into positions on these indices. As it is they remain extended and thus the risk/reward at this point is not nearly as favorable.
Volume was lower as indicated, and that shows a modest improvement in price/volume action as stocks were not wantonly dumped. The rebound from the early low helped as well, showing there was still some interest on the bid side. Breadth improved dramatically from the lopsided Wednesday readings that were easily in excess of -2:1. After the harder selling this is what you would expect on a pause in the action.
The question is whether this is a pause that renews DJ30 and SP500 for another run and gets NASDAQ and SP600 back into their consolidation mode. The latter still look pretty tattered after the Wednesday move when they fell out of their lateral consolidations. Leadership was struggling again as well, trying to hold onto near support. Retailers had a tougher go after the same store sales releases, and their leadership was missed though there were, as always, some exceptions. Overall leadership was muted, and thus the market action was likewise. That leaves the growth indices in more or less the same position as Wednesday, i.e. still trying to find the bottom of this recent pullback. It would appear they need more time to recover from this distribution, but we also remember that the past few months have started this way and then rebounded and went about their rallies.
THE ECONOMY
Same store sales not living up to lower gasoline's higher expectations.
Kind of tongue twister, but you get the point. Falling gasoline prices spurred a nice September boost in spending. That rise in spending did not live up to October's expectations. Some big names missed (COST, ANF, TGT, WMT) estimates; in all 60% missed. After a string of stronger than expected results as gasoline prices rose, the fall off as gasoline prices really dropped was a surprise.
There is a pattern here, however, one we have written about in October over the years. It does not always hold up in specific years but it is a general rule of thumb our street experience bears out. October tends to be a weaker sales month ahead of the holiday season. Consumers tend to put off purchases of goods and services ahead of the holiday season as they gear up for the holiday buying. It is something I first noticed as a teen when my father would at times complain about how slow business was. At first it meant nothing, but after a few years I noticed the complaint was always in October. Business would slow in October to the 'worst it had ever been,' but then pick up just as quickly as it had declined. I started calling this the October effect, and year in and year out, with exceptions of course, it has held up. Thus we are not getting bent out of shape on the October numbers. They are disappointing if you wanted to see a blockbuster holiday season, but they are also not a sure sign of a holiday lump of coal.
Productivity flat as labor costs rise, sparking cries of inflation gains.
Productivity held flat in Q3 as unit labor costs rose 3.8% versus the 3.5% expected. The Fed uses productivity as an offset to labor costs, the idea being that if you are getting more out of a worker it doesn't matter if you pay him or her more. Makes sense; if you work someone more and more and don't pay more you tend to lose workers in a good economy. What worries some is that the rising wages without commensurate productivity gains is going to fuel inflation as workers spend that extra money in the economy.
That is, of course, NOT inflationary in itself. Workers make more so they spend more. As long as the goods are there then it is not inflationary. The problem is, indeed the irony is, the Fed's response to inflation is to try and slow the economy. However, slowing the economy is exactly the wrong thing to do if you have more demand in the system. You need more output to match any rising demand. If you stall the economy and output declines then you have a problem with the extra demand those rising wages may create. McTeer, who unfortunately is enjoying life way too much down at Texas A&M these days to care about returning to the Federal Reserve even as chairman, said it correctly that the way to allay inflationary pressures is to expand output.
Thus those wringing their hands over the Fed likely staying tough on inflation because of this are simply wrong. How can that be given the Fed is so anti-inflation? Because Bernanke is showing that he is not really watching the PCE and CPI as his inflation indicator. He is a history student and history has shown this before. If he acts to reduce output by further lowering money supply and raising rates he only exacerbates the wage situation; that money is still in the hands of the consumer who will likely spend the majority of the higher wages, but the goods and services sought will be fewer. That sparks a price war and voila, inflation.
You have to realize that wages, just as employment is a lagging indicator. Inflation is a lagging indicator. The Fed needs to look at where the economy is going now, not the lagging effects of where the economy has been. If it fights inflation until inflation abates it has acted for too long and choked off the economy. Then we have potentially the worst outcome of all: a stagnant economy and an inflation hangover that doesn't get better because output does not rise to meet demand. Thus we are not buying into the data as suggesting the Fed, at least the one led by Bernanke, is going to get tougher on inflation. It is likely right now very concerned about how it is going to continue to keep the economy going without sparking the hawks to protest too much.
THE MARKET
MARKET SENTIMENT
VIX: 11.42; -0.09
VXN: 18.04; +0.06
VXO: 11; -0.05
Put/Call Ratio (CBOE): 0.91; 0. Again no real change in the ratio, and no close over 1.0, as the market demonstrated further weakness.
Bulls versus Bears:
Bulls: 53.7%. Ticking higher again, up from 52.7% and closing in on the 55% level considered bearish. Had hoped from some softening after the struggles in the market the past week, but no go. 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: 28.4%. Starting to fade with a sharp drop from 30.1%. Down from 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 remains well above the 20% level considered bearish but is back to heading that way with more speed. 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: -0.33 points (-0.01%) to close at 2334.02
Volume: 1.931B (-6.74%). At least volume faded some as NASDAQ sold a bit but recovered to close flat. It was not much more than that, however, as NASDAQ has to rebuild after a pretty hard fall Wednesday sent it through the bottom of its recent attempt at a lateral consolidation.
Up Volume: 911.381M (+503.933M). Dead heat on the up to down volume.
Down Volume: 991.651M (-658.273M)
A/D and Hi/Lo: Decliners led 1.41 to 1. More like it, well contained for the session as the large cap techs on the NDX posted a 0.15% gain.
Previous Session: Decliners led 2.71 to 1
New Highs: 61 (+1)
New Lows: 57 (+18)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
The data got the best of NASDAQ again, but it did manage to recover after gapping lower close to some support at 2316 in the upper range of its Q1 trading range. Good to see it recover off of those lows, and that put it just about back into its recent lateral consolidation attempt. It is still perched in a rather precarious position as it tries to restart the consolidation attempt. It simply was not ready to take on the April high and got slapped back down. Liked the recovery as it showed some buyers in the mix; now it needs to work laterally again and set up that next run. All in all it is in decent shape; that Wednesday drop is a rather ugly blemish to hide, however.
SOX (-0.43%) tried to overcome its 50 day EMA, but could not punch through and finished near the session lows. Rather modest loss and easily holding above the mid-October lows. What is it doing? It is holding its pattern, just what we want it to do. That is all we want out of it at this point. Good boy. Sit.
SP500/NYSE
Stats: -0.47 points (-0.03%) to close at 1367.34
NYSE Volume: 1.672B (-7%). Lower but still above average volume as large caps held near support and the smaller gaps tested lower but managed a rebound of their own. Not bad, but the action was again biased towards the large caps. When the market is weak it is not unusual to see the large caps get more of a warm welcome.
Up Volume: 764.156M (+348.359M). Split down the middle here as well.
Down Volume: 872.913M (-486.516M)
A/D and Hi/Lo: Decliners led 1.24 to 1. With the small caps under the gun this was not that surprising, and it was not that bad.
Previous Session: Decliners led 1.92 to 1
New Highs: 120 (+26)
New Lows: 38 (+21)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 undercut the 18 day EMA (1367) but then rebounded to hold smack dab on that level to close. Classic test of the uptrend. If this were earlier in the trend we would be all fired up about the action. Given the extended run it is a riskier proposition whether it can hold and deliver another run. With the market a bit more defensive, however, investors take more comfort in large caps, and the index is not showing many signs it is ready to make a much harder fall. Its odds of a significantly higher move from here, however, is lower.
SP600 (-0.31%) sold again but managed to hold above the 50 day EMA (379.42) on the low and rebounded to recoup some losses. It held above support at 380 to 382 after making a deeper test. Given it fell out of the late October consolidation, this is the next best action, i.e. holding above next support and showing a bid. Some promise here but still more work to be done.
DJ30
Nice action with an orderly, easy doji over the 18 day EMA (12,001) and a rebound to hold that level, all on lower, below average volume. Once more the Dow shows the kind of strength you can pretty much only marvel at given its strong run to this point. There were some sellers, but they have dissipated for now as it tests the next support below the 10 day EMA. As with SP500 it is quite extended, but with this action it is not showing much inclination to sell off.
Stats: -12.48 points (-0.1%) to close at 12018.54
Volume: 222M shares Thursday versus 245M shares Wednesday. Nice fade in volume as DJ30 tested and held the 18 day EMA.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The jobs report is the last hunk of data ahead of the election, and the market is looking for it to provide some comfort food after the leading indicators boxed the market around a bit this week. The private firms are indicating some decent numbers, but they have missed the mark of late with their predictability. As the number lags, however, we do think we could see some better than expected results, but the retail sector is the wildcard. It was weaker in the same store sales category, and retailer may simply not be hiring ahead of the holiday season.
After the Thursday data investors are fearing an economic slowdown but also some possible inflation; pretty much the worst of both worlds as far as investors are concerned. The jobs data may not be the salve, however, particularly heading into the weekend before the election. The indices got boxed around on economic worries, and with the political outcome a real toss-up with misfired joke attempts and last minute blitzes, investors may prefer to sit this out heading into the weekend.
Thus we are not anticipating a lot of activity to end the week, at least if the jobs number is one investors are comfortable with. If it is weaker than expected then some further testing is likely. At this juncture the SP500 and DJ30 are worth a hard look as they test their 18 day EMA, both looking good thus far in the pullback. If that gives way then they are in for a deeper test and likely NASDAQ and the small caps are not going to move higher as they fall. Before the recent nervousness about the economy we anticipated they would get some of the money as the large caps took a breather. Now these growth areas are on hold as growth becomes an issue given the recent economic data.
Thus Friday may be another session where we look for leaders that are showing relative strength, holding up at near support as the rest of the market struggles. Those are the ones we will be on top of when the rebound comes. Thus far we are still looking for a rebound given the relative positions of the indices and the leadership. A potential transient phase for sure but also one where the markets have already taken a big scoop of not so savory news and have help up pretty well. If they can swallow similar news and still hold up that is a very good sign.
Support and Resistance
NASDAQ: Closed at 2334.02
Resistance:
The 18 day EMA at 2337
The 10 day EMA at 2347
2368 is October handle high.
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:
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
2316 from interim tops in January and March 2006 trading range
The 50 day EMA at 2278
2273 is the recent September peak
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
2232 is the August 2004/April 2005 up trendline
The 200 day SMA at 2230
S&P 500: Closed at 1367.34
Resistance:
The 10 day EMA at 1373
1378 is a low from May 2000
1389 is a low from November 1999
1398 is a low from January 2000
1401 is a low from April 2000
Support:
1371 to 1373 is the December 2000 peak and the January 2001 peak
The 18 day EMA at 1367
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
The 50 day EMA at 1342
1339 is the late September closing high
1334 is an October 1999 peak
1326.70 is the May 2006 high
1324 to 1329 from the October 2000 lows.
Dow: Closed at 12,018.54
Resistance:
The 10 day EMA at 12,052
Falling back through the 10 day EMA for the first time in 5 weeks.
Support:
The 18 day EMA at 12,001
The 50 day EMA at 11,765
11,750.28 is the prior all-time high
11,723 is the January 2000 closing high
11,670 is the May intraday high
11,642 is the May 2006 closing high
11,488 is the early September high.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 30
Personal income, September (8:30): 0.5% actual versus 0.3% expected, 0.4% prior (revised from 0.3%)
Personal spending, September (8:30): 0.1% actual versus 0.3% expected, 0.2% prior (revised from 0.1%)
October 31
Employment cost index, Q3 (8:30): 1.0% actual versus 0.9% expected, 0.9% prior
Chicago PMI, October (10:00): 53.5 actual versus 58.0 expected, 62.1 prior
Consumer confidence, October (10:00): 105.4 actual versus 107.8 expected, 105.9 prior (revised from 104.5)
Trick or Treat (6:00 on)
November 1
Construction spending, September (10:00): -0.3% actual versus 0.0% expected 0.0% prior (revised from 0.3%)
ISM, October (10:00): 51.2 actual versus 53.0 expected, 52.9 prior
Crude oil inventories (10:30): +2M versus -3.2M prior
November 2
Initial jobless claims (8:30): 327K actual versus 310K expected, 309K prior
Productivity, Q3 preliminary (8:30): 0.0% actual versus 1.1% expected, 1.2% prior (revised from 1.6%)
Factory Orders, September (10:00): 2.1% actual versus 3.6% expected, -0.3% prior (revised from 0.0%)
November 3
Non-farm payrolls, October (8:30): 125K expected, 51K prior
Unemployment rate (8:30): 4.6% expected, 4.6% prior
Hourly earnings (8:30): 0.3% expected, 0.2% prior
Average workweek (8:30): 33.8 expected, 33.8 prior
ISM Services (10:00): 54.5 expected, 52.9 prior
End part 1 of 3
|
money investment
investment help
|
