|
|
us stock market, trend trading stock
* * * *
11/04/06 Stock Split Report
* * *
Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: GME; PCU; RDY
Trailing stops: GYMB; YUM
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:
- Improving jobs report, solid ISM services help stem the selling but can't change the week's character.
- Jobs report weaker but stronger
- ISM Services, largest part of economy, showing no chinks.
- September and October robbing from traditional year end rally?
Stocks manage to hold the line Friday, but cannot turn the tide.
All week investors looked to the Friday jobs report, but frankly, the data ahead of that set the tone for the week. Friday the jobs report was again split with non-farm payrolls lighter than expected but the unemployment rate really on the fade (4.4%). With revisions to August and September, however, the report tilted much stronger than the October non-farms payrolls suggested. In addition, the ISM services report surged to a solid 57.1, countering much of the weaker data earlier in the week. Services are a much larger part of the US economy, and their resurgence as oil prices fall is a very good sign versus the slower ISM.
Nonetheless, all that news could do was slow the selling seen in the week. The slower ISM, construction, factory orders, and continued solid but less than spectacular earnings set the tone for the week, and the Friday news, while solid overall, could not turn the tide. Indeed, given the market mood for the week it only engrained some negative views: investors bemoaned the weaker economic data earlier in the week, but then viewed the stronger data as keeping the Fed in the pause cycle versus moving toward a rate cut. Investors were simply in a bad mood and did not want to view anything positive.
Over the past few weeks the market moved through earnings season, and given the move higher ahead of results it could not advance even with more overall solid results. Still, the indices did not sell, they just slipped sideways, holding their gains, setting up for the next move. Indeed, NASDAQ and SP600 were setting up well. Then that weaker data hit, but instead of getting things ignited it conjured visions of stagflation given the flat productivity reading and the rising unit labor costs. In Star Trek terms, it was a Kobayashi Maru, the no-win situation. With a good run already under the belt in the traditionally weak months of September and October, the news was enough to make the market stumble. Some distribution (high volume selling) hit the indices. They started to break down in their consolidations as DJ30 and SP500 fell below the 18 day EMA for the first time in months. Leaders, the backbone of the market, reported solid earnings but some were treated badly, tumbling down toward the 50 day EMA or worse. The results were not bad, just not good enough to send most stocks higher.
Even with that the market is not getting sold off. After the harsh drop Wednesday the selling checked up Thursday and Friday. There was no rebound from buyers to send the market back up, but the selling abated as the indices recovered some to more or less hold their lateral range. Of course even with that, stocks are hardly out of the woods at this juncture. DJ30 and SP500 have to remain question marks as they clipped the 18 day EMA for the first time after 12 week runs. NASDAQ suffered some distribution as its consolidation started to waiver. About all they did to end the week was what they had to, i.e. avoid a sell off, get through earnings, and make to the traditional sweet spot for the market. As noted, however, they were up during traditionally weak months, and that leaves open the question of whether the market has poached from the months that are typically stronger.
THE ECONOMY
Headlines are weaker but the report is stronger.
92K jobs did not meet the 125K expected, but the revisions and dropping unemployment rate (4.4%) belied the headline number. August almost tripled the original report at 148K versus 51K, and September jumped to 230K from 188K. The unemployment rate fell to 4.4% from 4.6%, the lowest level since early 2001. Notably, and amazingly absent for any commentary on the jobs report, that low level coincided with the last recession. The unemployment rate started moving higher after the recession was on the books. Talk about a lagging indicator.
Thus it is not too surprising that investors overlooked the jobs report and the market stumbled around more on Friday. Jobs are without question important to every person in the US (except maybe the Fed's Moskow), but they cannot be used as a gauge of where the economy is in its cycle. Well, that is not entirely true. When jobs show up in numbers you know the cycle is well underway. It does not tell you whether the economy is slowing, however; you have to look to the leading indicators to do that. What Friday told us is that the jobs market is a lot stronger than many think, but it was counterbalanced by the knowledge of that it lags the overall economy and that other more leading indicators during the week were fading.
Leading indicators are mixed and the argument over recession or just a slow cycle continues.
The ISM services, the largest part of the economy, jumped back into action in October with a strong 57.1 showing, up from 52.9 in September and forecasts of 54.5. Services had maintained expansion with readings above 50, but the trend was weakened by the rise in energy prices impacting service providers' ability to expand business and grow profits. The decline in energy costs is cited by many in the survey as a reason for the renewed optimism.
Indeed, prices paid fell to 51.9, the lowest since June 2003 before energy started its ugly spiral higher (well down from the 56.7 in September). New orders were lower (56.5 versus 57.2) but that was a solid level after three months of declines from June through August. Again, the lower gasoline prices were attributed with the solid performance. Employment was down as well, dropping to 51.5 from 53.6. With the holidays approaching you would look for employment to start picking up. Indeed, much of the components were not that strong; the index is independent from the components. All in all it was a solid rebound, but it is still trying to fight off that erosion in the trend that started in early summer when the gasoline prices really spiked.
ECRI is a plus on inflation, but still showing a weakening economy.
ECRI's future inflation gauge (FIG) fell to 119.9 from 121.6. It is starting to show more downside movement and ECRI interprets this as a 'clear cyclical downswing.' Despite the Fed's CPI and PCE indicators rising, the leading inflation indicators have been declining for a year. The problem is that the Fed's measures are hitched to lagging indicators. As we have noted, it seems the Bernanke Fed realizes this and is not really using those as its go-by. It is looking at the bond market, oil prices, and perhaps some leading indicators such as ECRI.
If that were true then the Fed should be concerned about ECRI's growth indicator. The short indicator is down for the second consecutive week after showing some uptick. The 4-week annualized growth indicator fell to -0.3%, the third month it has come in negative. It is still not suggesting a recession, but it called the slowdown in Q3 and it is still signaling slowing ahead.
That keeps the debate alive over whether this is a cyclical slowdown in an ongoing expansion or a prelude to recession. The recession calls have come more frequently of late as the weakening economic data have joined forces with the inverted bond curve, an inversion that has lasted in excess of 100 days now (with a few short term breaks). The bond curve suggests a recession but ECRI is not calling one yet. There are some mitigating factors with respect to the yield curve as we have noted the past several months (Greenspan made the case for the curve not mattering now), but it is always extremely risky to say it is different this time.
Counter that with the stock market that looks well down the road and has priced in some good growth in earnings even beyond what we have seen in this rather unprecedented string of earnings gains. But the stock market is starting to weaken, showing some distribution and leadership breakdowns the past couple of weeks. That can simply be some backfilling after a strong run from the July lows before resuming the move higher, or it can indicate stocks realizing the economic indicators are struggling.
Typically, however, the stock market overreacts in the short term versus the long term. It has a good run under its belt, it gets to earnings and they confirm more growth, but it has already run higher into those numbers. Some economic data weakens with a slow cycle in the economy. Bullishness is high, so that is another reason some big money gets nervous feet. That starts some selling that results in a needed correction/consolidation. If the market still has its eyes on the prize further down the road that is all it will be.
Right now there are evenly matched factors on both sides and the market is digesting the most recent data before establishing its next move. What we do now is recognize the transition and prepare for what way the market may break. That is why we started taking gains off the table on the last run higher and continued to close positions as the market started equivocating. We will let those stocks run that can hold up during the softness and then be ready to move in when it gets everything in balance once more.
THE MARKET
MARKET SENTIMENT
VIX: 11.16; -0.26. Volatility reached down close to the July and December 2005 and March 2006 lows that saw pullbacks in the market. Now those pullbacks were not major sell offs (at least other than the July one and the typical summer fade); they just set the stage for another run after a consolidation. It is important to keep in mind that VIX can stay low for a long time, for years, and still have no impact. The other market factors have to come into play, and indeed, VIX often RISES as a long expansion nears its peak.
VXN: 17.23; -0.81
VXO: 10.67; -0.33
Put/Call Ratio (CBOE): 0.93; +0.02. Interesting that the put/call ration only topped 1.0 on the close one time the past two weeks despite the selling in the market. Shows the anxiety is not ratcheting to extremes despite the gloom we heard quite a bit last week. It is high, just not blowing higher.
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: -3.23 points (-0.14%) to close at 2330.79
Volume: 1.887B (-2.31%). Volume backed off below average, but it was Friday so we won't read a whole lot into it. NASDAQ suffered a session of churn and a distribution session last week as some money moved out of techs as it worked laterally below the April high. Not great action but not yet fatal. Can still hold together and put in a good consolidation.
Up Volume: 833.962M (-77.419M)
Down Volume: 1.018B (+26.253M)
A/D and Hi/Lo: Advancers led 1.37 to 1. Managed an upside showing despite techs finishing modestly lower. There was more strength there than meets the eye, and indeed the NASDAQ 100 large cap techs fell 0.36% versus the 0.14% on NASDAQ overall.
Previous Session: Decliners led 1.41 to 1
New Highs: 83 (+22)
New Lows: 48 (-9)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ fell victim to trying to move back up to try the breakout too fast. It was not ready to move Monday and Tuesday but it tried it anyway. Wednesday it got spanked down hard with a distribution session. It rounded out the week basically flat on lower trade. While it did suffer that distribution it also managed to hold the three week lateral range; by the skin of its teeth, but it did manage to hold on. Earnings are mostly over and despite some tougher sledding it is still in the consolidation range at the top of the run. If it can demonstrate the same kind of strength as the large cap NYSE stocks then there is plenty of room to make the breakout and subsequent run. Right now the pattern is a bit more toppy than positive, but how it responds this week will tell more of the tale. There are still many techs in solid position, but the index has a bit of a toppy look and could easily test some support at 2300 or on down to the 50 day EMA (2280) before it has its issues worked out and is ready to try another run at the April high (2376).
SOX (+0.41%) ended the week below the 50 day EMA (451.32) but also still in its lateral rang of the past 8 weeks. It has been clearly lagging since tapping the 200 day SMA in mid-October, but it has also held that range. As we noted often the past few weeks, all it needs to do for now is keep on working on that base. It is back to the bottom of the range, but it is doing just that.
SP500/NYSE
Stats: -3.04 points (-0.22%) to close at 1364.3
NYSE Volume: 1.512B (-9.55%). Lower, below average volume as the large caps closed below the 18 day EMA for the first time since early September. Some churning early in the week, some distribution Wednesday, but a quieter close to the week. That lighter volume to close the week was not much consolation.
Up Volume: 659.251M (-104.905M)
Down Volume: 830.83M (-42.083M)
A/D and Hi/Lo: Decliners led 1.17 to 1. Very modest and matching the trade so nothing was out of whack here indicating some different undercurrent.
Previous Session: Decliners led 1.24 to 1
New Highs: 119 (-1)
New Lows: 27 (-11)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 closed below the 18 day EMA (1367) for the first time since early September with some distribution midweek setting the stage for the close. After a long run off of the July low it is showing some cracks following 5 bounces up the 10 and 18 day EMA since the August breakout. That is typically the limit on any run before it needs a deeper test, and the pattern here is definitely showing signs of an intermediate top in a continuing run. This time there is not that flat consolidation leading into another break higher as seen in September and October, and some distribution has crept in. A drop to some support at 1350 or even the 50 day EMA (1343, the typical point where such a run tests) seems pretty clear.
SP600 (+0.29) suffered some harsh selling on the week as well, with Wednesday really taking it down hard. It held above the 50 day EMA (379.59) on the Thursday and Friday lows, however, and managed a positive close to end the week. It fell out of its lateral consolidation from the last half of October, but it did not collapse, finding support above the July and early October interim highs as well as the key 50 day EMA. Despite the drop, we like what we see here, and given the small caps are so economically sensitive, if they rebound sharply near term that is a very good indication investors are still looking at economic expansion ahead.
DJ30
As with the SP500, the Dow closed below the 18 day EMA (12,000) for the first time in months (August for DJ30). Some churn last week but no real distribution for the blue chips. Similar to SP500, the pattern is somewhat toppy after 6 runs up the 10 and 18 day EMA following the August breakout. It also reached just over 8% above its 200 day SMA (11,273) on the last run, getting close to the 10% level that sees the Dow start to struggle. It is due for a pullback to 11,865 (early October consolidation) or the 50 day EMA (11,774), but this index has had a knack for defying expectations. It is overbought and a consolidation would do it well. Indeed, a good test toward the 50 day EMA and it would be set up for a buy of some index options.
Stats: -32.5 points (-0.27%) to close at 11986.04
Volume: 198M shares Friday 222M shares Thursday. Shaking off that Tuesday churn. Volume never really showed any danger on DJ30 last week.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
Both economic data and earnings slow down a bit as November gets underway, but there are still key earnings to come (e.g. CSCO). The market is still digesting a massive amount of data from both earnings and the economy, and has held up remarkably well given the run through September and October that preceded earnings season. They are at an interim crossroads here as to whether they can continue with the run here or need some more consolidation. That does not suggest, however, they are ready to roll over in a recession-like plunge.
The rally in the often weak months of September and October, however, raises the question as to whether the market poached gains from the typically strong November to April period. If nothing else, the rallies higher need some consolidation before any further serious moves on SP500 and DJ30. NASDAQ, SP600, and even SOX, however, have put in the grunt work to follow those NYSE indices higher, and as we noted a couple of weeks back, they could receive some money that comes out of the NYSE large caps if they test. The weaker economic data threw all of that into question, however, as the growth indices of course stalled some as the economic expansion they depend on was put into question.
Thus we enter the next week with stocks looking at bit toppy in their patterns with the path of least resistance a bit lower near term. They have enjoyed good runs when no one expected and the economic data has to be digested. A pullback would not be out of line at all, and would frankly give every index a better run into the year end. SOX and SP600 are already there as far as consolidating, but they have not been leaders. That leaves NASDAQ, but it has the look of needing a bit more pullback before it is ready.
That leaves us looking at leaders that are currently in pullbacks, watching to see if they can start their recoveries or new breakouts on some strong trade and thus signal the buyers are coming back in after some bumps last week. They will tell us if the market is going to continue the struggle near term after the economic data slowdown that slopped over into Q4 from Q3 or if it has seen the worst and is ready to continue higher.
Support and Resistance
NASDAQ: Closed at 2330.79
Resistance:
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
The 18 day EMA at 2336
The 10 day EMA at 2344
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:
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
The 50 day EMA at 2280
2273 is the recent September peak
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
2233 is the August 2004/April 2005 up trendline
The 200 day SMA at 2230
S&P 500: Closed at 1364.30
Resistance:
The 18 day EMA at 1367
1371 to 1373 is the December 2000 peak and the January 2001 peak
The 10 day EMA at 1371
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:
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high and the February 2002 low at 1360.
1354 from the early October consolidation
The 50 day EMA at 1343
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 11,986.04
Resistance:
The 18 day EMA at 12,000
The 10 day EMA at 12,040
Support:
11,865 from the early October consolidation
The 50 day EMA at 11,774
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.
November 7
Consumer credit, September (3:00): $5.0B expected, $2.6B prior
November 8
Crude oil inventories (10:30): +1.9M prior
November 9
Export prices, October (8:30): -0.5% prior
Import prices (8:30): 0.1% prior
Initial jobless claims (8:30): 327K prior
Trade balance, September (8:30): -$66.0B expected, -$69.9B prior
Wholesale inventories, September (10:00): 0.6% expected, 1.1% prior
End part 1 of 3
|
us stock market
trend trading stock
|
