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us stock market, trading system
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11/08/06 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Thursday
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: QLGC
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 handles something of an election surprise with a NASDAQ breakout after a softer open.
- Did the market ignore potentially harsh reality?
- Back to economic reports and earnings as CSCO beats handily and drags other techs higher after hours.
Stock handles something of an election surprise with aplomb.
It was not the most likely outcome, but it was definitely one that could occur, and it looks as of the democrats won both the House and the Senate. The latter victory is the one some thought would rock the market, but we noted last night it would likely impact it short term. It was indeed. After a softer open stocks started rebounding within 15 minutes, and ultimately posted a solid session. Once more the current theme of bullishness asserted itself as buyers used the shaky start to move in, focusing particularly on techs and small caps.
The move was not just straight up. After the initial rebound the market moved laterally for three hours while the political party leaders went to the podium. Investors were concerned as to what might come out, but when they made nice and avoided lobbing bombs at each other (for the most part), investors took heart and the market ran higher in the afternoon and closed near session highs. Even rising oil ($59.83, +0.90) failed to stop the climb.
Technically the action was important but mixed. Again, that bullish theme persisted as stocks started soft and rallied to close near the highs. The growth areas were under the most accumulation with NASDAQ and the small caps leading the move. Indeed, NASDAQ broke out again to a new post-2002 high and this time held on. Volume was lower but still above average, and with the strong showing Tuesday the trade levels were solid. DJ30 hit a new high as well, but SP500 and SP600 could not really challenge their recent highs with any authority. Their volume was not bad at all, rising over the Tuesday trade. SOX could not advance the ball Wednesday after it reached again toward the 200 day SMA that tamped out the October move.
This was a key break for NASDAQ, and as with the October move we will have to see if it can hold water. It did for the entire session Wednesday, something it could not pull off Tuesday. SP600 still has to join in and make the breakout, and of course SOX has its issues with the 200 day SMA. Always troubles it seems, but that is what keeps the market advancing up that wall of worry.
THE ECONOMY
Prepare for a whole new round of economic politics.
If you thought life was going to get better because all of the political ads and telephone calls were going to end, you were partly right. Shortly, however, we are going to get back to the class warfare of the early 2000's because, despite all hugs and kisses between the parties Wednesday, it is going to take all of about two weeks before the bitter rivalries return. The democrats campaigned on doing certain things within 100 days, and that is going to push the agenda. That is good and that is also worrisome.
Wednesday everyone talked a good game with respect to bipartisanship, but that was the same story we heard leading up to the election when the democrats did not want to blow what was building up to be an overthrow. Then after Kerry, in a great sense of political irony, ruined his rerun aspirations and almost turned the tide, the democrats were even calmer and rational regarding hotly contested issues such as taxes, social security, immigration, etc.
Reading between the lines Wednesday, however, it was clear any honeymoon will be short-lived and indeed, quick estrangement is very likely. Pelosi indicated one of the goals was to 'preserve the structural integrity of social security.' That is the biggest money hog in the economy because it has to get larger and larger to pay for people who are living longer and longer past the 65 years required to draw. When SS was passed you had to live 3 years past the national average to collect one dime (you were beating the odds if you lived past 62). Now our average lifespan is 77, 15 years more than what SS is set up to handle. Basic mathematics shows you have to continually raise SS taxes to pay for more and more seniors who 'retire' at 65 and live to 77 and beyond, all the while drawing social security. More people are taking more and more out of the pot while those contributing shrink in number yet have to make up the difference.
It cannot work, yet the leader of the House democrats says this system has to remain in place. The age of receipt has to be raised once more commensurate with life expectancy for new and relatively early entrants into the system. Part of their contributions has to be allowed to go into private accounts to build the assets needed to fund retirement versus the current system of IOU's piling up at the Treasury Department. Those in the mid-range are going to have to adjust their receipt age higher as well, though on a sliding scale versus new entrants. They will also have to be allowed to put some money aside for themselves to make it palatable to them as they are going to be the ones burdened the most.
That is a good way to fix the problem long term. What is likely to happen is that SS will no longer be the same 'everybody pays and shares the same' plan that makes it at least marginally acceptable to many of the self-employed and entrepreneurs. Bush has said he is for raising taxes on the 'wealthy' higher than those who make less and not giving the 'wealthy' as many benefits. That makes SS not a 'we are all in this together' plan anymore, but another welfare program where the 'rich' pay more than others and receive less benefits. That will be the choke point for many, i.e. when the federal government once more raises taxes arbitrarily on one group and uses that money to fund an unconstitutional program where certain groups receive more benefits than they pay for. Hardly the equal protection you hear so many clamoring for under the Constitution.
That is a major reason Bush and republicans disenchanted much of his base and lost. They promised in 2002 and 2004 that if they took the Senate they would make the tax cuts permanent, fix social security, and reign in immigration. They did nothing, opting instead to seek re-election as opposed to doing what they promised. They refused to take on the democrats, instead crying that the democrats were blocking them when they could have suspended Senate rules that are not in the Constitution and brought legislation to the floor that would have passed. In short, they opted to retain power by not rocking the boat, focusing on power as the end as opposed to the means to gain the ends promised in their campaigns. As is so often the case, when you only seek power for power's sake, you tend to lose it. If the republicans had stuck to their promises and did what was necessary to pass their programs they would have at least had the backing of the entire party instead of the splintered, disenchanted group that only gave lackluster support.
The point: Republicans are going to be hamstrung by their base as the conservatives demand they not give in on certain issues. Democrats are not going to change stripes as suggested the past few weeks and will push for many hearings on Iraq, etc. They are going to say they want bipartisan action on SS and other issues, but as seen in the last round of SS, the starting point is no private accounts, a non-starter for anyone owning their own business and sick and tired of paying a huge chunk of money off the top for a federal retirement system that is destined for bankruptcy along with the federal medical plan.
The result: It will be up to the new moderate 'blue dogs' just elected to push for real achievements versus the political grandstanding and squabbling of the past few years. If structural changes to programs such as SS are not going to be considered and the democrats are adamant on a balanced budget and 'pay-go', then taxes will be raised. They will be vetoed at first because Bush won't allow it, but the democrats will likely hold Congress in 2008 and may take the presidency as well as in 1992 when the republicans were disenchanted with the actions of its leader. As the tax cuts expire completely in 2010, the democrats can take a position of proposing spending that will be vetoed and then blame the other side for killing it. Ultimately taxes will rise.
The market will realize this at some point and not like it. Fortunately it is down the road a ways, but not that long in market terms. Capital is invested based upon future expectations, and as it becomes clear there will be no great bipartisan effort to resolve issues, showdowns will loom and there will be fears that growth friendly positions will be abandoned. When clarity hits there could also be some troubles for the stock market. Right now things are rosy as the market is looking at gridlock and the lack of major movement on issues. Ultimately that lack of movement will result in higher taxes if the current structure remains.
THE MARKET
MARKET SENTIMENT
VIX: 10.75; -0.34
VXN: 16.39; -1.12
VXO: 10.46; -0.44
Put/Call Ratio (CBOE): 0.77; -0.01
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: +9.06 points (+0.38%) to close at 2384.94
Volume: 2.115B (-0.73%). Lower trade but solidly above average as NASDAQ rallied to a new post-2002 high. Lower trade yes, but a second consecutive session of strong trade.
Up Volume: 1.427B (-25.05M)
Down Volume: 668.77M (+12.47M)
A/D and Hi/Lo: Advancers led 1.46 to 1. A market leader in gains but a modest showing of breadth. After jumping higher in late October, it has softened here.
Previous Session: Advancers led 1.13 to 1
New Highs: 143 (-28)
New Lows: 45 (+3)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Tuesday NASDAQ could not hold its breakout over the April high (2376) to the close, but it was right back in the game Wednesday and held the move to the close. Solid volume for two sessions as NASDAQ moved higher, just what it needs when it is forging new highs. NASDAQ showed leadership Wednesday even with the semiconductors stumbling. Nice break and CSCO likely to help it with its own move and with its coattails. Want to see it put in a good upside breakout move to give it a cushion on a pullback to test the move. Again, CSCO may give it another good run higher Thursday.
SOX (-0.03%) could not join the upside move with NASDAQ, hampered early by a downgrade of the chip equipment sector. It rebounded early, but then faded and could not get back up. No major loss, but we note that it tapped toward the 200 day SMA (472) Tuesday and faded; that is the level that stalled SOX in the mid-October run. Needs to hold the line here and then see a break through that level as NASDAQ continues higher to really give this rally some serious underpinnings.
SP500/NYSE
Stats: +5.45 points (+0.21%) to close at 1385.72
NYSE Volume: 1.689B (+5.42%). Volume moved up through average again Wednesday as the large caps posted a modest gain but could not clear the October high. Good volume, just not making the break it needs.
Up Volume: 951.814M (+106.572M)
Down Volume: 720.916M (+4.303M)
A/D and Hi/Lo: Advancers led 1.72 to 1. Better breadth as the small and mid-caps assumed a leadership role. Not nearly the 3:1 seen Monday, but passable.
Previous Session: Advancers led 1.3 to 1
New Highs: 251 (-41)
New Lows: 20 (+7)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied to 1389 on the high once more but same as Tuesday, it could not punch through that level that marks the October high. Trying to make a higher low as it tapped the 10 day EMA (1376) on the low and rebounded for a gain. Have to be careful here: it is still banging against the prior high after a long run. Any break higher has to show stronger volume to avoid that low volume second peak in a double top.
SP600 (+0.66%) led the market Wednesday as investors avoided large pharmaceuticals and defense, but found reason to like biotechs and small energy, the latter despite the democrats' supposed inhospitable disposition toward energy companies. Trying a higher low of its own off the 18 day EMA and trying to make the move over 395.50 from late October.
DJ30
It was not blast off, but the blue chips posted a new all-time closing high. Democrats sweep Congress, Dow hits new high. I can see the headlines now. Volume was back above average on the move, giving it the look that it is not just a mediocre test of the October high (12,167). Still not a clean break and yes, still extended. Nice recovery off the 18 day EMA after breaking it for the first time since early September and still showing the same resilience each time it weakens; the power of new money chasing performance toward the end of the year.
Stats: +19.77 points (+0.16%) to close at 12716.54
Volume: 252M shares Wednesday versus 222M shares Tuesday. Volume picking up this time as the blue chips moved to a new high.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Back to the economic grind with import prices, the trade balance, Michigan sentiment and wholesale inventories. The trade balance will give the newly elected something to talk about as they push for 'pay go', an idea that is not bad but that is not tied to spending cuts. As we know, Congress will try to raise taxes before it cuts spending, but Bush is going to veto tax hike proposals. Gridlock with name calling. Now that is something to look forward to.
After hours CSCO once more pleased investors similar to August when it jumpstarted the current move with much better earnings than anyone thought. Its comments drove it higher after hours and it took a lot of techs upside with it. Potentially a very nice plus for NASDAQ as it tries to put some mileage on this breakout. Potentially a very nice plus for us as we have been accumulating shares of the leaders as they showed they were ready to buy, even in the troubles of early November.
If we get another good surge we will be in position to take some gain on many positions. They may not be at our target, but a strong surge that puts them in the range will be worth taking some nice profit off the table. We love to take interim gains as we go along in a move as that banks us some nice profit and helps take some of the mental aspect out of the equation. If you already have some good gain in the bank you can let remaining positions ride with more confidence. We really like doing this with options as we capture nice leveraged gains on each run higher; given their time limited nature this is smart to do and it also really helps the mental aspect of staying with a winner.
As for new positions we will see what is ready for the next break higher. When the market rallies like this you get waves of breaks higher; many stocks rally together, but money works around the market in sectors, and thus we see stocks breaking higher in those waves. We will be looking at more of those for Thursday as the market gets back down to business post-election.
SP500 and DJ30 are really worth watching here as they test the October high. Don't want to see them break down at this juncture in order to give NASDAQ some room to extend its breakout and not suffer the October fate. As noted earlier in the week, you have to like how NASDAQ shook off that failed breakout and jumped right back up on some volume. Money is moving into techs. Now we see if it can continue into them and spread out to the small caps more and deliver a breakout for them as well.
Support and Resistance
NASDAQ: Closed at 2384.94
Resistance:
2384 is an interim peak from January 1999
2493 is an interim peak from February 1999
Support:
2379 is the October high.
2376 is the April high, the former post-2002 high
2368 is the early October handle high.
The 10 day EMA at 2359
The 18 day EMA at 2347
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
2300 represents some price support
The 50 day EMA at 2291
2273 is the recent September peak
2250 is the March 2006 closing low.
2234 is the June 2006 peak (intraday)
2236 is the August 2004/April 2005 up trendline
The 200 day SMA at 2232
S&P 500: Closed at 1385.72
Resistance:
1389 is a low from November 1999
1390 is the October high.
1398 is a low from January 2000
1401 is a low from April 2000
Support:
1378 is a low from May 2000
The 10 day EMA at 1376
1371 to 1373 is the December 2000 peak and the January 2001 peak
The 18 day EMA at 1371
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 1347
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 12,176.54
Resistance:
October high is 12,167. Making the break through.
7.8% above its 200 day SMA. Has been struggling since it hit near 8% above that level. Tends to start about 10%, so this is a bit early but it has been a long run.
Support:
The 10 day EMA at 12,090
The 18 day EMA at 12,042
11,865 from the early October consolidation
The 50 day EMA at 11,816
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): -$1.2B actual versus $5.0B expected, $9.1B prior (revised from $2.6B)
November 8
Crude oil inventories (10:30): +400K actual versus +1.2M expected and +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): 310K expected, 327K prior
Trade balance, September (8:30): -$66.0B expected, -$69.9B prior
Michigan Sentiment, prelim for November (9:45): 93.5 expected, 93.6 prior
Wholesale inventories, September (10:00): 0.6% expected, 1.1% prior
End part 1 of 2
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us stock market
trading system
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