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money investment, day trading
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11/13/06 Investment House Daily
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Investment House Daily Subscribers:
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SUMMARY:
- Low volume gains ahead of busy week.
- Tax receipts remain high in October, but so does spending
- NASDAQ trying to lead as SOX reloads for another test of the 200 day SMA.
Stocks extend their gains but again don't really change the picture.
NASDAQ and SOX were the clear leaders on the session with 0.70% and 1.56% gains as NASDAQ extended its breakout with a new post-2002 closing high and the chips received an upgrade. Talking to brokers and floor traders, there is a general quiet belief that techs are under-bought and one of the last areas to put new money to work in this rally. No kidding. They have lagged the entire move and we have looked for money to flow into them as the large cap NYSE issues started to sag and form new bases after their strong and rather extended runs. Tuesday they were getting some money, but it was not a serious dump of new cash and even with the gains the market did not change much.
Stocks started flat, and as noted in the pre-market alert, those soft starts in an upside market tend to be entrees to the upside. Sure enough the indices jumped higher most of the first hour. Oil was running lower (finished 58.58, -1.01) and of late that has often acted as an intraday salve to the market, helping stocks higher as it slips. Not a major catalyst, however, just bumping stocks up and down. Why? Because stocks have been mostly on hold of late, moving up and down in a lateral range for 3 or so weeks. When there is no big catalyst to push them, they tend to ride up and down on the ebb and flow of oil prices.
There was not a lot of news to push stocks during the session outside of oil. There was that chip sector upgrade, but compared to the last couple of weeks where deals were popping the Monday morning action was sleepy. The Dallas Fed's Fischer was out again, and that always makes you cringe because you just don't know which way this oddball is going to bounce. He was the one who said the Fed was in the eighth inning back in the late summer of 2005 and apparently got taken to the woodshed. He came out a changed Fed man, talking tough on inflation, and one can only imagine he thinks the game is in the fifth inning. Now there is a man we want running our monetary policy. Fortunately he is not a voting member right now and he can only vote with his mouth.
Technically it was a session that did not change much. NASDAQ did extend its gain but it was on very low volume. SOX is still below the 200 day SMA, setting up for another rendezvous with the level that stopped its advance twice in the past month. Third time for a charm anyone? SP600 is still in its lateral consolidation and SP500 is still trading just below that second near term peak. Intraday the action was fine: soft open, nice surge, intraday consolidation, rally to close near session highs.
Leadership was solid in some areas, but struggled in others. Retailers started the session higher but could not on hold on. After a strong run to this point they are starting to struggle as October retail sales are set to come out this week along with WMT, TGT and HD earnings results. There is some apprehension ahead of the report given the weak same store sales in October and the all important holiday shopping season ready to start.
Volume was a pittance and breadth was mediocre. There was not a lot of power behind the move, more of a melt higher ahead of a lot of economic data to come. Sellers tried to push stocks early but there was not force their either. When the market is trending in one direction it tends to move with the trend in the absence of any overriding issues. Thus the drift higher on light trade. Thus not a lot of power, just riding the trend on lower volume.
THE ECONOMY
Treasury budget for October came in slightly above expectations (-$49.3B versus -$49.0B and -$47.3B prior). More red ink, but it has been abating thanks to large increases in tax receipts. Indeed, receipts rose 12% year/year. Unfortunately, outlays grew a whopping 10%. Year over year they were up 7.4%, much too high.
We cannot get a handle on spending, and frankly, there has been little will to do so with a White House and a Congress formerly controlled by Republicans. If Bill Clinton was still President, do you think a republican controlled Congress would have passed the Medicare Part D prescription benefit? Not even close. It would have been labeled tax and spend waste and would have died off. Mostly likely it would not have even received a vote, dying in committee.
If Republicans had even tried to hold back spending they would have fared better, at least with their own base, at the polls. Instead even the conservative faithful were estranged by the unending spending. Tax receipts sliced the fiscal year 2004 budget by a quarter. FY2006 took off another $71B, an excellent showing given the Gulf storms and war costs. If Congress had limited spending to even 6% growth (still much too high) tax receipts would have equaled outlays and we would have 'balanced' at least the current year deficit. That does not address the accumulated deficit, but a first step is not adding anything to the existing deficit.
We are not deficit hawks, i.e. we don't believe that the federal deficit is the equivalent to a household deficit as some in Congress believe. The Feds can run a deficit without falling into bankruptcy, and in doing so can stimulate the economy. At the same time, it is foolish to just spend without regard for what or how much just because the federal government can survive with a deficit. There are opportunity costs with respect to what the money could be used for, the most important being how citizens could use that money to start or improve their businesses, hire more workers, and otherwise improve their lives and the economy at the same time.
The republicans used to champion smaller government, and Ronald Reagan said the way to do it was limiting what it received in taxes in the first place; less money means it cannot grow into new agencies and bureaucracies. Yet expenditures grew and so did government, and indeed, as tax receipts are up so is spending. Seems not much changes in DC regardless of who is in charge, but when you piss off your base, you are not in charge for long. One can only hope the new 'blue dog' conservative democrats (who are quite frankly what were called Reagan democrats) can push Congress back to the ideals of smaller government that the republicans used to at least give lip service to.
THE MARKET
MARKET SENTIMENT
VIX: 10.86; +0.07
VXN: 16.2; +0.68
VXO: 11.01; +0.4
Put/Call Ratio (CBOE): 0.79; -0.19
Bulls versus Bears:
Bulls: 52.1%. Ticking down from 53.7% last week and also below the 52.7% rung up the prior week. Still flirting with 55%, the level considered bearish. Has caught the April high and is moving closer to the January peak at just over 60%. 55% is considered a bearish indication.
Bears: 26.0%. Moving the opposite from the bulls, bears fell sharply from 28.4% and 30.1% before that, continuing the faster decline. 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 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: +16.66 points (+0.7%) to close at 2406.38
Volume: 1.765B (+3%). Volume rose on an upside gain. Hurray! Accumulation as NASDAQ broke to a new post-2002 high. Right. Volume was so low Friday it was not worth measuring, and Monday it was not much higher, coming in well below average. Not the kind of strength as NASDAQ pushes to new highs that sweeps away that strong Thursday distribution session.
Up Volume: 1.219B (+251.27M)
Down Volume: 516.198M (-208.48M)
A/D and Hi/Lo: Advancers led 1.42 to 1. Another mediocre breadth session as NASDAQ pushes higher. It is weakening once more after firming up as NASDAQ broke higher in early October.
Previous Session: Advancers led 1.56 to 1
New Highs: 175 (+67)
New Lows: 55 (+5)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ pushed to a new post-2002 high, its third in four days. Nice price action but volume has not kept up. There was a strong volume session last Tuesday when it surged but gave much back before that close. It has moved higher since that breakout but volume, outside Thursday's distribution session, is lower. You cannot expect higher volume every session, and with a market trending higher you get these kind of gains. It needs to be punctuated with some strong upside volume gains along the way, however, or it runs out of gas. Getting some good leadership to drive the index higher, but will need some volume along the way.
SOX (+1.56%) moved off the higher low made last week above the 50 day EMA (453.72), posting a market-leading gain. This is taking it right back toward the 200 day SMA (470.82) that stalled it in mid-October and last week. Two tries, two failures, but as noted, the third time may do the trick. That higher low often precedes a break over resistance. If it can pull it off and move through that October high as well (476.95) that would be a big shot in the arm to NASDAQ and the market overall as the chips and techs step up as the large cap NYSE stocks take a needed breather.
SP500/NYSE
Stats: +3.52 points (+0.25%) to close at 1384.42
NYSE Volume: 1.411B (-0.86%). Continued low, below average volume as SP500 knocks around below the recent highs and SP600 works laterally in its handle. Good for SP600; the jury is still out on SP500.
Up Volume: 870.685M (+81.042M)
Down Volume: 585.101M (-26.814M)
A/D and Hi/Lo: Advancers led 1.2 to 1. Quite modest breadth for any upside move.
Previous Session: Advancers led 2 to 1
New Highs: 256 (+46)
New Lows: 27 (+8)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 remained below the twin peaks at 1389-90, tapping close to that level Monday (1387.61) before fading back for a modest close. Low volume, so it was not going to punch through. Trying to make a higher low at the 10 day EMA (1378.85) to make a run at pushing through. We will just have to let this one play out. Long run in its channel, modest double top, some leadership shifting toward NASDAQ, SOX, and even trying to show up on the small caps. It has made that higher low noted in the weekend report, and again, we just have to let this one play out.
The small cap SP600 (+0.35%) posted a modest gain but it remains well within its 5 week lateral move as it tries to put in a handle consolidation to precede its own breakout effort. Even that breakout won't take it to a new post-2002 high, but after lagging on this move, a breakout shows money definitely shifting around the market, a healthy indication, particularly if the NYSE large caps continue to struggle.
DJ30
Very similar to SP500 as DJ30 tries a higher low at the 10 day EMA (12,102) after forming something of its own small twin top. It too is extended and trying to fight off an overbought condition with this 4 week lateral move. Again, not a great risk/reward position and it will have to show us the move.
Stats: +23.45 points (+0.19%) to close at 12131.88
Volume: 194M shares Monday versus 204M shares Friday. After the high volume selling Thursday trade has tamed on this test.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
An important report before the open when October retail sales are released. The PPI will also get its due ahead of the CPI Thursday. Let's not forget the FOMC minutes on Wednesday either; while the Fed has stepped back from the limelight recently it is still very much in the game as far as the market. The Fed-speak certainly has not mitigated even as the economy slows; it predicted a slowdown in the economy but it apparently is seeing a recovery. The minutes will likely talk of the slowing seen but we expect some spin on a solid holiday season.
Retail stocks tried to forge ahead Monday, but it was rough going given the run to this point, retail sales out in the morning, and many retail earnings reports this week from WMT to AEOS to HD. They are part of that NYSE leadership that led the market off the July low and some are extended while others are already in a month-long lateral consolidation. What we continue to see is more tech strength and yet another attempt by SOX to take on the 200 day SMA. Its quick recovery and rebound toward that level indicate there is some buying there that is going to try and give that resistance a run. If it was weak it would have turned tail and tanked and languished for a longer period. Like this quick rebound.
Thus we will be looking at these areas again for more opportunity, particularly if the chips can make the break through the 200 day SMA. We will not forget the small caps either as they continue to work on the consolidation in preparation for a breakout of their own. Late to the party perhaps, but the fact that they managed to hold their base and threaten a breakout is a positive for the market overall as they are growth stocks.
All of this is in the context of a typically bullish time of year as investors head into the holidays then onto the first of the year. That provides a good backdrop even with the indices avoiding the usual dips in September in October. That left the NYSE large caps a bit winded, but with NASDAQ, SOX and SP600 in position to take up the torch if those bigger names need more of a breather (as the DJ30 and SP500 patterns are suggesting). Rotation is a sign of market health and if money continues to move toward the growth areas that is an affirmation of an overall positive tape. The volume the past two sessions of gains is not blowing anyone away, but if these patterns keep setting up we expect it to come in.
Support and Resistance
NASDAQ: Closed at 2406.38
Resistance:
2412 from June 1999 low
2477 from January 1999
2493 is an interim peak from February 1999
Support:
2384 is an interim peak from January 1999
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 2374
The 18 day EMA at 2360
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 2302
2300 represents some price support
S&P 500: Closed at 1384.42
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 1378
The 18 day EMA at 1374
1371 to 1373 is the December 2000 peak and the January 2001 peak
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 1351
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 12,131.88
Resistance:
October high is 12,167
7.2% 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 12,102
The 18 day EMA at 12,063
11,865 from the early October consolidation
The 50 day EMA at 11,850
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 13
Treasury Budget, October (2:00): -$49.3 actual versus -$47.0B expected, -$47.3B prior (revised from -$47.4B)
November 14
Retail sales, October (8:30): -0.4% expected, -0.4% prior
Retail ex-autos (8:30): -0.3% expected, -0.5% prior
PPI, October (8:30): -0.4% expected, -1.3% prior
Core PPI (8:30): 0.1% expected, 0.6% prior
Business inventories, September (10:00): -0.5% expected, 0.6% prior
November 15
NY Empire PMI, November (8:30): 14.0 expected, 22.9 prior
Crude oil inventories (10:30): 435K prior
FOMC minutes, Oct. 25 (2:00)
November 16
CPI, October (8:30): -0.3% expected, -0.5% prior
Core CPI (8:30): 0.2% expected, 0.2% prior
Initial jobless claims (8:30): 310K expected, 308K prior
Net foreign purchases, September (9:00): $71.0B expected, $116.8B prior
Industrial production, October (9:15): 0.3% expected, -0.6% prior
Capacity utilization, October (9:15): 82.0% expected, 81.9% prior
Philly Fed, November (12:00): 5.0 expected, -0.7% prior
Housing starts, October (8:30): 1.680M expected, 1.772M prior
Permits, October (8:30): 1.625M expected, 1.638M prior
End part 1 of 3
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money investment
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