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us stock market, trend trading stock
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11/16/06 Investment House Daily
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Investment House Daily Subscribers:
***Holiday Week Schedule****
Market closed Thursday, open one-half day Friday.
Normal report schedule Monday and Tuesday
Wednesday: Market summary, continuing play tables, note plays ready to move.
Regular schedule resumes Monday.
Alerts issues as usual during market hours.
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: None issued
Trailing stop alerts: None issued
Stop alerts: 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 Daily alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdly.htm
SUMMARY:
- Quiet Friday expiration helps set up a good holiday week.
- Housing start slump and builder sentiment setting a housing bottom?
- Leading indicators show economic turn back up, continued falling inflation: economic nirvana possible, but can the Fed afford to acknowledge it?
- Leaders setting up for the holiday week.
A rather anticlimactic Friday saw the indices close mixed on lighter trade. The session had a negative tone from the start as Thursday's crop of earnings from HPQ and SBUX failed to excite buyers and housing suffered another gut punch with starts down 14.6%. There was the typical expiration volatility, but the action saw the new found leadership in the growth sectors struggle with some pretty hefty losses early on despite another lower finish in oil prices (55.81, -0.45), down 30% from its summer peak and its lowest level since June 2005. Nonetheless, the bullish bias of the existing trend exerted itself and by the close SP500 and DJ30 scratched out a gain while the growth indices managed to recoup most of their losses.
Overall the week was solid once more though a few clouds crept in on the horizon. Leadership continued to show up in growth indices. NASDAQ gained 2.3% while SP600 broke out from its base and blasted through the 200 day SMA. After a long run in the large cap NYSE indices the market needed to fan out leadership, and despite the weaker close to the week, it did just that. Healthy action on top of already strong gains in traditionally weaker September and October.
On the down side the week saw investor sentiment head to extreme levels, at least on the bullish side. Bullish investment advisors topped 55%, typically an indication things may be getting a bit frothy. Bears are still above 20%, but heading that way quickly. Bulls topped 60% in January and the market struggled for two months. It did not tank, however. Sentiment is like the ghost of Christmas to come; it points out possible things to come but they are not written in stone. It tells us to watch the market nuts and bolts closely, e.g. price/volume action and leadership.
And with that lead in, the technical outlook is not bad and Friday did little to change it. The market move slowed as the week advanced, not unusual after a strong break higher. As with anything, there is usually a strong burst of activity to start things and the move slows as the run progresses until it needs a rest, makes a test, and then rebounds. The depth of the test typically tells the strength of the move. As of the Friday close, it looks as if the newly asserted leadership in SP600, NASDAQ, and SOX looks pretty solid with modest fades toward the 10 day EMA. An orderly test of that near support (small daily losses and low volume) would set up a new strong leg in the rally.
Breadth has improved the past couple of weeks, and new highs started to come through for the market this week. NYSE new highs were well above 300 and NASDAQ just missed 300 on its high for the week. That is vastly improved over the 70 to 90 logged when the rally started. After that bout of distribution that hit the indices to start the month the price/volume action has improved once more, showing the buyers are still in charge.
Leadership is also holding up. It got a bit rocky the past two weeks as some stocks imploded on earnings or other news. Indeed, that action did not stop this week or on Friday. After a dip, however, many found support at the 50 day or there about and are rebounding. Moreover, there is more leadership coming to the fore as the small caps and semiconductors breakout and give the market needed support.
All of this indicates that the action remains solid despite the high bullishness. The market is set for a modest pullback that could really send SP600 and SOX on a good run following their breakouts. At the same time we have the Thanksgiving week that often sees a nice week of gains. A bit of a pullback Monday and part of Tuesday sets up the traditional Thanksgiving bounce (as traditional as turkey and dressing) on Wednesday and Friday's half session.
THE ECONOMY
Housing starts take a pounding . . . again.
So the housing market has bottomed Mr. Greenspan? He made that pronouncement last week and judging by the bottom the housing stocks are trying to put in, he may be right. Of course stocks anticipate future events as opposed to reacting to current events.
Thus the 14.6% decline in monthly housing starts in October (the worst showing since July 2000) hardly indicates housing has bottomed. That 27% year over year decline does not inspire visions of surging home prices anytime soon.
At the same time you are looking at home builders and what they are doing. Recall how in early 2005 and even in the summer 2005 the homebuilder CEO's were on the financial stations talking about a 10 year or more demographic that would spur the housing market on for the next decade. At the time we noted how rampant the bullish sentiment was and factored that into our calculations regarding the housing top that summer. Now we are at the other end of the spectrum with homebuilders very gloomy and slamming the brakes on building new homes. Just as the excessive, and I mean excessive, bullishness marked the top, the bearishness indicated by the building surveys and the fact of plunging housing starts suggests the bottom of the market is approaching.
There are other signs the downturn is getting excessive as foreclosures jumped 42% in October, falling prices for both existing and new homes, and surging, record inventories. Nonetheless, excess readings are just an indication. It will likely take until the end of summer 2007 to get inventories readjusted.
Leading indicators continue suggesting slow economic patch is past.
If the Fed is counting on slower economics to cool inflation, it may be disappointed. Of course, as we have discussed before, economic output has no bearing on inflation; it is the level of liquidity that determines inflation pressures. The economy can be roaring or snoring and you can have inflation or not. The Fed, at least in its spoken and written word, tends to buy off on the economic speed controlling inflation. Its actions this year suggest otherwise as it has cut money supply growth to less than 1%/month versus the 6+% per month under Greenspan (and indeed up to the last month of Greenspan's tenure in December 2005).
Regardless of its innermost feelings, however, the Fed takes the stand that a slower economy means slower inflation, and as the economy slowed in Q2 and Q3 it was feeling better re inflation, and that is likely why Bernanke was able to swing his minions to a pause vote.
The latest leading indicators, however, are showing the economy is set to swing back into a stronger growth mode just as many have forecast a potential recession in 2007. ECRI's U.S. Leading Index for the second week of November rose to its highest since April, the point before where the economy started to slow. The 4-week annualized growth rate climbed to its highest in four months. This as the ECRI inflation gauge, a leading gauge as opposed to the Fed's CPI and PCE, shows that "pervasive and persistent" decline in inflation becoming "pronounced" and that inflation is "in a clear cyclical downswing."
Rising economic indicators and falling inflation indicators are just about nirvana for the economy and thus the stock market. The problem as we move ahead is the one we always have: the Fed not recognizing when its 'work' is done and going too far. Right now it is on hold and the Fed funds futures contracts indicate no action is anticipated the next three sessions. Hopefully by that point the Fed's indicators will have softened and the Fed will, for once, succeed in not causing a significant economic slowdown or recession.
THE MARKET
MARKET SENTIMENT
VIX: 10.05; -0.11
VXN: 15.33; -0.03
VXO: 9.84; -0.31
Put/Call Ratio (CBOE): 0.81; +0.03
Bulls versus Bears: Bulls have moved above the key 55% but this is not the best timing indicator. It is a warning to watch for distribution, failing leadership and the like.
Bulls: 56.4%. Bullish advisors have finally topped 55%, the level where the yee ha view of the market is overdone and some corrective activity can enter. A sharp jump from 52.1% the week before and closing in on the January peak at just above 60%.
Bears: 22.3%. Sharp drop from 26.0% and flirting with the 20% level considered bearish. Well off the 37.1% hit in July (the highest level in this entire cycle). 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: -3.2 points (-0.13%) to close at 2445.86
Volume: 1.804B (-14.97%). Volume backed off as NASDAQ posted a modest loss. No distribution and very quiet action for expiration Friday. It is the Friday before a holiday week, and that tends to lighten trade as those taking the week off (and after those huge Wall Street bonuses many were) left town after lunch. In any event, no distribution.
Up Volume: 699M (-402M)
Down Volume: 978M (+107M)
A/D and Hi/Lo: Decliners led 1.37 to 1. Remained modest on the decline. As noted above, breadth is expanding on this rally, something it was unable to do early on. That shows the rally is spreading out and more money is getting to work.
Previous Session: Decliners led 1.01 to 1
New Highs: 146 (-78). Faded as the index faded, but as with breadth, more new highs the past two weeks as the index has extended its move.
New Lows: 42 (+3)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
After a strong surge early in the week that delivered a new post-2002 high, NASDAQ lost its strength late in the week and faded modestly Friday after a fight to hold positive Thursday. Very normal, healthy action as it fades on lower volume, and we are looking for it to hold near the 10 day EMA (2412) as a good test of the breakout and set the stage for a run through the holidays.
SOX (-0.55%) continued to work laterally for the third session following its big break higher on Tuesday that smashed it through the 200 day SMA (469.74), the resistance that held SOX in check since it fell through that level in May. As with NASDAQ, a nice fade to test this important break higher sets up the next solid upside move.
SP500/NYSE
Stats: +1.44 points (+0.1%) to close at 1401.2
NYSE Volume: 1.712B (+1.9%). Volume remained above average as SP500 sold lower and rebounded as did SP600. Volume has been excellent on this last move and though the NYSE indices were mixed it is still very good price/volume action.
Up Volume: 844.096M (+844.096M). Dead heat. Just what you want to see.
Down Volume: 831.951M (+831.951M)
A/D and Hi/Lo: Decliners led 1.11 to 1
Previous Session: Advancers led 1.14 to 1
New Highs: 167 (-181). Hit near 400 on the move higher, showing a very nice expansion on this part of the rally as the small and mid-caps joined back into some leadership.
New Lows: 17 (+2)
The Chart: http://investmenthouse.com/cd/^gspc.html
Modest gain as the large caps came back from a deficit to post another gain and another post-2002 high (ho-hum). After looking extended and toppy heading into this week it broke higher once more with the rest of the market. It slowed the gains to end the week as did the other indices, and a test of near support at the 10 day EMA (1389) sets it up to continue.
The small cap SP600 (-0.28%) reached lower as well intraday but recouped more ground that it lost on the session overall. Big breakout to start the week and a modest fade back to test. A hold at the 10 day EMA (395.79) would set the continued breakout move as the small caps continue to exert new leadership.
DJ30
The blue chips continued their climb, posting another record high as reported every half hour by CNBC. It too looked toppy as the week started, but funds used the pullback to chase performance and drove it higher off near support at the 18 day EMA for that new high. Got some big help to end the week from BA and MO that helped DJ30 outdistance the other indices as they softened near the end of the week.
Stats: +36.74 points (+0.3%) to close at 12342.56
Volume: 285M shares Friday versus 223M shares Thursday.
The chart: http://www.investmenthouse.com/cd/^dji.html
MONDAY
The economic data quiets a bit this week, but given the shortened trading window given the Thanksgiving holiday (closed Thursday, half a session Friday): Leading indicators, final Michigan sentiment, crude oil inventories. None of those are going to evoke major market moves.
More important to the action is the week itself and the technical market position. The thanksgiving week tends to find upside bias, particularly when such a bias already exists. As we have seen many times in this rally, the bias is bullish as lulls or indecision is met with a drift higher. Contrast that when the market is lower and the general drift downside. With Thanksgiving, however, the drift tends to be upside. Volume is typically low because not many are in the game, but there can be some good opportunities, particularly in a general uptrend that has tested and set up another upside break.
Another session or session and one-half to the downside this week sets up such a bounce. We see stocks that have come back to test breakouts, near support, or the 50 day EMA and are or are ready to move higher. While the Thanksgiving week tends to be low volume, we have made some good entries in holidays gone by, and we will be watching to do the same to give us some good stocks to ride through the year end rally.
Support and Resistance
NASDAQ: Closed at 2445.86
Resistance:
2477 from January 1999
2493 is an interim peak from February 1999
Support:
2412 from June 1999 low
The 10 day EMA at 2412
The 18 day EMA at 2390
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.
2333 is the top of the Q1 2006 trading range (the January and mid-March 2006 highs)
The 50 day EMA at 2323
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
S&P 500: Closed at 1401.20
Resistance:
1401 is a low from April 2000
1410 is an interim high from March 2000
1420 is a July 2000 low
1425 is an interim high from November 1999
1444 from February 2000
1475 from peaks in December 1999 and January 2000
Support:
1390 is the October high.
1389 is a low from November 1999
The 10 day EMA at 1389
The 18 day EMA at 1383
1378 is a low from May 2000
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.
The 50 day EMA at 1358
1354 from the early October consolidation
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 12,342.56
Resistance:
8.8% above its 200 day SMA. Struggled since it hit near 8% above that level previously in late October before this last break higher. Tends to start about 10%, so this is a bit early but it has been a long run.
Support:
The 10 day EMA at 12,205
October high is 12,167
The 18 day EMA at 12,143
11,986 is price support from mid-October and the early November low.
The 50 day EMA at 11,914
11,865 from the early October consolidation
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 20
Leading economic indicators, October (10:00): 0.2% expected, 0.1% prior
November 22
Initial jobless claims (8:30): 310K expected versus 308K prior
Michigan Sentiment, revised November (10:00): 93.0 expected, 92.3 prior
Crude oil inventories (10:30): +1.283M prior
End part 1 of 3
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us stock market
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