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11/21/06 Investment House Alerts Report
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IH Alert 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: AKAM; BBY; SAY
Trailing stops: CEPH
Stop alerts: None issued
SUMMARY:
- Market advance sluggish as small caps cannot offset tech leader day off
- Fed-speak is more of the same as White House downgrades growth prospects.
- Dell results can get the tech move back in gear.
Market pushes higher but lacks punch as semiconductors take the day off.
The market was set to advance again with some good pre-market earnings (DE, JWN) and AAPL higher on its iPhone, building on Monday's solid advance to start the holiday week. Stocks opened higher, but so did oil (closed at 60.17, +1.37). Some windy conditions in Alaska were preventing loading of the trans-Alaska pipeline, leaving it at 25% capacity. Amazing as it seems, that was credited for the initial rise in oil, and it built on that the rest of the session.
Of course, as oil cracked $60/bbl the market started to struggle. Indeed, the leaders Monday (chips) were the laggards Tuesday (-1.10%). That drag along with the overall lackluster buying in the rest of the market (below average volume) kept the action muted and quite volatile. Stocks sold midmorning, but then managed a lunchtime recovery before the afternoon dips set in. Some late buy on close orders punched up prices and closed the indices mostly positive except for SOX.
Technically the action was weak with low volume, modest breadth, and wandering leadership. With the existing uptrend, the low volume and lack of conviction let the trend continue with a general melt higher. Without the techs taking the point, the market did not have any punch. It was good to see the small caps again step up to lead the market, but they were not surging by any means. Dell announced better than expected bottom line results after hours, and with that we expect the trend to hold as the holiday approaches.
THE ECONOMY
No economic reports released Tuesday. The only economic reports were more Fed-speak and a White House report that warned of slower growth. The Fed-speak was the same old theme: inflation rate uncomfortable, risk was to the inflation side, could get more hikes. Hmmm. The race continues: will inflation come down fast enough so the Fed can back off or will it remain sticky, at least when measured by the Fed's indicators that are lagging by their nature (CPI, PCE).
The other story from the White House was a reduction in 2006 GDP to 3.1% from 3.6%, and 2007 to 2.9% versus 3.3%. Secretary Paulson said this took into account the slowdown in housing but other sectors remained strong.
This is an interesting contrast to what the stock market is saying. Lately the growth areas of the market have started to lead as the industrials have started to slow their advance. The stock market builds in gains in growth areas when it anticipates further expansion, not slowing growth rates.
What we are seeing is something quite typical: human perceptions versus market perceptions. Typically the human guesses are simply wrong. The market certainly did not take it very hard, but of course, it is a holiday week and participation is lower. There is also the bond market out there with its 19 basis point inversion between the 2 year and 10 year (4.76% versus 4.57%) and low overall rates. Low rates of course do not necessarily mean weak economic growth, just look at the 1980's and 1990's. The inversion is what gives you pause still, and this has yet to be resolved. For now the stock market is not buying into a contraction in growth.
THE MARKET
MARKET SENTIMENT
VIX: 9.9; -0.07
VXN: 15.02; -0.11
VXO: 9.36; -0.21
Put/Call Ratio (CBOE): 1.05; +0.18. Whether this was put buying (anticipating downside ahead) or put selling (anticipating upside ahead), the level of activity started to get extreme; a close over 1.0 is a showing that speculation is getting a bit high. Given the market rise you have to be concerned there is too much put selling, particularly with the strong bull readings among investment advisors. Again, all this does is raise a caution flag to watch how price/volume action and leadership hold up as the market moves ahead.
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: +2.12 points (+0.09%) to close at 2454.84
Volume: 1.753B (-0.56%). Volume remained below average for the third consecutive session as NASDAQ drifts modestly higher after the strong break higher the prior week. Not bad to see the trade slacken as NASDAQ basically works laterally, and not really surprising given the holiday week.
Up Volume: 900M (-260M)
Down Volume: 797M (+225M)
A/D and Hi/Lo: Advancers led 1.01 to 1. Another flat as a board day, matching the price action.
Previous Session: Advancers led 1.01 to 1
New Highs: 148 (-48)
New Lows: 42 (0)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ scratched out a low volume gain, but there was no help from the semiconductors that were a major drag on the techs all session. An early rally attempt sold off, but the low volume allowed the trend to hold and NASDAQ rose into the close with a late pop delivered from some buy on close orders. After hours DELL posted much better than expected bottom line numbers (0.30 versus 0.24) and was enjoying a $2 pop. We will see if this can regenerate the buying momentum in techs on Wednesday.
SOX (-1.10%) was the drag on the market Tuesday, never able to get off the dime as some of the good moves Tuesday turned into some selling. Volume was generally lower on the selling, so it was no dumping, but the chips need to hold their leadership status just regained. Important juncture, that first attempt to sell a good move. SOX is still above the 200 day SMA (469.23) but we don't want it to go back to that level. Indeed we want to see it hold from here and resume the move.
SP500/NYSE
Stats: +2.31 points (+0.16%) to close at 1402.81
NYSE Volume: 1.535B (+0.99%). Another modest gain on rising but still below average volume. Basically a flat, lateral move following last week's jump higher, and the lower volume as it moves laterally is thus not a bad indication.
A/D and Hi/Lo: Advancers led 1.57 to 1. The small caps put in a good session and thus there was some very solid breadth given the overall moves in the market.
Previous Session: Advancers led 1.05 to 1
New Highs: 268 (-39)
New Lows: 20 (+2)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 scratched out a gain of its own though it showed relative strength versus the techs all session. Hard to call it a resurgence of any sorts, just drifting higher on low trade as it follows along with the NASDAQ, SP600 and SOX. Not able to push that break of the 18 day EMA last week, but recall that before that the large caps were struggling to hang on. They need leadership from the other areas right now to help keep them going.
SP600 (+0.37%) led the market Tuesday, though leading today only required showing up. Though the gains were not large, it was good to see the small caps continue their leadership role, re-assumed of late, as the semiconductors, and to a lesser extent the techs, struggled. The point: you want to see the growth indices continue to show some leadership to indicate the move still has legs.
DJ30
Edged out a gain but really nothing session as volume was even lower below average and a price move less than one-tenth a percent. Similar to SP500, DJ30 is working laterally after a good surge last week took it up off the 18 day EMA (12,178) and took it out of a lateral stumble. So far just a nice lateral consolidation of that move as DJ30 works laterally while the 10 day EMA (12,243) catches up with it.
Stats: +5.05 points (+0.04%) to close at 12321.59
Volume: 216M shares Tuesday versus 228M shares Monday. Volume remained below average for the second session as DJ30 takes a pause after the strong move last week.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
A full session though a one just before a holiday, so expect low volume and not a lot of fireworks, particularly given the half-day session Friday. A lot of traders and fund managers won't be at work to drive things. Typically that means the existing trend remains in place, and with it being the thanksgiving week, that adds to the upside push, modest though it may be. Michigan sentiment is out Wednesday as well, something that might give the market a boost as it did in the preliminary report.
DELL is also a factor as it shook things up a bit after hours with a much better than expected bottom line. That could spark the buying in technology once more. Of course, if the techs start out like a ball of fire we have to be careful they don't burn out and tank.
We are looking at plays that are trying to make a significant move even in this holiday week. Though volume is low, with the pullback that ended last week there are still good stocks in position to move higher. We cannot expect a lot of volume if they start their moves, and it comes down to just how good the patterns and how good the move looks. We can get into some solid stocks in good positions even in a quiet market.
There were some nice moves in some of our positions and we could have banked some gain, but given it is the holiday week we were willing to let them try and run a bit more Wednesday. Another good run and it is not a bad idea to take something off the table for the holidays.
After that we can enjoy some turkey and all the fixings.
Support and Resistance
NASDAQ: Closed at 2458.54
Resistance:
2477 from January 1999
2493 is an interim peak from February 1999
Support:
2412 from June 1999 low
The 10 day EMA at 2426
The 18 day EMA at 2402
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 2333
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
S&P 500: Closed at 1402.81
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:
The 10 day EMA at 1393
1390 is the October high.
1389 is a low from November 1999
The 18 day EMA at 1386
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 The 50 day EMA at 1361
2002 low at 1360.
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 12,321.59
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 12,243
The 18 day EMA at 12,178
October high is 12,167
11,986 is price support from mid-October and the early November low.
The 50 day EMA at 11,945
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% actual versus 0.2% expected, 0.4% prior (revised from 0.1%).
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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