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11/29/06 Investment House Daily
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Investment House Daily Subscribers:
NOTE: Due to some surgery on a team member that went longer than expected we have to abbreviate the report a bit tonight.
MARKET ALERTS:
Target hit alerts: None issued
Buy alerts: CRZO, CELG, JWN, THQI (bonus)
Trailing stop alerts: None issued
Stop alerts: None issued
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SUMMARY:
- Stocks survive midday fade on rising oil, rebound into close.
- GDP upward revision gives investors a comfort zone.
- Taking back the Monday decline, but not safe yet.
Market avoids a mid-session crisis, close mostly positive.
The second iteration of Q3 GDP was a stronger than expected 2.2% (1.6% originally reported). Something about a 2 point something versus a 1 point something sure sounds better, and that helped futures get off to a really solid start. That carried over into the regular session with NASDAQ posting a 20 point gain early on while DJ 30 topped the 100 mark.
Then the oil inventories came out. Crude was basically in line but distillates were way out of whack with a 1.1M bbl decline versus the 500M bbl gain anticipated. Crude gained 1.47 to 62.46 on the session. At first the market walked through the oil report without slipping. As the session wore on over lunch and into early afternoon and oil continued its climb, however, stocks reversed their gains. NASDAQ fell negative with a 22 point swing.
Then the Fed Beige Book came out at 2ET with the Fed noting modest growth in all regions except Dallas. The market was already on the mend when the report was released, but stocks definitely caught a bid after the report. SP500 broke to a new session high just before the close while NASDAQ and SP600 gave a new high a run.
Once more the market showed a bit of high to low action, though this version took two runs from the buyers, one in the morning and one in the afternoon. Volume was a bit higher on NYSE, a bit lower on NASDAQ. Breadth was excellent at 3.9:1 on NYSE, and 2.1:1 on NASDAQ. Leaders advanced nicely. All good indications as the indices try to shake off the Friday and Monday dump lower.
A good couple of days recovery, but still not out of the woods yet. There is good breadth and volume is no slacker on these up sessions as it is right in line with the Monday downside trade. Moreover, we have seen this rally shake off such violent and quick jolts before. It will have to do it once more, however, and though it is making the right moves (breadth, volume, leadership) its work is not done yet. You have to ask yourself is oil rising because the market is anticipating more demand down the road due to strong economies, or will that rise overwhelm the already slowing pace of economic expansion? Some of Wednesdays strong numbers were a result of a jump in energy stocks (SP600's rise and the great breadth). Good to see, but you want the growth areas to be the leaders, not energy. We note that SOX was the laggard Wednesday (-0.43%); it is still in good shape to bounce off its 18 day EMA, but we don't want to see the growth areas (i.e. NASDAQ, SP600, SOX) start to stumble here.
THE ECONOMY
GDP revision is a shot in the arm.
An increase to 1.8% from 1.6% was expected, but the 2.2% was a surprise. It was also nice that the PCE inflation indicator the Fed supposedly watches fell to a 2.2% year over year growth rate (down from 2.3%), getting closer to Fed's preferred upper range limit of 2%.
Business investment was revised to 10% from 8.6%. Profits surged to 4.2% from the 1.4% originally reported; profitable companies keep buying equipment. Housing was a drag, down to 18%, but given the original report was -17.4%, it was no real jolt.
This report helped calm some concerns that the Fed was engineering another soft crash. The market wants the Fed off its back (particularly the bond market) but at the same time it does not feel the economy needs to slow any more. It knows the Fed is talking tough but it also knows that some of that is just bluffing. Thus the upward revision in the GDP has to be a positive for the market, and on Wednesday it was.
THE MARKET
MARKET SENTIMENT
VIX: 10.83; -0.79
VXN: 16.78; -0.55
VXO: 10.23; -0.65
Put/Call Ratio (CBOE): 0.67; -0.26
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: 58.5%. Bulls are jumping even more, posting another big gain from the already high 56.4% last week. Second week the bullish advisors topped 55%, the level where the market is viewed as overdone and some corrective activity can enter. It started to do just that Friday and Monday. A sharp jump from 52.1% the week before and closing in on the January peak at just above 60%.
Bears: Held steady at 22.3%, hovering just above the 20% level considered bearish. 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: +19.62 points (+0.81%) to close at 2432.23
Volume: 1.973B (-2.84%)
Up Volume: 1.37B (+360.867M)
Down Volume: 545M (-422.111M)
A/D and Hi/Lo: Advancers led 2.17 to 1
Previous Session: Advancers led 1.09 to 1
New Highs: 151 (+80)
New Lows: 44 (-12)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
SP500/NYSE
Stats: +12.76 points (+0.92%) to close at 1399.48
NYSE Volume: 1.605B (+1.56%)
Up Volume: 1.31B (+328.881M)
Down Volume: 283.797M (-312.374M)
A/D and Hi/Lo: Advancers led 3.9 to 1
Previous Session: Advancers led 1.84 to 1
New Highs: 289 (+150)
New Lows: 17 (-7)
The Chart: http://investmenthouse.com/cd/^gspc.html
DJ30
Stats: +90.28 points (+0.74%) to close at 12226.73
Volume: 219M shares Wednesday versus 222M shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Personal income and spending along with the Chicago PMI are the heavy hitting reports Thursday, but they are a warm up for the ISM that was dancing a bit close to the edge near 50 in the last report.
Wednesday saw a return of some leadership, some solid upside breadth, and some more solid volume. A good answer to the Monday selling. It is not a complete answer, however, as the indices are still below the peaks before that rather violent dump lower. No doubt it would have been better for the market to take a few more days of rest before coming right back. As it is some of the performance chasers saw the drop as a chance to buy. Perhaps they can keep it going, once ore overwhelming the sellers in the market. The rebound has solid attributes, but after a dump such as Monday you have to tread a bit lightly.
We will continue to look at leaders with good fundamentals and technical position for cues as to entering new plays. We saw more than a few making good moves Wednesday, and when they move and show good volume you need to react. SOX' inability to follow has us watching to see if the growth sectors start to struggle again, but it did manage to hold near support and is still in position to move higher. Again, a good response, but stocks still have to carry higher from here to wash away that dump lower.
Support and Resistance
NASDAQ: Closed at 2432.23
Resistance:
The 10 day EMA at 2429
2468.42 is the November 2006 high
2477 from January 1999
2493 is an interim peak from February 1999
Support:
The 18 day EMA at 2415
2412 from June 1999 low
2390 is the July up trendline
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 50 day EMA at 2351
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
S&P 500: Closed at 1399.48
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 1394
1390 is the October high.
The 18 day EMA at 1390
1389 is a low from November 1999
1378 is a low from May 2000
1376 is the July up trendline.
1371 to 1373 is the December 2000 peak and the January 2001 peak
The 50 day EMA at 1367
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
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 12,226.73
Resistance:
The 10 day EMA at 12,220
12,361 is the November 2006 high
Support:
The 18 day EMA at 12,192
October high is 12,167
The 50 day EMA at 11,994
11,986 is price support from mid-October and the early November low.
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 28
Durable good orders, October (8:30): -8.3% actual versus -5.0% expected, 8.7% prior
Consumer confidence, November (10:00): 102.9 actual versus 106.0 expected, 105.4 prior
Existing home sales, October, (10:00): 6.24M actual versus 6.14M expected, 6.21M prior (revised from 6.18M).
November 29
GDP, Q3 second round (8:30): 2.2% actual versus 1.8% expected, 1.6% prior reading
Chain deflator, Q3 (8:30): 1.8% actual versus 1.8% expected, 1.8% prior
New home sales, November (10:00): 1.004M actual versus 1.05M expected, 1.075M prior
Crude oil inventories (10:30): -360K versus +5.161M prior
Fed Beige Book (2:00): All regions reported modest growth except Dallas that noted some slowing.
November 30
Initial jobless claims (8:30): 316K expected, 321K prior
Personal income, October (8:30): 0.5% expected, 0.5% prior
Personal spending, October (8:30): 0.1% expected, 0.1% prior
Chicago PMI, November (10:00): 54.5 expected, 53.5 prior
December 1
Construction spending, October (10:00): -0.4% expected, -0.3% prior
ISM Index, November (10:00): 52.0 expected, 51.2 prior
End part 1 of 3
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