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money investment, financial investment
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12/06/06 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: AMAG; CBG; MA
Buy alerts: ALXN; JCOM
Trailing stops: DIGE; MA
Stop alerts: PFWD
SUMMARY:
- No new money, no sellers, no action.
- Bond yields rebound sharply. The bond market appears no less confused than other markets.
- Market on hold Wednesday and likely Thursday ahead of Friday's job report.
Market sleepwalks through the session.
The market was peppered with lots of news points, none of them major, but the cumulative effect sapped the market's strength. Bullishness hit its highest level in more than a year. ADP posted a strong jobs number ahead of the Friday jobs report and that had investors feeling good and bad; good for the economy, bad because Bernanke and company's concern about wage-push inflation (and other fairyland issues). NOVL reported weak earnings and that dogged techs. Iran announced it was now pricing oil in euros versus dollars. Bond yields rebounded sharply with the inversion widening to 10 points. No one story sank the markets, but the result was similar to raising kids, i.e. similar to being pecked to death by chickens.
Stocks started soft, traded softer, rebounded midday, then faded into the close with all indices but SOX trading lower. There was simply nothing driving the action as the new money for the new month dried up. There were no sellers moving in either, however, and the session turned out to be more of a test of the early week move higher. Though the day was basically a test of the prior move and was nothing nefarious, it did not change anything. The indices are still in their uptrends, the large cap NYSE indices are trying to recover from their second round of volatility within the last month as they try to keep the rally going to year end.
Technically volumes were lower, breadth was flat, and leadership was spotty. Chips actually showed some pop again as what little money there was in the market moved there way. The indices sold early but held near support as NASDAQ tapped the 10 day EMA and bounced back. As noted, there were no violations of support or the trends, just a quiet session as the indices try to work off the volatility from the last run and test and set up something else for the rest of the year. NASDAQ's churn on Tuesday turned into a nice lower volume tap of near support as SOX tapped support and rebounded as well. SOX remains a positive for a further move to the year end, getting some money as the other indices stalled on the session. If rotation continues the market should be able to work higher to then end of the year though it may be more choppy trade as seen the past month. After that we will have to see what the new year brings as stocks stole some gain from the future by rallying in September and October.
THE ECONOMY
Bond yields bounce right back and inversion widens once more.
We (along with a few others) give bonds a lot of credence as representing the 'smarter' money in the financial markets. Thus when the bond market shows a trend it is definitely a large part of any economic analysis. The lingering though small yield curve inversion the past year indicates economic slowing ahead. The jump to an almost 20 BP inversion a few weeks back added more weight to the economic slowdown argument.
Over the past week the yield inversion cooled to just 4 BP, pushed along by the ISM report that came in below 50. As we noted a few months back, the small inversion was hanging around, just looking for an indication the Fed was going to bring the Fed Funds rate more in line with the market rates set by bond traders. When the Fed paused, for example, the inversion righted itself. When the Fed came out barking like a junkyard dog about inflation, however, the curve inverted again and steadily worsened. Recently, as the economic data weakened and the prospect of a Fed rate cut gained momentum once more, the inversion almost disappeared again. Looked promising.
Wednesday the bond curved jumped back to 10BP as the 2 year treasury yield jumped 7BP in one session when mortgage applications rebounded due to the 30 year mortgage rate dipping below 6% (5.98%), the lowest since August. Already back to 10 BP on rather nothing news.
The point: the bond market is jumpy, bouncing back and forth. This is not the steady, staid action representative of 'smart' money steadily moving in one direction. The bond market, while still a very good indicator overall, is a bit loose at the edges as some of that liquidity that has infected markets across the world runs in and out of bonds in a somewhat uncharacteristic fashion. Thus there is an element of 'fluff' in the bond market that is keeping the bond curve a bit artificially inverted. The extent of this is not dominating the trade, however, and thus the bond market is still a good leading indicator. It is still suggesting that 2007 may be a bit weaker.
THE MARKET
MARKET SENTIMENT
VIX: 11.33; +0.06
VXN: 16.46; +0.26
VXO: 10.75; +0.15
Put/Call Ratio (CBOE): 0.85; +0.09
Bulls versus Bears: Bulls moved further above the key 55%, but again, 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: -6.52 points (-0.27%) to close at 2445.86
Volume: 1.921B (-5.84%). Volume backed off to average as NASDAQ faded modestly, holding above near support. Good answer to the Tuesday and last Thursday's churning (higher volume turnover). Nice easy test on lower volume; it's a start.
Up Volume: 797.192M (-185.62M)
Down Volume: 1.074B (+48M)
A/D and Hi/Lo: Decliners led 1.17 to 1. Flat, basically in line with the action.
Previous Session: Advancers led 1.05 to 1
New Highs: 127 (-104)
New Lows: 18 (-18)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
After some higher volume churn Tuesday following the Monday rebound, NASDAQ faded modestly, tapping the 10 day EMA (2437) on the low and bounced to recoup basically half of the session losses. A good answer to the churn as NASDAQ lagged the NYSE move higher Tuesday and looked like a potential downside leader if the churn continued and turned into selling. As it is NASDAQ is still perched just below the November high (2469), but slowing the pace a bit to a more orderly rate. Still in the uptrend given the recovery, but also still has near resistance to deal with if it wants to move higher. It is showing some age, but time and again it has continued higher despite the wear and tear.
SOX (+0.35%) may help. Wednesday it held up nicely, tapping the 10 day EMA on the low as well and posting the only gain in the market. Some money flowed into semiconductors and SOX was bumping against the November high. That money rotating to the sector could provide the leadership the market needs to complete an advance to the year end.
SP500/NYSE
Stats: -1.86 points (-0.13%) to close at 1412.9
NYSE Volume: 1.533B (-0.65%). Volume was lower and remained below average as SP500 rested after two upside sessions. Not a lot of strength on the bounce this week as volume remained below average and frankly below the levels hit last week. Not great action on Wednesday, but not bad action by any stretch.
Up Volume: 683.177M (-317.252M)
Down Volume: 834.595M (+311.597M)
A/D and Hi/Lo: Decliners led 1.23 to 1. After some solid breadth sessions it deserved to have a basically flat breadth day.
Previous Session: Advancers led 1.72 to 1
New Highs: 293 (-254)
New Lows: 4 (-8)
The Chart: http://investmenthouse.com/cd/^gspc.html
After two up sessions this week as money hit the market to start the month, the large caps took the day off, fading modestly on lighter, below average volume. It has been volatile the past month and lacks real price/volume strength, but it is holding its trend and the Wednesday action was what you want to see when an index rests after a bounce higher. In short, it has its issues, but as noted of late, it has left a lot of shorts in its wake. You have to respect the streak.
SP600 (-0.4%) was flat, showing a tight doji after two upside sessions A doji can indicate a swing of momentum, but after just two upside sessions there is not likely to be a violent reaction to this indicator. SP600 broke out in October and has trended, in a somewhat volatile fashion, up the 18 day EMA. May come back some more here given the bounce higher but it too is trending higher, holding its post-breakout run.
DJ30
The blue chips showed the same action as SP500, SP600, i.e. a modest loss on lower, below average volume as DJ30 tested the November high (12,361 intraday) on the early week bounce. Not a lot of volume taking to that level and thus an important pullback for DJ30. It can either make another modest, relatively low volume test back or the sellers came come out. Thus far they have not. DJ30 remains in a more volatile pattern and has slowed its advance, now trying to overcome a potential short term double top.
Stats: -22.35 points (-0.18%) to close at 12309.25
Volume: 220M shares Wednesday versus 233M shares Tuesday. Volume has faded on the move higher, but at least it was lower on this day of rest.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
A bit more economic data comes out Thursday (jobless claims, consumer credit), but investors are likely to overlook that news ahead of the Friday unemployment report. That means likely another sleepy session ahead in anticipation of that report. Also, the FOMC meets next week and with Moskow hitting the airwaves up to the last minute before the 'quiet period,' investors are a bit unsettled as to what the Fed will say. No one, but no one expects any rate hike, but with the adamant warnings about possible rate hikes given the Fed's publicly advocated inflation indicators (CPI, PCE), you just don't know what the Fed will say. Likely no change at all even with the ISM slipping below 50 in November.
The Wednesday action helped diffuse somewhat the lagging churn on NASDAQ on Tuesday with its orderly, low volume test. Not bad at all as it keeps the indices, despite some volatility the past month, in their uptrends. They are still extended and will have to come back for a test at some point after this run. The market moves in its own timeframe, however, and thus what investors view as necessary doesn't necessarily happen. The uptrend continues and we continue to play the trend. There were some great moves again on Wednesday, but most that we saw were continuation moves and not new breakouts.
We see some money moving back into semiconductors again and will mine that for what it is worth if that money drives some of the sector leaders into buy points. At the same time we will continue to play a bit defensive, taking gain when we get some good moves logged and not letting positions start breaking support. Respecting the trend, but at this stage of the move you have to be a bit more conservative. We have many good positions that are moving well, but at this stage of the move we are not going to necessarily load the boat with new positions.
Support and Resistance
NASDAQ: Closed at 2445.86
Resistance:
2468.42 is the November 2006 high
2477 from January 1999
2493 is an interim peak from February 1999
Support:
The 10 day EMA at 2437
The 18 day EMA at 2426
2412 from June 1999 low
2402 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 2367
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 1412.90
Resistance:
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:
1410 is an interim high from March 2000
1408 is the November high
1401 is a low from April 2000
The 10 day EMA at 1403
The 18 day EMA at 1397
1390 is the October high.
1389 is a low from November 1999
1382 is the July up trendline.
1378 is a low from May 2000
The 50 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.
Dow: Closed at 12,309.25
Resistance:
12,361 is the November 2006 high
Support:
The 10 day EMA at 12,258
The 18 day EMA at 12,227
October high is 12,167
The 50 day EMA at 12,044
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.
December 5
Productivity, Q3 revision (8:30): 0.2% actual versus 0.5% expected, 0.0% prior
Factory orders, October (10:00): -4.7% actual versus -4.0% expected, 1.7% prior (revised from 2.1%)
ISM Services, November (10:00): 58.9 actual versus 55.5 expected, 57.1 prior
December 6
Crude oil inventories (10:30): -1M versus -360K prior
December 7
Initial jobless claims (8:30): 325K expected, 357K prior
Consumer credit, October (2:00): $4.5B expected, -$1.2B prior
December 8
Non-farm payrolls, November (8:30): 105K expected, 92K prior
Unemployment rate (8:30): 4.5% expected, 4.4% prior
Hourly earnings (8:30): 0.3% expected, 0.4% prior
Average workweek (8:30): 33.9 expected, 33.9 prior
Michigan sentiment, Dec. preliminary (9:45): 92.0 expected, 92.1 prior
End part 1 of 3
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money investment
financial investment
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