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12/13/06 Investment House Daily
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SUMMARY:
- Retail sales send stocks higher out of the gates, but once more they have a hard time holding good news.
- Retail sales pop a July high.
- Market gets a data breather ahead of the Friday CPI
The little rally that couldn't.
Much stronger than expected retail sales (1% versus 0.2% expected) jumped futures higher, bolstered the dollar versus the yen, but also jumped interest rates higher as bond traders factored in just an 18% chance of a rate cut in March (down from 82% last week). In addition, MS increased AAPL's target price to $110 while the airlines were talking marriage again with UAL and CAL going courting. Upgrades, M&A activity, surprisingly strong retail sales (and not all gasoline price driven). The financial stations were simply giddy at the prospects of a rally.
In our morning alert we opined as to whether the initial bounce could hold, and almost from the open stocks started to give back some of the gains with a steady slide lower. When the energy inventory report hit at 10:30ET showing a massive 4.3M bbl decline (-1.3M expected) with gasoline down 100K when a 900K build was expected, the selling intensified with a sharp plunge lower. Once more that sent NASDAQ down to its July up trendline. Once more that trendline held and NASDAQ managed a bounce from that level.
None of the indices ever returned to their early session levels. They stemmed the selling with a 5 hour lateral move that saw NASDAQ turn negative intraday, and a modest short covering bounce in the last hour kept NASDAQ, SP500 and DJ30 positive at the close. That was mostly a moral victory. Once more the indices could not hold a gain, continuing that top-heavy, sluggish look, at least on NASDAQ.
Technically it was more of the same with a recurrence of an old wrinkle. The indices could not break from their lateral consolidation even with some good news. In addition there was a return of the high to low action. That is not bullish, but there was nothing else nefarious in the session other than another session going nowhere at the top of a long run. Further, though the indices gave up early gains on good news, they did not reverse and sell off horribly. Volume was lower so there was no distribution. Breadth was flat. NYSE new highs were decent. The indices continued their lateral moves, holding above near support. Refusing to give up gains during a consolidation is a sign of strength, and despite being extended and NASDAQ showing some distribution they are steadfastly holding gains. The question is whether they are setting up for a new breakout or struggling with their last ounces of strength to just hang on. The distribution and churn in NASDAQ is a con, and SOX continues its weakness, falling almost 23 points in a week. There is nothing wrong with SP500 and SP600, however, so the upside potential remains. Remains to be seen that is.
THE ECONOMY
Retail sales hit a four month high.
The 1% gain in November was driven by stronger readings across the board, including a 2.3% rise in gasoline sales. In addition, October was revised to -0.1% from -0.4%. Big revision. Ex-autos sales rose 1.1%. Though gasoline sales were up, the benefits of lower overall gas prices is are showing up at the cash register. Building materials rose 1.8%, electronics 4.8%. Non-store retail (internet) gained 1.3%. Not blowout but very solid and a good comeback after two months of downside.
Still if you want to pick you can. 6.1% in 2005, 6.7% in 2004, and 5.2% in 2003. You have to go back to the recession years of 2000 through 2002 to get less. Pick, pick, pick. Those of course are the numbers for the entire holiday season, and this one in 2006 is expected to show a 5% gain. The past three years the projections were lower than actual. It will be key this time around whether actuals beat expectations. There is nothing really scientific about it, but as we noted the past week, when the actual results beat expectations that typically means the economic activity is still improving. When actual results come up short, then you know there really is slowing because forecasters don't change their tune until they see several misses, and by that time the worm has turned.
With December reports a bit slow by some counts, the final two weeks will be massively important. We don't see a slowdown at all in our own surveys, and we also are hearing that consumers are ready to go blitzkrieg in the last week.
Now the downside. The Commerce Department said it made some revisions to the way it calculates the result, and that could have skewed the figures. Nonetheless, the strength across the board indicates there is substance there and that the housing slump has not drained consumers' wallets or enthusiasm for consuming. Other than that, however, we will have to wait for the revisions, and boy have we seen revisions in just about every report released the past two months. Thus how much stock do you put into this report? The market didn't put a lot judging from the gap higher and then the softer close.
THE MARKET
MARKET SENTIMENT
VIX: 10.18; -0.47
VXN: 14.9; -0.35
VXO: 10.15; -0.82
Put/Call Ratio (CBOE): 0.89; -0.08
Bulls versus Bears: Bulls moved further above the key 55%, but bears rose over a point and one-half as skeptics are growing along with the bulls. Somewhat of an offset to the rise in bulls, but not a complete offset. Still a warning to watch for distribution, failing leadership and the like.
Bulls: 59.8%. Another solid jump, up from 58.5% and 56.4% the week before. Third 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: 23.9%. Up from 22.3%, bouncing after getting as close to 20% as it has on this entire run. Held steady at 22.3% for 2 weeks then started this rebound attempt. 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: +0.81 points (+0.03%) to close at 2432.41
Volume: 1.823B (-7.86%). No distribution or churn Wednesday as NASDAQ posted a modest gain. NASDAQ ran the spectrum, starting higher, selling off to the trendline, then rebounding modestly to close positive. With the return to below average volume, it was easier to push it around. Still has some distribution and churn that are the primary worries with its action.
Up Volume: 936.903M (+343.793M)
Down Volume: 861.27M (+725.76M)
A/D and Hi/Lo: Decliners led 1.01 to 1
Previous Session: Decliners led 1.66 to 1
New Highs: 91 (-22)
New Lows: 36 (-11)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher again on the promise of strong retail sales and a raised price target but as with the rest of the market, it had trouble holding onto its 12 point rise. It did not come near the November or December highs before turning over and selling negative. It undercut the July up trendline on the low but managed to post a close just over that level (2430). With the trendline pushing from below and some resistance at the November and December highs it is setting up for a showdown between the two. The distribution is a card against it, but it has not dominated. The CPI is another big data point similar to retail sales; we will see if it can shake the tree enough to get a breakout from this range.
SOX (-1.23%) took a hickey once more, breaking below the 50 day EMA on the close, just holding above the 200 day SMA. This action is getting 'curiouser and curiouser' as the rest of the market works laterally. Undermining NASDAQ? Perhaps. It too is coming to a showdown and this one is the 200 day SMA test.
SP500/NYSE
Stats: +1.65 points (+0.12%) to close at 1413.21
NYSE Volume: 1.469B (-3.75%). Lower, below average volume continues for over a week as SP500 and SP600 move laterally, testing the rebound from late November. Definitely no distribution, meaning investors are not selling these stocks, just abstaining from buying right now. That is always a positive as buyers rest, let stocks settle down, and then move back in and drive them higher.
Up Volume: 759.872M (+194.328M)
Down Volume: 695.126M (-253.445M)
A/D and Hi/Lo: Advancers led 1.09 to 1
Previous Session: Decliners led 1.28 to 1
New Highs: 266 (+34)
New Lows: 13 (-4)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 rallied to test the December high (1418.27) intraday but faded on low volume. Still closed positive and sill working laterally in a tight range over the 10 day EMA (1408), refusing to give up its gains. Extended still but showing no signs of selling, so hard to get too down on it.
SP600 (-0.02%) again tapped the 18 day EMA on the low and rebounded to show a tight doji at some support at 400. In perfect position to continue the breakout to a new all-time high. The small caps are not showing the late-cycle weakness you would expect if the economy was going to slow in the future. Indeed, they have recovered from a lagging position through the summer that foretold the economic slowdown. Now they are at new highs, and that foretells improving economic conditions.
DJ30
The pattern is tightening up and flattening out over the 10 day EMA (12,292) in an almost incredibly tight range right at the November high. At first this low volume rebound to that prior high worried us; it still does some, but the index has not reversed off of that level but instead continues to hold the rebound at the all-time high. In short, no sellers have entered to send it back down, letting it consolidate. Not bad, but nothing definitive yet given the extended run.
Stats: +1.92 points (+0.02%) to close at 121317.5
Volume: 213M shares 248M shares Tuesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
After some heavy duty economic data thus far the market gets a reprieve ahead of the Friday CPI that will either confirm the Fed's fears or start backing off, following the weakening in the PPI. As we noted earlier in the week, we believe it will start showing up in this report.
That is for Friday. Thursday the market has to ponder what has been and what is ahead as it continues to hold gains and consolidate near the November highs. NASDAQ continues to struggle a bit more given its distribution and churn as well as the lack of support from the chips. Are they harbingers of weakness or just laggards? A tougher call at this point given the 4.5 month run before this lateral move. Thus far most of the market is moving laterally without distribution, and you have to look at that as the overriding positive, along with solid stocks that continue to perform or hold near support with mild, orderly tests. We still have our reservations given the run, the distribution on NASDAQ, and the inability to hold gains after good news, but they simply are not giving up. You approach with caution, but you still approach when you see the moves.
Support and Resistance
NASDAQ: Closed at 2432.41
Resistance:
2468.42 is the November 2006 high
2477 from January 1999
2493 is an interim peak from February 1999
Support:
2430 is the July up trendline
The 18 day EMA at 2429
2412 from June 1999 low
2384 is an interim peak from January 1999
2379 is the October high.
The 50 day EMA at 2379
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)
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
S&P 500: Closed at 1413.21
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 1408
The 18 day EMA at 1403
1394 is the July up trendline.
1390 is the October high.
1389 is a low from November 1999
The 50 day EMA at 1381
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.
Dow: Closed at 12,317.50
Resistance:
12,361 is the November 2006 high
Support:
The 10 day EMA at 12,292
The 18 day EMA at 12,263
October high is 12,167
The 50 day EMA at 12,092
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 11
Wholesale inventories, October (10:00): 0.8% actual versus 0.6% expected, 0.7% prior (revised from 0.8%)
December 12
Trade Balance, October (8:30): -$58.9B actual versus -$63.0B expected, -$64.3B prior
Treasury Budget, November (2:00): -75.6B actual versus -$73.0B expected, -83.1B prior
FOMC policy meeting statement (2:15): Left Fed Funds rate at 5.25%. Noted 'substantial' cooling in the housing market and some more economic slowing.
December 13
Retail sales, November (8:30): 1.0% actual versus 0.2% expected, -0.1% prior (revised from -0.4%)
Retail ex-auto (8:30): 1.1% actual versus 0.3% expected, -0.3% prior (revised from -0.4%)
Business inventories, October (10:00): 0.4% actual versus 0.5% expected, 0.3% prior (revised from 0.4%)
Crude oil inventories (10:30): -4.3M actual versus -1.3M expected and -1.04M prior
December 14
Initial jobless claims (8:30): 320K expected, 324K prior
December 15
CPI, November (8:30): 0.2% expected, -0.5% prior
Core CPI, November (8:30): 0.2% expected, 0.1% prior
NY Empire State PMI, December (8:30): 18.0 expected, 26.7 prior
Net foreign purchases, October (9:00): $69.5B expected, $65.1B prior
Capacity utilization, November (9:15): 82.1% expected, 82.2% prior
Industrial production, November (9:15): 0.0% expected, 0.2% prior
End part 1 of 3
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