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money investment, investment help
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12/14/06 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts: STEC
Buy alerts: HLTH, HMSY
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:
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SUMMARY:
- Market brushes past issues, breaks higher from the lateral consolidation
- Slow economic session sees the dollar rise along with interest rates.
- CPI, expiration Friday, and earnings warnings will make things even more interesting.
This time the rally sticks.
Back when I practiced law there was a saying about arguments to put in a brief: throw it up against the wall and see what sticks. After two rally attempts over the prior three sessions failed, Thursday's rally stuck to the wall. Despite being extended SP500 and SP600 were in good position to rebound, and even NASDAQ was forming up well despite its distribution. Thursday the power of the existing trend, the holiday season, and of course a lot of liquidity jumped stocks higher again.
There were some issues again such as OPEC agreeing to cut production another 500K bbl starting February 1 (and oil jumping to 62.51, +1.14 in response) and import prices climbing 0.2% despite a drop in oil prices. That is the impact of a weaker dollar policy: you get higher prices here at home start as you import inflation in the form of more expensive goods. Another case where the many sacrifice for the few all in the name of political power.
There I go again, digressing. Even with these very real issues facing the economy (as we noted even before this week's statement from the Saudi oil minister, OPEC wants oil above $60/bbl now as its new target) the market threw off its sluggishness and rallied, holding the move to the close on some rising volume. DJ30 broke to a new all-time high and SP500 hit a new post-2002 high. While the move was set up by the patterns, it had some help from expiration week, and not just the usual volatility accompanying the week. With the market trapped in a four week consolidation and expiration just ahead, many traders sold futures and call options on the indices. When the indices started to bounce those positions had to be covered. More fuel for the fire. The more the indices bounced, the more positions were covered (bought) and the more the market rallied. Another expiration related rally.
Technically it was not bad action though it was not blowout. Stocks charged higher and held their gains. Of course the action was over after 40 minutes as the market flat-lined for the next 5 hours right into the close. It did hold the gains, however. Volume was up on both NASDAQ and NYSE, a positive turn in price/volume action. Breadth was positive but did not crack 2:1 on the close. Not overly impressive on the internals. We did, however, see a widespread rebound off near support by many quality stocks. With the extra volume that was a solid showing. It seems after two weeks into December the market is trying to get its legs to finish strong into the holidays. We will see. It has some of the feel of December 2005 when the market moved laterally the first two weeks of the month and then wallowed lower the second half of the month. Perhaps the market can build on this Thursday move higher and make a definitive break higher instead of that 2005 break lower. We will see; the Thursday bounce still has to deal with the Friday CPI, but the bounce still has a lot of liquidity driving it ahead of year end.
THE ECONOMY
It was pretty quiet on the economic front Thursday. Jobless claims fell 24K to 304K; must be time to panic and worry about a too tight job market. Or should we just acknowledge that the seasonal adjustments that skewed the numbers near 350K two weeks back were just wrong? The government reports of late are similar to the boy who cried wolf: they are wrong so often no one now believes them at all.
The dollar continued to strengthen against the euro, but it is really just a relief bounce after getting pummeled over the past month. Bond yields rose once more (4.73% 2 year versus 4.60% 10 year), and higher rates help raise currency values. Cause and effect.
Friday the CPI is released, and after a somewhat softer FOMC statement, investors are looking for signs the consumer side of the cost equation is starting to soften along with producer prices. On the other hand, there are those looking for prices to even increase. Expectations (or more precisely hopes?) are leaning toward a softening. That leaves the door open for an upset if it does not come about. We think we could get some softening, but then again, regardless of which way it comes out, can anyone really believe the number? Short term that does not matter, but after the initial reaction that perception will be the real influence on market direction.
THE MARKET
MARKET SENTIMENT
VIX: 9.97; -0.21
VXN: 14.09; -0.81
VXO: 9.58; -0.57
Put/Call Ratio (CBOE): 0.64; -0.25
Bulls versus Bears: Bulls eased a bit but remained well above the key 55% level. Bears fell this week, coming closer to 20% considered bearish. Not a great development but as of yet there is still enough money coming in to feed the bulls. That is really the import of this reading: if you get too many bulls, there is no ammunition on the sidelines to keep shooting the market higher. With all of the liquidity in the world (OPEC nations making billions a day), it has to go somewhere. Markets around the world are benefiting from that money, and the US, despite the naysayers, is still a favored destination because of our rule of law, stability, and of course, year in and year out economic growth.
Bulls: 59.6%. Slipped fractionally from the prior jump to 59.8%. It has been a steady move higher from 58.5% and 56.4% the week before. Fourth straight week the bullish advisors topped 55%, the level where the market is viewed as 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: 21.3%. Big drop in bears, down from 23.9% after a bounce higher just before that. It is now coming close to that 20% level considered bearish. This is well off the 37.1% hit in July (the highest level in this entire cycle), now so far in the distance you can barely see it. 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: +21.44 points (+0.88%) to close at 2453.85
Volume: 1.939B (+6.34%). Volume was still below average but up on a session that saw NASDAQ move off the July trendline and the 18 day EMA. A good answer to the more recent distribution, but note that volume was still lower than the recent selling volume. Relatively there were not more buyers in NASDAQ, just enough to win the day.
Up Volume: 1.43B (+492.704M)
Down Volume: 417.379M (-443.891M)
A/D and Hi/Lo: Advancers led 1.47 to 1. Middle of the road.
Previous Session: Decliners led 1.01 to 1
New Highs: 107 (+16). Pretty pathetic given it is knocking at the door of a new post-2002 high.
New Lows: 26 (-10)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
A good day for techs as the July trendline held the tests this week and NASDAQ popped higher off of that and the 18 day EMA. Volume was up so there was arguably some accumulation, but with expiration close the rising volume was likely related to that event and as noted, it just was not that strong relative to late November and early December. In any event, the upside won the showdown between the rising lows and the distribution. NO breakout to a new post-2002 high yet, however, and that is going to be the seminal test of the buyers' character on this move. So far not bad.
SOX (+1.86%) came back to life after falling to the 50 day SMA on the Wednesday close. Doing what it has to do for now, holding above the 200 day SMA and rebounding. The move did not change the pattern; the chips were quite a bit weaker than the rest of the market the past week and have a lot of ground to make up.
SP500/NYSE
Stats: +12.28 points (+0.87%) to close at 1425.49
NYSE Volume: 1.568B (+6.74%). Best volume in two weeks but it was still only average as SP500 broke to a new post-2002 high and SP600 started a bounce off of its nice breakout test. Not blowout given expiration week, but a solid bump in volume to accompany the nice break higher in prices.
Up Volume: 1.178B (+418.321M)
Down Volume: 374.686M (-320.44M)
A/D and Hi/Lo: Advancers led 1.76 to 1. Better than NASDAQ but still could not even push 2:1.
Previous Session: Advancers led 1.09 to 1
New Highs: 314 (+48). Not bad. If SP600 continues its bounce it will likely turn very solid.
New Lows: 4 (-9)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 broke sharply higher out of its two week flat consolidation. It was a nice lateral move without distribution, the kind you salivate over earlier in a run. Turns out it was good over 4 months into a run as well as volume moved higher and the index broke to a new post-2002 high. The power of money wanting returns has yet to be denied on this run.
SP600 (+0.58%) broke higher as well, but it did not have the success off the large caps. It posted a gain but gave back one-third of its gain on the session. Still a solid uptrend, however, and a good start to the resumption of the breakout move after testing near support at the 18 day EMA. Pretty much textbook given the strong pattern.
DJ30
Same action on DJ30, breaking higher from a tight lateral move the past two weeks. Volume was up and above average as it made the move, clearing that potential double top formed the past four weeks as DJ30 turned more volatile. Still extended but also still in the uptrend. Hard to stand in the way of the money pushing into stocks ahead of year end and the turnover ahead of expiration.
Stats: +99.26 points (+0.81%) to close at 12416.76
Volume: 253M shares Thursday versus 213M shares 248M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Many crosscurrents in the market Friday, starting with the CPI and running through the close with expiration. There is some extra spice as well with earnings issues. DELL announced after hours that it would delay its 10-Q filing as it deals with some earnings issues (not options related according to DELL). COST, a major discount retailer, lowered it guidance. It is the holiday season, but with January close at hand, it is also the season for warnings. Stocks in general were not getting crushed after hours on this news, but as Tom Hanks said in 'A League of Their Own,' things are getting a bit interesting.
Likely much of the expiration action has been worked out already (the moves Tuesday and Wednesday were not big but the intraday ranges were). That leaves the CPI as the main data point for the early trade to key on. Despite its lagging nature the Fed has picked it as one of its main indicators and thus the market is somewhat handcuffed by the monthly reports. It is particularly agonizing to those watching the economy and knowing that there is a limited time window for the CPI to start coming down to appease the Fed and get it off of this publicly stated lean toward inflation risks. It is not of dire importance that the Fed cut rates right now, it is, however, important for the Fed to start suggesting that the economy is slow enough to warrant concern about growth versus simply harping on inflation risks.
Even with the CPI's importance, unless it is higher than expected it likely won't put the market under heavy pressure as investors know inflation pressures are currently elevated yet the Fed has paused. It is a report higher than expected that is the problem for the market.
As noted above, however, the believability factor of the government data is down these days, and the market will go on regardless of the CPI; inflation has been 'elevated' for some time and the market has moved higher. This break higher was fueled by plenty of position covering on Thursday, but also some big buyers still entering the market and bolstering the portfolios for the year end statements. That remains a powerful feature of this rally in addition to the tax reasons for not selling out a lot of positions ahead of the new year. Unlike 2005, this year there are a lot more gains in the market and thus less likelihood of the same type of selling before year end. Thus there is room for continued upside as more money chases performance; there is also more room upside from a technical sense as the indices are still in their upside channels and just halfway to the top. That means not a lot of resistance overhead now particularly with DJ30 and SP500 clearing the recent highs.
We will continue to look for opportunity as it arises in solid stocks, and we are also letting a lot of positions rebound higher as the market moves higher. We will let them go as far as they will and then look to close some of them even if it means doing so before the end of the year. What often happens when there is a big year and run higher through December is a weaker start to the year. That happened in 2004 after a strong run from October to December and then some selling to start 2005. That selling can be abrupt and rather violent; we would prefer not to be around except with some of the strongest stocks. Thus we will continue to take positions on strong stocks as they show good moves but we will also use a continued move higher to keep clearing out some laggards and taking some money off the table on good moves.
Support and Resistance
NASDAQ: Closed at 2453.85
Resistance:
2468.42 is the November 2006 high
2477 from January 1999
2493 is an interim peak from February 1999
Support:
2436 is the July up trendline
The 18 day EMA at 2432
2412 from June 1999 low
2384 is an interim peak from January 1999
The 50 day EMA at 2382
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)
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
S&P 500: Closed at 1425.49
Resistance:
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 1411
1408 is the November high
1401 is a low from April 2000
The 18 day EMA at 1406
1395 is the July up trendline.
1390 is the October high.
1389 is a low from November 1999
The 50 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.
Dow: Closed at 12,416.76
Resistance:
Support:
12,361 is the November 2006 high
The 10 day EMA at 12,315
The 18 day EMA at 12,279
October high is 12,167
The 50 day EMA at 12,105
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): 304K actual versus 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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