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world stock market, us stock market
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12/18/06 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Tuesday
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: MS; TALX
Trailing stops: ATVI; COH; GME; MTW, NBL
Stop alerts issued: DO; XTO
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 SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Market cannot keep the holiday advance moving though large caps show more resilience.
- Is the record M&A activity a problem in itself?
- Money sticking with the large caps, at least on Monday.
Market cannot build on last week's gains as techs, small caps come under fire.
$88 billion in M&A activity was not enough to keep the market moving higher Monday. It got things off to a higher start, but it had the staying power of a 100 year old man as the indices mostly peaked out in the first hour. Stocks rolled over midmorning, tried to hold the line at lunch, and then gave up in the afternoon. NASDAQ (-0.88%) and the small to mid-caps (-1.20%, -1.02%) took the brunt of the selling. NASDAQ gave up its trendline but held the 18 December 2006 while the small caps gave up the 18 December 2006 but held the August trendline. By the end of the day, all indices were lower except SOX. The market was definitely selective, choosing large cap industrials, particularly financials, over everything else.
Technically there were some breakdowns as NASDAQ failed to hold its July trendline and SP600 broke its 18 December 2006. As noted above, however, they held other near support so it was not a collapse. Volume was lower on both NASDAQ and NYSE, somewhat expected after the big surge on Friday. It was back below average, however, so there was no distribution, at least overall. Breadth was decidedly negative, particularly on NASDAQ with its -2.3:1 reading. The bias was definitely toward large cap industrials away from tech, energy, and mostly small caps. At least for Monday, the shift was on, avoiding that Christmas rush. By the end of the session there was definitely a bias, but it was not a complete shift as NASDAQ and the small caps did manage to hold above some support though it looks a bit tenuous.
THE ECONOMY
Beware of too much M&A activity.
The M&A activity is at a record pace for the year now that we are just 2 weeks from the year end, but it the record pace that catches our attention. You always have to be cognizant of any records that relate to financial markets because records, positive ones or negative ones, indicate extremes, and when extremes are hit you have to look for peaks, bottoms, or at least rebound effects.
M&A activity has exploded as the billions and billions of dollars circling the globe due to high oil prices and global economic prosperity look for places to earn more return. As with a drug junky, new money seeks higher and higher returns, and that is why private equity is going berserk, buying everything in sight, or at least trying to. Too much money. At the same time, companies are using high stock prices to buy other companies, or, in the case of EXRS, get into leveraged buyouts to break up existing deals and have to pay a $52M breakup fee just to play ball. As is so often the case, companies get all whipped up by their rising profits just about the time they are peaking, and they enter into crazy deals just in time to see things start coming apart.
The point is that when things start hitting record levels and hitting the headlines, you have to watch out. Companies are famous for buying at the top just as they are famous for low sentiment levels at the bottom. The stock market does not live and breath according to buyout activity, but it is something to watch because it often occurs near the peak of economic activity. Near the peak; that is a pretty nebulous phrase, and it is. These types of measures are indications of approaching problems, they are not signs the problem is here. For now many are expecting the money to continue finding deals well into 2007 because for now money continues to run around the globe looking for investments.
THE MARKET
MARKET SENTIMENT
VIX: 10.6; +0.55
VXN: 16.22; +1.07
VXO: 9.65; -0.32
Put/Call Ratio (CBOE): 1.13; +0.39. The put activity jumped sharply as techs and small caps sold. There was a lot of put selling on the last leg higher, and those were being covered Monday. A close over 1.0 is a sign of speculation and a lot of put selling is just that, speculation, but on the upside. As they are sold, however, there are downside buyers stepping in. It remains to be seen if the buyers take over if the market struggles more. There are certainly many anticipating some type of correction, but they are in the minority as measured by the surveys and what you hear on the financial stations and indeed the 'regular' news stations.
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: -21.64 points (-0.88%) to close at 2435.57
Volume: 1.932B (-10.02%). Volume faded back to below average after expiration, where it spent most of the past two weeks. That meant no distribution on the session, but the selling was no less severe point-wise.
Up Volume: 502M (-1.019B)
Down Volume: 1.343B (+515.327M)
A/D and Hi/Lo: Decliners led 2.31 to 1. The large cap techs lost a bit more ground (-0.97%) than NASDAQ overall, so it was not just a smaller cap issue in tech land
Previous Session: Decliners led 1.1 to 1
New Highs: 141 (+63)
New Lows: 48 (+37)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Gapped higher once more on some Monday optimism, but that was spent within an hour and NASDAQ spent the rest of the session moving lower other than a late bump higher that kept it at the 18 day EMA (2435) on the close. It gave up its July up trendline in the process, but it was not a complete breakdown as volume was lower and it held the 18 December 2006. It doesn't look super as it failed to clear the November high and flipped back downside with relative ease. It remains in a 4 week lateral move below the November high and still holding the 18 December 2006. It is key for NASDAQ to clear the November high, but it is also critical for it to hold the line in this area. Looks as if it will get its chance.
SOX (+0.12%) was the lone upside index, showing a doji right at the 18 December 2006 as it tries to hold the bounce off the 50 day EMA from last week. It is thick in the middle of a 4 week range of resistance, trying to make a higher low at the October high and rally to take on the November and early December highs once more (493.25).
SP500/NYSE
Stats: -4.61 points (-0.32%) to close at 1422.48
NYSE Volume: 1.501B (-28.6%). NYSE volume fell back below average as well, even lower than the Thursday upside volume, and that indeed indicates no dumping. The losses on SP500 were modest. They pretty ugly on SP600. No dumping overall, but the small caps with their energy presence and a potential shift by big money toward larger cap issues did them no favors.
A/D and Hi/Lo: Decliners led 1.88 to 1. Not break but not out of control and much better than the techs.
Previous Session: Decliners led 1.15 to 1
New Highs: 235 (+83)
New Lows: 24 (+19)
The Chart: http://investmenthouse.com/cd/^gspc.html
Rallied for the second straight session to 1432 and failed there for the second straight session. Gave up some ground but not much, easily holding above all support levels and well within its uptrend. Volume was lower so no distribution, just a pullback within the continuing uptrend that was affirmed again Wednesday on that rising volume gain.
SP600 (-1.20%) was boxed around the head and shoulders, falling through the 18 day EMA (401.10), but that is nothing groundbreaking as it has fallen below that level twice in the past two months. It is holding its July up trendline near 398, but the 50 day EMA (394.17) is also close at hand. Just don't want to see it break down, kind of the same game as in the summer when the large caps showed their leadership again.
DJ30
GE and C sported more strong gains (for them) as volume backed off to below average once more. Overall DJ30 lost a bit of ground, showing a doji at the closing high and indeed hitting the all-time high at 12,491 intraday once more. Showed a doji Monday, and that indicates the momentum faded a bit, but it also held out all session. In any event, DJ30 remains easily within its uptrend after breaking higher once more last Thursday.
Stats: -4.25 points (-0.03%) to close at 12441.27
Volume: 237M shares Monday versus 417M shares Friday (expiration trade). Fell below average after an above average session on the Thursday gain. That still has it showing some accumulation even at this level.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
Housing starts and November PPI are the headliners on Tuesday, but they are somewhat baked into the cake at this point as even the Fed has noted a 'substantial cooling' in the housing market and the CPI has shown the beginning of a stall the past two months.
The real issue ahead is whether the small caps are dumped in favor of the large caps of the money spreads out further. GE and C continued their rise Monday as the downtrodden large caps, the ones that did not participate in the rally that started late summer, get their day; kind of a revenge of the nerds. This could be yet another shift away from the small caps in favor of large cap industrials as seen in that summer run; not a great growth indicator if it continues.
We would prefer to see the small caps come back and hold their trend, resuming the move as that would indicate that money is staying with them as well as moving to new areas, and that would suggest continued economic growth ahead, at least as far as the market is concerned. Small caps have recovered nicely and broke to a new all-time high, a pretty good indication they are looking to better economic growth. That may not be the case based on the Monday action, but it is just a session and we could also see some pre-year end dumping before the buying resumes after the first of the year. If the small caps stumble further, we just don't want them to break down. Again, it is a similar game to last summer where we just don't want to the small caps to break down and thus indicate growth issues ahead. As long as they stay in the game they indicate reasonable growth. They are earlier cycle stocks and thus lead in the early part of a recovery. They naturally start to lag as the recovery matures; as long as they don't collapse there is still a good indication of enough growth the keep the market moving ahead.
While money is moving toward the large caps, it is also right before year end, and there is already some position shifting, but thus far it has not become entrenched by any stretch. Thus it could be a short term transition ahead of the year end before resuming the general rise next year. Right now there is no breakdown, just a lag by the small caps and to some extent NASDAQ. Even with that and the possibility it is just a pre-year end shuffle, we will play it cautious but note there are strong trends in place. With stocks on good runs that means we can sell some calls against them if they start to pullback (e.g. COH) and then buy them back when they rebound. At the same time we will look for those stocks rebounding to give us buy points as well.
Support and Resistance
NASDAQ: Closed at 2435.57
Resistance:
2442 is the July up trendline
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 2435
2412 from June 1999 low
The 50 day EMA at 2387
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)
2316 from interim tops in January and March 2006 trading range
2300 represents some price support
S&P 500: Closed at 1422.48
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 1416
1408 is the November high
The 18 day EMA at 1409.52
1401 is a low from April 2000
1398 is the July up trendline.
1390 is the October high.
1389 is a low from November 1999
The 50 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
2002 low at 1360.
Dow: Closed at 12,441.27
Resistance:
At a new all-time high. Back to 8.5% above the 200 day SMA, about the point where DJ30 started to struggle in late October.
Support:
12,361 is the November 2006 high
The 10 day EMA at 12,357
The 18 day EMA at 12,312
October high is 12,167
The 50 day EMA at 12,131
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 18
Current account, Q3 (8:30): -$225.6B actual versus -$225.0B expected, -$217.10 prior (revised from -$218.4B)
December 19
Housing starts, November (8:30): 1.55M expected, 1.486M prior
Building permits, November (8:30): 1.540M expected, 1.553M prior
PPI, November (8:30): 1.2% expected, -1.6% prior
Core PPI, November (8:30): 0.2% expected, -0.9% prior
December 20
Crude oil inventories (10:30): -4.295M prior
December 21
GDP, final Q3 (8:30): 2.2% expected, 2.2% prior
Chain deflator, Q3 (8:30): 1.8% expected, 1.8% prior
Initial jobless claims (8:30): 315K expected, 304K prior
Leading economic indicators, November (10:00): 0.0% expected, 0.2% prior
Philly Fed, December (12:00): 3.0 expected, 5.1 prior
December 22
Durable goods orders, November (8:30): 1.0% expected, -8.2% prior
Personal income, November (8:30): 0.4% expected, 0.4% prior
Personal spending, November (8:30): 0.7% expected, 0.2% prior
Michigan sentiment, December revised (10:00): 90.2 expected, 90.2 prior
End part 1 of 2
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