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world stock market, us stock market
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12/19/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CLE; BCR
Trailing stops: THQI; CBG
Stop alerts issued: FIC
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:
- Thai currency issues, hot PPI force stocks to recover from selling.
- It's summer again: market splitting along large cap NYSE and growth lines
- Hot and cold PPI leaves investors wondering if the data is right.
- Holiday shuffling keeping NASDAQ off balance, stifling Christmas rally.
Market has issues, handles them reasonably well.
Thailand started the 1997 Asian currency crisis and it was at it again Tuesday only the circumstances, thankfully, were far different. In 1997 Thailand did not have any money and the currency was in a death spiral. This time around the problem is a lot of money in the form of investing. The Thai government got a form of Greenspan cold feet, i.e. fearing prosperity. It imposed capital controls on money coming into all forms of investments, basically saying 30% of your investment had to go into an non-interest bearing account for a year.
Well, if the Tai government wanted to limit investment, it certainly had that impact. The Thai stock market fell 13%, the largest decline in 20 years, as investors yanked money from the country. Nothing like inept currency and financial policies to undermine an economy. By that evening the government lifted the restrictions on stock investments, but apparently left them in place for bonds and all other financial investments. We would complain, but we have our Senators Schumer and Graham playing the 'Bubba' voter card with their proposed 22.5% tariffs against China in order to keep underwear manufacturing, a leading world technology, here in the USA. Now maybe those new tag-free labels require some high tech application, but no doubt they could be done equally well and indeed cheaper elsewhere. Let's come up with the technology that places those labels on the fabrics or indeed comes up with new underwear fabrics that revolutionize drawers in the twenty-first century. Those are the money jobs, not stitching 'made with pride in the USA' on another pair of tidy whiteys.
On top of yet another Thai baht bungle, the PPI came in hotter than expected, indeed the strongest gain in 35 years. After diving in October it surged in November. The large swings and revisions are enough to make most doubt the numbers, and indeed the bond market had no reaction to the news. Nonetheless it was the reported number, and it had stocks lower. After all, our readers know that wide swings in data indicate change; thus while you may doubt the exact number, the divergent data is still there and wide swings in data points suggest change. Given that inflation pressures topped out in late 2005 and that inflation is the most lagging economic indicator, it makes sense that the data is showing a wide variance because it is in the process of changing from increasing to falling.
In any event, the combination started stocks lower across the board. As has been the case of late, however, the first surge was over in less than an hour with stocks starting back up. SP600 held its 50 day EMA and rebounded. NASDAQ gapped lower but held above its 50 day EMA and rebounded. SP500 and DJ30, well, they just held their uptrends, hardly seeming to notice the issues impacting the rest of the market. It was pretty nice to see stocks look right in the face of some potentially serious issues (though no one believes inflation is heating up outside of the Fed's Fisher who was popping off today about more rate hikes to come) stare them down and come back.
Technically it was not bad action with the indices starting lower and finishing near highs with DJ30, SP500, SP400 and SP600 closing positive. Volume was up, and it is always good to see volume jump as an index starts lower but then the buyers storm back in and push it positive. Even with NASDAQ closing negative it made a good recovery and gave a run at the green. Breadth actually turned positive on NYSE.
Again, not bad technical action but SOX was left in the dust, back down at the 50 day EMA, unable to rally the troops. NASDAQ rebounded, but its pattern is somewhere between road kill and top sirloin; not all that savory whichever way you go. The small caps bounced and remained in their trend, but they are not holding the line as well as the large cap NYSE indices.
The weather is unseasonably warm heading into Christmas. Is it summer again?
Retailers are complaining about summer in December as biting holiday sales. The last time it was warm (the end of summer) we saw similar market action, i.e. the large cap NYSE stocks taking over leadership while the small caps and tech stocks, particularly the small caps, relinquished leadership. That led to a four month rally led by the large caps (non-tech large caps) that took until December before the small caps really caught up and broke to a new high as well. Just as they did it, well we had this week come along.
Ahead of the new year it once more looks as if the large caps are getting the money while the growth sectors (NASDAQ, SP600, SOX) get the leftovers. We were looking for a possible spread to new areas with the resurgence of long dormant C and GE, but it hasn't happened. The tide is not lifting all boats in this pre-2007 re-jiggering. It may just be lagging; after all SP600 and NASDAQ recovered off their lows Tuesday though SP600 was helped by a rebound in oil prices (63.15, +0.94).
Whether they can pull it off into 2007 is the question for the market. It was great that SP600 recovered to a new all-time high; that suggested growth would improve beyond what was built into the smaller cap stock prices. Now we have to see if money works its way back into them without any major sell off, particularly of the breakdown variety. At this stage of the economic expansion, however, it might be too much to look for leadership from the small caps.
THE ECONOMY
November PPI surges back from negative but the numbers are head scratchers.
The core jumped 1.3%, up from a 0.9% loss in October. There were some outriders in the data, i.e. numbers that were so far off they are considered in error. Light trucks jumped 13%. Toys surged 1.7%; apparently there is some toy cartel fixing prices at a higher rate. Seasonal adjustments in energy raised that component 6.1%.
Even with those outriders, when you look at the yearly numbers you see a decline in progress. The yearly overall PPI stood at 6.9% in September 2005 (15 year high), but after the November reading dropped to 0.9%. The core hit a decade high in July 2005 at 2.8% and is now at 1.8%.
In sum, producer prices appear to be swinging wildly of late, but the year over year trend shows a steady and strong decline. Further, as noted above, widely ranging data points in an indicator are signs of change, and as we are seeing the growth rate of producer prices start to decline of late, the widely varying numbers indicate the change is going to even more pronounced to the downside.
THE MARKET
MARKET SENTIMENT
VIX: 10.3; -0.3
VXN: 16.55; +0.33
VXO: 9.68; +0.03
Put/Call Ratio (CBOE): 0.96; -0.17
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: -6.02 points (-0.25%) to close at 2429.55
Volume: 1.998B (+3.45%). Volume returned to above average as NASDAQ gapped lower, sold, then rebounded. Distribution, but tempered by the strong 21 point price recovery from the session lows.
Up Volume: 771.035M (+269.035M)
Down Volume: 1.203B (-139.851M)
A/D and Hi/Lo: Decliners led 1.25 to 1. Not bad breadth given the harsh selling to start the session. The large cap techs lagged even more (-0.33%).
Previous Session: Decliners led 2.31 to 1
New Highs: 64 (-77)
New Lows: 32 (-16)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped lower, continuing the Monday selling that started after NASDAQ tried the November high (2469) Friday and faded. It gave up the 18 day EMA (2434) and the up trendline and is now trying to hang on and avoid a double top formed by the November and December highs. It was a positive that it rebounded 21 points off the low to close but it has something to prove here given its inability to hold up as well as the NYSE large cap indices.
SOX (-1.41%) is NASDAQ's partner in crime, undercutting the 50 day EMA (469.83) on the low but recovering that level on the close. The pattern is not singing happy songs right now. It is above the 200 day SMA and held the 50 day EMA on the close, but it has two lower highs this month. It too has to prove it is stronger than it looks with a break back up through 480.
SP500/NYSE
Stats: +3.07 points (+0.22%) to close at 1429.55
NYSE Volume: 1.562B (+4.08%). Volume was up as the NYSE indices sold off early but then recovered to close positive. That is exactly what you want to see as a stock or index sells off, tests support, and then rebounds. The positive close is the icing as it shows the buyers really wanted to push it back up. Not many shorts in these indices; they are in well-defined uptrends. Thus there were buyers once more, waving their cash at the market.
Up Volume: 894.893M (+894.893M)
Down Volume: 650.116M (+650.116M)
A/D and Hi/Lo: Advancers led 1.2 to 1
Previous Session: Decliners led 1.88 to 1
New Highs: 148 (-87)
New Lows: 15 (-9)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 sold off to the 10 day EMA and then rebounded to close positive. That continues the uptrend . . . yet again . . . as money cannot stay out of these stocks, chasing them higher and higher. That is the constant in this rally: money keeps coming in. It finds the large cap NYSE stocks even when it snubs, more or less, NASDAQ and smaller caps. SP500 easily remains in its uptrend, and mostly showing the right kind of price/volume action.
SP600 (+0.14%) showed good action as well, coming back from a morning test of the 50 day EMA (394) and recovering 4 points off the low. That salvaged the August uptrend (398.50) by a sliver, and it is in line with the way SP600 has rallied, i.e. using the 50 day EMA as support every three to four weeks and then rebounding. That makes this a key point for the small caps as they try to come back from this trip down the 50 day EMA lane and play catch up to the large caps on the NYSE (again).
DJ30
Tapped all the way down to the 10 day EMA on the low before rebounding for a 30 point gain. Pretty tense moments as the Dow gave up 44 points from the Monday close. It is easily in the uptrend, seemingly totally recovered from lingering issues from the November volatility. Money has a way of solving those problems. It came back into the Dow and thus the recovery up the trendline.
Stats: +30.05 points (+0.24%) to close at 12471.32
Volume: 233M shares Tuesday versus 237M shares Monday. Still below average but still enough to push the index higher and higher because there are no sellers of these stocks right now.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Crude oil inventories at 10:30ET is the only scheduled economic data, but earnings are becoming more important in addition to the late-year turn more toward large cap NYSE stocks (or is it a turn away from the other sectors?). The redeveloping bifurcation in the market is turning the action choppy on NASDAQ and in the small caps (energy is bouncing up and down day to day), making the going tougher.
There are two areas we are looking at closer than the rest. One is not the NYSE large caps, unless they start selling off. The small cap rebound off the 50 day EMA is one. Want to see how it continues, i.e. if the small caps can continue their uptrend by using the 50 day EMA as support. Second is NASDAQ and also SOX. NASDAQ is not holding its trend but is trying to overcome a potential double top; as seen with DJ30, those can be meaningless developments as long as the money comes back in. NASDAQ has been undergoing some distribution and that has caused the lateral move. How that plays out will tell the growth story for 2007; if money comes back in the big investors want growth and anticipate NASDAQ can deliver.
That leaves us looking for opportunity on solid rebounds from leaders that pulled back in this turmoil. It also leaves us playing some defense with current positions, though as a session such as Tuesday shows, that can be a fine art as stocks in this market can be under pressure just to reverse. We kept a light touch on many positions Tuesday, giving them a chance to make the comeback. If NASDAQ and SP600 start to falter immediately after the Tuesday rebound attempt, however, that is reason for concern for those stocks.
Things are a bit interesting moving into Christmas, more so than usual. I took that line from Tom Hanks a week ago, and unfortunately it has held up as the action as moved forward. We will continue to look to deploy funds into solid stocks that have set up another good entry point. We want to see where the money is flowing, and that means where it is supporting stocks and truncating their declines and also pushing stocks up off support or through resistance on strong volume. Big tracks in the sand are worth following.
Support and Resistance
NASDAQ: Closed at 2429.55
Resistance:
The 18 day EMA at 2434
2447 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:
2412 from June 1999 low
The 50 day EMA at 2389
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 1425.55
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 1417
The 18 day EMA at 1411
1408 is the November high
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 1388
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 12,471.32
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:
The 10 day EMA at 12,378
12,361 is the November 2006 high
The 18 day EMA at 12,329
October high is 12,167
The 50 day EMA at 12,144
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): 1.588M actual, 1.55M expected, 1.488M prior
Building permits, November (8:30): 1.506M actual, 1.540M expected, 1.553M prior
PPI, November (8:30): 2.0% actual versus 1.2% expected, 0.5% prior (revised from -1.6%)
Core PPI, November (8:30): 1.3% actual versus 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): 1.5% expected, -8.2% prior
Personal income, November (8:30): 0.4% expected, 0.4% prior
Personal spending, November (8:30): 0.6% expected, 0.2% prior
Michigan sentiment, December revised (10:00): 90.2 expected, 90.2 prior
End part 1 of 3
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