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world stock market, us stock market
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12/26/06 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: IIVI; INFY; SVVS
Trailing stops: ICE
Stop alerts issued: None issued
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SUMMARY:
- Market starts the week with a low volume rebound after a week of selling.
- Holiday sales are up but dueling surveys dispute by how much.
- Market poised to continue the relief bounce in anticipation of Friday Chicago PMI
Relief bounce starts after a week where sellers took over.
Last week SP500 dropped 1.1% as sellers, long absent, entered the market after a weak Philly Fed purportedly confirmed the November ISM that fell below the important 50 mark. Volume was low all week, so it was not so much a coup by the sellers, but an abdication by the buyers. Nonetheless the effect was the same as the indices, particularly the growth indices (NASDAQ, SP600, SOX) were shoved back to the 50 day EMA or the 200 day SMA in the case of SOX. It did not matter it was the pre-Christmas week and the overall trend was still up; there was some pre-year end transitioning or shuffling ongoing, and that overrode the general tendency to rise with the trend into Christmas.
That pullback left the indices in a position where they needed to hold the line. Early on it looks as if they might not be able to do the trick. Oil was up because the UN imposed sanctions on Iran and that nation threatened to use oil as a means to 'defend' itself. Oil jumped over $63/bbl early on, and of late oil combined with fears of a slower economy creates drag on the market.
Speaking of a slower economy, a dispute regarding how strong the last week of pre-Christmas sales added a bit more drag on the early economy. Reports ranged from failing to meet expectations to topping expectations. The general consensus was they would fall short of expectations; when it comes to holiday sales, year end and year out pessimism seems to rule. That pessimism helped depress futures for yet another weak start to a session.
Unlike last week, however, the market overcame a weaker open and posted solid price gains. NASDAQ, SP600, and SOX held support they had to hold or things would point to a change in character. Indeed those indices led the rebound; not surprising in a relief move as those that were beaten up are the ones that tend to get the most short covering once the selling ends. The rebound was key, however, after the selling triggered by the Philly Fed (or at least focused by that report).
Technically the internals and most of the moves suggest a relief bounce from a week of selling. You had a lot of stocks that sold to or below resistance and managed a low volume bounce. The growth indices themselves sold to support (the 50 day EMA on NASDAQ, SP600 and the 200 day SMA on SOX) after 5 days of selling, and that triggered some short covering. Breadth was up and that suggests something other than a relief move, but given the smaller caps were leaders on the downside it made some sense the breadth was up as they rebounded. Volume was light, a no-brainer given the in between holiday session. That is typical of a relief move, but the holiday masked just whether this was relief or the start of something new after some pre-2007 position trading. There was some leadership, however, and not just stocks rebounding off of the selling. Some leaders that held the line in the selling started moving higher. In sum, the indices did what they had to do at support, and there was also some good leadership getting underway. The light holiday volume, however, laid down a fog as to just what drove the action. One thing is certain: despite the rebound there was no broad rush to buy among all the institutions.
For now you have to assume a relief move given the light volume and the selling that pervaded the market last week. On the other hand you have all but NASDAQ and SOX still in uptrends, and those two managed to hold key support with the Tuesday bounce. As noted, however, there were positive attributes. Last week we discussed the potential for the resumption of the trend once the pre-2007 portfolio shuffling was over. Key to that is that many leaders, while pulling back in the selling, held near support. Though volume was holiday light Tuesday, there were many of these leaders moving higher on Tuesday. Again, leaders tend to start to move in a return of upside while laggards rebound in a strict relief move. Thus there are some positives with this move, but it is very early and volumes are likely to remain light this week, keeping that fog in place as to its true nature. If the leaders continue to rebound and are joined by more, it is hard to complain.
THE ECONOMY
Holiday sales debate is off and running.
Billions in sales are still to be registered in the period between Christmas and New Years, but the next updates were out today on the last week before Christmas. The results were disputed. All showed rising sales over last year, but the magnitude of the rise was the issue. One report showed a 6.6% gain over last year, but that was a smaller rise than 2005 (8.7%). It is a key week as last year 16% of all holiday sales occurred in that last week. The credit card companies were in line with this result with MasterCard up 3% and Visa 6.5%, but that was lower than the 7.5% forecast and 2005's 8.3% rise.
On the other hand there were some late reports that showed $8.72B spent on Christmas Eve alone (Shoppertrack) as those 37% who had bought nothing in the last week apparently hit the stores when the 40%, 50% and higher markdowns came out. From what we heard ahead of the markdowns, those were not fear-induced reactions to a slower season but pre-planned sales designed to bring in more buyers and wring out the last possible sent. For example, some retailers were looking to bring those that had already finished their shopping back out to the store for more purchases at even lower prices. As a result, the two-day period on Friday and Saturday combined for $16.28B in sales, up 22.5% over the same two-day period last year.
And of course the gift card phenomenon continues to grow. The past three years gift card use has rocketed, particularly as retailers remove the inane restrictions on them. Once more we used them for various gift recipients ranging from nephews who suddenly freeze when you ask what they want for Christmas to clergy (though we hate to louse up their vows of poverty). Those card sales are not recorded until the card is redeemed even though they have the cash in hand and even though there is a percentage that is never redeemed. That may seem surprising, but when I was a part owner in a private retail chain we loved selling gift certificates because at least 25% would never be redeemed; talk about pure profit. In any event, as more and more gift cards are sold, more and more sales are pushed past Christmas and into 2007.
Thus the debate continues for now as to the holiday season's strength. Initially the word is weaker by a plurality vote, but the above factors such as gift card growth continues changing the dynamic. Further, the late data shows very strong late buying are changing the results. In sum, all and all it was a strong holiday season but we will only know just how strong after the gift card data comes in months down the road. By then, of course, the market will have long moved on to other areas of concern.
THE MARKET
MARKET SENTIMENT
VIX: 11.26; -0.1
VXN: 17.44; +0.24
VXO: 10.45; -0.38
Put/Call Ratio (CBOE): 0.85; -0.25
Bulls versus Bears: Bulls eased a little further but still are well above the key 55% level. Bears continue their decline, less than a point from the 20% level considered bearish. The current stall in the market was preceded by this rise in bulls and fall in bears. Again, if you get too many bulls, there is no ammunition on the sidelines to keep shooting the market higher. The overseas money (OPEC, strong world economies) along with the strong profits in the US, keeps filling the stream of incoming money thus far.
Bulls: 58.8%. Another dip lower, this time picking up some speed from the 59.6% reported last week. May be topping some here after a steady move higher 56.4% four weeks back. This is the fifth straight week the bullish advisors topped 55%, the level where the market is viewed as overdone and some corrective activity can enter. Still closing in on the January peak at just above 60%.
Bears: 20.6%. Still falling toward the key 20% level, though the rate of decline is slowing (21.3% last week and 23.9% the week before). 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: +12.33 points (+0.51%) to close at 2413.51
Volume: 1.042B (-21.84%). Volume remained below average, indeed much below average than even on Friday. Obviously no accumulation-worthy volume, so hard to call it a really constructive session.
Up Volume: 643.919M (+274.923M)
Down Volume: 384.254M (-548.065M)
A/D and Hi/Lo: Advancers led 1.62 to 1. Better breadth but hardly a strong session as techs continue to lag the NYSE indices.
Previous Session: Decliners led 1.3 to 1
New Highs: 84 (+51)
New Lows: 28 (+13)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ came close to that rendezvous with its 50 day EMA (2393), opening lower again but then rebounding to close at the session high. That kept it over that key level as well as well above the October highs, but it was no character changing move. After 5 straight lower closes it was due for a bounce and that is what Tuesday delivered. Lower volume, modest breadth, and not a ton of leadership. It basically did what it had to do with a relief move off the 50 day EMA. Now we see if there is anything behind the move, i.e. if it can extend the bounce off the 50 day EMA and get some more breadth. Volume? Well, this week that will be hard to come by.
SOX (+0.82%) found a bit of purchase at its own support, the 200 day SMA, rebounding as well after a week of selling. SOX finds itself back at the 200 day just two weeks from its last trip to this support. It remains holding support, trying to regroup for a rebound. Some chips continue looking solid, e.g. NVLS, VSEA, and on Tuesday, AMAT. Something to build upon, but not a lot just yet.
SP500/NYSE
Stats: +6.14 points (+0.44%) to close at 1416.9
NYSE Volume: 791.822M (-19.71%). Volume was in the same league as NASDAQ, i.e. very, very low. Not any pop behind the move, but unlike NASDAQ, SP500 remains in its uptrend from the summer low so it is still working nicely.
Up Volume: 554.511M (+254.832M)
Down Volume: 219.612M (-451.499M)
A/D and Hi/Lo: Advancers led 2.21 to 1. Very solid breadth as all capitalization sizes were working on Tuesday. Nice breadth, and if the volume could pick up some it would be very positive. Not very likely this week.
Previous Session: Decliners led 1.57 to 1
New Highs: 126 (+52)
New Lows: 8 (+3)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 recovered the 18 day EMA (1413) after closing below that level Friday. Not a major disruption on Friday; SP500 has closed below that level twice in November and kept the rally moving. Back over the 18 day EMA and still easily above the July trendline. Kind of like a summertime forecast in Houston: the same every day.
SP600 (+0.86%) posted a nice, market-leading bounce, rising off the 50 day SMA (396) test last week. That is where it had to hold to keep the string of bounces off that level since September alive. It also managed to recover the up trendline from August, though the move was on low volume and hardly a strong affirmation of the trend. As with NASDAQ, however, it did what it had to do, and you have to like the breadth.
DJ30
The blue chips also recovered to close back above the 18 day EMA (12,356) Tuesday, moving on very low, below average volume as well. The trend higher has degraded the past 8 weeks, but continues nonetheless. It bounced Tuesday above the early December consolidation, just where you would want it. Old, extended, rally that still manages to hang on.
Stats: +64.41 points (+0.52%) to close at 12407.63
Volume: 110M shares Tuesday versus 138M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
A holiday shortened week once more and holiday light volume to go along with it. That keeps the rebound move in a bit of a fog. After a week of selling you expect a relief bounce. Volume is low but breadth is good on NYSE. The indices held support and bounced; good but not definitive. Leaders started bouncing Tuesday; better as it indicates real buying and not just short covering. In short enough positives to keep us looking for more solid stocks coming off of tests of support as the week continues. We likely won't see a lot of volume on these moves, but as seen Friday and Monday, you can get volume in specific stocks even if the overall trade is weak.
This is all leading up to the Friday Chicago PMI, the next regional manufacturing report after the sub-zero Philly PMI helped escalate the selling that was taking hold in the market. A rally back up ahead of that report could set the market up for some more weakness; Chicago is expected to move back above 50, but the trend has weakened even as expectations continue for gains. Expectations always look for the trend to continue until the trend is broken. Not saying it has, ECRI projected this weakness before a resumption of some growth after 2007 gets underway. Thus the potential for a bit more disappointment, and a continued low volume rally into the report is worth taking some money off the table in the form of recovering stocks that are not quite able to break higher and others that nave made some low volume rebounds from selling and have not been able to clear overhead resistance.
One thing we saw Tuesday was some leaders moving higher off of decent tests of near support. They basically rode out the selling all the while maintaining their patterns. In short, they exhibited leadership qualities, and we see more stocks doing the same thing. They may not be able to show a lot of volume on any moves this week, but we will be ready all the same in case they do garner some volume or show really solid moves despite a low volume, so-so move in the market overall. We said last week we could see a recovery in leadership when the pre-2007 position shuffling winds down. Given the low volume rebound you cannot classify it as over, but with solid stocks hold the line and starting back up it is worth being ready to move in if they start putting together some good moves.
Support and Resistance
NASDAQ: Closed at 2413.51
Resistance:
2412 from June 1999 low
The 18 day EMA at 2426.92
2453 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 50 day EMA at 2403.92
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 1416.90
Resistance:
1425 is an interim high from November 1999
1444 from February 2000
1475 from peaks in December 1999 and January 2000
Support:
The 18 day EMA at 1413
1408 is the November high
1403 is the July up trendline.
1401 is a low from April 2000
The 50 day EMA at 1394
1390 is the October high.
1389 is a low from November 1999
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 12,407.63
Resistance:
12,499 is the December intraday high.
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 12,392
12,361 is the November 2006 high
The 18 day EMA at 12,356
The 50 day EMA at 12,214
October high is 12,167
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 27
New home sales, November (10:00): 1.015M expected, 1.004M prior
Crude oil inventories (10:30): -6.323M prior
December 28
Initial jobless claims (8:30): 323K expected, 315K prior
Existing home sales, November (10:00): 6.15M expected, 6.24M prior
December 29
Chicago PMI, December (10:00): 51.0 expected, 49.9 prior
Help wanted Index, November (10:00): 30 expected, 30 prior
End part 1 of 3
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