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us stock market, trend trading stock
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12/28/06 Stock Split Report
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Stock Split Report Subscribers:
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HOLIDAY SCHEDULE
Market closed Monday for New Years
NYSE has yet to announce close for observance of President Ford's funeral on Tuesday.
Alerts on Friday
No weekend report
Report resumes Tuesday if market opens that day.
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: AMAG; BPO; VIP
Trailing stops: None issued
Stop alerts issued: 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 SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Ho, ho, hum. Market rebounds in afternoon but last hour slide gives it back.
- Triumvirate of positive economic data reassures investors, but doesn't open any wallets.
- Trucking and transports suggest economic issues ahead.
- Momentum ebbs heading into the final day of 2006
Last hour fade stalls the holiday rally.
It was d j vu all over again as AAPL and its option issues were headliners once more. This time around the market was not as forgiving. Oil was up and futures were lower and the action was sluggish from the open. Stocks started lower and weakened from there with only the SOX managing to hold some gains early on.
Then a clean sweep of solid economic news hit. The Chicago PMI was stronger than expected. Consumer confidence was much better than forecast. Existing home sales followed new home sales' lead and posted a better than expected gain. Investors feared the economy might be slowing too much, but the recent data suggests otherwise. Stocks turned and bounced higher on the news.
It was not enough to shake off the lethargy, however. Stocks faded and when oil inventories showed an 8.1M bbl drop (-2.4M expected), despite a rise in gasoline (+3M versus 850K expected), the market slumped further, lagging into lunch.
The market would not stay down, and as lunch started they began to rise once more, slow and steady all afternoon. They hit session highs in the last hour. It was never a rip-roaring buy-a-thon, however, and once again the sellers tried their hand. They succeeded in pushing stocks lower right up to the close, and that washed away the modest afternoon gains. So much for a low to high recovery.
Technically there was no real change from Wednesday, just a modest fade in an otherwise modest rally. Again, it tried to go low to high but there was no energy and sellers had an easy time preventing three gains in a row. Volume was modestly higher on NASDAQ, suggesting a bit of distribution, but trade was lower on NYSE. Once more volume was too low to suggest anything serious one way or the other. Breadth was negative, but it was well off the upside pace Tuesday and Wednesday. In truth, the entire bounce back from last week's churn is weak in terms of volume, but the breadth was strong and solid stocks that held their ground during the choppier action provided leadership. The Thursday action did not change those aspects, but it also was more of the same tempest in a teapot what with the low volume. We like the solid action in the leadership ahead of the new year, but when the big money comes back next week they could be pushing the sell button to lock in gains in the new year versus taking them this year, and that would spell some early 2007 turbulence.
THE ECONOMY
Good news comes in threes on Thursday.
Existing home sales rose 0.6% in November, adding to October's 0.5% gain. That was the first back to back climb since March 2005, just before the market peaked in the summer of that year. That puts sales down 11% year over year and 15% from the June 2005 peak. Median prices were down 3.1% year over year, not surprising at all given the market is still in decline. As with new home sales, however, inventories were lower, though at 7.3 months versus the decade high in October at 7.4 months, you had to look hard to notice.
Surely this means the bottom is in. New home sales showed a surprise gain once again followed by existing home sales. Not likely just yet, but it does show the severe downturn is waning and the market is starting to stabilize. The bottoming in housing stocks July through September also indicates that the market should be stabilizing over the next few months. That does not mean it is going to run back up, but that the correction is running its course.
The import to the economy is a tempering of fears regarding how weak it would get in 2007 and thus bleed over into other areas such as consumer confidence and spending. As we have tracked the past couple of months, however, ECRI, the best man-made leading indicator, shows the economic conditions improving again in 2007 after a stall in the second half of 2006.
This firming in the housing market suggests that is the case, but we cannot get too giddy about housing once more leading the economy. Housing is typically an early economic cycle leader that weakens as the cycle matures. It was propped up on life support in the form of abnormally low interest rates all through the economic recovery, and thus when it gave out, it was pretty spectacular. You don't recover from that kind of artificial high and crash with just few months of selling.
Consumers feeling more upbeat despite the gloom on the nightly news.
You would think that the country was in the throes of one of its worst eras judging from the nightly news and newspaper headlines. There is simply nothing good to say, or so it seems, about this country. Iraq is unpopular and wearing on the citizenry with each report of another solider killed. It is a hard fight to establish a democratic beachhead in a region known for its totalitarian rulers so that the children of the Middle East can have a choice between suicide bombing and hope for a better life. If we win it benefits them and it benefits us in ways past efforts at peace could never realistically hope to achieve. It is simply hard to convince those used to subjugation to step up and govern themselves and it is hard for us to stay the course when we have to pay such a high price. It is especially disheartening when a former president aligns with known killers and despots and maligns US efforts. If we succeed it could change the world. If we don't, we will face more and more threats here and where we frequent around the world.
Hard to be upbeat with all this ongoing, but despite how bad we are told things are, the US consumer felt better in December than in November, and November was even stronger than originally reported. December confidence rose to 109 versus the 102 expected, and November's 105.3 was revised from 102.9. Those are not blowout levels, but the December reading was the highest since the four year peak hit in April. Further, they are well, well above any level that would suggest consumer slowing due to fear about the future conditions. That is the key takeaway from any sentiment reading as the number itself does not typically correspond to consumer spending habits. For now they are at healthy levels and are trying to start a new trend higher.
Chicago PMI paves way for a national recovery.
In November the Chicago region slipped below 50 (49.9), showing a contraction that foreshadowed a similar reading in the nation ISM. It was expected to edge higher in December to 50.2 but posted a better than expected 52.4. That gain kept the index in its 50 to 60 range for the past couple of years. Nonetheless, the report has been volatile, hitting a year high in September before diving into contraction in October. Volatility is never a good sign as it often indicates a changing trend. For this month, however, Chi-town managed to keep its range working.
New order rose a strong 57.8 with production at a strong 56.2. Employment remains a hole in the number, falling to 45.8 from 57 just back in October. The overall number is volatile and the internal numbers are volatile as well. Again, that is a sign of change, and though Chicago returned to expansion we still have to watch how this volatile action plays out.
Trucking and transports the fly in the ointment for 2007.
The Dow transports (DJ20) hit new all-time highs in the summer but it also double topped at that point and fell fairly sharply into August and September. During the rally the transports were leading DJ30 and there was this talk about the DJ30 needing to 'confirm' the move in the transports. That is a gross misunderstanding of Dow Theory. DJ30 does not confirm the DJ20, the transports confirm the Dow. In other words, when DJ30 hits a new high, the transports need to follow it as well.
After the transports sold off they bottomed and rallied with the rest of the market, but lagged. That was okay. As long as they came on to hit a new high after the Dow the lag would not matter; it would be a confirmation if it did hit the new high. It didn't, however. It made a lower high in November and formed a small head and shoulders and sold off this month, heading the other way from DJ30. Kind of an anti-confirmation.
More information came out Thursday as the trucking industry reported its holiday shipping results. Recall a couple of months back we discussed this, how shipping orders were not ramping up ahead of the holiday season and we had to see if the orders came in late, kind of a 'just in time' trucking spurt. It didn't happen. Indeed, the trucking sector reported the largest year over year decline since just before the 2001 recession.
That is hardly good news for an economy trying to keep things moving ahead in 2007. While most indicators suggest improving economic conditions, this is a critical hole in the picture, and other than the length of the DJ30's long run that indicates perhaps some near term chop, it is the biggest negative facing the Dow longer term in 2007.
THE MARKET
MARKET SENTIMENT
VIX: 10.99; +0.35
VXN: 16.32; -0.14
VXO: 10.41; +0.67
Put/Call Ratio (CBOE): 0.91; +0.14
Bulls versus Bears: Bulls are still easing back but still remain above the key 55% level. Bears continued their decline, and this time they broke below the 20% level and that is considered bearish. If you get too many bulls and too few bears, there is no ammunition on the sidelines to keep shooting the market higher.
Bulls: 56.5%. A more significant decline this week, down from 58.8% and the 59.6% high on this recent spike. That makes 6 weeks above 55%, the level where the market is viewed as overdone and some corrective activity can enter. Came within a whisker of the January 2006 peak at just above 60%.
Bears: 19.6%. Bulls may be adjusting back from their peaks, but bears are falling below key levels, offsetting any improvement in the number of bulls. Bears flirted with 20% last week (20.6%) and made good on it this week. This continues a steady slide (21.3%, 23.9% before) from 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: -5.65 points (-0.23%) to close at 2425.57
Volume: 1.26B (+1.96%). Volume pushed modestly higher but remained well below average as NASDAQ showed a bit of churn just below the 10 and 18 day EMA. Hard to call this distribution given the light volume. Just call it a few more sellers in the mix than buyers. Anyway you slice it there will be a sea change in volume after the first of the year when decisions regarding profit taking and sector preferences are put in place to start 2007.
Up Volume: 147.632M (-769.773M)
Down Volume: 1.091B (+791.652M)
A/D and Hi/Lo: Decliners led 1.48 to 1. Sure decliners led, but it was middle of the road, particularly when compared to the big positive breadth shown the prior two sessions.
Previous Session: Advancers led 2.42 to 1
New Highs: 139 (-152)
New Lows: 23 (-45)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ when nowhere, starting softer, moving positive in the afternoon, and then fading to close just below the 10 and 18 day EMA. Volume was up so you can argue some distribution, but with such light trade that means little. The real game resume next week. Techs may be able to put together a bit more upside Friday; the Wednesday move was solid as some renewed interest in techs gapped them higher. Overall the pattern remains iffy heading into the new year as it did not show a lot of buying heading into the shank of 2006.
SOX (-0.21%) tried to lead the market positive all session, holding out with gains until a late fade closed it negative as well, just below its 50 day EMA. SOX basically continues its 6 week decline that tapped the 200 day SMA Friday, yielding a bounce this week. Trying hard to make a higher low at the 50 day EMA, but not a lot of support for the chips right now.
SP500/NYSE
Stats: -2.11 points (-0.15%) to close at 1424.73
NYSE Volume: 902.981M (-7.04%). Modest volume contraction as the NYSE indices posted modest losses. No distribution and basically nothing nefarious, just a lack of interest in general.
Up Volume: 359.42M (-478.366M)
Down Volume: 517.358M (+389.834M)
A/D and Hi/Lo: Decliners led 1.3 to 1. Modest downside breadth here as well, nowhere near matching the strong breadth on the two previous rebound sessions.
Previous Session: Advancers led 3.55 to 1
New Highs: 190 (-44)
New Lows: 9 (-2)
The Chart: http://investmenthouse.com/cd/^gspc.html
SP500 tapped at the 10 day EMA on the low and rebounded to cut its modest losses in half by the close. SP500 has rebounded back to the mid-December highs and stalled there Thursday, but right now there is nothing to suggest SP500 is about to break its uptrend . . . other than the length of the run. Always keep that in the back of the mind now that SP500 is in the sixth month of its run off the July low.
SP600 (-0.34%) moved positive as well in the mid-afternoon but it slipped to session lows in the last hour. No major loss at all, nowhere near offsetting the solid rebound the prior two sessions when the small caps led the market higher. Nice bounce off the 50 day EMA and a day of rest. Great action, but it is also just before the year end when we could see the big money institutions turn back to large caps once more when 2007 starts. In good position to move higher Friday, and then we have to see how the new year treats the small caps. We are impressed with the recovery off the 50 day EMA, but we are also skeptical of how they will be welcomed into next year.
DJ30
The blue chips gave back a pinch on lower volume after surging to a new closing high Wednesday. That loss on the close was still the second all-time high close for DJ30. Yee ha. As with SP500, it is not showing any signs of losing its uptrend other than being so old it is getting senile. Senility does not often cause breakdowns in trends, however.
Stats: -9.05 points (-0.07%) to close at 12501.62
Volume: 126M shares Thursday versus 143M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Last trading session of 2006, and there is no real meaty scheduled economic reports scheduled since the Chicago PMI was pushed up to Thursday. With the good Thursday news and modest losses, the market likely has the pause out of its system and will be ready to rise on into the end of the year.
If we get some upside Friday we will be looking to take some money off the table ahead of the start of the year. We have identified some stocks we consider on the 'bubble' in the continuing play table, and if they cannot move we will likely take the money off the table. For some tax reasons as well as to be more neutral moving into the first of the year.
Why? Because there could be some of that turbulence we have been discussing as the institutions take some gains from the July to December run in 2006. Most of the gains in the year have been in the second half. After year end they will likely book some of these gains. The choppy trade to end November and start December indicated some of this occurring as well as some setting up for 2007 ahead of the holidays when many fund managers left before Christmas and won't return until next week. That is the reason for the quieter period this week, allowing the market to rise.
We have found stocks we really like and have been taking some positions because they are strong and held up well in the chop. Just as the chop suggested some profit taking and positioning for the year, the fact these stocks held up during that rougher time shows they are not on the list of sells of the big institutions. In any event, we will look at some strong leaders and some emerging new issues for possible buys even on this last session of the year.
We don't have hardly any positions in bad shape, but raising some cash with some laggards that have not performed great is good for tax purposes and it gets us more neutral heading into the first of the year so we can see what the big institutions are doing. We suspect we will get some profit taking to start the year and then a continued move higher. Thus taking some gain here, selling some so-so positions, and generally raising some cash keeps us nimble to start 2007, able to move along with the big money when they start buying. As we all know, we don't move the market; it is the big money institutions that do that, and we want to be ready to go with them to the table they eat at. There is the temptation to sell everything tomorrow, and if we get another nice push higher we will be unloading quite a few positions.
Support and Resistance
NASDAQ: Closed at 2425.57
Resistance:
The 18 day EMA at 2427
2455 is the July up trendline
2468.42 is the November 2006 high
2471 is the December 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 2395
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 1424.73
Resistance:
1425 is an interim high from November 1999
1432 is the December 2006 high
1444 from February 2000
1475 from peaks in December 1999 and January 2000
Support:
The 18 day EMA at 1416
1408 is the November high
1406 is the July up trendline.
1401 is a low from April 2000
The 50 day EMA at 1395
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 12,501.52
Resistance:
Back to 8.6% above the 200 day SMA, about the point where DJ30 started to struggle in late October.
Support:
12,499 is the December intraday high.
The 10 day EMA at 12,429
The 18 day EMA at 12,386
12,361 is the November 2006 high
The 50 day EMA at 12,236
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): 1.047M actual versus 1.015M expected, 1.013M prior (revised from 1.004K).
December 28
Initial jobless claims (8:30): 317K actual versus 320K expected, 316K prior
Consumer Confidence, December (10:00): 109.0 actual versus 102.0 expected, 105.3 prior (revised from 102.9)
Existing home sales, November (10:00): 6.28M actual versus 6.15M expected, 6.24M prior
Chicago PMI, December (10:00): 52.4 actual versus 50.2 expected, 49.9 prior
Crude oil inventories (10:30): -8.1M actual versus -6.323M prior
December 29
Help wanted Index, November (10:00): 30 expected, 30 prior
End part 1 of 3
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