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1/04/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: SYK
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:
- Money heads to growth as tech, particularly large cap tech, leads higher.
- December retails sales hit a bloop single.
- ISM services remain on growth track.
- Money looking at large caps again but this time it is large cap tech.
Investors strike a definite course.
Wednesday was a strange day, a red herring of sorts given the 4-day closure and the new year. There was some itchy money after the long closure that rushed in early, some new money needed a home, and then some sellers wanted to unload some positions and take some gains. The result was a run up, a run down, and a close near the center.
Thursday things started on a much quieter note. Foreign markets were lower so no one here felt as if they were missing out on something as they did on Wednesday when Asia roared while our market snored. Retail sales were again all over the map, but after WMT's surprise gain in sales as reported Wednesday (1.6% versus 1%), the impact of the positive results was muted.
A soft start can be good as it gives buyers a chance to move in on a bit of softness and feel as if they are getting a real bargain. That can lead to that bullish low to high intraday action that typically marks a bullish run. When the ISM services came out with another solid growth reading and oil prices plunged after the inventory reading that showed a 1.3M bbl decline versus the 930K build expected ($55.29, -2.73/bbl), stocks found their direction, and that direction was tech.
More accurately, investors zeroed in on their targets for the start of the new year. It was growth and it was tech, and the preference was large cap tech. Stocks recovered from the early softness and up and down chop of the first hour with NASDAQ and particularly NASDAQ 100 leading the way. A midday 3 hour lateral move let investors catch their breath and we waited to see if the techs would lead higher into the late afternoon session. They did. NASDAQ put on a 20 point last hour run before giving back 6 points from the high. Still good for 30 points (1.25%). NASDAQ 100 snapped the tape at 33.54 points, up 1.91%. Definite appetite for big techs. It is hard to call them pure growth; with some of these mega caps growth just isn't what it used to be. After a long slumber, however, many have remade themselves (e.g. CSCO) and can actually see some real growth ahead. Money started moving that way on Thursday with semiconductors coming along as well. That dragged the rest of the market higher.
Technically it was not a broad move and you can malign the gains from that aspect if you want. Breadth was negative on NYSE and just 1.3:1 on NASDAQ. Volume was lower as well, but it was still nicely above average on both NASDAQ and NYSE; given that Wednesday was an aberration as noted above, we view the Thursday volume as positive. NASDAQ moved off of the 50 day EMA while SOX provided some important back up as it jumped off the 200 day SMA. If big tech is going to lead, you need to see semiconductors moving as well, and they were.
There were not a lot of breakouts, but it was a shift day, a visible shift toward technology. With the re-jiggering taking place the breakouts were less, but the action started plenty a stock off of some support. After the pullback to end 2006 there are many stocks in position to rebound, particularly tech (it lagged the last part of the move). After the large cap NYSE leadership to the end of the year and its extended nature, it is very good to see techs get some money. Remember back in late summer and early fall we noted that the techs would need to pick up their end and lead when the large cap NYSE stocks made their run. The large cap NYSE just kept moving higher, however. They are starting to lag starting the new year, however, and it looks as if there is rotation to tech. Money is not leaving, it is just finding a new home and it is starting to push tech higher.
THE ECONOMY
Most retailers find December sales below expectations.
There were some stellar numbers reported on Thursday. GYMB +15%, AEOS +13%, ZUMZ +11.5%, COST +9%. All of those beat expectations. On the other hand you had ANN -5.3%, CHS lowering its outlook, BJ missing and lowering, HOTT -5.1%, and BEBE missing expectations as well. As usual the numbers lined up on both sides of the ledger.
Not so usual is that only 46% beat or met expectations while 54% missed. Most missed. Those that beat did just fine though some not as good as you would expect. Those that missed were beaten up, but not totally. CHS missed and guided lower but was up on the session. Retail is a fickle mistress.
Overall holiday sales are looking up year over year; as is usually the case, certain names enjoy the feast while others enjoy the famine. Those that are starving complain loudly (as do the analysts) and you get the impression sales were terrible. No, sales were up, they just were not blow out and as usual they concentrated in those retailers that 'got it right' as far as product mix and pricing.
ISM up off summer lows but still below the average of the past three years.
The 57.1 shaved past expectations (57.0) but was down from November's 58.9. ISM services have basically been in a holding pattern since rebounding in August off the summer lows that took it within a couple of points of 50. As with the ISM manufacturing report, it has trended modestly lower since 2003, making a series of lower peaks. It remains in growth mode, having not fallen below 50, but as the expansion slows the gains have slowed as well.
New orders slipped (54.4 from 57.1) as inventories rose (53.5 from 51.5). Definitely some slippage though still comfortable levels. Prices paid, unlike ISM manufacturing, are trying to turn back up (59.1 versus 55.6) after hitting a low at 51.9 in October (well down from Augusts 72.4 and June's 77.
Basically the service sector, the economy's largest, continues its expansion but at a slower rate. Growth but slower growth. As with ISM, the leading indicators suggest a modest recovery in growth levels after 2007 gets more underway. There is nothing indicating 4% growth, but a recovery from the slow levels in Q3. Of course there is still the fall off in metals (copper, steel), the struggle in transports, and the inversion in the bond curve. Those suggest the opposite of growth. For now the stock market continues to price in economic gains.
THE MARKET
MARKET SENTIMENT
VIX: 11.51; -0.53
VXN: 16.99; -0.51
VXO: 11.19; -0.38
Put/Call Ratio (CBOE): 0.83; -0.02
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: +30.27 points (+1.25%) to close at 2453.43
Volume: 2.146B (-15.77%). Volume slid well back from the big Wednesday surge, but as noted, that had some aberrant factors associated with it that jacked it up a bit. The Thursday trade was still very solid and well above average as NASDAQ posted solid gains.
Up Volume: 1.609B (+29.736M)
Down Volume: 509.092M (-358.908M)
A/D and Hi/Lo: Advancers led 1.32 to 1. Breadth was quite weak compared to the point gain, but it is explained with the 1.91% gain in NASDAQ 100; money was moving into the large cap techs.
Previous Session: Advancers led 1.08 to 1
New Highs: 89 (-61)
New Lows: 30 (-16)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ continued its rebound off the intraday 50 day EMA test on Wednesday. It was not straight up as it tapped the 50 day SMA on the low and then found its footing for a midmorning and then late afternoon surge. The move took it up near the upper reaches of its 6 week lateral move between 2400 and 2471. Some good volume off the 50 day EMA test could give it what it needs to make the break; it is indicative of new money coming into technology, and money from the big institutions is what drives the market. A breakout is of course a good confirmation of the new money and gives NASDAQ room to run as it plays catch up to large cap NYSE indices.
SOX (+2.01%) was in there pitching with NASDAQ. If you are going to have a tech rally, you really need to have the semiconductors involved if you want staying power. SOX held the 200 day SMA the past three weeks on the lows, and this time it had some pop as it jumped off that support. Good start with some big names performing (e.g. INTC, BRCM, VSEA, NVLS, LRCX).
SP500/NYSE
Stats: +1.71 points (+0.12%) to close at 1418.34
NYSE Volume: 1.729B (-33.8%). As with NASDAQ volume was lower than the big Wednesday surge but still solidly above average as the NYSE indices tested lower but recovered to post modest gains.
Up Volume: 770.5M (+770.5M)
Down Volume: 937.873M (+937.873M)
A/D and Hi/Lo: Decliners led 1.02 to 1. Underscores the real struggle on the NYSE.
Previous Session: Advancers led 1.11 to 1
New Highs: 160 (-164)
New Lows: 24 (-12)
The Chart: http://investmenthouse.com/cd/^gspc.html
Another reach down to the July up trendline on the Thursday low (same as Wednesday) and then a recovery, this time closing positive. Volume was not bad on the rebound, indicating some modest buying after prices dipped and found support again at the trend. SP500 is definitely struggling to hold on at the 18 day EMA (1416) after a solid jump higher two weeks back lost its sizzle. Slowing some as money makes some tracks toward tech.
SP600 (+0.15%) struggled as well with another reach down to the 50 day EMA and another rebound. It made a higher low at the end of December, and the action is definitely choppy the past 6 weeks. It hit a new all-time high in early December, but the going has been volatile. Always have to watch volatility as a sign of potential change in a trend. With this being the fourth year of expansion, that makes it all the more important with the small caps as they are typically early cycle movers.
DJ30
The blue chips pulled the same action as SP500, again testing lower to the 18 day EMA and again managing a rebound to hold the 10 day EMA (12,449) on the close. The move has slowed but DJ30 refused to give up the trend higher.
Stats: +6.17 points (+0.05%) to close at 12480.69
Volume: 259M shares Thursday versus 327M Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Man it is already Friday, and that means the jobs report. Recall ADP projects a decline of 40K jobs when official projections are in the 115K range. Of course even when the numbers are out can you really trust them? Lately they have been less than trustworthy, though the revisions have been to the upside versus the downside.
Regardless of the jobs report (remember, it is a lagging indicator and investing based on it is similar to driving in reverse), we like the Thursday money move into technology. After the long run in NYSE large caps, they are tired and could not rally much farther without a correction. Money is shifting from them, and instead of leaving the market, is moving to a lagging group that many are apparently betting will lead as the economy tries to follow the leading indicators and recover later in 2007. It is always a sign of market health when money moves to new areas versus leaving when one sector has made its run. Kind of like recycling as opposed to just tossing a used up item into the trash.
The market really needed this transition as the large cap industrials, in general, have run a good race and are pooped. As noted above, it is very good to see semiconductors stirring to life along with tech; nice one-two punch. Small caps are a growth group that is a question mark right now, but as noted above, they tend to back off leadership as an expansion advances. As we noted in the summer, we just don't want them to collapse, just keep following along. Kind of a funny comment given they just hit a new all-time high in early December, but the move is turning volatile.
Friday we are going to look at more of the rebounding tech, semiconductor, and even healthcare as they come off the recent pullback to support. Money started to rotate again and we can pick these strong stocks as they move higher off of the test of support.
Support and Resistance
NASDAQ: Closed at 2453.43
Resistance:
2460 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 2399
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 1418.34
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
1410 is the July up trendline, and it held on Wednesday
1408 is the November high
1401 is a low from April 2000
The 50 day EMA at 1397
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 12,480.69
Resistance:
12,499 is the December intraday high.
Back to 8.6% above the 200 day SMA, about the point where DJ30 started to struggle in late October.
Support:
The 10 day EMA at 12,449
The 18 day EMA at 12,411
12,361 is the November 2006 high
The 50 day EMA at 12,238
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.
January 3
Construction spending, November (10:00): -0.2% actual versus -0.6% expected, -0.3 prior (revised from -1.0)
ISM index, December (10:00): 51.4 actual versus 50.0 expected, 49.5 prior
FOMC minutes, December (2:00)
January 4
Initial jobless claims (8:30): 329K actual versus 320K expected, 319K prior
Factory orders, November (10:00): 0.9% actual versus 1.4% expected, -4.5% prior (revised from -4.7%)
ISM Services, December (10:00): 57.1 actual versus 57.0 expected, 58.9 prior
January 5
Non-farm payrolls, December (8:30): 100K expected, 132K prior
Unemployment rate (8:30): 4.5% expected, 4.5% prior
Hourly earnings (8:30): 0.3% expected, 0.2% prior
Average workweek (8:30): 33.9 expected, 33.9 prior
End part 1 of 3
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