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us stock market, trend trading stock
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1/08/07 Stock Split Report Update
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Stock Split Report Subscribers:
Full report issues Tuesday
MARKET ALERTS
Targets hit alerts: FMD
Buy alerts: BSC; FFIV; QLGC; TECH; WFR; TEK
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:
- Techs hold on to lead market out of the selling, but don't lead the session.
- Hell no to 'pay go' . . . at least the way the House is trying to set it up.
- NYSE large caps rebound after test of support, trying to overcome attempts to sell them off.
Market fights off selling thanks to techs, then throws them aside.
While the large cap NYSE stocks struggled last week the techs started to step up, showing some solid leaders and overall relative strength. They did not explode higher to a new breakout, just started making some moves after holding support and setting up some nice patterns.
Monday they were doing the same. The market had somewhat of a hangover to start the week, but once more techs were showing relative strength, helped by a general upgrade of the sector and specific upgrades of IBM, NTAP, EMC and the like. Oil was higher, up well over $1/bbl, and that was a drag on the entire market but it appeared to impact the NYSE stocks more.
Indeed, after a soft open things turned softer with a midmorning sell off. More distribution among the large cap industrials and other sectors that performed the best in 2006 (e.g. telecom) sent SP500 down close to its 50 day MA while SP600 fell to its 90 day MA. That seemed to spark the buyers and put an end to the selling as stocks rebounded. Fed vice chairman Kohn delivered an address that basically toed the company line regarding inflation threats being still the primary concern, and at the same time dismissing the argument that the inverted yield curve pointed to a weakening economy. Of course, this was in response to Friday's musings from Minehan as to whether the inverted curve was indeed foreshadowing a weaker economy. We talked of investor confusion on this over the weekend, and the Monday comments did nothing to clear it up.
Nonetheless, the tap at lower support by the NYSE indices splashed some cold water on the sellers and allowed those stocks to recover. Techs raced higher as well, at least up to mid-afternoon. At that point they lost their bid. While the NYSE indices held most of their rebound gains into the close, the techs waffled and drifted off the highs. In doing so they actually sported weaker percentage gains than the NYSE indices. Likely not a change in the money situation that would dash the tech's recent attempt at leadership, however.
Technically it was an improvement no doubt. Intraday action was much better, showing the low to high action that typically accompanies more sustained bullish moves. As noted, SP500 and SP600 bounced off support tests and managed to close positive. Not bad. We have no complaints if all stocks decide they want to march higher again.
Volume was lower, and that was good and bad. During the selling it was good because it showed no distribution, no dumping that would indicate the big money is liquidating positions. When stocks rebounded in the afternoon, however, it also indicated they were not jumping all over them as volume did not jump higher. There was some good volume in individual issues as always, just not a lot overall. Given the early selling and the rather tepid rebounds, we give volume a slight plus on the session. Breadth was weak, basically flat on NASDAQ while SP600 managed a better showing as those indices, large and small cap alike, posted gains. Even with that, at 1.5:1 it was hardly blowout.
Even with the NYSE indices showing life once more, we still want to see techs lead the action higher. One, they have lagged, and the market needs some new pretty faces to lead the next leg. Two, strong leadership would show an anticipation of a stronger economy in 2007. Some of the leading indicators of worth (e.g. ECRI) suggests that is the case, but there is the bond curve inversion, housing market tumble, and length of the expansion that offer potential roadblocks. Yes, tech leadership would be a plus in that situation. It doesn't hurt that we see many of those stocks in good position to bounce and lead higher as they have done the past week. Now is the time for them to step up and deliver, just as noted in the weekend report.
THE ECONOMY
Go away 'pay go.'
The House of Representatives, newly controlled by democrats, passed 'pay go' rules once more, rules that in theory limit Congress' ability to spend our money and thus force Congress to make hard decisions. Unfortunately the same old issues are present. First, Congress never met a spending program it didn't like, and it never seriously cuts spending. Indeed, it refuses to even discuss the biggest money hogs of all, the ones that would make a spending difference, i.e. social insecurity and Medicare. Second, the way the Congress has resurrected 'pay go' has put the handwriting on the wall as to what will happen down the road once Congress gets 'tough' on its budgeting.
We have nothing against pay go if it limits congressional spending. Indeed, deficits would be falling much faster than they already are if Congress could strip out all of the pork from its work. All of that pork is unconstitutional as it is not a federal power in the Constitution. County roads in Alabama, museums across the land that celebrate state heroes, automobiles, etc. That does not even address the big unconstitutional no-no's of Social Security and Medicare. I practiced some constitutional law and many very smart attorneys and I (note how I did not put myself in that first category) still cannot find in a rather clear document where it says the federal government can take money from each one of us (knowing that my readers are paying a lot of taxes from the money they make) to pay for someone else's retirement or healthcare. That is not a power expressly set out to the government. Now the Feds could allow us to keep more of the money we make and put it into our own accounts for healthcare and retirement, but as we all know, Congress wants to get our money in its hands. Heck, many congressmen view tax money as Congress' money and not ours.
In short, if Congress was limited in what it could spend and it could be held to it, we would have no issue with 'pay go.' Problem is, many in Congress view tax cuts as spending. Of course any reasonable person knows that if a tax is not collected it is not spending; it is simply letting the person that earned the money keep more of it. That is not an expenditure, not a cost to the federal government. That is an important point because the new 'pay go' rules say for every new expenditure (a.k.a. tax cut or new program) some other spending or 'cost' has to be reduced elsewhere. Want a new program? Raise taxes.
Nothing new about that, but here is the part of the new pay go that makes it clear what the intentions are: the Democratic congress suspended the rule that you need a super majority (60%) to get tax HIKE bills to the floor. That means a simple majority and you have a tax hike. We have nothing against such rules. The super majority is not in the Constitution; it is just a procedural rule Congress adopted and it was used to hold up Social Security reform, judicial nominees, and making permanent the tax cuts when the Republicans had the majority in both houses. Unlike the republicans, the democrats are trying to keep their promises, and they know to do so they needed to suspend the rules. That is one reason the republicans lost: they promised every republican that if they got congressional control they would change SS to include private accounts, make the tax cuts permanent, and get judges appointed. When push came to shove, however, they thought it would be better to go middle of the road and play for votes instead of doing what they were voted in to accomplish. In the usual ironic twists of politics, they were voted out because they lost their base when they failed to do what they said they would do. All they had to do was vote to suspend that ridiculous rule and make the changes they promised. They did not and now many are seeking alternative employment. Of course we now have to foot the bill for their pensions and healthcare; that is about the only good reason I can see for voting for an incumbent: minimizing the number of pensions and families we have to pay for.
By eliminating the super majority rule and viewing tax cuts as spending, the House is setting up a big stick to beat republicans over the head with, i.e. the threat of raising taxes (or as they would say, repealing the tax cuts for the rich). That way they can view raising taxes as eliminating a cost and then using the short term boost in revenues to vote in more social programs (some have already voiced this as their primary goal this term). Of course, tax increases only give a short term boost to revenues before the money is diverted elsewhere into tax shelters and then hides from the economy. The social programs, however, go on forever, and we have to come up with more ways to pay for them down the road.
Thus you see the real problem: the rules designed to decrease the deficit (rather tongue in cheek at that), in yet another twist of irony, actually require more deficit spending down the road as the tax revenues that were raised with the initial tax hikes to pay for the spending run when the economy slows. The end game is that the deficit grows because when the economy inevitably slows there won't be enough revenue to cover it. Of course many will say raise taxes again. Yes, that really worked well in the 1970's, didn't it?
The key is to cut federal spending, and by that we mean REAL spending on things that are not the federal government's business. If the Federal government was limited to just not increase spending and keep things as they are the deficit would disappear. When you take money out of the Fed's hands, the federal government shrinks and we get better returns from our dollars that are there because they are forced to do the critical things like say, defense and infrastructure as opposed to funding a study of hog diets in Georgia (by the way; hogs eat slop). This version of 'pay go' doesn't get you there. Indeed, it is set up to raise your taxes.
THE MARKET
MARKET SENTIMENT
VIX: 12; -0.14
VXN: 18.35; +0.45
VXO: 11.42; -0.45
Put/Call Ratio (CBOE): 0.87; -0.03
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: 55.3%. Bulls continue to decline, down from 56.5%, 58.8% and 59.6% at the high on this last spike. Still above the 55% level and two months above the point where there are too many for the market's good. Came within a whisker of the January 2006 peak at just above 60%.
Bears: 21.3%. Moved back above the 20% level considered bearish after falling below that level (19.6%) for a week. Bears finally heading in the direction of bulls but not at levels that indicate any major surge in the market. Trying to trend back up after a steady slide (20.6%, 21.3%, 23.9%) 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: +3.95 points (+0.16%) to close at 2438.2
Volume: 1.926B (-8.42%). Volume backed off to average as NASDAQ struggled early but then rebounded to hold the middle of its recent range. No distribution, no accumulation, just a pause after the strong move last Thursday.
Up Volume: 1.189B (+540.057M)
Down Volume: 700.13M (-736.47M)
A/D and Hi/Lo: Advancers led 1.02 to 1. Wow. Flat as a pancake as the NASDAQ 100 posted a 0.10% gain, less than the overall NASDAQ
Previous Session: Decliners led 2.82 to 1
New Highs: 60 (-13)
New Lows: 32 (-18)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ tapped down toward the 50 day SMA (2416) intraday (again) and then rebounded to close just over the 10 and 18 day EMA. Not bad as no distribution, but it did little to change the picture. That is not that bad either, given the strong price and volume move last week and a more modest test to start a new, full week. Still set to move higher with this doji on the candlestick chart as it looks to take on the November and December high at 2471.
SOX (+0.61%) was spitting fire early, rallying to 477. That pretty much matched last week's intraday high and when it hit that level it faded back. Managed to hold above the 50 day EMA where it can make a higher low. Still looks well positioned to move higher.
SP500/NYSE
Stats: +1.12 points (+0.22%) to close at 1412.84
NYSE Volume: 1.565B (-8.49%). Volume faded on NYSE as well but it did remain above average as the indices tested next support and rebounded. As with NASDAQ, no distribution, no accumulation. Good to see no distribution as they slipped down to test next support.
Up Volume: 927.233M (+503.88M)
Down Volume: 616.117M (-646.368M)
A/D and Hi/Lo: Advancers led 1.47 to 1. Not bad breadth (ha ha) as both large and small caps rebounded from the intraday test.
Previous Session: Decliners led 3.02 to 1
New Highs: 76 (-21)
New Lows: 10 (-16)
The Chart: http://investmenthouse.com/cd/^gspc.html
After selling through the trendline Friday (1414) SP500 came close to the 50 day SMA (1401) then rebounded for a gain. It tapped the 18 day EMA (1415) on the high and backed off, closing just below the July trendline. Nice test, good recovery though volume was lower. Could still come back to further test this support, but you have to like how it tested near that support and rebounded.
SP600 (+0.21%) basically matched the large cap action, tapping right at its 90 day SMA (390) on the low and rebounding for a modest gain. Still below the 50 day EMA (396) and the trendline, but a good response to the Friday drubbing. The 90 day MA showed a lot of hard rock.
DJ30
The blue chips recovered the 18 day EMA (12,411) Monday after testing a bit lower intraday, but never coming close to a 50 day EMA (12,251) test. It remains in its uptrend, refusing to give up, but the risk/reward has not improved much for the index overall.
Stats: +25.48 points (+0.21%) to close at 12423.49
Volume: 223M shares Monday versus 235M shares Friday.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
This is a full week, the first one since before Christmas. No scheduled economic data, but the real story is shifting toward earnings. We have seen warnings, and we will see more. Alcoa is set to get things started tomorrow after the close, though AA is hardly a leader. The real drivers will start the following week, so that means warnings will be the main market drivers, at least for individual stocks; thus far the market has weathered the prior warnings and indeed NASDAQ showed relative strength even when a large cap tech in MOT issued a warning.
With the large caps rebounding after attempts to sell them off it is possible we could see renewed buying interest on a more market-wide basis. Maybe. Despite tech's late fall from strength on Monday we still see many tech stocks set to bounce. It does, however, go beyond that into other areas, and we are not going to turn down a good pattern in financials, biotechs, or healthcare; those are good sectors right now as well.
We remain somewhat leery of the NYSE large caps even with the Monday test and recovery. They likely have more testing to do at least of that near support. If money continues to come out of them, however, we see it rotating into the techs still. Thus far we see nothing keeping it from moving that way.
Support and Resistance
NASDAQ: Closed at 2438.20
Resistance:
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:
The 50 day SMA at 2416
2412 from June 1999 low
The 50 day EMA at 2402
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 1412.84
Resistance:
1414 is the July up trendline, and it held on Wednesday
The 10 day EMA at 1417
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:
1408 is the November high
1401 is a low from April 2000
The 50 day EMA at 1398
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 12,423.49
Resistance:
The 10 day EMA at 12,437
12,499 is the December intraday high.
Remains roughly 8% above the 200 day SMA. It has struggled after hitting that degree of separation in late October, but is has not given up.
Support:
12,361 is the November 2006 high
The 50 day EMA at 12,251
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 8
Consumer credit, November (2:00): $12.3B actual versus $5.5B expected, -$1.3B prior
January 10
Trade balance, November (8:30): -$59.5B expected, -$58.9B prior
Wholesale inventories, November (10:00): 0.5% expected, 0.8% prior
Crude oil inventories (10:30): -8.132M prior
January 11
Initial jobless claims (8:30): 320K expected, 329K prior
January 12
Export prices, December (8:30): 0.1% prior
Import prices, December (8:30): 0.7% prior
Retail sales, December (8:30): 0.7% expected, 1.0% prior
Retail sales ex-auto, December (8:30): 0.5% expected, 1.1% prior
Business inventories, November (10:00): 0.3% expected, 0.4% prior
Treasury budget, December (2:00): $24.0B expected, $11.2B prior
End part 1 of 3
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