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1/11/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: FRX
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:
- NASDAQ makes the breakout without hesitation, pulling the market with it.
- NASDAQ breakout follows over a week of gains and finally catches the media's attention. Just about ready to test?
- Now that we have the breakout, look at taking some gain ahead of long weekend.
NASDAQ makes the breakout move.
It was building as we have chronicled in over the past couple of weeks, and Thursday NASDAQ delivered the breakout from its 8 week range to a new post-2002 high. The financial stations were talking about the Dow as 'the market' rallied, but we all know that what set the backbone to this move was the accumulation of tech shares as money left the NYSE.
It was a flat pre-market with overseas markets lower as the Bank of England raised rates 25BP in a surprise move. Bonds here in the states surged (closed at 4.86% two year versus 4.73% 10 year). Those were negatives, but once more oil was lower by 70 cents or so at the open, continuing the trend lower from the high near 80 hit in July 2006.
Stocks opened and immediately started higher. Oil continued lower, shoved sharply lower by reports that last week's demand hit a 2 year low. As it sold (it closed at 51.88, down $2.14/bbl) the market gained strength. NASDAQ ran right through the December high, hesitated, and then rallied to 2489. NASDAQ's strength dragged everything with it. As NASDAQ broke resistance money flooded in all over the market. SP500 and SP600, rather beleaguered of late, posted solid recoveries with the small caps leading the market alongside NASDAQ. Indeed, even with energy stocks in turmoil the small caps posted a solid gain. That is noteworthy and impressive.
Technically the session was a vast improvement from the narrow breadth and mixed trade leading up to the move. Of course when you have a consolidation internals tend to be weaker. You want to see them move when the market moves, and that is exactly what happened. That accumulation we have noted in technology proved to be the foundation as stocks from most sectors rallied with breadth at 2:1 or better. Volume jumped on both exchanges as more buyers crammed into the market as it continued the move it had already started last week. DJ30 moved to a new closing high while SP500 recovered off the test of the 50 day EMA and is challenging its post-2002 high. The small caps jumped back through their 50 day EMA with relative ease. Not out of the broad top but an encouraging move.
SOX was the surprise. It rallied early and approached the November and December highs but reversed to close with a lost. Modest loss but it failed to add to the solid Wednesday break higher. That is likely not that ominous, just a preview of what we are likely to see on NASDAQ, i.e. a pullback to test the breakout. SOX is having its pause prior to clearing the recent highs.
In sum it was a significant move as the new leader for 2007, NASDAQ, put in a new post-2002 high, vaulting on strong volume and breadth as it made the move. All of that accumulation set the foundation and it used the strength to make the break as well as drag the rest of the market higher on its coattails. The breakout by a growth oriented index is a positive; stocks look down the road many months, and if a growth sector is breaking out that indicates solid economic action ahead.
That forecast strength jibes with some important leading indicators regarding an economic recovery into 2007 after a falloff in 2006 as oil prices surged. Now Q4 2006 may be stronger than expected given the export increases late in the year, but that is not the growth recovery this is indicating. This move is in anticipation of further increases to come. What's more, you just have to like how the move set up with the tech accumulation, the low starts and higher closes, the leaders ticking off good moves ahead of the overall market. The foundation was there, we saw the moves starting and bought in ahead of the rush, and today we could enjoy watching positions move higher.
THE MARKET
MARKET SENTIMENT
VIX: 10.87; -0.6
VXN: 17.02; -0.23
VXO: 10.59; -0.73
Put/Call Ratio (CBOE): 0.72; -0.09
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: 55.4%. Bulls ticked modestly higher from 55.3% after declining the past several weeks from 59.6% (down from 56.5%, 58.8% and 59.6% at the high on this last spike). Still above the 55% level for over two months. Came within a whisker of the January 2006 peak at just above 60%.
Bears: 20.7%. Bears faded, mirroring somewhat the move in bulls. Down from 21.3% after jumping back above the 20% level for a week. That level is considered bearish. Still struggling to trend higher 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: +25.52 points (+1.04%) to close at 2484.85
Volume: 2.446B (+4.39%). Volume was up again, close to the huge spike to start the year, as NASDAQ broke to a new 6 year high. That is exactly what you want to see: investors bidding up our positions we took as we saw the moves starting awhile back. That volume shows buyers piling in aggressively, and that accumulation we saw earlier is providing a great foundation.
Up Volume: 1.645B (-33M)
Down Volume: 773M (+172M)
A/D and Hi/Lo: Advancers led 1.94 to 1. Very solid breadth though it did give back a 2+:1 showing intraday.
Previous Session: Advancers led 1.01 to 1
New Highs: 151 (+58). Pretty anemic for a new post-2002 high.
New Lows: 42 (-24)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Gapped higher and ran through the December high (2471) with ease. It paused a bit after it broke through, then rallied and buried that level in its dust. It tapped at 2490 three times on the day, unable to move past that level. Indeed, the intraday double top sent it lower, helped along by a warning in SAP (enterprise software). It had to overcome this news and rebound in the last hour to hold the gains. It managed to hold the recovery for a strong, convincing breakout even with ORCL and others not participating.
SOX (-0.29%) was the enigma, closing lower on the session after giving up a fairly solid gain in the morning run. Even with the giveback it is still rising that strong Wednesday break higher that cleared 476-475 where there was some resistance. Still has to get through 479.25 (the December intraday high) on this move to really start running.
SP500/NYSE
Stats: +8.97 points (+0.63%) to close at 1423.82
NYSE Volume: 1.671B (+6.78%). Volume was up as SP500 recovered from its modest distribution bouts at the 50 day EMA and jumped higher. A positive turn after the churn to start the month.
Up Volume: 1.176B (+310.788M)
Down Volume: 475.23M (-198.987M)
A/D and Hi/Lo: Advancers led 2.38 to 1. With the small caps running with NASDAQ, breadth was solid as the other indices finally got into the game.
Previous Session: Advancers led 1.03 to 1
New Highs: 200 (+51)
New Lows: 16 (-9)
The Chart: http://investmenthouse.com/cd/^gspc.html
After spending four sessions tapping at the 50 day EMA, the large caps decided they had put in enough of a floor and used that to vault higher Thursday. Volume was up as it cleared the recent range, closing at a new 2007 closing high. It is challenging the December high (1432) but still has some work to do to get to that level and do battle. The move also took SP500 back above its July up trendline, a hard feat to accomplish and it did it on stronger volume. Still has those highs to deal with and still following NASDAQ at this point, but glad to see it joining the move.
SP600 (+1.15%) ran well on NASDAQ's coattails as well, recovering the 50 day EMA and rallying to some interim resistance at 400. Definitely added to the NSYE breadth push, but it still has a pretty iffy pattern, i.e. it is still a toppish pattern. Rather hang with tech as we have been.
DJ30
New all-time closing high, new all-time closing high, new all-time closing high. That is one of the many headers on the financial stations. Every time the Dow hits a new high you get this graphic. It isn't the whole market, but this time everything was working with it so it looked even better. DJ30 never gave up its uptrend and Thursday it was powering back up in its trend on rising, above average volume. It was lot a leader despite the new high. It has done the hard work through 2006 and is now sitting back and letting the others do the work as it coasts up its trend.
Stats: +72.82 points (+0.59%) to close at 12514.98
Volume: 261M shares Thursday versus 226M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Lots of economic data returns Friday (retail sales being the key data point) to go hand in hand with the earnings and warnings that are starting to pick up steam. It is all coming together as the indices break higher. The move is partly made up of some positive anticipation of earnings, but as noted above, investors are also looking well down the road. In short, the NASDAQ breakout speaks to positive views of the economy and thus earnings well down the road. It has something to do with the current earnings season as well, but that is not primary. Thus even with the breakout, and indeed in part due to the breakout, we could get some backing up when earnings really start hitting.
It won't be just due to the actual earnings numbers. Often when the market rallies ahead of earnings it softens on the actual numbers. That is part of the normal ebb and flow in market movement. More than that, however, NASDAQ has rallied from the bottom of its 8 week range, rising 6 out of seven sessions to make the breakout. It moved 70 or so points to make the breakout. Now everyone is jumping on board with even the news media noting that tech stocks were performing well. It is as if they consciously ignored the moves that were being made, but now that NASDAQ thumbed its nose at them with the breakout they have to mention it.
The sustained move higher and the breakout over resistance often lead to a test of the move. Oftentimes you see a stock start a run from deep in a pattern and the run takes it to the breakout. When it gets to that rarer air on the breakout the profit takers hit it and send it back down to test. NASDAQ closed near the session high and the chart looks like a ball of fire. Three times Thursday, however, it tried 2490 and could not get through. Not saying that is going to be the point that stops it, but it will likely test given the long run to make the break higher.
Thus we were not buying wholesale on Thursday even as NASDAQ broke out and took a lot of the market with it. We have bought the past couple of weeks as the leaders showed strength, moving higher from solid patterns or technical positions. Again, 7 days into a move is not really when we like to be loading the boat. Sure we bought some positions on some good moves, but at this juncture we prefer to let our positions run higher over the next few sessions and then use the test to add to strong winners or pick up others that we did not get on this move because the volume was not that great, the pattern needed more work, or they just got by us.
Everyone is all abuzz over the Thursday move, and success will attract more money to the market. With everyone buying at this point, however, it is time to just let them drive our positions higher and then wait for the next really good buying opportunity, and that will be on that test.
That does not mean we are going to ignore good looking potential buys, but wholesale buying is not something we will likely do. We have bought a lot the past couple of weeks anyway when prices were lower. Of course things could just take off further from here, and if we see stocks that are in good position to buy, i.e. not just chasing extended stocks. Again, there will be another really great buying opportunity when NASDAQ tests its breakout.
Monday is a holiday for the markets, and we would love to see a further rally Friday and take some gain on that move as there will likely be some profit taking Friday afternoon after a good run and ahead of a 3 day weekend for stocks. Earnings start in earnest next week after the holiday, and that can always open a can of worms as seen with the SAP warning that impacted that entire sector. Thus on another run higher Friday it is worth taking some gain on positions that have built it up over the past week.
Support and Resistance
NASDAQ: Closed at 2484.85
Resistance:
2493 is an interim peak from February 1999
Support:
2471 is the December 2006 high
2468.42 is the November 2006 high
The 50 day SMA at 2422
2412 from June 1999 low
The 50 day EMA at 2409
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 1423.82
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:
1418 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 1400
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 12,514.98
Resistance:
Remains roughly 8% above the 200 day SMA. It has been choppy after hitting that degree of separation in late October, but is has not sold off.
Support:
12,499 is the December intraday high.
12,361 is the November 2006 high
The 50 day EMA at 12,275
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): -58.2B actual versus -$59.5B expected, -$58.8B prior
Wholesale inventories, November (10:00): 1.3% actual versus 0.5% expected, 0.4% prior (revised from 0.8%)
Crude oil inventories (10:30): -4.99M actual versus -8.132M prior
January 11
Initial jobless claims (8:30): 299K actual versus 320K expected, 325K prior (revised from 329K)
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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