|
|
us stock market, trend trading stock
* * * *
1/18/07 Stock Split Report
* * *
Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: WFR (took some interim gain)
Buy alerts: BEC
Trailing stops: AAPL; VSEA; PCAR
Stop alerts issued: GPRO; LRCX; NVLS; CRDN; BRCM
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 changes its character as the money that drove them higher to start the year rotates quickly away.
- CPI remains tame, overstating inflation as Bernanke states.
- Bernanke warns about the trade offs as Congress ponders the deficit.
- More tech downside Friday then some short covering ahead of the week
Techs sell back the breakout and more even as oil falls and economic data improves.
Oil dipped below $50/bbl for the first time in two years Thursday as inventories surged (+6.3M crude, +3.5M gasoline). The inventories were just more fuel for the fire so to speak; oil has already plunged close to 30 dollars, and the downside momentum is fierce. Still, by the close it rebounded to hold 50 (50.48, -1.76) as 50 remains a key support level. On top of that the Philly Fed was stronger and jobless claims sank again.
The economic data certainly looks solid, but it was not enough to ward off the negatives. Earnings were a primary driver. AAPL topped each hour's news, but the real driver, the real guts of the Thursday selling, was the LRCX earnings. The weaker guidance ripped into all the chip equipment stocks and bled over into other chip sectors. In reality these numbers were not bad if the tape was good. The market, however, was in no mood to reward anybody.
It did not help that the CPI failed to provide another downside surprise, but the earnings ruled the session as NASDAQ, SOX and even SP600 led the selling, starting on the open, pausing midday, then resuming the downside in the afternoon. Growth was not growing on Thursday.
Is that showing some fear of the future despite the economic data? Or was there simply some rotation out of techs. Violent, sharp rotation out of a sector that was just bought like crazy to start 2007 to be more precise. Indeed, drugs, biotechs, healthcare and even retail enjoyed strong sessions as techs and chips were whacked. Money was flowing to other areas though it was very aggressive and much faster than typical.
Technically NASDAQ changed its stripes, giving up the 2007 breakout as well as the next potential support level at 2450, doing so on high volume, volume that even topped the breakout volume last week. NASDAQ sold back into its November to early January range where it will now have to try and find support near the 50 day EMA or the bottom of the range. Breadth was weak (-2.5:1), volume was strong, breakouts were failing. That is a change of character.
Outside of NASDAQ the SP500 and DJ30 were rather immune, just watching disinterestedly from the sidelines. Even NASDAQ stocks outside tech fared well, even moving higher as opposed to falling (biotech, etc.). Those emerging leaders are getting money and look good. The question is what will SP500 and DJ30 do if NASDAQ cannot find purchase near 2400. They were losing money to techs as techs finally broke out. They are still extended, and if NASDAQ is not there to pull them along they are not likely to make upside wake on their own. That leaves the market in a rather precarious shape with respect to future leadership. The sectors getting money today were diverse, some defensive (drugs, healthcare, medical appliances) and some growth (retail). We like that money is still shopping around and not leaving the market, and that is always a positive. Indeed, those are providing us some great opportunities both in new plays and in current positions.
THE ECONOMY
CPI a bit hotter but not enough to worry the Fed.
After four down months the CPI ticked higher at 0.5% overall (0.0% prior) and 0.2% on the core (in line and higher than 0.0% prior). Much of the gain was driven by higher energy prices in December and with that dumping lower that will change again.
That put the year/year core at 2.6%, still above the Feds 2% speed limit. Trouble right? Not really if you hear Bernanke's talk. He made legit (at least for the Fed) what many are already saying, i.e. the CPI overstates inflation by about 1%. That puts inflation well within the Fed's comfort range. Any wonder Bernanke had no issue with pausing in August? He knew the inflation pressures had peaked and this would be coming so he could afford to pause and then look like a cool operator who understands the economy.
The sum of the report: inflation continues to trend lower after finally showing the peak in the actual numbers prior to year end 2006. It took a long time for the actual numbers to start to turn after the pressures abated in October 2005. That shows that Greenspan kept money supply too high for too long, and it took some better control and longer than usual timeframes to get it back down.
So Bernanke managed to clean up Greenspan's excess liquidity issues and get things under control and he did it without pitching the economy into recession and of course the market crash that precedes it (remember 1987?). It is not that we are in love with Bernanke, it is just that compared to the deified Greenspan he is the real deal. Greenspan flew by the seat of his pants. Bernanke is grounded in history and sound theory.
Bernanke warns Congress of bills to be paid.
Bernanke wants to stay out of the policy game, but when you are speaking to the Senate Banking committee about deficits by definition you get into the unconstitutional retirement and medical programs that are sucking away all of our money and eventually our economy. Bernanke warned Congress as many have before him that there were choices to be made. Tax cuts are great for the economy but they require cutting spending because there are too many of us that are going to be dipping from the same entitlement pool while not enough workers are out there to fill it. Social security was designed for a lifespan of 62 when it set the benefits age at 65. Now we live to 76 on average. That is second grade math. Second graders know this won't work but Congress cannot figure it out. Today we heard again there was nothing wrong with SS. Fine. Let it collapse on its own weight when all the grey hairs try to tell the young workers their taxes are going up 20% and the younger people say 'forget it you old farts.'
There were some serious issues with what Bernanke said, however. He made this really silly, Phillips Curve-like commentary about the pitfalls of prosperity. He didn't put it that way but in discussing how fiscal policies promoting growth were good (e.g. tax cuts) he said that the downside was that they led to higher costs. He cited rising incomes as increasing healthcare expenditures and increasing social security costs because more pay into it. We spend more on healthcare because we make more? Yes, when I have a great month of trades I go out and buy some more healthcare. A little botox, some liposuction, hair implants. How absurd. Incremental wealth does not mean we run to the doctor.
Maybe with respect to social security he was suggesting it only made the system bigger because more was paid in as more people work when fiscal stimulus works. Now we agree that people making money should be given the ability to put it into private accounts and thus not grow a huge unconstitutional system destined to fail (still cannot find in the Constitution where it says you can tax me to pay for the retirement of someone who chose not to work), and maybe Bernanke was obliquely making that argument. It sure didn't come across that way; the way he put it made it sound like the problems of the rich: you HOPE there is more coming in because that means more people are working and prosperous.
In the end Bernanke did the best he could to dance down the middle, not wanting to give one side ammunition to use in political battles. Of course they all parse his comments and take what they want to use as they want so it is politics as usual with nothing really accomplished. The result was the market did not like his prognosis that the deficit would be 9% of GDP by 2030 coupled with a democratic Congress that is intent on cutting spending as it defines it. To them tax cuts are spending. Nonsense as you cannot spend what you don't have (a tax cut precludes sending the money to the feds), but D.C. is a magical land where rules of common sense and clear thinking that are required in the rest of the country are suspended in favor of focusing on the 2, 4 and 6 year election cycles.
THE MARKET
MARKET SENTIMENT
Talk about a self-fulfilling prophecy. So many expected a correction one started in technology with the large institutions selling just two weeks after they were buying like crazy. Sentiment remains very negative near term as investors are shooting any company that dares to report earnings. Kind of like a free fire zone. It is about to get overdone near term, but there is likely more downside ahead first.
VIX: 10.85; +0.26
VXN: 17.63; +0.71
VXO: 10.31; +0.31
Put/Call Ratio (CBOE): 0.91; +0.04. Pretty tame action, but when you consider SP500 barely sold and many non-tech NASDAQ stocks at least held their own it makes more sense.
Bulls versus Bears:
Bulls: 50.5%. Quite a drop for the week, down 5 points form 55.4%. After a blip higher they are resuming what was a modest dip (down just 4 points over the past 6 weeks). Major drop here even as SP500 and DJ30 remain in good shape. Peaked in January 2006 peak at just above 60%.
Bears: 22.1%. Moving back up after nearly undercutting the 20% level considered bearish Up from 20.7% last week after a few weeks trading near 20%. 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: -36.21 points (-1.46%) to close at 2443.21
Volume: 2.539B (+6.61%). From accumulation to start the year to dumping within three weeks. The heaviest volume since June shows the big money was selling the shares they were just buying.
Up Volume: 408M (-900M)
Down Volume: 1.94B (+199M). Over 4:1 negative volume.
A/D and Hi/Lo: Decliners led 2.48 to 1. Pretty ugly though not horrid. The large cap NASDAQ 100 lost more money (-1.86%).
Previous Session: Decliners led 1.31 to 1
New Highs: 67 (-7)
New Lows: 44 (+21)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped lower again and undercut the December and November highs (2471, 2468) and also the 18 day EMA and 2450 that was the second level support. It has given back the gain on strong volume and is now back in the 8 week lateral range from 2400 to 2471. It is not a complete breakdown, just a giveback (albeit on high volume) of the breakout. A break below 2400 is a true indication of the breakdown and it can still hold the line ahead of there (50 day EMA at 2432), but by then the damage will be done. It is under distribution now and likely to suffer a bit more before it holds the line. Another day down and closer to the 50 day EMA will likely trigger a relief bounce attempt.
SOX (-3.86%) broke through the 50 day, 200 day SMA and is going to hit 450. Major breakdown that can give a relief bounce to test the 200 day MA after hitting near 450.
SP500/NYSE
Stats: -4.25 points (-0.3%) to close at 1426.37
NYSE Volume: 1.614B (+5.85%). Some above average volume but nothing huge as on NASDAQ and lower than the volume in the first couple of weeks of 2007. Hardly much to get worked up over.
Up Volume: 622.952M (-210.015M)
Down Volume: 966.467M (+317.23M)
A/D and Hi/Lo: Decliners led 1.56 to 1. Modest.
Previous Session: Advancers led 1.14 to 1
New Highs: 151 (+35)
New Lows: 8 (+1)
http://investmenthouse.com/cd/^gspc.html
SP500 has been consistent of late. It is not moving up much or down much, just hanging onto its trend. Given the NASDAQ selling that is not bad, but again, how does it hold unless institutions turn back to it. It is still extended and in need of a correction. If NASDAQ continues its selling it will pull SP500 into more of a test.
SP600 (-1.13%) was beaten about the head and shoulders as well, but it did manage to close near the 50 day EMA. That keeps it in its 8 week range that is trying to set up a handle for the small caps to make a move out of their 9 month cup with handle base. They were sold too, but to a lesser degree than tech. We will have to watch how this pans out. Near term they made a second lower high since breaking to a new all-time high in early December.
DJ30
The Dow held steady just off a new high, showing a second doji after bouncing higher last week. That suggests another pullback to test the trend but frankly DJ30 is showing no holes in it right now other than being way out on the limb. IBM will cause some issues for it Friday and likely start it down on that test.
Stats: -9.22 points (-0.07%) to close at 12567.93
Volume: Volume was lower but still above average at 250M shares versus 272M shares Wednesday.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
Michigan preliminary January sentiment is all that is scheduled for economic news. IBM released earnings after hours and was pummeled, and C announces Friday morning along with another raft of companies. Through today you could announce you had a flock of geese laying golden eggs and pooping diamonds and you would get sold off because some day some of the geese might die. In short, it is a poor environment for companies to release earnings and if they could avoid it they would. What looked to be setting up for a modest pullback as earnings started to flow following the NASDAQ breakout has turned into distribution and a technology reversal.
That makes the market fairly precarious. You have NASDAQ under distribution and DJ30 and SP500 still extended from their runs. For now investors are only targeting technology, but the current sour mood has yet to run its course. There still may be more takedowns ahead in the form of those two NYSE indices. NASDAQ is likely to continue lower and try to find some kind of floor in its prior range, interim or otherwise. Then it gives a relief bounce that will tell the tale for techs for the next several months. It will either be a relief move that fails or it shrugs it off and recovers. No one is thinking the latter right now so that makes it something to really consider after another blow down.
Right now a lot of healthcare is working and we have been moving that way with positions as they set up the past few weeks. We will continue doing that. Tech stocks are getting a lot of 'short' calls, but after another blow down they are likely to give that relief bounce. If they fail there that will be the time to step in for the downside move. In the interim we will continue to look at those plays that are in downtrends or broke support and are testing. Those continuing trends lower are good to pick off as they turn back down.
We have to watch to see if the selling spreads out into other areas that are holding up and indeed moving up such as retail and healthcare and be ready to bail if it does. Tech turned fast: up and down in three weeks, and if they are selling because of economic worries then it will spread out. We will just watch how things develop and be in position to take advantage of what the market gives us.
Support and Resistance
NASDAQ: Closed at 2443.21
Resistance:
2468.42 is the November 2006 high
2471 is the December 2006 high
2493 is an interim peak from February 1999
2523 is price resistance November 2000
Support:
The 50 day SMA at 2432
The 50 day EMA at 2419
2412 from June 1999 low
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 1426.37
Resistance:
1432 is the December 2006 high
1444 from February 2000
1475 from peaks in December 1999 and January 2000
Support:
1425 is an interim high from November 1999
1424 is the July up trendline
The 18 day EMA at 1421
1408 is the November high
The 50 day EMA at 1405
1401 is a low from April 2000
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 12,567.93
Resistance:
About 8.4% above the 200 day SMA. It turned choppy after hitting 8.5% of separation in late October, but is has not sold off and has gained some strength.
Support:
The 10 day EMA is 12,517
12,499 is the December intraday high.
12,361 is the November 2006 high
The 50 day EMA at 12,336
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 pre-2000 all-time high
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
January 16
NY Empire State PMI, January (8:30): 9.13 actual versus 20.0 expected, 22.19 prior (revised from 23.1)
January 17
PPI, December (8:30): 0.9% actual versus 0.5% expected, 2.0% prior
Core PPI (8:30): 0.2% actual versus 0.1% expected, 1.3% prior
Net foreign purchases, November (9:00): $68.4B actual versus $81.7B expected, $82.3B prior
Industrial production, December (9:15): 0.4% actual versus 0.1% expected, -0.1% prior
Capacity utilization, December (9:15): 81.8% actual versus 81.7% expected, 81.8% prior
Fed Beige Book (2:00)
January 18
CPI, December (8:30): 0.5% actual versus 0.4% expected, 0.0% prior
Core CPI (8:30): 0.2% actual versus 0.2% expected, 0.0% prior
Housing starts, December (8:30): 1.64M actual versus 1.570M expected, 1.57M prior
Building permits, December (8:30): 1.596M actual versus 1.505M expected, 1.513M prior
Initial jobless claims (8:30): 315K actual versus 315K expected, 299K prior
Crude oil inventories (10:30): +6.3M actual, -4.99M prior
Philly Fed, January (12:00): 8.3 actual versus 2.0 expected, -2.3 prior
January 19
Michigan sentiment, January prelim (10:00): 92.4 expected, 91.7 prior.
End part 1 of 3
|
us stock market
trend trading stock
|
