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money investment, financial investment
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1/24/06 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts: Took some interim gain on MA
Buy alerts: ICE; RJF; SKX
Trailing stop alerts: None issued
Stop alerts: GE
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SUMMARY:
- NASDAQ was poised and enough positives hit to trigger a high volume recovery.
- Just another relief bounce or another run at a breakout?
- Many good movers as others try to recover from getting gut shot.
NASDAQ gets a catalyst, breaks higher as buyers move back in.
NASDAQ held the line at the 50 day EMA and showed signs of life Tuesday with some higher volume as it tried to move off of that support. It still lacked a trigger, and without that it was just marking time. Unlikely as it seemed, YHOO and its new ad scheme pumped some life into it, and with the internet stocks already in the leader category, that added fuel to their upside. When RFMD, SUNW, STX, GLW and other techs added some solid earnings and outlooks to YHOO's report, that was enough to get techs back in the game after that reversal two weeks back left it in questionable condition.
It was not a sure thing. NASDAQ was set to gap higher, but you had to wonder if the techs were going to hold onto the early gains when so many seem negative on the group. Of course that can also ignite upside fires, i.e. when a lot of shorts target a group. As it turned out, NASDAQ did not sell the move; it did not even really attempt to sell the move other than an early dip to test the 50 day SMA before rallying all the way to the close. The sellers did not show up.
Not only did they not show up, but buyers were back in, accumulating tech shares once more. Buyers jumped on techs to start the year, breaking NASDAQ out to a new post-2002 high on very strong trade and breadth. It quickly reversed and sold off during expiration week with the hardest drop on Thursday as high volume reversed the breakout. We mused it could have been driven in some part by expiration, and with the hold at the 50 day EMA, the higher low, and this higher volume rebound off that level Wednesday, it looks as if that was part of the selling pressure. With some higher volume gains and some excellent leadership out in front NASDAQ has another shot at another breakout.
We have covered some of the technical aspects, but we need to include NYSE in the mix as well. NASDAQ moved up on stronger volume and solid breadth with good leadership after holding an important support level. It did not hurt NASDAQ that the large cap NASDAQ 100 was back in the lead, helping drive the index. SP500 broke to a new post-2002 high and DJ30 hit yet another all-time high. SP600, the Tuesday leader, posted another strong session though it deferred to NASDAQ and SOX on the session. NYSE breadth was excellent as well (2.2:1) but volume lagged. It was still above average, but it was lower; not the accumulation seen on Tuesday, but the day was one where NASDAQ reasserted itself, so we are not too worked up that NYSE trade did not ramp up as well. There was leadership as the financials rebounded sharply, again another reason not to get into a twist over the lower volume.
All in all quite a positive session that saw a very necessary move from NASDAQ to once again play catch up with the large cap NYSE indices. A good start that held up to the close on strong trade and leadership. It is making the right moves but as we have seen this year, good moves one day can be challenged the next. This is the action it needed to show, however, so we take it for what it is right now. It showed indications it was ready to try a bounce on Tuesday and it made the move Wednesday with solid internals and good leadership. A good start to the recovery.
Continued relief move or the real thing?
As soon as the paper had settled and the last electronic trades clicked some where saying the move was a relief bounce. Lower NYSE volume could lead you in that direction, but then again, volume was higher Tuesday as the NYSE indices advanced while NASDAQ struggled. Wednesday as NASDAQ made its move the NYSE indices moved as well, but the money was in the techs as they jumped on strong volume.
NASDAQ still has much to prove on this move after giving up the breakout with a nasty plunge, but it is not showing the attributes of a relief rally, i.e. rather low volume and narrow breadth. Volume was up Tuesday at the 50 day EMA test and it surged Wednesday on the move. Breadth topped 2:1. Those are not your usual indications of a modest relief move. Add to that some strong leadership and it at least has set a good stage for another attempt at a breakout.
There are those that are gong to try and sell into any breakout attempt. Today some were saying use the rally to sell. They ignored the volume, breadth and leadership and instead looked at what some of the tech earnings reports showed, particularly in the chips: contracting margins and tepid outlooks. There is some legitimacy to this perspective given the expansion is in its fifth year. That is a lengthy expansion, and after 22 quarters of earnings growth some slowing is natural.
The bigger question is whether this is the end of the cycle or just a down cycle within an overall continuing expansion. Q4 is going to be a lot stronger than the 1% to 2% gain originally anticipated and Q1 is shaping up stronger as well. ECRI still shows growth down the road. Interest rates are rising toward the Fed Funds rate, building in a view of continued strength ahead. The gloomy projections from the chipmakers is a major issue, but we have seen economic gains even with lower priced chips. Chips often suffer deflation even as the overall economy moves onward and upward. As strange as it seems, the surge in flat panel TV sales is impacting chip sales. There are chips in flat panels, but not as much as in computers. Sales are so strong they are crowding out PC sales right now and thus some weaker outlooks. TXN makes the DLP chips, and note how its guidance was much better than its actual results. TXN enjoyed a decent pop on its earnings as a result.
You can debate what the economy is going to do, but the market has to be your signpost in that regard. We like the high volume, the breadth, and the leadership as NASDAQ makes another run at that post-2002 high. NASDAQ remains a key for the market overall as it needs to take some control while DJ30 and SP500 eventually deal with a downturn that will consolidate the run from summer.
THE ECONOMY
No economic data on Wednesday in a very quiet week for such data (mercifully).
THE MARKET
MARKET SENTIMENT
VIX: 9.89; -0.45
VXN: 16.61; -0.73
VXO: 9.05; -0.61
Put/Call Ratio (CBOE): 0.84; -0.07
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: +34.87 points (+1.43%) to close at 2466.28
Volume: 2.145B (+5%). Solid jump in volume as NASDAQ rallied off the 50 day EMA. Showed some strong trade Tuesday as it held that level and that continued as upside volume as NASDAQ rallied. Exactly what you want to see . . . again. Now it needs to muster some continued solid trade as it moves through the December high and on toward the January high.
Up Volume: 1.819B (+887.483M)
Down Volume: 381.525M (-686.744M)
A/D and Hi/Lo: Advancers led 2.06 to 1. Excellent breadth as NASDAQ returned to the upside. The upside breadth is definitely better than the downside, and that is one of those quieter, behind the scenes indications that the move is still quite good despite the turnover that gave back the breakout.
Previous Session: Advancers led 1.53 to 1
New Highs: 118 (+48)
New Lows: 20 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher off the 50 day EMA and did not give anything back, closing right at the session high. It made a higher low and it did so with some panache, showing buying, breadth and leadership (BBL?). The large caps and the smaller issues were both in there pitching; NASDAQ needs all oars in the water to make the next move back through the December high (2471) and then toward the January high at 2509. It is showing the right moves, all but that dive lower last week.
SOX (+1.31%) was up but is not in the same technical position as NASDAQ, having breached the 200 day SMA on the way down and now just getting back up to test that level. Many key chips have similar patterns, trying to crawl up the side of the hole they fell into (e.g., LRCX, NVLS, VSEA). It is not all just sifting through the wreckage in the sector. TSM showed some exceptional relative strength during the selling as did WFR. TWLL looks might fine right here as well (a new issued in June).
SP500/NYSE
Stats: +8.65 points (+0.85%) to close at 1440.13
NYSE Volume: 1.583B (-5.09%). Volume was lower but still above average as the NYSE indices rallied. Would have liked to see stronger volume on the move, but there was stronger volume on the Tuesday move when the NYSE indices led the way. Overall volume has been solid so not getting into too much of a twist over it.
Up Volume: 1.182B (+74.558M)
Down Volume: 388.904M (-153.193M)
A/D and Hi/Lo: Advancers led 2.27 to 1. Excellent breadth as the large and small caps moved up together.
Previous Session: Advancers led 1.94 to 1
New Highs: 273 (+117). Would like to see this a bit higher with SP500 moving to a new post-2002 high. When the small caps continue higher this should improve. If it does not, that is not a good sign.
New Lows: 5 (0)
http://investmenthouse.com/cd/^gspc.html
SP500 broke past the December and January highs, continuing the Tuesday higher volume move off the 18 day EMA where it make a higher low. The early January test has given it new life and it is taken advantage of it with a new post-2002 high. The financials were back in gear Wednesday, and they really goosed the large cap index.
The small cap SP600 (+0.97%) posted its second solid upside move on above average volume, coming off the 50 day EMA (397) as it makes a higher low at key support and moves toward a breakout from its 9 month cup with handle and toward a new all-time high. A very interesting run in progress here with a lot of significance for the market: if this growth index makes a breakout that is projecting better economic activity in the future. Strong stuff.
DJ30
Another new all-time high for the blue chips. Repeat. Another new all-time high for the blue chips. That is about ten times less than the financial stations reported it, but we don't want to steal their thunder. With financials and techs both working Wednesday the breakout was a lock. It was on lower, below average volume, much lower than the selling volume when INTC and GE posted their misses, so there is not a lot of power here. That is okay. It is the essence of momentum here in its sixth month without a test of the 50 day EMA.
Stats: +87.97 points (+0.7%) to close at 12621.77
Volume: 217M shares Wednesday versus 236M shares Tuesday. Volume remained lower given no massive earnings based sell offs.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Jobless claims and existing home sales are on tap, but earnings remain the focus. After hours EBAY topped expectations by a lot and surged $3.50. QCOM topped and jumped early but then gave some back. Overall the tide has turned a bit with respect to earnings after the semiconductors cast a pall on techs with their weak outlooks (MOT, AMD, INTC, LRCX). Their rather weak view of the world has not really been shared by much of the economy, but it cast a long shadow. Now that other reports are coming out some of the fog is lifting.
It has not fully lifted, however. NASDAQ still has to take out the December high (2471) and then rally through the breakout high it hit two weeks back. After that drubbing it is interesting to even talk about a tech recovery, but this month has been one of extremes: strong breakout with all the right attributes, then an expiration week breakdown with all the wrong attributes, and now a rebound off support showing what you want to see for upside.
That leaves us still looking at market leaders, at stocks that held up during the tribulations during the quick and sharp sell off. As noted above, there are even chips that held up well during the sell off; there are many stocks that did the same and that are moving higher while others are set to move higher. The sellers can always return, but you have to like the way the NYSE indices held the line during the selling and how NASDAQ, despite SOX, made an important hold and strong rebound.
That keeps us looking for more solid leaders that are in good position to continue higher. You have to love what stocks such as MA, GS are doing for us and the nice recovery underway with stocks in general. There are some stocks that were hit hard in the tech selling and are trying to recover; if they continue to rebound (same as NASDAQ), great. If they stall out on the rebound we close them after they make their move. There are still many solid stocks moving higher and ready to move higher. We will continue to move into the leaders as they show the right moves.
Support and Resistance
NASDAQ: Closed at 2466.28
Resistance:
2468.42 is the November 2006 high
2471 is the December 2006 high
2509 is the January 2007 high
2493 is an interim peak from February 1999
2523 is price resistance November 2000
Support:
The 50 day EMA at 2423
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 1440.13
Resistance:
1444 from February 2000
1475 from peaks in December 1999 and January 2000
Support:
1432 is the December 2006 high
1429 is the July up trendline
1425 is an interim high from November 1999
The 18 day EMA at 1424
1408 is the November high
The 50 day EMA at 1408
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 12,621.77
Resistance:
About 8.6% above the 200 day SMA. It turned choppy after hitting 8.5% of separation in late October, but is has not sold off and just hit a new high.
Support:
The 18 day EMA is 12,505
12,499 is the December intraday high.
12,361 is the November 2006 high
The 50 day EMA at 12,353
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 23
Leading Economic Indicators, December (10:00): 0.3% actual versus 0.2% expected, 0.1% prior
January 24
Crude oil inventories (10:30): +0.7M versus +6.78M prior
January 25
Initial jobless claims (8:30): 310K expected, 290K prior
Existing home sales, December (10:00): 6.30M expected, 6.28M prior
January 26
Durable goods orders, December (8:30): 3.5% expected, 1.6% prior
New home sales, December (10:00): 1.05M expected, 1.047M prior
End part 1 of 3
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money investment
financial investment
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