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us stock market, trend trading stock
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1/30/07 Investment House Daily
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SUMMARY:
- Stocks again fight off midday selling to post gains.
- Consumer confidence shows no sign of weakness: no empty 'piggy banks.'
- Leading indicators showing growth accelerating again.
- GDP, Chicago PMI, more earnings, and the Fed top the Wednesday list with GDP to be stronger.
Sellers try again but have lost a bit of strength.
Futures were up ahead of the open on a lot more earnings news that showed the usual mixed picture of earnings growth, earnings missed, and a diminished expectation for the future. Indeed, UPS noted 'moderating business'. That jibes with what the stats are showing, i.e. just 7% guiding higher this season (versus 8% the prior quarter and 10% before that). At the same time, 10% are guiding lower this season versus 10% last quarter, 8% before that, and 7% prior to that still.
Stocks started higher but the sellers went to work quickly, sending them back down in the first half hour. Consumer confidence came in greater than expected (110.3), however, and that shored up stocks and they started back up, clearing morning twin peaks just ahead of lunch. Once more the market fought off a selling attempt and rebounded. But as we noted in a midmorning alert, this was the same action seen Monday, and the market likely had to deal with another selling attempt in the early afternoon. Particularly given that NASDAQ on its high could only make it back to 2450, the level that stalled it out Monday.
Sure enough the sellers returned, aided by a surging oil price. Oil gained $2.96 to 56.97/bbl, and that spurred the sellers once more. Stocks sold off and started falling into the red over lunch. Another rally, another selling attempt, strong consumer confidence or no. It was not enough. The sellers lacked conviction and once more the upside won out. The indices rallied back in the last three hours with SP600 and SP500 rallying to close at session highs. The small caps spurred by the gains in energy stocks on the coattails of the oil price climb, led the market advance. Techs, particularly large cap tech, lagged the move yet again.
Technically the action was a somewhat of a disappointment despite the gains, SP600 pushing toward a new all-time high, and some solid breadth on NYSE (2.4:1). That breadth was impressive, but it was due to energy rebounding from its selling and the stocks that make up the small and mid-cap indices enjoyed a great day. That actually pushed the SP400 to a new all-time high. Impressive.
Volume, however, was lower yet again as stocks try a recovery from the distribution. Seems the only strong volume of late is downside volume, at least outside some individual stock moves. Those remain despite the distribution and a few selling attempts. In the meantime, NASDAQ 100 and SOX remain in trouble, trying to pull it together for the benefit of the other indices that are actually trying to advance (more or less).
The market is a bit divergent here, led higher by energy while the large cap NYSE stocks hang onto their uptrends. High praise; hanging on. Given their run to this point and the propensity for a market to sell off after such strong runs, that is a positive for the upside though it is hardly an affirmation the move will continue. The smaller caps, even though led by energy, are showing the strength to lead, and recall that energy led this market higher in 2006. Thus you cannot discount the small and mid-cap moves because they were energy driven.
Sounds like a real dilemma, but the answer is the same. Money continues to move into and around the market, leaving some areas and entering others. The distribution in NASDAQ and SP500 showed it leaving, but the money moved elsewhere and that is part of the reason the market resists breaking down. We thus continue to look at what is working, what stocks and sectors have set up and are ready to break higher. There is a huge amount of data hitting this week on top of huge amounts of data that past two weeks. Through it all the market has threatened to sell but has held up. We have to remain cautious of the distribution but we also need to follow where the money is moving and take advantage of it.
THE ECONOMY
Consumers confident, plenty of mortgage equity is untapped.
Confidence came in higher at 110.3, topping upwardly revised expectations of 110 and November's upwardly revised 110 reading (from 109). As noted Monday, confidence is well above any level we need to worry about with respect to consumers losing their desire to consume.
Oh, but we are told that consumers have drained the equity from their homes, and have spent it like the drunken sailor on his first shore leave in 10 months. You know, the old 'we ain't leavin' until we're heavin' consumption orgy that some of us misspent our youths on. But I digress into areas I really cannot recall.
But you have all heard the story on the financial stations: Americans have tapped the rise in their home equity to go out to restaurants, buy boats, and basically satisfy any materialistic urge that might beckon and thus have nothing left consume with.
There are no doubt people who did that. I personally know one, but it was not all of the equity and it was used to buy other worthy, appreciation assets. Gee, sounds like drunken, crazed spendthrifts to me.
Reality moment: By some counts there is $10T (as in trillion) of existing home equity in this country. That means $10T of equity that is still there, a vast store of wealth. Sure it can decline in value as real estate prices pull back from the surge they enjoyed, but it is not spent, squandered on wasting assets, the plunder of good fortune. It is there and it will rise again when prices rise. That indicates that there are sensible people in the US. Hard to imagine given all of the technology, industry, and general entrepreneurial spirit in this country. No, the piggy banks are not empty, and indeed, consumer confidence shows that consumers are not all that worried about declines in one, and it is just one, of their hard assets.
Leading indicators, the real ones, continue to improve along with money supply.
ECRI's long leading indicators turned higher since Thanksgiving 2006. Those look well down the road, farther than stock prices (and stocks tend to look at least 9 months ahead). The service sector is leading, but there is also strength and a bottoming in the decline in home prices. They may not be showing up yet, but this is like the inflation indicators: they move before inflation actually moves. Thus these moves in the leading indicators presage any noticeable change in actual prices, etc. That is hard for some to believe; some cannot believe what they cannot see. I used to repel quite a bit. I could not see how the knot looked when I was over the edge; I saw it was tied correctly and I had to believe that a properly tied knot would hold. There are other analogies, but I don't want to get accused of getting too far afield.
Thus even though housing might still be falling, there are indications that prices are going to bottom sometime in late summer or fall. Many look at the economy and see that as the defining element that will lead to recession. When you look at other economic aspects, however, you conclude that is BS. Housing is just one part of a huge economy. For a recession to coalesce there must be a confluence of bad events that add up to a recession. Housing helped the economy avoid a nastier recession, but it did not turn the recession into an expansion. It also won't turn an expansion into a recession unless many other bad events hit.
Money supply is growing.
It is hard for recession to sew when the economy is humming along and money supply is growing. After contracting by Bernanke's rather sage moves early in 2006 (after Greenspan kept it running hot), Bernanke is letting money supply expand some. Sure doesn't sound like the company line the Fed parrots, but then again, Bernanke has not followed what the Fed says publicly.
The narrowest read of money supply, MZN, is rising again when you chart it against SP500 they are about to cross with MZN crossing above SP500. That is typically a bullish indication for the stock market. When you consider price multiples are one-half of what they were 5 years ago while interest rates are lower. That is also a positive. Even with rising rates the past three weeks, that is just showing us that demand for money is heating up some as it should in an improving economy. You have to like what this is telling us.
THE MARKET
MARKET SENTIMENT
VIX: 10.96; -0.49
VXN: 17.98; -0.18
VXO: 10.66; -0.16
Put/Call Ratio (CBOE): 0.93; -0.06
Bulls versus Bears:
Bulls: 52.7%. Well, bulls jumped right back up after plunging to 50.5% from 55.4%. That break higher by NASDAQ last week jumped them up and the reversal did not quell the spirit. The action this week likely will. Peaked in January 2006 peak at just above 60%.
Bears: 20.9%. As bulls rose, bears declined from 22.1%. Right back down after a nice recovery where bears almost undercut the 20% level considered bearish. It fought off 20% but is heading back to that level that is considered bearish for the market. Hit a new post-2002 high in that late June 2006 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: +7.55 points (+0.31%) to close at 2448.64
Volume: 1.808B (-7.59%). Volume faded for a second day, coming in below average as NASDAQ tapped 2450 again and faded back. Trying to recover from its last distribution, holding above support on calmer trade.
Up Volume: 1.151B (+61.941M)
Down Volume: 610.361M (-233.685M)
A/D and Hi/Lo: Advancers led 1.55 to 1. Not bad, and given that the large caps lagged again (0.15), it is clear the smaller caps were leading on NASDAQ as well.
Previous Session: Advancers led 1.42 to 1
New Highs: 165 (+45)
New Lows: 27 (+7)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ rallied to 2450 once again on the high, bumping some minor resistance at that level and fading back modestly yet again. It held a bit more of the gain Tuesday, but it was still a nothing session, trying to work off the distribution from last week. It continues to hold above the 50 day EMA (2442) and as noted Monday, can still make a higher low here.
SOX (+0.07%) tested below the 200 day SMA intraday but rebounded to hold that level on the close. It has recovered some of the lost ground from two weeks back in a relief bounce, but it has the look it is out of steam and money flow is turning back over. A key part of the tech market is weakening again.
SP500/NYSE
Stats: +8.2 points (+0.58%) to close at 1428.82
NYSE Volume: 1.528B (-0.8%). Volume was just a shade lower but the key was still below average as the NYSE indices posted gains. No real accumulation on the session that saw both SP500 and SP600 rally to close at session highs. Trying to fight off the distribution and having some success though no clear return of buyers that are stronger than sellers.
Up Volume: 1.069B (+342.287M)
Down Volume: 433.724M (-366.339M)
A/D and Hi/Lo: Advancers led 2.42 to 1. Excellent breadth as the small and mid-caps led the charge higher, lifted by the energy rise.
Previous Session: Advancers led 1.23 to 1
New Highs: 209 (+78)
New Lows: 6 (-5)
http://investmenthouse.com/cd/^gspc.html
SP500 continued its trend higher, moving back through the 10 and 18 day EMA and closing at the session high. Volume was modestly lower so no major accumulation, but a modest recovery in some of the financials helped SP500 rebound. It is making a higher low here, trying to turn up above the 50 day EMA that it tested and held to start the year. Despite last week's distribution it is keeping its trend moving forward.
SP600 (+0.68%) led the market again, spurred by the rise in energy stocks. SP600 moved past the January highs and topped the late December closing high. That leaves it just less than two points from a new all-time high. The mid-caps already made that on the Tuesday close. The energy complex led the market in 2006, and they are taking the reins again just when the market was starting struggle.
DJ30
DJ30 managed another gain itself as it too tested lower only to hold its trend and then continue higher. Volume rallied on Tuesday, moving back above average as the blue chips gained ground. Despite being extended it continues to make higher lows and keep the trend building. It managed that trick Tuesday even with MMM gapping lower on its moderating growth concerns.
Stats: +32.53 points (+0.26%) to close at 12523.31
Volume: 244M shares Tuesday versus 234M shares Monday. Trade increased as DJ30 posted a modest gain, but with big downside volume from sellers such as MMM, the gain in trade was not really a positive.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
A little GDP, a little ECI, the Chicago PMI, and the next iteration of the FOMC policy statement. On the earnings side there are, well, more earnings. After hours Tuesday SNDK missed while CYMI beat; they were heading in opposite directions in rather big ways. Earnings and economic outlooks drive the market longer term, but last quarter results, though history, do have an immediate impact on stock prices. Thus the gyrations that always accompany earnings season.
As noted Monday, the market basically has the gist of the season now: slow start that looked bad, but steady improvement. Now SP earnings are predicted to grow double digit again for the quarter though the outlook is a bit tepid. Thus the SNDK and CYMI earnings will have their impact, but the market is also focusing now on the economic data and the FOMC. It has a bead on earnings but also needs a fresh read on economics.
Oil continues higher as investors wonder, and energy stocks are starting to move higher with it after a long consolidation. Money continues to move around the market and this is one of the areas it is moving to. There is still the threat of returning distribution in a market that is ready for a pullback, but with earnings season passing and the market still holding its support it can continue to consolidate in place and set up another move.
For now we will continue watching where the money is going and getting positioned in stocks that set up to break higher. When they do we will move in. It is a situation of watching for strength setting up and being ready to take what the market gives. Plenty of good moves still and many stocks are still set up. The question as always is whether the good pattern set ups can make the break higher. For now many are continuing to do just that.
Support and Resistance
NASDAQ: Closed at 2448.64
Resistance:
2450 is proving to be some minor 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 2426
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 1428.82
Resistance:
1432 is the December 2006 high
1433 is the July up trendline
1444 from February 2000
1475 from peaks in December 1999 and January 2000
Support:
1425 is an interim high from November 1999
The 18 day EMA at 1424
The 50 day EMA at 1411
1408 is the November high
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 12,522.31
Resistance:
The 10 day EMA at 12,519 is giving way again
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 put in a new high last week.
Support:
12,499 is the December intraday high.
The 50 day EMA at 12,375
12,361 is the November 2006 high
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 30
Consumer Confidence, January (10:00): 110.3 actual versus 110 expected, 110.0 prior (revised from 109.0)
January 31
GDP Q4 advance (8:30): 3.0% expected, 2.0% prior
Chain deflator (8:30): 1.6% expected, 1.9% prior
Employment cost index (8:30): 1.0% expected, 1.0% prior
Chicago PMI, January (9:45): 52.0 expected, 51.6 prior
Construction spending, December (10:00): 0.0% expected, -0.2% prior
Crude oil inventories (10:30): 789K prior
FOMC policy statement (2:15)
February 1
Personal income, December (8:30): 0.5% expected, 0.3% prior
Personal spending, December (8:30): 0.7% expected, 0.5% prior
Initial jobless claims (8:30): 315K expected, 325K prior
ISM Index, January (10:00): 51.5 expected, 51.4 prior
February 2
Non-farm payrolls, January (8:30): 150K expected, 167K prior
Unemployment rate (8:30): 4.5% expected, 4.5% prior
Hourly earnings (8:30): 0.3% expected, 0.5% prior
Average workweek, January (8:30): 33.9 expected, 33.9 prior
Factory orders, December (10:00): 1.8% expected, 0.9% prior
Michigan sentiment, revised (10:00): 97.8 expected, 98.0 prior
End part 1 of 3
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us stock market
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