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us stock market, trend trading stock
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2/05/07 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Target hit alerts: Took some more interim gain: BEAV
Buy alerts: NTLI; OII; ININ
Trailing stop alerts: None issued
Stop alerts: 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 Daily alert service you can sign up at the following link:
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SUMMARY:
- Market takes a pause after last week's new highs, still avoiding a reversal.
- Services remain strong with 46 months of expansion
- Thus far a good pause after that run, and that could set up more buys.
A bit of a breather after a pretty good surge.
Last week saw some new all-time highs and SP500 move to a new post-2002 high with the small and mid-caps rallying all week in a very positive statement about the growth ahead in the economy. After that kind of move with the leaders taking out ahead of the pack, there is going to be a pause because the leaders need a break. They are not called leaders for nothing.
Monday started slower as the 'usual' mix of Monday news hit the wire. Some M&A activity (STT buying IFIN), some earnings (mixed of course), and a smattering of economic news (the ISM Services not only held above 50 but expanded to 59.0). That was not enough to drive stocks higher, however. The market absorbed a bunch of mostly good news last week from the FOMC, to inflation, to jobs, to earnings, and it moved up as a result. Again, after such a move it would take something really serious to send it higher. Oil tried to rally on some cold weather forecasts but it turned lower. Could have been something to that, but it only lost a quarter or so and is still right at $59/bbl. Yes it may be hitting some resistance at 60, but as with the other news it would have had to turn and tank to make an impact. It didn't turn, it didn't have an impact. In short, the news Monday did not fill the bill to drive the markets further.
Technically the indices all moved modestly around the flat line but were somewhat in conflict with one another. NASDAQ was lower but SOX was up. SP500 was down but DJ30 rose. The small caps were lower but the mid-caps posted a gain. The finishes were not only mixed but somewhat inconsistent. The internals matched the overall modest moves the indices showed. Breadth was modestly lower. Volume edged higher on NASDAQ and lower on NYSE, but both were overall low.
Basically the market held onto its rather solid gains from late last week (the gains were all week for the small and mid-caps). They did not show much life at all, but remember the recent history where the indices would rally on strong volume and breadth only to be shoved back down. NASDAQ tried it twice and was rebuffed twice. SP500 tried it two weeks back and was boxed up pretty good. The ability to mostly hang onto the gains and not get torched back down was at least a moral victory.
Of course moral victories do nothing for your wallet. And though SP500 broke to a new post-2002 high, with NASDAQ and SOX still struggling to keep their heads above water you cannot be too convinced of more upside until you see a successful test or pause to rest. Further, there is that 7 month upside move that overhangs every pause the market makes. Will this be the one that marks the end of the run and turns it back down? The Colts beat the Bears so now there must be a correction. You have heard them. The key is to watch how the move is treated. If the NYSE indices are sold off hard and get the 'NASDAQ treatment' then there would be cause for concern that the rally had used up its last life. The action didn't show that Monday, but again, it still has to make its test.
THE ECONOMY
ISM Services salvages some of the business views.
Services continued to run strong, posting a 59.0 reading versus the 57.0 expected and the 56.7 in December. That marks 46 months in a row of expansion. Of course those kind of records invariably fall; look at the ISM manufacturing. Look what happened when Dell finally missed an earnings report in 2005. The higher highs started turning into lower lows.
That is in the future, but the January services report pushed that further out. The trend is making lower and lower highs the past two years after that surge higher in 2003 and 2004. That was the recovery period and now it is riding the wave forward. It is going to dissipate as the economy slows its growth rate over time. Right now it is still moving in expansion territory.
THE MARKET
MARKET SENTIMENT
VIX: 10.55; +0.47
VXN: 16.84; +0.41
VXO: 9.99; +0.2
Put/Call Ratio (CBOE): 0.82; -0.15
Bulls versus Bears:
Bulls: 53.3%. Up from a brief dip to 50.5% a couple of weeks back, but still below the 55.4% hit on the just the week before. In short, bulls remain high and right at that 55% level that can be trouble because everyone is in the market.
Bears: 21.1%. Bears managed to rise even as bulls rose, up from 20.9%. where they flirted with the 20% bearish threshold. As with the bulls, it is still too close at this juncture as it indicates not enough pessimism. When bears are low it is the same as high bulls: everyone is in. 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: -5.28 points (-0.21%) to close at 2470.6
Volume: 1.947B (+0.77%). Volume edged up to average as NASDAQ posted a modest gain on the heels of the run off the 50 day EMA last week. Technically a bit of distribution but modest overall. Something to keep an eye on since NASDAQ is lagging the rest of the market, unable to make the break higher yet.
Up Volume: 928.332M (-268.35M)
Down Volume: 983.06M (+282.476M)
A/D and Hi/Lo: Decliners led 1.34 to 1
Previous Session: Advancers led 1.22 to 1
New Highs: 150 (+31)
New Lows: 30 (+15)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ cleared the December high (2471) last Friday and with the Monday give back was right at that level. If not for the January surge to 2509 that was tossed back in its face this would be a pretty solid set up: a few days to test the move and then a break higher. It still might do just that, riding that solid accumulation last Wednesday and Thursday. It is going to have to prove it after turning from early 2007 leader to quick laggard. Above the 10 day EMA (2460) and holding that on this test would be a positive.
SOX (+0.14%) rallied to the 50 day SMA (472) but could not hold the move, sliding back to close right on the 50 day EMA. It is trying to recover from the mid-January burn off that held support at 450, but it is struggling as it hits the 50 day MA and tries to poke up toward some resistance at 475.
SP500/NYSE
Stats: -1.4 points (-0.1%) to close at 1446.99
NYSE Volume: 1.41B (-1.23%). Volume remained below average and was lower as SP500 posted a modest loss, testing back some after that solid breakout move. No distribution, and that is a good thing; don't want to see it thrown back on rising trade.
Up Volume: 685.467M (-94.468M)
Down Volume: 698.99M (+75.843M)
A/D and Hi/Lo: Decliners led 1.22 to 1
Previous Session: Advancers led 1.39 to 1
New Highs: 256 (+25)
New Lows: 5 (+2)
http://investmenthouse.com/cd/^gspc.html
SP500 took a breather after the strong surge last week, losing a fraction on lower volume that remained below average for the second session. It rallied off the bottom of its uptrend channel and now it is near the top of that narrow channel and ready for a test, starting that on Monday. It is above the July up trendline as well as the 10 and 18 day EMA. A fade back to the 10 day EMA (1437) that holds would be a super point for the next break, but if it holds to trend it will be lower.
SP600 (-0.44%) faded as well, needing a breather after 6 straight up sessions that took it to a new all-time high. A pause and test of the 10 day EMA (407.16) would fit its pattern and be a solid point for the small caps to resume the move.
DJ30
After losing some ground Friday the blue chips posted a gain while many of the other large caps struggled on the session. A little bit of a flip-flop but as noted above, the action was really just quiet whether the index closed up or down. Similar to SP500, DJ30 is near the top of its narrow channel, looking at a test of the 18 day EMA (12,557) once more over the next couple of weeks.
Stats: +8.25 points (+0.07%) to close at 12661.74
Volume: 204M shares Monday versus 203M shares Friday. Trade was flat and still below average as DJ30 continues its pause near the top of its channel.
The chart: http://www.investmenthouse.com/cd/^dji.html
TUESDAY
No scheduled economic data Tuesday, but more earnings and some Fed-speak comes into the mix. The market enjoyed a strong rally and is now at least pausing and likely testing that move. It could go either way. The break higher is so strong and has such interest that it does not give back hardly any of the gain, just moving laterally until the buyers get their rest and come back in. Or the break holds, but the market fades back to near support on lower trade, holds, and then starts back up.
Either one gives the leaders a chance to pause and set up for the next move. That is why after a multi-day run by a stock you don't buy in. These tests of those moves are what give you a chance to get into new or additional positions on leading stocks that surged up during the run and then test the run by holding near support.
Thus we are going to look for this pause or pullback to run its course, let the strong stocks make their tests, and then be ready to move into those that resume their moves. At the same time we have to watch how the indices and leaders handle the pullback, mindful of higher volume selling that could show the leaders and thus the indices may be succumbing to a correction after a long run higher. Last week's higher volume surge and breakouts reinforced the uptrend, at least near term, and thus we will continue to look for stocks in position to move that will provide us upside gains. Each move has to be weighed on its merits as well as in the bigger picture of a market in a long trend higher. After last week's move we expect more of an orderly test to set up more gains, but we keep an eye on NASDAQ as it is playing the black sheep right now.
Support and Resistance
NASDAQ: Closed at 2470.60
Resistance:
2509 is the January 2007 high
2493 is an interim peak from February 1999
2523 is price resistance November 2000
Support:
2471 is the December 2006 high
2468.42 is the November 2006 high
The 10 day EMA is at 2460.
2450 is minor support
The 50 day EMA at 2432
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
S&P 500: Closed at 1446.99
Resistance:
1475 from peaks in December 1999 and January 2000
Support:
1444 from February 2000
1440 is the July up trendline
1432 is the December 2006 high
The 18 day EMA at 1432
1425 is an interim high from November 1999
The 50 day EMA at 1416
1408 is the November high
1401 is a low from April 2000
1390 is the October high.
Dow: Closed at 12,661.74
Resistance:
About 8.5% above the 200 day SMA. Still going strong, overcoming the chop as it pushes to a series of new highs once more.
Support:
The 10 day EMA at 12,594
12,499 is the December intraday high.
The 50 day EMA at 12,416
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.
February 5
ISM services, January (10:00): 59.0 actual versus 57.0 expected, 56.7 prior
February 7
Productivity, Q4 (8:30): 2.0% expected, 0.2% prior
Crude oil inventories (10:30): +2.684M prior
Consumer Credit, December (3:00): $6.5B expected, $12.3B prior
February 8
Initial jobless claims (8:30): 310K expected, 307K prior
Wholesale inventories, December (10:00): 0.6% expected, 1.3% prior.
End part 1 of 3
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