|
|
world stock market, us stock market
* * * *
2/07/07 Investment House Daily
* * *
Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit alerts: Took some interim gain: PAY
Buy alerts: AIR; VRSN
Trailing stops: None issued
Stop alerts issued: SNCR
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:
http://www.investmenthouse.com/alertdly.html
SUMMARY:
- CSCO rallies techs as large cap industrial rest, but still no new high for NASDAQ.
- Productivity gives inflation hawks a slap but Fed continues reading from the same inflation script.
- Can NASDAQ join the breakouts or will the NYSE take the point on leading again.
NASDAQ posts a solid, but not a breakout, session.
As in November, Cisco's earnings spurred a gain in NASDAQ after that index had lagged the moves in the NYSE indices, both large and small cap. NASDAQ telecom and communication stocks advanced with CSCO, providing a solid, rising volume advance. Money was flowing to the techs, particularly the large cap techs, and thus the NYSE large caps, as expected, traded basically flat. The small caps are making their own way, however, and they rallied along with NASDAQ, almost matching that index tick for tick.
Surging productivity also helped engender the positive mood on the street as it surged to 3.0% in Q4 versus 1.8% in Q3. That helped cool some inflation talk, at least outside the Fed. It was Plosser's turn to read from the 'fear inflation' script and he was out calling inflation the biggest threat of 2007. Same story, different script reader.
Stocks faded from the open as the sellers took a shot at the gap higher, but the selling once again did not stick and stocks rebounding into midmorning, holding the gains into early afternoon. Oil jumped on a 449K decline in inventories, but as it again approached $60/bbl it faltered. It fell back, actually losing ground on the session (57.71, -1.17). Stocks faded as well as sellers again tried to take down what they view as an over-inflated market. The selling was picking up steam with just over 1.5 hours left with DJ30 in negative territory in the afternoon for the third straight session. Just as fast the selling stalled out and the indices rebounded in the last hour. That was enough to turn all indices positive with even DJ30 scratching out a fractional gain as the bell rang.
Technically you had an advance on rising volume and that indicates more buyers than sellers, continuing the trend that started last week with those two upside accumulation sessions. The action was clearly accumulative on NASDAQ (though targeted at the large cap techs) and on SP600 as that index posted another solid gain and pushed further into new high territory. SP500 and DJ30 managed to close positive, but the gains were nominal. They are taking a break after last week's breakout, and the rising volume with no real price change at the top of a move is called churning. Churning can indicate unloading of stocks and presage a downturn. With NASDAQ and SP600 rallying on stronger volume, however, that is a pretty constrictive read of the action. Volume was up on those indices because it was up all across the market on continued buying, but buyers were simply not as focused on the NYSE large caps because the stir and money techs attracted thanks to CSCO.
That said the move was not as powerful as the financial stations and 10 second quips on the news stations would lead you to believe. NASDAQ gapped higher and posted a solid gain, but it backed off from the session high even before it approached the January post-2002 high and the late rally still did not recover the high on the day. It was a positive step for NASDAQ but it remains unproven, unable to push past the two bouts of distribution that pushed it back on prior strong moves just this year. Given the rather ambiguous action on the index (up but not surging to the close, so-so breadth) NASDAQ is not out of the woods and still is a big question mark as the indices consolidate that last move and try to set up for the next leg higher.
THE ECONOMY
Growing productivity along with a growing economy.
The Fed continues to harp on the theme that a weaker economy would reduce inflation pressures and of course the converse, that a stronger economy would increase inflation pressures. The Fed called for a slower economy and lower inflation last fall and it got it. At the time we along with others noted this view did not reflect reality or history, but the over the years the Fed has decided that this was the best position for it to take publicly, likely because it can then hide behind a stronger economy to hike rates when it has ulterior motives. That is what happened in 1999 and 2000; there was no inflation, no hint of inflation, and not even a threat of inflation, but the Fed used a surging economy and stock market as cover to slow things down and help to pull the US back from its breakaway economic gap from the rest of the world. After it crashed the market and economy it said it did a good job of popping the bubble and avoiding real carnage. Yes, I used that argument as well when I was a child, explaining to my parents what a good thing it was that I drove the car into the ditch and only caused $2000 worth of damage versus running into a tree and totaling the vehicle. That went over really well.
History shows that it is not economic strength that causes inflation. Indeed, as former Dallas Fed president McTeer recently stated, growth actually reduces inflationary pressures because supply is free to meet demand as long as there is adequate investment capital on the supply side. That does not stop the Fed, of course, because similar to Congress and taxes and spending, it feels it cannot give any ground because that would inhibit its further actions.
Thus Plosser was out on the stump Wednesday complaining that a strong economy could require further rate hikes. Yep, more of the Phillips Curve nonsense that growth equals inflation. Moreover, Plosser said that inflation was the main problem confronting the economy in 2007. Now that is absurd. The main problem is the threat of hiking taxes, increasing social programs, and other anti-capitalistic actions. Plosser capped it off stating that he was not all that sure inflation was on the decline. Very comforting. More of the Fed seeing what it wants to see rather than looking at leading indicators and determining if there are really pressures there.
At least Bernanke appears to be looking at the right indicators and sticking to his guns. We can only hope he continues to do so as the pressure to hike rates in the face of increasing economic activity has the inflation hawks clamoring for rate hikes. If he keeps control of the money supply as he has done, however, he is likely to stay the course he set when he took the reins from Greenspan and started undoing some of the 'maestro's' inflationary moves.
THE MARKET
MARKET SENTIMENT
VIX: 10.32; -0.33
VXN: 16.17; -0.44
VXO: 9.72; -0.28
Put/Call Ratio (CBOE): 0.91; +0.05. Hovering very close to 1.0 even as NASDAQ surged. Not a lot of faith in the move higher, and in the contrary world of sentiment indicators that is a positive.
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: +19.01 points (+0.77%) to close at 2490.5
Volume: 2.27B (+5.72%). Volume was well above average for the second consecutive session as investors bought more NASDAQ shares Wednesday after almost selling them off on Tuesday.
Up Volume: 1.655B (+717.307M)
Down Volume: 559M (-627.849M)
A/D and Hi/Lo: Advancers led 1.6 to 1. Decent breadth but not the kind of 2:1 or better breadth that shows investors were tossing aside their concerns and buying into technology based on Cisco's earnings and the other recent results that put investors in a better mood about stocks in general.
Previous Session: Advancers led 1.26 to 1
New Highs: 158 (+65)
New Lows: 24 (+7)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ gapped higher on the positive earnings news as all telecom and communication road Cisco's coattails. The move was not bulletproof, however, as it was sold in the afternoon before rebounding late to hold most of the gains. The selling managed to fill the gap; not bad as it would need filling eventually. NASDAQ closed in the top of its range for the session and pushed further past the December high at 2471. It never really challenged the January post-2002 high at 2509, and until NASDAQ can show it can hold a breakout move it remains suspect, just as the action Wednesday was.
SOX (+1.59%) posted an excellent gain on the session, moving through the 50 day EMA as it continues to try the comeback from the mid-January dump lower. It stalled out on the high at 475, however, resistance from the September and October highs. It still has not made a higher low or a higher high though its prospects have improved with these moves.
SP500/NYSE
Stats: +2.02 points (+0.14%) to close at 1450.02
NYSE Volume: 1.476B (+0.14%). Volume ticked up slightly as SP500 and SP600 posted gains. Trade remained below average so it was not really serious accumulation nor was it serious churn on SP500.
Up Volume: 756.013M (-82.239M)
Down Volume: 675.638M (+56.625M)
A/D and Hi/Lo: Advancers led 1.4 to 1. The small caps kept the breadth decent because the large caps sure did not go anywhere.
Previous Session: Advancers led 1.78 to 1
New Highs: 374 (+124). Not bad but not near the 500 we wanted to see as the indices pushed higher. Perhaps when SP500 comes back to rally mode from this pause.
New Lows: 5 (0)
http://investmenthouse.com/cd/^gspc.html
The large caps basically continued a lateral move, consolidating the strong break higher last week. Volume was up a fraction, but it was still below average and thus hard to term churn. It was NASDAQ's day and NYSE volume remained low as the large caps held their ground, advancing a bit on some financials and techs. Still in the lateral move, still holding its gains as it rests while NASDAQ tries to play catch up.
SP600 (+0.63%) posted an even stronger gain Wednesday, continuing its breakout move. It took one day off and then resumed Tuesday and again Wednesday, moving on a bit better volume. Hard to poke any holes in this other than it is moving on lower trade now and typically what rises on lower trade falls to re-test those gains.
DJ30
DJ30 had to recover late to close positive, but that was not the point. The point was another nice lateral low volume move as the 10 day EMA (12,618) rises to meet it. Other such patterns over the past two months have led to a pullback and then another bounce. This one is showing a bit more tenacity in that it refuses to give any ground.
Stats: +0.56 points (0%) to close at 12666.87
Volume: 194M shares Wednesday versus 201M shares Tuesday. Volume continues to subside as the blue chips work laterally, consolidating the last run higher.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
NASDAQ had its day, riding CSCO higher and basically trying to play some catch-up to the NYSE indices that all broke to new all-time or new post-2002 highs last week. NASDAQ has lagged considerably, and even with this good news Wednesday it never threatened a new post-2002 high. In November it did not make the breakout in one session after the CSCO news, but instead built up to a breakout. It will have to do the same here if it is to be successful and provide the rest of the market with some support.
Meanwhile we expect to see some of the focus turn back to the NYSE large caps that basically took another day off Wednesday, consolidating their strong breaks higher the prior week. The small caps continued to surge, ignoring the rest of the market's tribulations. They will likely need a leader's rest pretty soon, one of those pullbacks that lets the other indices play catch-up. Hmmm. Kind of like what SP500 and DJ30 are doing for NASDAQ right now. That is how we get those waves of rises that provide buy points in different sectors. We have said it before many times: the market does not rally all at once. Money works its way around the market, pushing a few sectors harder than others, then it moves on to some other sectors. The entire market can climb, but certain parts of it rally harder.
The issue ahead for the market overall is whether NASDAQ can actually make good on this move, i.e. deliver a new post-2002 high that this time actually needs to hold. We are ambivalent as to whether it can make the hold or not. It will or it won't and we will take what its move gives us, i.e. if any solid stocks set up for buys.
As for the other indices, Wednesday the large cap NYSE let NASDAQ have its 15 minutes as those indices held steady on below average volume. Likely what will happen is that they will get some renewed buying interest after four lateral sessions following the break higher. They may take a couple more sessions, but if the buyers return, they will likely find this pause making the larger caps appealing for some new money.
Thus far the move is sticking and thus we are going to look for plays congruent with the recent breakouts, i.e. upside plays were strong stocks have rested or pulled back from good moves and are ready to add to the advance. We already have some of those on the reports and will look to add some.
Even as these indices have paused, many stocks continue to move higher. If we do get a return to the NYSE stock buying ahead of the weekend and get a good push Thursday and Friday, we will again look at taking some gain off the table on those positions that have a good run under their belt and need a rest. If a stock starts to break higher after a pause we will likely let it continue until it slows, but if we have a nice gain and some nearer term options, then even those are worth locking in at least a bit of gain.
Support and Resistance
NASDAQ: Closed at 2490.50
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 2467 and the 18 day EMA at 2460
2450 is minor support
The 50 day EMA at 2436
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 1450.02
Resistance:
1475 from peaks in December 1999 and January 2000
Support:
1444 from February 2000
1443 is the July up trendline
The 10 day EMA at 1441
The 18 day EMA at 1435
1432 is the December 2006 high
1425 is an interim high from November 1999
The 50 day EMA at 1418
1408 is the November high
1401 is a low from April 2000
1390 is the October high.
Dow: Closed at 12,666.87
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 12,618
12,499 is the December intraday high.
The 50 day EMA at 12,435
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): 3.0% versus 2.0% expected, -0.1% prior (revised from 0.2%)
Crude oil inventories (10:30): -449K versus +2.684M prior
Consumer Credit, December (3:00): $6.0B actual versus $6.5B expected, $13.7B prior (revised from 12.3B)
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
|
world stock market
us stock market
|
