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us stock market, trend trading stock
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2/08/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: ICE
Buy alerts: CLE; FMCN; TALX
Trailing stops: None issued
Stop alerts issued: 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 SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertssr.htm
SUMMARY:
- Sub-prime mortgage scare hits the market but stocks handle it.
- Market weathered sub-prime woes on first blush, but always have to be careful of a second shoe.
- Retail sales show same disparity as the rich get richer. Wait, isn't that the economic debate?
- Still testing, still trying to hold off any sharp sell off and actually prove this last upside break has more substance.
Market gets a dose of harsh reality but manages to swallow it.
There were several potential whammies hitting the market Thursday, the most talked about being the 20% loss HBC suffered in its US sub-prime mortgage loans. That was well above what was expected, and that sent a ripple through all of the financial sectors, mortgage lenders or not. In addition the January retail same store sales were out, and though they showed the same themes regarding the winners and losers, Thompson says January sales will be down to 3.1% versus 4.9% last year. On top of that oil surged back near $60/bbl (59.71, +2.00) on the close.
Plenty to worry about, and stocks sold off early on, gapping lower. They sold right out of the gate with financials under a lot of pressure, even those outside the mortgage lending sector. Within a half hour they had bottomed for the session, however, as SP500 tapped the 18 day EMA on the low and recovered. NASDAQ showed similar action, tapping lower and recovering to close near session highs, showing relative strength. The selling never got out of hand and NASDAQ even turned positive in the last hour before slipping just a bit into the close. There is a concern about another shoe to drop with respect to the mortgage industry, but Thursday investors shook that off and moved in when stocks were low to pick up more shares, financials and otherwise.
Technically, despite the dip, and indeed the reaction to the news and related dip, it was a pretty solid session. The market was confronted by some potentially very negative economic news, sold some on that news, but held near support and then spent the remainder of the session recovering the lost ground, pushing the indices near the session highs and just missing positive on the close.
Volume was lower on NASDAQ so there was no distribution in the tech sector, and as noted, techs showed some relative strength. Trade increased on NYSE as those indices tested near support and rebounded, so it is hard to really call it distribution. You cannot discount completely, however, the rise in trade due to the financial stocks getting boxed around. There were financial sectors that were dumped based upon the news re the sub-prime mortgage business. Thursday the rest of the financial sector recovered as buyers used the selling to pick up more shares, but we have to remain cognizant of this new wrinkle and keep track of whether it starts to spread out to other financials. As noted, Thursday the dip was used to buy.
Breadth was basically flat on the session, matching the action. That is always good to see, however, because it is in line with the action and there were not any big holes that a few stocks were cloaking. There was also some strong leadership with some excellent breaks higher as well as some stocks that were sold early after earnings and in the worry about mortgages but then reversed and charged higher (e.g. AKAM). Recoveries among leaders were more common that not on Thursday.
All in all it was another day spent testing last week's breakouts, this test a bit deeper but also managing a comeback after some bad news pushed it lower. That shows strength remaining in the buyers' mindset. It does not take stocks out of the woods, however, it is just setting up the move to do that. NASDAQ has yet to make that new post-2002 high that does not get thrown back, and the rest of the market is somewhat on hold, testing their breakouts, while NASDAQ goes through its steps. NASDAQ did not reverse the Wednesday move immediately, kind of a moral victory. It didn't reverse immediately in mid-January either, however, and that move did not hold up. Thus we like the consolidation we see, the ability to shake off some bad news and continue testing, but we have to see some conformation as well.
THE ECONOMY
Retail sales continue to get a bum rap even though those growing are really growing.
The list of winners in January could just about be pulled from any list of winners over the past couple of years. AEOS, ZUMZ, JWN, ARO, SKS, TGT all posted nice sales gains. Indeed, 63% beat expectations while 33% missed, and 3% were in line. Gift card redemption helped out as it is estimated that card sales totaled $24.8B in the 2006 holiday season, up 34% over 2005.
Some looked at the report as solid while others viewed it as lackluster. Indeed, even the 2006 holiday season is called either disappointing or strong depending upon who you talk to and what areas you feel are the most significant. One them continued to hold up: luxury or high end retailers continue to perform the best though there is no collapse at the middle or lower levels.
Indeed, as discussed last week, with consumer confidence at 100+ levels there is no imminent worry of a consumption drop off. Even with the sub-prime woes of HBC, consumer confidence remains strong. That means they feel their jobs are secure into the future. That is the largest driver of consumer purchasing. Yes housing prices have declined, but at this juncture they have not hit levels where consumers start pulling in the consumption purse strings.
The mortgage issues could definitely spread out and we have to watch for that possibility. What the sub-prime level represents are the riskiest loans, those that were made with creative financing when rates were very low in order to get buyers into homes. They may have more home than they need and they may decide to walk on the home, but with the jobs situation they still have jobs. It is not a situation where they lost their jobs and now cannot afford a home. It is more a situation where they got into a home with an adjustable rate with no principal due and no down payment, and then rates, as we have seen, start rising. They still have their job, it is just not enough to cover the nut as rates rise. If they leave the house they will take their jobs with them and continue to consume. Don't want to sound overly optimistic or Polly Annish about this, but at this juncture the housing market could remain in decent shape even with the issues in the sub-prime group.
THE MARKET
MARKET SENTIMENT
VIX: 10.44; +0.12
VXN: 16.14; -0.03
VXO: 10.09; +0.37
Put/Call Ratio (CBOE): 0.84; -0.07
Bulls versus Bears:
Bulls: 52.2%. Modest decline from 53.3% after bouncing up from 50.5% a in late January, and after grazing past 55% (the 55.4%) just before. Still quite a bit of bullishness though backing down from the 55% threshold considered bearish as it signals pretty much everyone is in the market.
Bears: 22.2%. Moving in a direction more favorable to market upside as bears bounce back from flirting with the 20% level considered bearish. Up from 21.1% last week and 20.9% before where bears 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: -1.83 points (-0.07%) to close at 2488.67
Volume: 2.022B (-10.91%). Volume was above 2B shares and above average as well, but that was down from the prior two sessions that saw NASDAQ post some gains. Kind of a breather, and not bad given NASDAQ's penchant to reverse on volume the past month.
Up Volume: 946.517M (-708.483M)
Down Volume: 995.225M (+436.225M)
A/D and Hi/Lo: Decliners led 1.04 to 1. Very even keel, another indication NASDAQ trying to hold onto its gains.
Previous Session: Advancers led 1.6 to 1
New Highs: 103 (-55)
New Lows: 17 (-7)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
Gapped lower on the overall concerns the mortgage reports stirred up, but easily held above the December high (2471) and the 10 day EMA (2471) on the low and recovered. Almost posted a gain on the session, but a late dip zeroed that out. Volume was no shrinking flower, but in a session where NASDAQ showed relative strength and a decent rebound we are not going to read more into it than is there. NASDAQ gapped higher on the CSCO news and is trying to hold on for an attempt at 2509, the January post-2002 high. You can say there was no follow through and you would be correct. At this juncture we just have to see if there is any strength left to take on a new post-2002 high.
SOX (-0.49%) fell to the 50 day EMA on the low but cut its losses as did the other indices. It is trying to hold the line here at the 50 day EMA, make a higher low, and work on clearing 475 and then 485. as with NASDAQ there is still a lot of work to do and it is hardly out of the woods.
SP500/NYSE
Stats: -1.71 points (-0.12%) to close at 1448.31
NYSE Volume: 1.602B (+8.52%). Volume moved up above average as the NYSE indices tested lower to near support but rebounded to recover most of the losses and close just below flat. There was dumping in the financials but the indices also recovered from the bad news.
Up Volume: 747.991M (-8.022M)
Down Volume: 832.67M (+157.032M)
A/D and Hi/Lo: Decliners led 1.09 to 1. As with NASDAQ, very modest negative breadth, another indication that the action was not negative.
Previous Session: Advancers led 1.4 to 1
New Highs: 182 (-192)
New Lows: 7 (+2)
http://investmenthouse.com/cd/^gspc.html
SP500 fell on the open as its financial components took an early hit on the stories surrounding the mortgage industry. The big brokerages were lower, the big banks, you name it. SP500 fell to the 10 day EMA (1442) but there it found support and rallied back, led by those financials. That action shows buyers ready to move in on a dip and pick up key stocks. They were doing that and that helped drive the volume higher as SP500 recovered. There was dumping in the mortgage stocks, however, and as noted above, we have to watch to see if that spreads out or is just limited to the lower end mortgage sector.
The small cap SP600 (-0.14%) also sold back early, but held the early week highs on the low and bounced right back up. The small caps continue their breakout and the excellent recovery from laggard to leader that started with the December consolidation when it caught up with DJ30 and SP500.
DJ30
The blue chips also struggled given the financial components, but it held the 18 day EMA on the low and rebounded to close just above the 10 day EMA. It lagged compared to the other NYSE indices, but volume remained below average; at least there was no dumping. DJ30 is testing the last move higher in its trend of narrow rallies and tests.
Stats: -29.24 points (-0.23%) to close at 12637.63
Volume: 193.8M shares Thursday versus 194M shares Wednesday. No distribution as it sold off early but rebounded.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
The market has spent the week testing the strong breaks higher from the week before. Up one week, testing the next. Thus far no sell off. Indeed, the dips were bought, again on Thursday even after some bad news to start the session.
Friday offers no new economic data and with a week of testing the prior move (outside of SP400 and SP600) it is likely the indices will try to bow out of the week holding the gains as they further consolidate. There is the mortgage story that hit and some will wonder if there is some other shoe to fall over the weekend. That may very well quell any desire to buy into stocks on Friday.
Thus we are going to keep looking for leaders that are pulling back to test strong breakouts or are otherwise in position to rally, but we are not going to be too eager to charge in unless there are some strong individual moves. Of course the market could charge right back up; it took a breather after the break higher and Thursday was a test lower and recovery, a shakeout session that often primes the next move. Either way we will look for strong stocks in solid position to buy into for their next move.
NASDAQ is still in no man's land of sorts, having broken higher on the Cisco news but still not clearing to a new post-2002 high. The other indices are breaking to new highs and NASDAQ needs to be able to do the same thing to give this move some confirmation as to its strength.
Support and Resistance
NASDAQ: Closed at 2488.67
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
The 10 day EMA is at 2471 2468.42 is the November 2006 high
The 18 day EMA at 2463
2450 is minor support
The 50 day EMA at 2438
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 1448.31
Resistance:
1475 from peaks in December 1999 and January 2000
Support:
1444 from February 2000
1445 is the July up trendline
The 10 day EMA at 1442
1440 is the mid-January high
The 18 day EMA at 1436
1432 is the December 2006 high
1425 is an interim high from November 1999
The 50 day EMA at 1419
1408 is the November high
1401 is a low from April 2000
1390 is the October high.
Dow: Closed at 12,637.63
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 12,621
The 18 day EMA at 12,585 held on Thursday
12,499 is the December intraday high.
The 50 day EMA at 12,443
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): 311K actual versus 310K expected, 308K prior (revised from 307K)
Wholesale inventories, December (10:00): -0.5% actual versus 0.6% expected, 1.1% prior (revised from -0.5%).
End part 1 of 3
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us stock market
trend trading stock
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