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us stock market, trend trading stock
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2/13/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CRM
Trailing stops: INFY
Stop alerts issued: DADE
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.html
SUMMARY:
- Market bounces after 3 down sessions, led by industrial stocks
- Mr. Bernanke goes to Washington
- Hump day in expiration week sees more economic data, tech earnings, and Fed views as stocks try to win back more ground lost to distribution.
NYSE posts a solid rebound to the selling, NASDAQ tags along.
After three down days (2 for the small caps) stocks rebounded, trying to recover some of the lost ground from that distribution session last Friday. It was no major sell off, but the higher volume selling tends to erode a rally's foundation. Monday stocks managed to hold a higher open to the close. Sure there was up and down action, but it was in a narrow range and stocks generally held positive the entire session. If there is going to be expiration turmoil this week it hasn't shown up yet.
There was plenty of news with oil rising on a new winter storm and a report calling for doubled Chinese demand (oil rebounded to 59.06, +1.25/bbl). Analysts were upgrading the likes of Circuit City and GM (really going after the market leaders indeed). The trade gap expanded 5.3% to a new record, though it covered the November period and a lot of the increase was the result of higher oil prices that month. The big story, however was the rumor of a foreign interest in pursuit of Alcoa. That sent metals and materials jumping as investors speculated on who might be buying and what other stocks could be targeted.
It is common knowledge that the Chinese are buying all of the commodities and sources of commodity supply they can as a hedge for future growth. Maybe China is making another run at a US company; hard to imagine given the democratic Congress, but that was one of the theories bandied about Tuesday. It was enough to send all metals higher, and by association, materials. There was a hint of speculation in this news. Just the rumor of a takeover and investors were scurrying to lock into metals and materials. That is somewhat worrisome but looking at metals' performance prior to this news you see solid high volume accumulation. Thus it was not just a speculative grab on the AA rumor.
Outside of dedicated metals and mineral stocks, industrials received a boost from some bullish comments by MMM along with a $7B stock buyback plan. That acted as the sweeper for the NYSE, picking up most of the NYSE stocks and pushing them higher (breadth was 2.6:1). After an afternoon fade, news of a North Korea nuclear deal helped goose the market again, closing the NYSE indices on the session high.
Technically the market is starting to bifurcate somewhat yet again. While the NYSE indices rallied higher on stronger volume and excellent breadth, NASDAQ struggled on lower volume and narrow breadth, unable to close at the session high. The most obvious indicator of this is NASDAQ's failure to take and hold a new post-2002 high. Aside from that, the internals are not matching up well with NYSE. Strong breadth on the Tuesday NYSE move versus just 1.5:1 on NASDAQ. Volume was up on the NYSE move higher, but it lagged lower on NASDAQ's rebound attempt. Further, NYSE, while it has suffered some distribution, its bouts are less frequent than NASDAQ. The preponderance of leadership is non-tech. There are tech leaders, but nowhere near the plethora you see when tech is taking charge or at least keeping up with the Joneses.
Maybe AMAT's after hours earnings can spark a renewed interest in tech. AMAT beat on the bottom line but its sales decline was much worse than expected (-10% versus -5% to -10% expected) and revenues were below expectations. This may be the case where the numbers are presumed as bad as they will get and thus helps spark a recovery. Maybe. Many a tech has reported the past month and has been roughed up or saw a short-lived pop. NASDAQ has yet to reverse those three 'it's a rally, no its not' distribution reversal sessions, and modest low volume bounces such as Tuesday don't do the trick.
Does that mean we pack up and go join the groundhog for a few more weeks? No. Remember, all we really need is for NASDAQ to tag along as it did Tuesday. When the small caps looked cooked in the second half of 2006, taking a back seat to the large caps, all we needed them to do was hang around. They did and the market prospered. Now they are taking the lead again. All NASDAQ has to do is come along for the ride, making at least an effort to rally here and there. That is the value of news such as that from AMAT; it keeps it in the gain.
THE ECONOMY
Bernanke set to speak to Congress again.
Wednesday is the day everyone says the market has waited for all week, though one can question whether there was much waiting around Tuesday at the NYSE. Lots of speculation about inflation comments or dovish comments. The real scoop? As his main thesis Bernanke will mirror the statements made by Poole last week. Poole's main theme was 'moderating growth, lower inflation.' Sure he said the Fed would act to push rates higher if inflation did not mellow, but that is what Fed officials do. He did not, as the other two Fed speakers, say he was unconvinced inflation would continue to moderate. Indeed, he said the opposite.
Poole has been the speaker for Bernanke when Bernanke is not speaking (that happens more than you would think). All of the other FOMC members talk the company script and then throw in their two cents (e.g. unconvinced inflation is falling). Poole is the one that paves the way for the chairman.
Thus Wednesday we can expect Bernanke's theme to be the same one the Fed has put forth as its official stance: moderating growth, lower inflation. He will be distracted into other areas such as unequal sharing of the economic expansion (he opened that door a couple of weeks back) and similar subjects; we can only hope he sticks to his 'no place for policy at the Fed' stance.
It makes sense he will stick with this theme. It is the one that is working for him and has made him look very good over the past six months. Given the performance of the economy and the financial markets, it would be extremely risky for him to alter the course much even if he felt it needed tweaking. With Poole outlining the tried and true position last week, however, it is very unlikely Bernanke will move off them.
THE MARKET
MARKET SENTIMENT
VIX: 10.34; -1.27
VXN: 15.83; -1.51
VXO: 9.99; -1.38
Put/Call Ratio (CBOE): 0.97; -0.21. Backed off on the rally after a day above 1.0. Still quite high as the options show a bias toward puts.
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: +9.5 points (+0.39%) to close at 2459.88
Volume: 1.879B (-0.41%). Volume remained below average for the second session but it was slightly lower, so no hint of accumulation at all. It was lower on Monday's selling, and that was good to see after getting boxed around Friday. The inability to attract any upside trade when NYSE did underscores that NASDAQ has fallen in behind as a follower for now.
Up Volume: 1.207B (+648.702M)
Down Volume: 614.789M (-702.113M)
A/D and Hi/Lo: Advancers led 1.53 to 1. Decent but lagged well behind the NYSE.
Previous Session: Decliners led 1.31 to 1
New Highs: 93 (+33)
New Lows: 27 (-3)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ scratched out a modest gain on lower, below average volume as NASDAQ tried to recover from the Friday distribution. Making a higher low above the 50 day EMA (2440) is somewhat positive, but it needs some volume to confirm it. It may get some help from AMAT in its attempt to hold its pattern and at least tag along with the NYSE for now.
SOX (+0.44%) was up but its percentage gain lagged all others but NASDAQ. SOX is usually a leader on intraday moves just because it is so volatile. It is not leading right now. It is holding above the 200 day SMA, trying to make a higher low. AMAT is a component, so it will get a boost given AMAT was up about a point after hours. It is in no-man's land right now, trying to make a higher low but still coming off a lower high in its 3 month downtrend. As the movie says, something's got to give. Still believe it is too early for the chips overall.
SP500/NYSE
Stats: +3.37 points (+0.76%) to close at 1444.26
NYSE Volume: 1.453B (+10.06%). Volume was up, showing accumulation as the NYSE indices rebounded, but it was still below average and below the levels hit last Wednesday and Thursday. Thus there was some positive in that volume rose, but it was still below the prior selling intensity.
Up Volume: 1.144B (+681.216M)
Down Volume: 292.985M (-554.124M)
A/D and Hi/Lo: Advancers led 2.65 to 1. Solid upside breadth as the NYSE stocks enjoyed broad sponsorship.
Previous Session: Decliners led 1.56 to 1
New Highs: 154 (+85)
New Lows: 11 (-3)
http://investmenthouse.com/cd/^gspc.html
SP500 rebounded back through the 18 and 10 day EMA, not even coming within waiving distance of the 50 day EMA (1422). It shows the uncanny knack of finding buyers each time it dips toward the bottom of its uptrend channel. It did so again Tuesday, and it rose on climbing trade. Volume was lower overall so it was a weaker recovery than the selling; thus you don't want to make too much out of the rebound, but again, it has yet to break trend each time it threatened to do so.
SP600 (+0.82%) led the market with the SP400 (+0.92%), bouncing back up after a quick test of the breakout from the prior week. It held above the 18 day EMA, testing that level on the Monday low, and is now rebounding on rising trade. Same issues as with SP500 re the trade, but it is hard to argue with a new high, a good test, and then a solid, rising volume rebound.
DJ30
The blue chips, buoyed by MMM and AA, jumped off the November to January trendline and posted a triple digit gain. Volume was up but it was also below average and lower than the Friday downside trade. As with SP500, the blue chips once again refuse to give up their trend higher. It is extended and showing some signs of wear once again, but it continues to find the catalysts to bring buyers back in. We would prefer to see it base for a few weeks, but the money out there won't let it.
Stats: +102.3 points (+0.81%) to close at 12654.85
Volume: 205M shares Tuesday versus 175M shares Monday. Volume rallied on the upside, showing some accumulation, but trade was below average and lower than last Friday when DJ30 suffered a bit of selling.
The chart: http://www.investmenthouse.com/cd/^dji.html
WEDNESDAY
Bernanke faces the always political Congress in his semi-annual testimony on the state of the economy and monetary policy, retail sales are released before the open, and techs respond to AMAT's earnings. Oh yes, and oil inventories are out at 10:30; with oil back near $60/bbl this is a very important number.
The market has been dancing around forming a top the past few months even as it continues higher. About the only indices immune are the small and mid-caps. DJ30 and SP500 continue their uptrends, but the moves are a bit more volatile and some distribution has crept in. NASDAQ and SOX have had the hardest go of it, but even so NASDAQ is still holding in its 12 week lateral range. The distribution tends to eat out the foundation under a consolidation attempt, and whenever you see this action it behooves you to be more skeptical and defensive.
Why? Because this is the kind of action that accompanies the formation of tops ahead of a fall. It does not automatically result in a fall; NASDAQ could continue working laterally, consolidating or correcting in place so to speak, and once enough time is put in it makes the next move higher. That may well turn out to be the case; the strength resulting from the extra money still seeing gains is pretty amazing. It drives stocks higher each time there is some weakness. That cannot last forever without some kind of fear injected into the market, but at this stage it has not shown itself. Indeed, the fact that so many are concerned about a correction acts to prolong this move a bit unnaturally (though it is not an unnatural act).
That is what makes this response to the latest round of distribution so important. A strong rebound such as the small caps showed after the late January distribution, i.e. breaking out to a new high, is along the lines of what you want to see. Other than that you just keep the same level of uncertainty. That is why so many traders and investors want a correction as that would inject a bit of clarity into a picture that is more and more out of the norm and thus less and less understood.
We will still be surprised if the market makes it out of this period without some deeper correction. Expiration week provides the perfect opportunity for one as it is usually accompanied by position shuffling and rolling over, and that allows some sellers to use the higher volume as cover to get out of positions. They have used three rallies in NASDAQ to unload positions, and two such rallies on the NYSE to do the same. They are lurking out there, selling out of positions. Thus far, however, they have not stalled the NYSE advance; slowed it some but they have not stalled it. NASDAQ is stumbling. It has not fallen, but it cannot make a new post-2002 high.
All of this, as noted above, accompanies top formation. Thus we remain a bit defensive, but for the most part it has paid us well to move into positions in times of uncertainty in the market as seen the first week of February when the market surged and we took a lot of gain on positions taken in less certain times. Thus we are still bird-dogging solid stocks in good position, moving in when they show the buy signals. Thus far the market has rewarded this, but we have also been quick to take positions off the table when they get a bit dicey. After Bernanke speaks we will see if the market gets the direction many seem to think his testimony might bring. If it surges again we will gladly take some gain on the positions w have been accumulating during the recent action.
Support and Resistance
NASDAQ: Closed at 2459.88
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:
2450 is minor support
The 50 day EMA at 2440
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 1444.26
Resistance:
1444 from February 2000 is trying to hold.
1449 is the July up trendline
1475 from peaks in December 1999 and January 2000
Support:
1440 is the mid-January high
1432 is the December 2006 high
1425 is an interim high from November 1999
The 50 day EMA at 1422
1408 is the November high
1401 is a low from April 2000
1390 is the October high.
Dow: Closed at 12,654.85
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:
12,550 is the up trendline connecting the November and January intraday lows.
12,499 is the December intraday high.
The 50 day EMA at 12,460
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 12
Treasury Budget, January (2:00): $38.2B actual versus $40.0B expected, $40.0B prior (revised from $21.0B)
February 13
Trade balance, December (8:30): -$61.2B actual -$59.5B expected, -$58.2B prior
February 14
Retail sales, January (8:30): 0.3% expected, 0.9% prior
Retail ex-auto (8:30): 0.4% expected, 1.0% prior
Business inventories, December (10:00): 0.1% expected, 0.4% prior
Crude oil inventories (9:30): -449K prior
February 15
Initial jobless claims (8:30): 315K expected , 311K prior
NY Empire PMI, February (8:30): 11.0 expected, 9.1 prior
Net foreign purchases, December (9:00): $60.0B expected, $68.0B prior
Industrial production, January (9:15): 0.0% expected, 0.4% prior
Capacity utilization, January (9:15): 81.7% expected, 81.8% prior
Philly Fed, February (12:00): 4.0 expected, 8.3 prior
February 16
Housing starts, February (8:30): 1.60M expected, 1.642M prior
Building permits, February (8:30): 1.59M expected, 1.613M prior
PPI, January (8:30): -0.6% expected, 0.9% prior
Core PPI, January (8:30): 0.2% expected, 0.2% prior
Michigan sentiment prelim, February (10:00): 96.5 expected, 96.9 prior.
End part 1 of 3
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