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money investment, financial investment
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2/14/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: ANST; HMSY; IIVI; RIO
Buy alerts: TROW; VSAT
Trailing stops: SBUX; SYK
Stop alerts: AXP; WDR
SUMMARY:
- Bernanke touches the right chords, market leaps higher on rising trade.
- Market wants to top but new money won't let it.
- Bernanke plays well in D.C.
- Can the market really plow new territory and rally for 9 consecutive months?
NASDAQ takes the lead as market rally surges in strength, but techs still lag.
Stocks were ready to rally early on some continued strong earnings from across the market (AMAT, GRMN; KO; PFCB) and retail sales that were good enough but not too strong ahead of the Bernanke testimony.
The indices gapped higher, continuing the Tuesday afternoon rally into the close, but then started to slide right back. That turned out to be just a good test. Bernanke was speaking to Congress at 10:00ET, and when his text was released just before hour, a good opening exploded higher. The indices doubled their gains in less than 10 minutes. NASDAQ blew through its December high and challenged its early February high water mark. The NYSE indices, already at new highs, plowed some virgin territory, at least on SP600, SP400 and DJ30. Indeed, DJ30, DJ20, and DJ15 (industrials, transports and utilities) all traded at new all-time highs, something that has not happened in eons and when they combine at new highs, Dow Theory says the momentum is in place for a continued upside move.
There was no shortage of that upside Wednesday. The oil inventory data was out shortly after Bernanke started speaking. Heating oil declined much less than expected (-3M versus -4.6M) while gasoline plunged 2M versus expectations of a 1M bbl rise. Gasoline futures jumped while oil and heating oil futures fell. Oil closed at 58.00, -1.06/bbl. The data did not shoot it over $60 as feared but it did not break it lower either. With gasoline consumption levels still rising, all this report did was forecast higher gasoline prices for the consumer on top of the gains posted the past couple of weeks.
Technically it was a solid session. New highs on the NYSE indices. Volume surged on NASDAQ and was up again nicely on NYSE, both at or above average. Breadth was excellent again . . . on NYSE (2:1); NASDAQ was decent (1.4:1) but it is still mediocre, this time because the large cap techs outpaced NASDAQ overall. That is pretty much the tape in the market right now, however, i.e. the NYSE stocks leading while NASDAQ tags along. That is how it works in most rallies; there are definite leaders and the followers. Not that NASDAQ is chopped liver. It is at the early February high and eyeing the January high (the post-2002 high) at 2509. Lagging but within striking distance of a new high of its own sorts.
New money keeps things moving higher.
The past couple of months the indices have continued higher but the move has been pockmarked with distribution sessions on the heels of accumulation sessions. There are sellers in the market, moving out of positions after the strong 7 month (now on the eighth) rally.
Though there are sellers unloading, there is also new money still moving in. Each time the market gets a few downside sessions, distribution or no, that new money pushes in and pushes the indices back up. That gives the rally extra life that it normally would not have. The liquidity ready to pounce on any downturn has the rally running on the latter end of its nine lives. It is pretty amazing watching the money flow in on any downturn, and there is still enough new money to offset the distribution and drive the indices higher.
The real battleground is on NASDAQ as that index has shown the most distribution, enough to stymie its attempts to join the other indices with a post-2002 high. It made it in January but the sellers quickly tossed it back. It is a pitched fight right now, but thus far enough buyers are around to keep it from rolling over. Indeed, right now they it is making some higher lows, trying to build for a breakout despite the distribution, including the recent session just last Friday.
If NASDAQ makes the breakout who knows how far the rally will run. Just as we saw the market get more and more oversold in the bear market run, a market can get more and more overbought and still keep going. It is a liquidity issue; as long as there is more money trying to come in than get out, the market rises.
It gets ugly when the new money no longer comes in or at least no longer outpaces the sellers. After such a strong run when there is no one to pass the next share to the fall can be rather precipitous. The question no one can really answer is when the fall will start. Most everyone agrees the market is overbought near term and is in need of the correction that refreshes, but the market and the new money continue to defy expectations as to how far a market can or should run.
That is why we keep buying when good stocks flash the buy signal even if the market appears iffy. That is why we also take gains, interim or otherwise, when we have big rallies as that one to end January and start February, or the two day jump on Tuesday and Wednesday. The market shows buys, rallies for a few sessions, and then makes a test. It is all in a pretty tight range and thus we like to take gain when the bounce peaks. That way we take some gain and prepare for the next bounce if it comes. At some point it may not given the distribution that has flashed up now and again. If this move continues we will continue to take gain as well. Then when it fades we will look for new buy opportunities again, that is, if the fade holds and stocks hold support as well. It may be extended, but at this point you cannot wait around for it to come back. The new money is not letting it do that for now.
THE ECONOMY
Bernanke keeps to his course. Thus far it is working.
Chairman Bernanke gave the market what it wanted to hear, i.e. the same line the Fed took in the last couple of FOMC policy statements and the theme Poole sounded out late last week: moderating growth, declining inflation.
Bernanke revised downward the Fed's economic growth expectations for 2007 to 2.5% to 3% for GDP. For 2008 the Fed predicts 2.75% to 3% as the housing decline stabilizes. With that moderate economic slowing the Fed expects inflation to continue to ebb this year and into 2008.
With respect to inflation Bernanke was rather sanguine. He noted economic 'signs that inflation pressures are starting to ease.' While the monthly data is 'noisy' and that that it will be a while before the Fed is confident inflation is really receding, the 'temporary factors pushing inflation higher are waning.' Thus the forecast that inflation will continue to decline in 2007 and 2008, and Bernanke is 'encouraged that inflation expectations remain contained.'
Oil and other commodity prices remain a risk for the economy. Bernanke discussed the decline in oil as helping decrease inflation pressures, and noted he expected this trend to continue given the oil futures markets and their direction. With that comment Bernanke cemented the notion that he does look to the financial markets in steering Fed policy. That is what we all suspected based on his pausing while inflation was still rising; the markets were not projecting continued inflation increases and thus the pause. It is interesting to note he is viewing oil as inflationary versus debilitating to the economy. Given economic growth has continued even with $60+/bbl oil, that position is somewhat justified for now.
As for the economic growth, Bernanke remains concerned that housing remains a risk. He labeled this risk as 'significant' and worried the weakness could spill over into the consumer. As we noted last week, it is thus true that the Fed is not going to do anything with rates as long as housing remains weak.
That said, Bernanke again reiterated that it would take time to see if inflation was really in a continuing downtrend, and thus the Fed had to state its view of policy had to remain weighted to the risk of inflation.
Thus Bernanke paid homage to all sides of the argument, keeping the 'ever vigilant' flag waving with respect to inflation, but recognizing the current state of the economy and markets as well as history in sticking with the 'pause and see' stance the Fed has taken. With that he seemed to walk the fine line quite well, satisfying the financial markets and the inflation hawks.
THE MARKET
MARKET SENTIMENT
VIX: 10.23; -0.11
VXN: 15.37; -0.46
VXO: 9.73; -0.26
Put/Call Ratio (CBOE): 0.98; +0.01
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: +28.5 points (+1.16%) to close at 2488.38
Volume: 2.118B (+12.71%). Volume surged to the highest level of the since the first of the month. This has the look of some expiration type trade given it is Wednesday of expiration week, but with the index up solidly you have to look at this as accumulation in the face of last week's distribution.
Up Volume: 1.763B (+556.156M)
Down Volume: 343.02M (-271.769M)
A/D and Hi/Lo: Advancers led 1.43 to 1. Still disappointing as techs just are not attracting a wide range of money. NASDAQ 100 led techs with a 1.75% gain and thus the mediocre breadth.
Previous Session: Advancers led 1.53 to 1
New Highs: 96 (+3)
New Lows: 13 (-14)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ continued the bounce up off the 50 day EMA (2442), accelerating the move with a strong shot of above average volume after two below average volume sessions. NASDAQ made a higher low at the 50 day EMA (again), its second higher low as it squeezes above the 50 day and below the January high at 2509. It is trying to set up the old ascending base (now in its twelfth week) where it squirts out like a watermelon seed pinched between your fingers. We will see. This is the battleground for the buyers and sellers in the market. Mostly a stalemate, but the buyers are trying to take control here.
SOX (+2.14%) rode AMAT's earnings back through the 50 day MA and back toward another test of 475 interim resistance. It still has about 5 points to go to get there and that will be the key test on this move. The reason: it makes a higher high at that point or it doesn't. If it does not it continues its downtrend that started in November.
SP500/NYSE
Stats: +11.04 points (+0.76%) to close at 1455.3
NYSE Volume: 1.518B (+4.46%). Another upside volume session, but once more rather disappointing as volume only cracked average. That is unimpressive as it is lower than the Thursday churning volume and the Friday distribution volume. It is also much lower than the buying volume in early February. That means fewer buyers this week than sellers last week. In short, if those sellers return, they have some nice gains the past two sessions to cut into.
Up Volume: 1.13B (-14.024M)
Down Volume: 362.697M (+69.712M)
A/D and Hi/Lo: Advancers led 2.03 to 1. Another nice broad advance as all of the NYSE indices pushed to new post-2002 or new all-time highs.
Previous Session: Advancers led 2.65 to 1
New Highs: 262 (+108). Less than auspicious new highs given the entire NYSE made new highs (at least intraday) themselves.
New Lows: 5 (-6)
http://investmenthouse.com/cd/^gspc.html
SP500 moved to another new post-2002 high on rising but just average trade. The financials got back in on the action, and when they join a rising SP500, it really gets the juice. Once more SP500 tested after the last rally (in late January and early February) and then rebounded. That is the same pattern in the narrowing uptrend, and thus far it has not broken. The volume is shifting away from the buyers based upon the last two weeks, but again, that has not broken the move yet.
SP600 (+0.35%) hit a new high intraday but could not hold into the close. The small caps led the last move and were the first off the dime on this move, but they could not close it out. Not going to get all in a pinch over this, but note the move vis- -vis the other indices; is the SP600 starting to weaken and thus show the rest of the market may follow? Remains to be seen, but we go back to that rather mediocre NYSE volume on the Wednesday move as a sign the buyers are not quite as strong as they were in early February.
DJ30
The blue chips, utilities and transports all posted new all-time highs Wednesday. As noted above, Dow theory says that indicates more upside momentum ahead. DJ30 definitely ahs the momentum as it continues to serpentine higher in its uptrend. Volume was higher but it was below average again, similar to the entire month. As with NYSE, rather unimpressive trade backing this move, but thus far it has been unable to derail the move.
Stats: +87.01 points (+0.69%) to close at 12741.86
Volume: 210M shares Wednesday versus 205M shares Tuesday. Volume rallied again, showing some modest accumulation, but it was also below average. That means the buyers are less than enthusiastic. Thus far it has not come back and bit the blue chips on their blue buns.
The chart: http://www.investmenthouse.com/cd/^dji.html
THURSDAY
Bernanke has spoken and stocks have again rallied. NASDAQ volume soared while NYSE volume snored. We have thoughts that may mean problems ahead, but we have thought that for awhile but had to ignore our gut feelings and go with what the market was showing, i.e. a continuing move higher.
Lots of data Thursday, e.g. NY PMI, Philly Fed, production and capacity utilization. Important, but they take a backseat to Bernanke's words and expiration. Expiration has yet to show its volatility unless you consider the blast higher volatile. That was a straight shot higher all session, lacking the typical back and forth you see in expiration week. That may change Thursday with Bernanke in the books and a strong 2-day surge under the belt. If stocks come out roaring once more Thursday we will look to take some more gain off the table because it may not last through the session. This market tends to surge a few sessions and then test back as it continues the bounces higher within its uptrend channel. For now the pattern works, and we will continue to use the bounces higher to take gains on stocks we bought in the last down cycles in the uptrend.
The market has rallied for 7 straight months and is now on its eighth (off the June low, the low in the last pullback), something that has only occurred on two other occasions. The market has never put in a 9 month rally without a correction. Some of the NYSE indices are plowing new all-time high territory right now. Can they plow under another record and rally for 9 months uncorrected? DJ30 is still just 8.6% above its 200 day SMA, not necessarily in high danger of imminent reversal. It has been choppier since it moved into this range, but the gains have been orderly, not running away from the 200 day SMA, indeed staying at this gap with the 200 day for just about 3 months now.
If there is a market to make it 9 months, this is the one to do it. The liquidity is amazing; it continues to fill any holes in the rally that pop up, even on NASDAQ. Again, if we get further upside Thursday we are going to take some gains once more. In expiration week a 3-day upside move can get reversed Thursday afternoon or on Friday, particularly when we have seen distribution and given the length of the rally. We will take gain if the opportunity comes, and then when there are a few down sessions that bring the NYSE indices back toward their trendlines, we will be looking to buy for the next run. Thus far the pattern is holding.
Support and Resistance
NASDAQ: Closed at 2488.38
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
2450 is minor support
The 50 day EMA at 2442
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.
S&P 500: Closed at 1455.30
Resistance:
1475 from peaks in December 1999 and January 2000
Support:
1450 is the July up trendline
1444 from February 2000 is trying to hold.
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 1423
1408 is the November high
Dow: Closed at 12,741.86
Resistance:
About 8.6% above the 200 day SMA. Still going strong, overcoming the chop as it pushes to a series of new highs once more.
Support:
The 18 day EMA at 12,605
12,555 is the up trendline connecting the November and January intraday lows.
12,499 is the December intraday high.
The 50 day EMA at 12,472
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): 0.0% actual versus 0.3% expected, 1.2% prior (revised from 0.9%)
Retail ex-auto (8:30): 0.3% actual versus 0.4% expected, 1.3% prior (revised from 1.0%)
Business inventories, December (10:00): 0.0% actual versus 0.1% expected, 0.2% prior (revised from 0.4%)
Crude oil inventories (9:30): -589K actual, -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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money investment
financial investment
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