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world stock market, us stock market
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2/15/07 Stock Split Report
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Stock Split Report Subscribers:
MARKET ALERTS
Targets hit alerts: TALX
Buy alerts: BA
Trailing stops: None issued
Stop alerts issued: ROP
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 fights off the blahs, pushes the rally to three days.
- Net foreign purchases tumble, raising more concerns about the dollar.
- Weak Philly Fed is in keeping with its long term trend in manufacturing.
- Jobs argument gets aired again as Bernanke performs for House.
- Trying to squeeze another upside session from the rebound rally, but after a quiet expiration week Friday may prove interesting.
The uptrend channel holds with another upside session.
It was a heavy news day, but after two strong upside sessions the market was basically on auto pilot, continuing its upside momentum in another bounce off the bottom of the uptrend channel. That move has been pretty much like clockwork, and the indices were on autopilot, shaking off a midmorning attempt to sell and then moving inexorably higher into the close. Modest overall gains and lighter volume, but continuing the move higher after the rebound off the trendlines.
Bernanke's second day posted a few more fireworks, foreign US purchases were very low, the Philly Fed was weak, and jobless claims jumped (357K versus 315K expected). Not a great spread of news, but the market was still basking in the glow of Bernanke's Wednesday testimony before the Senate, and that was enough to keep the session moving higher. Absent was any expiration week volatility, though Thursday is usually calmer than Tuesday or Wednesday. Those sessions were pretty quiet as well, however.
Technically it was a weaker day overall with lower volume, narrower breadth, and smaller moves. The pattern to prior bounces off the uptrend line is striking, with the two strong surges and now coasting up toward the top of the channel, at least on SP500 and DJ30. The typical move in this pattern has been four upside sessions, and thus there may be another upside move Friday.
The question is whether it can hold. It is expiration Friday after a rather quiet expiration week, a week we thought would show more fireworks. There is also a long weekend with George Washington's birthday holiday on Monday. Thus any early move higher is likely to meet some pre-holiday weekend selling or profit taking after yet another run higher in the channel that saw the indices again turn some distribution into upside gains.
THE ECONOMY
Net foreign purchases tumble as dollar diversification continues.
December purchases totaled $15.6B versus expectations of $60.0B and $84.9B in November. With the large miss in December and the continued large revisions in the government data, you have to wonder how accurate the number is. Indeed, November was revised higher by $17B (24%), a huge revision.
Even with revisions, however, $15B, $25B or even $35B is a paltry amount for the US. When you factor in swaps and other mitigating factors, purchases FELL by $11B. That raises fears of more dollar pressures, something Treasury secretary Paulson was asked about Tuesday as he testified before Congress. The concern is there will be economic disruption if the dollar is dumped.
If it is dumped there will be. When any long-term, heavily owned instrument is dumped it causes disruption in the country of origin as well as in other markets. That is one of the reasons there won't be any mass dumping: the vested interest in other countries in maintaining their economies with as little boat rocking as possible. Yes there are some mavericks that don't seem to care, but for the most part countries don't want to take on unnecessary water as they alter policies.
Remember when the South American countries were loaded with debt from foreign banks as their economies dove lower yet again? They asked for some forgiveness and the banks offered a cold 'no' in response. The countries shrugged and said 'okay, just try and collect.' Faced with the prospect of losing everything and threatening their very existence, the banks suddenly became quite congenial in discussing options.
The point: when your interest is involved you tend to take more care, and thus most countries are diversifying in an orderly manner. Moreover, as many of their holdings are in and will remain in dollars (diversification means spreading out risk, not a complete shift from one asset to another asset), they have a very real, vested interest in the dollar holding its value. Thus they are disinclined to take actions that would unnecessarily disrupt dollar values.
Natural causes for the decline.
There is a natural move in industrializing nations away from the dollar simply because the need less and less dollars to survive. For example, China and India are industrializing. They are heavily dependent on exports to the US to keep their economies growing. As they industrialize, however, their populace becomes more educated and earns more money. They will be able to and want to consume more goods made in their countries. As they shift more to consumer nations versus exporter nations they will need less dollars and thus naturally will purchase fewer US assets because they will have less dollars due to a lower import/export imbalance. Right now China buys a lot of US treasuries because it has all of those US dollars from its large export surplus with the US. When its citizens consume more 'made in China' goods then they don't all go to the US as exports.
Punitive causes.
There is also the punitive move away from dollars, and that is the one that is getting all of the headlines and drumming up most of the recent fear on this subject. Venezuela and Iran are pricing oil in euros as opposed to dollars, the heretofore standard for oil. If they only take euros as payment, in theory countries would need to dump dollars in order to pay in euros, and those dollars formerly used to trade oil would be idled, no longer recycled into US treasuries, thus causing the dollar to decline and treasury prices to fall given lowered demand.
Take care of business.
That is certainly another issue that is impacting the desire for US dollars and treasuries. Overall, however, the US will remain a desirable place for foreign investors to invest money for growth and safety, and thus there will be demand. That holds, however, only as long as the US continues policies that promote research, development, entrepreneurial enterprise that have made the US the greatest economic power ever. There are reasons we are a desirable investment destination: economic and military strength. We have to 'dance with who brung us' and continue doing what works while fighting the temptation to veer from our republican form of government and back toward the socialist policies of Europe that have kept Europe a second rate economy, European Union or no.
PHILLY FED IS WEAK YET AGAIN.
Once again the Mid-Atlantic manufacturing sector rose just 0.6 in February versus the 4.0 expected and the 8.3 in January. This continues the up and down Philly Fed report within a range from 0 to 20 over the past 16 years. That is very important. You can get all twisted up by the month to month numbers, but the overriding factor here is that the Philly Fed remains in its long term lateral trend, coming back to the lows in the trend the past two years even as the economy has continued to expand.
What that shows is the general trend in manufacturing remaining weak as it has for the past 25 or more years. Manufacturing is in decline in the US despite the surge in the US and world economies. Many of the industrial jobs are overseas. We have many of the high tech companies that produce the designs and ideas for the world's technology products, but they are built overseas where the wages for labor are cheaper.
This is very much in line with our discussion of jobs below. We need to continue creating the jobs that develop the products and services the world wants to have. We have the rights to revenues of those products and services, and we pay foreign workers to make them for us. That keeps the best jobs for us. We need to focus on policies that encourage investment that will continue to develop new technologies so we can lead in the service and products areas.
Near term the Philly area continues to struggle after the 2005 storm season. It was the first to turn down and it has been snake bit ever since, trading in the lower end of the long term range. It is not breaking down, but it is struggling to hold the line over the past 1.5 years.
New orders turned negative (-0.5 versus 1.3 in January). Prices rose to 15.8 from 11.9. Employment turned negative (-0.4 versus 7.9), the first negative number since September 2000. That means jobs contracted versus just expanding at a slower rate. That suggests there is a real downturn . . . if it persists. Monthly data can be misleading. It is important, however, because employment lags the actual market, and if it is turning down that means the Philly region is heading into a more prolonged malaise. Again, we have to see what the data for the next few months hold in this area.
JOBS? WE DON'T NEED NO STINKING JOBS.
Bernanke was grilled harder by the House than the Senate. Time and time again we heard democratic House members talking about how their constituents were very worried about the economy, jobs and job quality, and the general decline of the country.
Hold on one damn minute. That is pure crapola. There are always a few who complain about losing their job even in a good economy. Indeed, in a good economy old jobs are shipped overseas while new and better jobs arise. It has taken awhile to arise, but there are a lot of very good jobs available. It always takes awhile after destruction of the magnitude seen from 2000 to 2003 for the economy to get back on its feet and produce quality jobs. Despite Greenspan's comments about a 'shallow' recession, it was not shallow for business. It was a plunge into a chasm where there was no investment for 3 years. We lost our technological lead during that time and with that a lot of jobs left because it was cheaper to send them overseas now that things were equal.
The so-called problems don't jibe with the numbers.
There is a CEO conference ongoing right now down in sunny Florida. The theme from that conference is the lack of enough qualified applicants in the US to fill skilled positions. That mirrors what we hear from headhunters across the nation: not enough qualified applicants to fill the jobs that are available. The jobs are there. Lots of jobs. The problem is the old 'creative destruction' scenario where the change in the economy after the 2000-2003 collapse requires changed job skill sets. Those whose jobs went overseas either do not have the skills to perform the current high quality jobs available or have been unable to connect with the employers via the traditional channels. Again, there are many high paying jobs available ready to be filled.
Second, if the nation is so disenchanted with the economy, why are sentiment indications well over 100? The last reading was over 110, and that is hardly an indication of consumer gloom. It is not at the 150 to 170 levels in the 1999 and 2000 when a 20 year boom was about to run off the cliff, but it is above the blow and go years of the mid-1990's as well. Of course there are those dissatisfied with the war and their current status, but the overall numbers show the real story. Disenchantment with the war in Iraq is not the same as being unable to find a good job, job security, or owning a home. Unemployment is at record lows, home ownership is at record levels as well. The confidence numbers show no fears of losing jobs.
Jobs remain political.
As we have chronicled over the past several months, the jobs issue is completely politicized. With the presidential election already off and running it is only becoming more so. Politicians are cross-pollinating the dissatisfaction with the war with other issues, namely the economy. If the Iraq suddenly stabilized the level of dissatisfaction would evaporate as to all but the fringe elements.
The numbers show that the latest iteration of the 'jobless recovery' argument is failing as well. The evolution started with the 'jobless recovery', then when there were jobs aplenty due to the unreported rise in the self-employed ranks (shown in the unemployment rate and the surge in LLC, LLP and other small business applications) it morphed into the 'low quality jobs' argument. Now the data from CEO's and headhunters is rebutting that phony argument as well. Chairman Bernanke kicked that ball through the uprights Thursday when he correctly noted that the problem was not a lack of jobs, but a lack of qualified skilled workers to fill them. Ah politics. Hard to believe the election is almost 2 years away.
THE MARKET
MARKET SENTIMENT
VIX: 10.22; -0.01
VXN: 15.27; -0.1
VXO: 9.88; +0.15
Put/Call Ratio (CBOE): 0.76; -0.22
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: +8.72 points (+0.35%) to close at 2497.1
Volume: 1.987B (-6.18%). Volume fell back close to average, though it held above that level as NASDAQ pushed higher, adding to the week's gains off the 50 day EMA test. Impressive trade Wednesday, not so much so Thursday. A good answer to the distribution from last Friday, but some of the Wednesday trade had a bit of expiration motive behind it. The key for NASDAQ is whether it can bring on the volume as it tries to move through the December high.
Up Volume: 1.294B (-468.97M)
Down Volume: 668.379M (+325.359M)
A/D and Hi/Lo: Advancers led 1.01 to 1. Breadth continues on the light side as the large cap techs continue to lead.
Previous Session: Advancers led 1.43 to 1
New Highs: 141 (+45)
New Lows: 25 (+12)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ posted its third straight gain, now up for the week. It cleared the February high and closed in on the December high at 2509. Could not push through 2500, however, as the move was quite narrow as the NASDAQ 100 led the way. NASDAQ made a higher low at the 50 day SMA (2450), and despite its laggard status right now that is a positive development. As noted all week, NASDAQ does not have to lead, it just has to make the effort to follow along. It is doing a rather noble job of that just as the small caps did at the end of 2006. Will it make the move on this run? Likely not as the leading indices are approaching the top of their channels and will likely test again before continuing higher. That said, Friday is expiration after a quiet week, and that can lead to some wild action.
SOX (+0.73%) posted another solid upside session as it too moves off a test of key support at its 200 day SMA. It is now at interim resistance at 475, tapping that level on the Thursday high and backing off slightly. Key test for SOX to break through. Likely to take a pause and make a higher low near 470 and then make the move higher if this buying continues. SMH is looking much better than the narrower SOX, and there are some better results coming from the chip sector earnings.
SP500/NYSE
Stats: +1.51 points (+0.1%) to close at 1456.81
NYSE Volume: 1.377B (-9.24%). Lower volume, well below average, as the NYSE indices advanced for the third straight session. The new high Thursday and the additional push Thursday by SP500 was on relatively low volume. That is not a real positive; any new high on mediocre volume deserves scrutiny. It is still in the uptrend channel, however, and this volume matches the volume in the entire move the past three months.
Up Volume: 766.197M (-364.235M)
Down Volume: 584.15M (+221.453M)
A/D and Hi/Lo: Advancers led 1.44 to 1. Breadth flagged a bit, but the move was smaller and the breadth has been huge on the upside sessions so this was no big deal.
Previous Session: Advancers led 2.03 to 1
New Highs: 324 (+62). Finally getting some better new highs again, but still quite modest. You want to see it pop off some 500 or so days. Thus far it has not cracked 400 on this spate of new index highs, and even then there were just two sessions of 300+. Some generals but not a full complement of troops are following.
New Lows: 6 (+1)
http://investmenthouse.com/cd/^gspc.html
SP500 and its large caps posted another post-2002 high (if you missed it on CNBC, Bloomberg, etc.) though it slipped in almost through the back door given the modest gain and the lower, below average volume. SP500 is now bumping up into the upper channel line formed by the October and late December interim high, and after three upside sessions it is close to capping out on this channel run unless it gets more trade and makes a breakout to a new channel.
SP600 (+0.10%) posted a modest gain, breaking to a new high on the session high, but unable to hold the move to the close as volume was lighter. The small caps lost a bit of their juice this week and have stalled at the early February high (416.45). Looks ripe for a pullback to set up and try again.
DJ30
DJ30 posted its third straight session off the test of the trendline as well, punching into new high territory, but on very low, below average volume as well. DJ30 bounced off its lower trajectory up trendline formed off the late November and late January intraday lows, using that as support for this last run. DJ30 broke its late July up trendline in late November, and this new trendline formed off of that one. It has worked like clockwork since, and this last bounce is right in line with the other 3 to 4 day upside moves that resulted off the test of this trendline, bringing it right up to the top of the channel. May try a bit more upside to start Friday, but after that it would have to change its character to continue on.
Stats: +23.15 points (+0.18%) to close at 12765.01
Volume: 183M shares Thursday versus 210M shares Wednesday. Volume dropped off to the second lowest of the week as the bounce off the trendline runs out of some gas. Low volume all month, but still now change in the Dow's action along its trendline and within its uptrend channel.
The chart: http://www.investmenthouse.com/cd/^dji.html
FRIDAY
A fourth upside day is not uncommon in these bounces off the trendlines during this upside rally. Friday throws a bit of a twist into the mix given it is expiration Friday and we have had very little expiration-related volatility or volume this week. We were expecting a more volatile week given the end to the prior week when the indices distributed on Friday, giving back that last attempt to break higher. Since then the NYSE indices have moved to new highs or new post-2002 highs, shaking off that distribution, at least for the week.
Does expiration week volatility deferred automatically mean it shows up on expiration Friday? No, but typically when the week is quieter Friday is more interesting as you might say. You have a three-day gain, a three-day holiday, and expiration Friday, making three very interesting aspects to end the week. Will good news come in threes or will it be bad news?
There were some more good earnings after the close that might help push stocks higher early, but there is also a bevy of economic data out before the open including housing starts and the January PPI. Housing is showing early signs of bottoming, but with the foul weather of late, starts may not be all that strong.
Thursday the market ignored all of the economic news, and it may just start Friday the same way. If we get another early surge we are going to look at what positions we can take some gain on. We took gain Wednesday and Thursday, and another upside session will put more positions in position so to speak to take some more interim gain off the table. Given we will likely see more volatility Friday and given the long weekend after an upside run, there will likely be profit taking as well. Thus an early run is an invitation to take some gain off the table. This has worked well for us on the last two runs higher, the first peaking in early February, and the last this past week. Heck, we even did it in December and January as well as the indices trended higher within their uptrend channels.
We are also seeing some of the early leaders in the latest round of the rally already setting up for more upside. These stocks were out in front of the rest of the market and have been consolidating some as the overall market rallied this week. This is what we mean when we talk about the market rallying in waves. Leaders, by definition, are out in front early. Then other sectors join in as money moves around the market. With the hedge funds out there always looking for the next place to put money, each time a sector succumbs to a few sessions of profit taking the hedges move back that way.
Thus we see opportunity even as the overall market gets ready to peak out on this latest bounce higher in their trends. Recall who we have purchased positions when the market was kind of iffy. We saw distribution and didn't feel all that great about it, but when the stocks show us solid moves off of support or out of patterns we have to go with what they are telling us. That has allowed us to take good gains when the market makes these rallies even if they are interim gains as these stocks work their way toward our higher targets. We have written about how it is nice to be watching our stocks climb higher as the market rallies and the other investors rush in to buy and push our stocks higher. You cannot wait until you feel things are right; you have to act when the market or the individual stocks say it is time, and that is often in the midst of turmoil.
In any event, we will be looking at some of these leaders that have come back to support and are ready to go again just as the overall indices may be peaking after another good upside bounce. If we get more upside early on we will look at taking some gain on strong movers, then see if it can hold up on a test, and if so let it rally again before taking some more gain. We will be expecting a bit of volatility, but note as well that the last expiration Friday showed volume but not much volatility.
Support and Resistance
NASDAQ: Closed at 2497.10
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 2444
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 1456.81
Resistance:
1458 is the upper band of the current channel
1475 from peaks in December 1999 and January 2000
Support:
1444 from February 2000
1440 is the mid-January high
1433 is the late November to February up trendline
1432 is the December 2006 high
1425 is an interim high from November 1999
The 50 day EMA at 1424
1408 is the November high
Dow: Closed at 12,765.01
Resistance:
12,782 is the upper channel line marking the November to date uptrend channel.
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 12,622
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 12,483
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): 357K actual versus 315K expected , 313K prior (revised from 311K)
NY Empire PMI, February (8:30): 24.4 actual versus 11.0 expected, 9.1 prior
Net foreign purchases, December (9:00): $15.6B actual versus $60.0B expected, $84.9B prior (revised from $68.0B)
Industrial production, January (9:15): 0.5% actual versus 0.0% expected, 0.5% prior (revised from 0.4%)
Capacity utilization, January (9:15): 81.2% actual versus 81.7% expected, 81.8% prior
Philly Fed, February (12:00): 0.6 actual versus 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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