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money investment, Breakout test
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2/20/07 Investment House Alerts Report
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IH Alert Subscribers:
MARKET ALERTS:
Target hit alerts: GS; POT
Buy alerts: GIGM; HOLX; JEC; TIE; SBUX
Trailing stops: None issued
Stop alerts: None issued
SUMMARY:
- NASDAQ joins SP600 in leadership while large cap NYSE take a break.
- Soon to be ex-Fed Bies says not to worry re sub-prime mortgage market.
- And the question is, can the techs hold a gain?
Money doesn't leave, just rotates.
A main concern was the market would start to sell after a rather uneventful expiration week that saw neither volatility or volume. Nope. Yes there was a slow start Tuesday, even with some more M&A activity (VMT buying FRK, SIRI having dreams about XMSR) and WMT gave the Dow a boost after upping its guidance. That was not enough to keep the large caps moving, however, and stocks were heading lower early as the large cap NYSE bumped up against their channels and faltered.
Oil started to fade (closed at 58.07, -1.32) and that helped. What really helped, however, was money movement. As the large cap NYSE indices stumbled, money moved into NASDAQ and remained in the small and mid-caps. That broke the small caps sharply higher to yet a new all-time high while NASDAQ, hark, hark, cleared the mid-January high and posted a new post-2002 high. Volume was strong and breadth was solid. What do you know? That is the kind of rotation action that shows the market remains healthy. Despite the distribution in NASDAQ (and on NYSE as well) money is now coming back in, not leaving as distribution indicates.
Technically it was a solid session when you consider what the currents are. NYSE large caps were up, dragged along by the rest of the market, but volume was lower for those stocks. They were just there for show. NASDAQ showed its best move since all the way back to last Wednesday. Volume surged and breadth was solid at 1.9:1. Money definitely sought a new home. Importantly, leaders were moving off of recent tests. That is what we discussed last weekend: they led the move and were already consolidating as the NYSE large caps led the last move (along with the small caps). When those last movers backed off, the money flowed to the early leaders and they were moving higher again. Again, that is healthy action and you have to like it.
The key for this move will be the one for all the prior NASDAQ moves: can it hold onto a good thing? NASDAQ has had butterfingers with respect to solid moves. It has another chance this time around, and it was getting some good money tosses its way Tuesday.
THE ECONOMY
Quiet economic session.
Not much to report from the economy Tuesday; CPI Wednesday is the big event. Still, soon to be ex-Fed governor Bies was giving one of here farewell speeches, and she discussed the sub-prime mortgage market. In a nutshell (and that is about all it is worth seeing how she is lame-duck) she said not to worry because that would not bleed over into the general mortgage market.
Whew. Good to know that. Now we can all rest assured the housing market has bottomed and that there is nothing but growth ahead.
THE MARKET
MARKET SENTIMENT
VIX: 10.24; +0.22
VXN: 15.77; +0.94
VXO: 9.95; +0.29
Put/Call Ratio (CBOE): 0.96; +0.12
Bulls versus Bears:
Bulls: 51.1%. Off again, continuing the modest slide. 52.2% last week, 53.3% before that. This follows a bounce 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: 21.1%. Down from 22.2%, not the direction we want to see (up is better as more pessimism). Was moving in a direction more favorable to market upside as bears were bouncing back from flirting with the 20% level considered bearish. Back to 21.1% from two weeks back and 20.9% before. 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: +16.73 points (+0.67%) to close at 2413.04
Volume: 2.146B (+11.63%). Excellent volume surge as NASDAQ broke to a new post-2002 high. That is what you want to see. Problem is, that is what we have seen before only to have it suffer distribution. How NASDAQ holds this move is key.
Up Volume: 1.742B (+782.574M)
Down Volume: 490.747M (-435.121M)
A/D and Hi/Lo: Advancers led 1.9 to 1. Solid breadth as NASDAQ made the break to a new post-2002 high; not just all large caps this time as they matched the overall NASDAQ gain (0.67%).
Previous Session: Advancers led 1.29 to 1
New Highs: 203 (+98). Still pretty anemic, not what you want to see on a new high of any sort.
New Lows: 16 (+7)
The Chart: http://www.investmenthouse.com/cd/^ixic.html
NASDAQ cleared the December high (2509) to a new post-2002 high and it did so on solid volume and breadth. That breaks it out of a 13 week ascending base that used the 50 day EMA as support. Solid move off that higher low formed last week, and the volume gives it some credibility. Just some. NASDAQ has a relatively recent history of giving up good moves on higher trade. We like the rotation of money as the large cap NYSE take a breather, but we have seen that before as well. For now you have to like what it is showing.
SOX (+0.27%) bumped up against 475 again and made no attempt to get through. Key resistance level for SOX here and not a great indication that it did not make the move with NASDAQ. If NASDAQ continues it may prove to have a bit of backbone, however.
SP500/NYSE
Stats: +4.41 points (+0.28%) to close at 1459.68
NYSE Volume: 1.326B (-2.16%). Volume was lower, remaining well below average as SP500 pushed to a new post-2002 high. Not a lot of force there, just a momentum move as it followed NASDAQ and its new high on strong trade.
Up Volume: 778.506M (+107.504M)
Down Volume: 504.138M (-170.528M)
A/D and Hi/Lo: Advancers led 1.62 to 1. Even with the small caps firmly in the lead breadth was mediocre.
Previous Session: Advancers led 1 to 1
New Highs: 371 (+230). Big jump and almost respectable. Would still like to see some 450+ sessions sprinkled in.
New Lows: 5 (+2)
http://investmenthouse.com/cd/^gspc.html
SP500 tapped the 10 day EMA on the session low and then rallied back, following NASDAQ's lead. The move took the large caps to a new post-2002 high but volume was lower from already low levels last week. The move still keeps SP500 even with the top of the channel, and with the low volume it is going to continue to find it harder to sustain the move.
SP600 (0.92%) was the real market leader Tuesday as it continues the breakout run following the early February breakout from its cup with handle base. It came back to test the 18 day EMA just over a week back, held and started up. It surged Tuesday. NYSE volume was questionable, but the price move on SP600 is not.
DJ30
The blue chips tapped the 10 day EMA on the low as well and then recovered for a modest gain on lower, below average volume. Even with WMT and its upwardly revised guidance the large caps could not really surge as DJ30 bumped up against its upper channel once more (12,797); that is a rising mark, so it was able to add to the Friday gain and still not break above the channel. As with SP500 its move will likely be restrained by the upper channel, but with NASDAQ leading Tuesday it was quite happy to follow.
Stats: +19.07 points (+0.15%) to close at 12786.64
Volume: 205M shares Tuesday versus 243M shares Friday. Volume faded back below average where it has been the entire month for all but two sessions, one of them Friday on expiration. Nonetheless it continues to trip higher.
The chart: http://www.investmenthouse.com/cd/^dji.html
Wednesday
CPI is out before the open, and with the Fed still leaning toward an inflation bias the price report remains a key market focal point. If we get contained prices investors will feel the Fed remains on pause at worst and thus interest rates hold steady and stocks remain a good buy. If not investors have to rethink the Fed's actions and stocks face some near term pressure.
Regardless of the data, the key to watch from here is how NASDAQ responds to its success. For the past three months NASDAQ has found it hard to hold gains, even gains on strong volume and breadth. Thus this new break to another post-2002 high, even with the strong volume and the strong breadth, is not a done deal. Once again the techs made a good gain. Will they again give away a gain?
You have to like the rotation and the action in the leaders that started back up Tuesday as we thought they might in the weekend report. The report was popping with them and we added some as well. That always gives substance to a run higher. As with the volume and breadth, however, even that has not kept the prior moves alive. They have, however, kept NASDAQ from breaking down as they hold the line. That is an important point to remember: despite the distribution, despite the failed breakout attempts, NASDAQ has held on. More than that it has formed a 13 week ascending base, making higher lows at the 50 day EMA and the last at the 18 day EMA, and then has broke out. Tenacity to say the least.
We had some good moves from current positions and new buys Tuesday as those leaders that were resting took off again. We will likely see some more do the same Wednesday and we will be ready to add to positions as NASDAQ tries to extend its break. We want to see another strong NASDAQ move to cement some of the gain. That is no guarantee as seen in January, but the fact that NASDAQ is right back to a new high without much of a sell off says a lot as to the strength that has returned to the index (strength, as always, means money).
Support and Resistance
NASDAQ: Closed at 2513.04
Resistance:
2523 is price resistance November 2000
Support:
2509 is the January 2007 high
The 18 day EMA at 2475
2471 is the December 2006 high
2468.42 is the November 2006 high
2450 is minor support
The 50 day EMA at 2449
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 1459.68
Resistance:
1460 is the upper band of the current channel
1475 from peaks in December 1999 and January 2000
Support:
The 10 day EMA at 1450
1444 from February 2000
1440 is the mid-January high
1438 is the late November to February up trendline
1432 is the December 2006 high
The 50 day EMA at 1427
1425 is an interim high from November 1999
1408 is the November high
Dow: Closed at 12,786.64
Resistance:
12,797 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 10 day EMA at 12,698
The 18 day EMA at 12,653
12,597 is the up trendline connecting the November and January intraday lows.
The 50 day EMA at 12,505
12,499 is the December intraday high.
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 21
CPI, January (8:30): 0.1% expected, 0.4% prior
Core CPI (8:30): 0.2% expected, 0.1% prior
Leading Economic Indicators, January (10:00): 0.2% expected, 0.3% prior
Crude oil inventories (10:30): -589K prior
FOMC minutes, January 31 (2:00)
February 22
Initial jobless claims (8:30): 325K expected, 357K prior
Help wanted index, January (10:00): 34 expected, 33 prior
End part 1 of 3
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money investment
Breakout test
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